UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) or (g)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FULLNET COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
Oklahoma 73-1473361
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
200 N. Harvey, Suite 1704
Oklahoma City, Oklahoma 73102
(Address of principal executive offices) (Zip Code)
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Issuer's telephone number: (405) 232-0958
Securities to be registered pursuant to Section 12(b) of the Act: none
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
TABLE OF CONTENTS
Page
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PART I
Item 1. DESCRIPTION OF BUSINESS...................................................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.................................... 14
ITEM 3. DESCRIPTION OF PROPERTY...................................................................... 17
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 18
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.............................. 18
ITEM 6. EXECUTIVE COMPENSATION....................................................................... 19
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................... 20
ITEM 8. DESCRIPTION OF SECURITIES.................................................................... 21
PART II
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ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.............................................................. 21
Item 2. LEGAL PROCEEDINGS............................................................................ 22
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS................................................ 22
Item 4. RECENT SALES OF UNREGISTERED SECURITIES...................................................... 23
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................................... 23
Part F/S
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INDEX TO FINANCIAL STATEMENTS............................................................................ 25
PART III
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ITEM 1. INDEX TO EXHIBITS............................................................................. 26
ITEM 2. DESCRIPTION OF EXHIBITS....................................................................... 26
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Registration Statement contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Registration Statement, including, without limitation, statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of Management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate" or "believe" or the negative thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are based upon numerous assumptions about future conditions which may ultimately prove to be inaccurate and actual events and results may materially differ from anticipated results described in such statements. For a discussion of the risk factors that could cause actual results to differ materially from the forward-looking statements, you should read the section of the Registration Statement entitled "Risk Factors." All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. The Company assumes no duty to update or revise its forward-looking statements based on changes in internal estimates or expectations or otherwise. As a result, the reader is cautioned not to place reliance on these forward-looking statements. Further, there can be no assurance that the historical level of the Company's revenues and net income will continue to be achieved in the future.
PART I
Item 1. Description of Business.
General
Fullnet Communications, Inc. (the "Company") is a regional provider of consumer Internet access and business services, offering innovative technological solutions for individuals, businesses, organizations, education institutions, as well as government agencies. The Company provides direct Internet access through a statewide network with "points of presence" in 14 communities throughout the state of Oklahoma. Points of presence are local telephone numbers through which the Company's subscribers can access the Internet. In addition, the Company also provides Internet-related value-added products and services that are designed to enable its business customers to outsource their Internet and electronic commerce activities. Such services include:
-- connectivity to the Internet and secure private networks through the Company's network from which its Internet access customers can reach every other Internet address and the Company's network customers can reach other destinations within their private network;
-- value-added services, which are additional services delivered over the same circuit as the Company's connectivity services. The Company's current value-added services are remote management of its networks and systems integration, which includes the resale, installation and configuration of customers' computer systems and software; and
-- web hosting, which is the distribution of customers' Internet content from the Company's facilities.
The Company also sells Internet access to other Internet service providers ("ISP's"), which then resell Internet access to their own customers under their private label. To date, the Company has approximately 1,300 customers, with another 8,700 customers accessing the Internet through the Company's ISP customers.
Additionally, the Company's wholly owned subsidiary, Fulltel, Inc. ("Fulltel"), a licensed "competitive local exchange carrier," or CLEC, as they are commonly designated, is expected to commence operations in late 1999. As a result, the Company expects to offer conventional local telephone service in
selected communities throughout the state of Oklahoma, as well as local dial-up Internet access in each of such communities so served. See "-Business Segments-Local Telephone Service.
Headquartered in Oklahoma City, Oklahoma, the Company was founded in 1995 as CEN-COM of Oklahoma, Inc., an Oklahoma corporation. The Company changed its name to Fullnet Communications, Inc. in December 1995.
Business Strategy
The Company's overall business objective is to supply the total telecommunications and Internet needs of customers within the State of Oklahoma and surrounding states. To achieve this objective, the Company intends to:
--Capitalize on the absence of larger ISP's in rural areas. The Company believes that rural areas of Oklahoma and surrounding states are underserved by ISP's, and that significant growth can be achieved by entering such markets and providing reliable Internet connectivity at a reasonable cost to the residents and businesses located in such areas. To that end, the Company, through its wholly owned subsidiary, Fulltel, became a licensed CLEC in the State of Oklahoma and intends to pursue such licensing in other, neighboring states. As a CLEC exchange carrier in any particular state, the Company will be able to offer local telephone numbers for Internet access. Additionally, as a CLEC the Company will be able to purchase unbundled network elements from the applicable "regional Bell operating company," or RBOP, operating in that state rather than purchase retail local loops, resulting in significant cost savings.
--Cross sell value-added services. The Company intends to capitalize on its existing customer base and future customers by aggressively cross selling its value-added services. The Company is committed to offering its customers reliable value-added network services necessary to address their Internet and network management requirements. Based on the Company's existing network infrastructure and expertise, it is able to offer these services continuously, reliably and on a cost effective basis. Through acquisitions or development of relationships with providers of leading Internet and other network technologies, the Company intends to enhance and increase the services it offers to include other value-added services, such as enhanced network security solutions, that address our customers' rapidly evolving critical networking needs such as electronic commerce.
--Provide Bundled, Comprehensive Networking Solutions. The fragmentation among Internet and other network service providers has resulted in users often faced with an overwhelming array of providers and services from which to choose. For example, it is typical for a user to purchase local loop connectivity from a RBOC or a competitive local exchange carrier, to purchase Internet or other wide area network connectivity from a separate Internet or other network service provider, and to purchase network services, like remote management, systems integration and network security, from one or more other companies. The Company believes the Internet and network service provider model is evolving towards providers who are capable of providing comprehensive solutions by bundling several or all of these functions efficiently, reliably and on a cost effective basis. By combining our network infrastructure with our existing and planned array of value-added networking services, the Company believes it is well positioned to become one of the premier providers of comprehensive, bundled networking solutions to small and medium-sized businesses in its targeted market area. Additionally, the Company believes that by offering bundled services, it can reduce customer loss, increase network usage by existing customers, cross sell additional services to existing customers and differentiate itself from its competitors.
--Expand Customer Base and Sales Efforts. The Company intends to expand its customer base by significantly increasing its direct and indirect sales forces as well as its marketing efforts. As of June 30, 1999, the Company's direct sales force consisted of two persons in two sales offices. The Company's sales force is supported in their efforts by sales engineers and, in many
instances, senior management of the Company. The Company intends to increase the number of its sales offices and to significantly expand the size of its direct sales force with the goal of having an effective selling presence in all major communities in the State of Oklahoma, expanding into regional markets as the Company enters such markets. In addition, the Company is exploring other strategies to grow its direct sales force, including developing an inside sales center to generate additional sales.
--Accelerate Growth Through Targeted Acquisitions. The goal of the Company's acquisition strategy is to accelerate market penetration, build upon its core competencies and expand its technical staff and sales force. The Company evaluates acquisition candidates based on their fit with the Company's overall business plan. When a candidate is acquired, the Company will integrate its existing Internet and network connectivity and value-added services with the service offerings of the acquired company and use the acquired sales force and customer base to expand market opportunities. The types of acquisitions targeted by the Company include ISP's located in markets into which the Company wants to expand, or to which the Company may already provide "private-label" Internet connectivity. Other types of targeted acquisitions include local or regional business ISP's in markets where the Company has established points of presence and would benefit from the acquired company's local sales force and installed customer base through the potential increase in the Company's network utilization.
The Company intends to pursue its strategy initially in the State of Oklahoma and thereafter in neighboring states, including Arkansas, Kansas, Texas, and Missouri.
Recent Transactions
Regulation D Offering
In April 1999, the Company raised an aggregate $648,500 in an offering of its common stock, par value $.00001 per share (the "Common Stock"). The offering (the "504 Offering") was made pursuant to an exemption from the registration requirements of the Securities Act pursuant to Rule 504 of Regulation D of such act. Pursuant to the 504 Offering, an aggregate 648,500 shares of Common Stock were issued.
Acquisition of Animus
On March 26, 1998 the Company purchased 100% of the outstanding common stock of Animus Communications, Inc. ("Animus"), an Oklahoma corporation engaged in the business of providing Web Hosting Services, selling computer equipment and providing configuration and maintenance of the equipment. The aggregate purchase price for the Animus stock was $350,000, of which $175,000 was paid at closing with the remaining $175,000 paid in two installments subsequent to closing. See "Item 7. Certain Relationships and Related Transactions."
Business of the Registrant
Internet Access and Value-added Services
Industry Background
Growth of the Internet and the Web. The Internet is a collection of connected computer systems and networks that link millions of public and private computers to form what is essentially the largest computer network in the world. The Internet has experienced rapid growth in recent years and is expected to continue to grow based on estimated increases in the numbers of Web users, Web traffic and the number of Web sites. Several factors are contributing to the Internet's growth, including:
- The proliferation of lower cost personal computers;
- Advances in the performance and speed of PCs, modems and networking components;
- Improvements in network infrastructures;
- Easier and more competitive access to the Internet; and
- The increasing use of the Internet by businesses as a competitive tool.
The Internet has become an important global medium that enables millions of people to obtain and share information and conduct business electronically.
Accessing the Internet. Internet access services represent the means by which Internet service providers interconnect business and consumer users to the Internet's resources. Access services vary from dial-up modem access for individuals and small businesses to high speed dedicated transmission lines for broadband access by large organizations. An Internet service provider provides Internet access either by developing a proprietary network infrastructure or by purchasing access service from a wholesale access vendor, or through a combination of both.
The rapid development and growth of the Internet have resulted in a highly competitive and fragmented industry consisting of more than 4,800 Internet service providers in the United States with an average customer base of less than 5,000 subscribers. The vast majority of U.S.-based Internet service providers conduct their operations within a single state or city, with only a handful of Internet service providers, such as EarthLink and MindSpring, having expanded the scope of their operations from a single region to nationwide coverage. Due to the disparity between the large number of smaller Internet service providers with limited resources and the emergence of a limited number of national Internet service providers with their associated economies of scale, the Internet service provider industry is expected to undergo substantial consolidation. Forrester Research projects that Internet service provider access revenues in the United States will grow from approximately $6 billion in 1997 to $38 billion in 2002.
Growth in Electronic Commerce ("E-Commerce"). For many businesses, the Internet has created a new communication and sales channel that enables companies to interact with large numbers of geographically dispersed consumers and business partners. In the last several years, many companies have emerged that focus solely on the Internet as the medium for selling products or delivering services directly to purchasers, bypassing traditional wholesale and retail channels. Furthermore, traditional businesses are implementing sophisticated Web sites to effect electronic commerce initiatives that offer competitive advantages. These businesses are deploying an expanding variety of Internet-enabled applications, ranging from Web site marketing and recruiting programs to on-line customer interaction systems, integrated purchase order and "just-in-time" inventory solutions for key customers and suppliers. These capabilities require increasingly complex Web sites and support operations. In addition, advances in on-line security and payment mechanisms are alleviating concerns associated with conducting transactions in an open-platform environment, thus prompting more consumers and businesses to use the Internet in conjunction with purchases and more businesses to offer a greater breadth of electronic commerce services.
Outsourcing of Internet Operations. As the Web increasingly becomes synonymous with electronic commerce, businesses are placing greater emphasis on their Internet transaction and communication operations. Internet-based companies, and to a growing extent, traditional businesses, require noncongested and scalable Internet operations to allow them to perform digital communication and commerce transactions globally over the Internet. Due to constraints posed by the lack of technical personnel with Internet skills or experience, the high cost of advanced networking equipment and the complexity of innovative Web solutions, many businesses are unable to internally develop, maintain and continually enhance their facilities and systems to conduct desired levels of Internet-based activities. As a result of these constraints and other factors, many businesses are seeking to outsource their facilities and systems requirements as the preferred means for providing electronic commerce solutions. To this end, an increasing demand is developing for:
- Dedicated and broadband Internet access services to support reliable, high speed and/or constantly connected Internet access and communication;
- Web hosting and co-location services which enable businesses to obtain equipment, technical expertise and infrastructure for their Internet needs on an outsourced basis; and
- End-to-end electronic commerce solutions to sell goods and services on the Web in a secure transaction environment.
By outsourcing their facilities and systems needs, businesses are able to focus on their core competencies rather than expending vital resources to support their Internet operations. Forrester Research estimates that over 40% of Internet and internal corporate sites will be outsourced by 2002.
The Opportunity for Internet Service Providers. The number of businesses and consumers accessing the Internet is expected to increase significantly in the foreseeable future. According to Forrester Research, the market for providing access to the Internet for businesses and consumers is expected to be approximately $18.4 billion in 2000. Additionally, as businesses and consumers are developing greater levels of comfort in the use of the Internet for electronic commerce, businesses are increasingly implementing sophisticated electronic commerce solutions which, in turn, require significantly greater bandwidth and other business services. In response, an increasing number of Internet service providers are attempting to augment their basic Internet access services with a wide range of business services. According to International Data Corporation, the market for Web hosting and Internet security business services is the fastest growing segment of the Internet services market, with revenues expected to increase from approximately $350 million in 1997 to approximately $7 billion in 2000.
Internet service providers that offer both Internet access to broad segments of the population and that offer a broad selection of business services are positioned to attain greater economies of scale through lower network expansion and marketing costs on a per-subscriber basis. The Company believes that it is uniquely positioned, among purely local or regional ISP's, to benefit from this continued growth. Specifically, the Company believes that a window of opportunity currently exists within the state of Oklahoma. Currently, competition from the national ISP's, such as America Online, Prodigy, CompuServe, has had only minimal impact on the Oklahoma ISP market due to the lack of local dial-up Internet presence in rural Oklahoma and too many busy signals. In addition, the local Oklahoma education ISP, OneNet, is also not a factor due to the limits placed on it by the Oklahoma legislature. With the demand for Internet access consistently exceeding all projections, the Company believes that its target area, rural Oklahoma, is grossly underserviced. Accordingly, the Company believes that a real opportunity exists for the Company and its subsidiaries to establish a stronghold on the Oklahoma Internet market, given the local infrastructure that it already has in place as well as its multi-pronged marketing strategy. In short, the Company, through its subsidiaries, believes that it is well positioned to provide all of the telecommunications needs throughout Oklahoma whether it be through traditional telephone service or the increasingly demanded Internet access.
Internet Access Services
The Company offers a full range of consumer Internet access services and a broad selection of business services, both of which are offered nationwide at competitive prices. The Company believes that its services provide customers with the following benefits:
- FAST AND RELIABLE QUALITY SERVICE. The Company has implemented a network architecture providing exceptional quality and consistency in Internet services, making the Company a recognized leader in the Oklahoma ISP industry.
The Company offers unlimited, unrestricted and reliable Internet access at a low monthly price. A user to modem ratio of 8:1 assures access without busy signals. Dial-up access is available for the following modem speeds: 14.4, 28.8, 33.6, K56Flex, 56K V.90, ISDN 64K and ISDN 128K. The Company's dial-up access supports all major platforms and operating systems, including MS Windows, UNIX(R), Mac OS, OS/2 and LINUX. This allows simplified access to all Internet applications, including the World Wide Web (WWW), email, news and file transfer protocol (FTP).
- COST-EFFECTIVE ACCESS. The Company offers high quality Internet connectivity and enhanced business services at price points that are generally the same or slightly lower than those charged by other Internet service
providers with national coverage. The Company offers pre-bundled access services packages under monthly or prepaid plans.
- SUPERIOR CUSTOMER SUPPORT. The Company provides superior customer service and support, with customer care and technical personnel available by telephone and/or on-line on a 24 hours-a-day, seven days-a-week basis.
Value-added Internet Services
Web Hosting and E-Commerce Support. The Company offers a broad selection of enhanced business services that are focused on the practical needs of businesses to support their Internet operations. In addition to the Company's role as an ISP, the Company, through Animus, is an established web hosting service provider. Both directly and through the Company's global reseller network, the Company offers customers a broad range of affordable service plans including web hosting, advanced E-commerce, managed dedicated server, server co-location and dedicated network connectivity solutions.
The Company's technical staff guides customers through every phase in developing a web presence. These phases include domain name registration, site design and set up, site maintenance and security. The Company's E-commerce team assists clients in leveraging their existing technology investment to establish a secure and reliable online shopping site. E-commerce involves selling products and services on the Internet. It is a dynamic business process by which customers interact with sales representatives. Through Animus, the Company offers a "virtual shopping cart" program to keep track of multiple sales and facilitate inventory management and order processing.
Online shoppers benefit by having flexibility over purchasing decisions, while the program handles all shipping and tax calculations. Animus' secure server allows online shoppers to enter their credit card or other payment information in complete confidence by sending the information in an encrypted format.
The Company believes that Animus' systems have 99.7% uptime reliability. Client websites are hosted on dual processor servers, yielding unusual speed and reliability. Animus maintains multiple T1 connections and one T3 connection with uninterrupted power and is multi-homed.
Domain Name Registrar Services. On July 8, 1999, the Internet Corporation for Assigned Names and Numbers (ICANN) announced that Animus was one of only approximately 50 initial companies from around the world which have been approved to act as registrars for the .com, .net and.org Internet domains. Previously, registration for the three most popular top-level domains has been handled exclusively by Network Solutions of Herndon, Virginia, under a 1992 contract with the U.S. government. With this coveted designation, Animus joins an elite group of companies that includes Network Solutions, America Online, AT&T, and France Telecom.
The assignment of Internet domain names for a fee will complement the current services offered by the Company and give it an opportunity for tremendous growth in a business that was previously conducted by only one company. Currently, domain registration fees are $35 per domain name per annum. The Company expects that the price charged for registration fees will fall with the entry of multiple registrars; moreover, while no definitive agreement has yet been reached with Network Solutions, the Company expects that a portion of each fee charged by a registrar will be paid to Network Solutions. The Company anticipates that this business segment should prove a profitable one for the Company.
IP Telephony. The Company intends to add IP telephony to the array of value-added Internet services it offers to its customers. IP telephony is the delivery of telephone calls over the Internet. Traditional telephone service is a circuit-switched technology. When a long-distance call is placed, the system switches open a direct connection between the sender, and then over a series of switching facilities, to the receiving party. The connection remains open during the duration of the telephone call. Since no one else can use the circuit while a call is in progress, more circuits are required, which leads to inefficiency
and expense. In contrast, IP telephony is a packet-switched technology, which is the basis of all Internet communication. IP breaks up network data into small chunks or packets, which are then sent out on the Internet. These packets are routed using the most expedient path available at the time, until they reach their destination. On the Internet, this process happens in microseconds. The data can consist of e-mail, video, and voice.
Thus, a caller will not have to place a conventional long-distance telephone call to reach a party anywhere in the world, since with the Internet, every call is just an e-mail (voice), i.e., local call away. The caller initiates a local call to a switching center or gateway connected to an IP provider. The call travels over the Internet to the receiver's geographic area and a switching center in that area completes the call over that local call's telephone lines. In 1996 the first IP telephony technology was put into place. Millions of individuals, governments, and corporations are using this technology every day to send data, voice conversations, and even money.
Local Telephone Service
The Company also plans to provide traditional telephone service throughout parts of the State of Oklahoma through its wholly owned subsidiary, Fulltel, Inc., which is a licensed and regulated "competitive local exchange carrier" providing local telephone service in sections of Oklahoma. Competitive local exchange carriers, or CLEC's, are new phone companies born out of the Telecommunications Act of 1996 (the "Telecommunications Act"), which requires the "incumbent local exchange carriers" (ILEC's), such as the regional Bell companies, to provide CLEC's access to their local facilities, and to compensate CLEC's for traffic originated by ILECs and terminated on the CLEC's network. ILEC's are required to pay this compensation for the term of the interconnection agreement entered into between it and the CLEC.
Fulltel was formed in February 1998 to compete with Southwestern Bell Telephone and GTE by adding to the existing telephone network its own switch and infrastructure thereby allowing Fulltel to offer local services in most of Oklahoma, including local dial up for the Internet access services provided by the Company.
Part of the Company's marketing strategy is to capitalize on the perceived synergies between the Company's Internet activities and Fulltel's local dial-up service. By organizing and funding Fulltel, the Company gains local dial up Internet access to 80% of the State of Oklahoma. In return, Fulltel gains immediate access to all of the Company's ISP customer base.
In the first six months of 1999 several developments in the regulatory arena have occurred which the Company believes will have a favorable impact on the Company's business. In January 1999, the United States Supreme Court ruled that CLEC's may, in effect, "pick and choose" from existing interconnection agreements already in place between an ILEC and other CLEC's. That ruling has allowed for far quicker negotiations with Southwestern Bell Telephone, the dominant ILEC in Oklahoma, and the Company's interconnection agreement was filed with the Oklahoma Corporation Commission in early April 1999. Additionally, the Federal Communications Commission (the "FCC") recently has adopted new rules designed to make it easier and less expensive for CLECs to obtain "collocation" (which allows companies such as us and other interconnectors to install and maintain their own network termination equipment in ILEC central offices) by, among other things, restricting the ILECs' ability to prevent certain types of equipment from being collocated and requiring ILECs to offer alternative collocation arrangements to CLECs. That will allow Fulltel to provide xDSL services ("digital subscriber lines," faster applications using traditional telephone lines which can currently send data 25 times faster than traditional phone lines) in Oklahoma City as soon as Fulltel's switching equipment is "turned on" by Southwestern Bell Telephone, which Southwestern Bell has indicated will occur sometime in the fourth quarter of 1999. See "-Regulatory Matters."
Risk Factors
This Registration Statement includes "forward looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Company believes that its plans, intentions and expectations reflected in such forward looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the Company's forward looking statements are set forth below and elsewhere in this Registration Statement. All forward looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth below.
Limited Operating History. The Company has a relatively limited operating history upon which an evaluation of the Company's prospects can be made. Consequently, the likelihood of success of the Company must be considered in view of all of the risks, expenses and delays inherent in the establishment and growth of a new business including, but not limited to, expenses, complications and delays which cannot be foreseen when a business is commenced, initiation of marketing activities, the uncertainty of market acceptance of new services, intense competition from larger more established competitors and other factors. The Company's ability to achieve profitability and growth will depend on successful development and commercialization of its current and proposed services. No assurance can be given that the Company will be able to introduce its proposed services or market its services on a commercially successful basis.
Necessity of Additional Financing. In order for the Company to have any opportunity for significant commercial success and profitability, it must successfully obtain additional financing, either through borrowings, additional private placements or an initial public offering, or some combination thereof. Although the Company is actively pursuing a variety of funding sources, there can be no assurance that it will be successful in such pursuit.
Potential Claims Under State Securities Laws. State and federal securities laws require the registration of securities, unless applicable law provides for an exemption from such registration requirements. Additionally, under certain circumstances the agents of an issuer engaged in sales activities must be registered as a broker/dealer. The Company has determined that it may have inadvertently failed to comply with such requirements in certain of the states in which the Common Stock was sold. Consequently, in July 1999, the Company extended rescission offers to certain of its stockholders who acquired Common Stock in the 504 Offering and who are residents of Florida and Oklahoma. The rescission offer is open for 30 days from the stockholders' receipt thereof. The acceptance of the rescission offer by stockholders representing in excess of $150,000 of the subscriptions in the 504 Offering will have a material, adverse effect on the Company unless the Company is able to obtain immediate funds to replace the amounts refunded. There can be no assurance that, in such event, the Company would be able to obtain the necessary replacement funding.
Limited Marketing Experience. The Company has limited experience in developing and commercializing new services based on innovative technologies, and there is limited information available concerning the potential performance of its hardware or market acceptance of its proposed services. There can be no assurance that unanticipated expenses, problems or technical difficulties will not occur which would result in material delays in product commercialization or that the Company's efforts will result in successful product commercialization.
Uncertainty of Products/Services Development. Although considerable time and financial resources were expended in the development of the Company's services and products, there can be absolutely no assurance that problems will not develop which would have a material adverse effect on the Company. The Company will be required to commit considerable time, effort and resources to finalize such development and adapt its products/services to satisfy specific requirements of potential customers. Continued system refinement, enhancement and development efforts are subject to all of the risks inherent in the development of new products/services and technologies, including unanticipated delays, expenses, technical problems or difficulties, as well as the possible insufficiency of funds to satisfactorily complete development, which could result in abandonment or substantial change in commercialization. There can be no assurance that development efforts will be successfully completed on a timely basis, or at all, that the Company will be able to successfully adapt its
hardware and/or software to satisfy specific requirements of potential customers, or that unanticipated events will not occur which would result in increased costs or material delays in development or commercialization. In addition, technologies as complex as those planned to be incorporated into the Company's products/services may contain errors which become apparent subsequent to commercial use. Remedying such errors could delay the Company's plans and cause it to incur substantial additional costs.
New Concept; Uncertainty of Market Acceptance and Commercialization Strategy. The Company's proposed entry into IP telephony represent a new business concept. As is typical in the case of a new business concept, demand and market acceptance for a newly introduced product/service is subject to a high level of uncertainty. Achieving market acceptance for this new concept will require significant efforts and expenditures by the Company to create awareness and demand by consumers. The Company's marketing strategy and preliminary and future marketing plans may be unsuccessful and are subject to change as a result of a number of factors, including progress or delays in the Company's marketing efforts, changes in market conditions (including the emergence of potentially significant related market segments for applications of the Company's technology), the nature of possible license and distribution arrangements which may or may not become available to it in the future and economic, regulatory and competitive factors. There can be no assurance that the Company's strategy will result in successful product commercialization or that the Company's efforts will result in initial or continued market acceptance for the Company's proposed products.
Competition; Technological Obsolescence. The markets that the Company intends to enter are characterized by intense competition and an increasing number of potential new market entrants who have developed or are developing potentially competitive products and/or services. The Company will face competition from numerous sources, certain of which may have substantially greater financial, technical, marketing, distribution, personnel and other resources than the Company, permitting such companies to implement extensive marketing campaigns, both generally and in response to efforts by additional competitors to enter into new markets and market new products and services. In addition, the markets for the Company's proposed products/services are characterized by rapidly changing technology and evolving industry standards which could result in product obsolescence or short product life cycles. Accordingly, the ability of the Company to compete will be dependent upon the Company's ability to complete development and introduce its product and/or services into the marketplace in a timely manner, to continually enhance and improve its software and to successfully develop and market new products. There can be no assurance that the Company will be able to compete successfully, that competitors will not develop technologies or products that render the Company's products and/or services obsolete or less marketable or that the Company will be able to successfully enhance its products or develop new products and/or services.
Risks Relating to the Internet. Use of the Internet by consumers is in a relatively early state, and market acceptance of the Internet as a medium for telephone service is subject to uncertainty. The rapid growth of global commerce and the exchange of information on the Internet and other online networks is relatively new and still evolving, making it difficult to predict whether the Internet will prove to be a viable commercial marketplace generally. The Company believes that its future success will depend on its ability to significantly increase revenues, which, in turn, will be materially dependent upon the development and widespread acceptance of the Internet and online services as a medium for telephone service. The Internet may not prove to be a viable commercial marketplace because of inadequate development of the necessary infrastructure, such as reliable network backbones, or complementary services, such as high-speed modems and security procedures. The Internet has experienced, and is expected to continue to experience, significant growth in the number of users and amount of traffic. There can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it by sustained growth. In addition, the viability of the Internet may prove uncertain due to delays in the development and adoption of new standards and protocols, the inability to handle increased levels of Internet activity or due to increased government regulation. If use of the Internet does not continue to grow, or if the necessary Internet infrastructure or complementary services are not developed to effectively support growth that may occur, the Company's business, results of operations and financial condition would be materially adversely affected.
Potential Government regulations. The Company's operations in the field of local telephone service provider is closely monitored and regulated by the FCC. While the FCC and recent court decisions have consistently supported the concept of competition with the RBOC's through the type of operations proposed
to be engaged in by the Company, no assurance can be given that the regulatory environment will not change or that future court challenges will not be successful. In the event changes are made in the way entities such as the Company interface with the RBOC's or if the current reciprocal compensation agreements between the Company and Southwestern Bell Telephone are voided, the Company's future earning potential could be adversely impacted.
Dependence on Key Personnel. The success of the Company depends in large part upon the continued successful performance of its current executive officers and key employees, Messrs. Timothy J. Kilkenny, Roger Laubhan and Jason Ayers and Ms. Dawn Deckman, for the continued research, development, marketing and operation of the Company. Although the Company has employed, and will employ in the future, additional qualified employees as well as retaining consultants having significant experience, if Messrs. Kilkenny, Laubhan or Ayers or Ms. Deckman fail to perform any of their duties for any reason whatsoever, the ability the Company to market, operate and support its products/services will be adversely affected. While the Company is located in areas where the available pool of people is substantial, there is also significant competition for qualified personnel.
Absence of Public Market. There currently is no public market for the Common Stock and no assurance can be given that such a market will develop or, if developed, that it will be sustained. The Company is in the process of preparing a registration statement to be filed with the SEC, which will permit the Company's common stock to be eligible for trading on the OTC Bulletin Board when it becomes effective (which will occur automatically 60 days after filing). However, even if the common stock becomes OTC eligible, there can be no assurance that a market maker will agree to quote the common stock on the OTC Bulletin Board. Hence, there can be no assurance that stockholders will be able to sell their shares should they desire to do so. Any market for the common stock that may develop, in all likelihood, will be a limited one, and if such a market does develop, the price may be volatile.
No Payment of Dividends on Common Stock. The Company has not paid any dividends on its common stock. For the foreseeable future, the Company anticipates that all earnings, if any, that may be generated from the Company's operations will be used to finance the growth of the Company and that cash dividends will not be paid to holders of the common stock.
Penny Stock Regulation. Broker-dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). 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 nature and level of 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, if the broker dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, broker-dealers who sell such securities to persons other than established customers and accredited investors (generally, those persons with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse), must 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. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that is or becomes subject to the penny stock rules. If the Company's securities are or become subject to the penny stock rules, the Company's stockholders may find it more difficult to sell their shares.
Regulatory Matters
The following summary of regulatory developments and legislation is not complete. It does not describe all present and proposed federal, state, and local regulation and legislation affecting the ISP and telecommunications industries. Existing federal and state regulations are currently subject to judicial proceedings, legislative hearings, and administrative proposals that could change, in varying degrees, the manner in which the Company's businesses
operate. The Company cannot predict the outcome of these proceedings or their impact upon the ISP and telecommunications industries or upon the Company's business.
Both the provision of Internet access service and the provision of underlying telecommunications services are affected by federal, state, local and foreign regulation. The FCC exercises jurisdiction over all facilities of, and services offered by, telecommunications carriers to the extent that they involve the provision, origination or termination of jurisdictionally interstate or international communications. The state regulatory commissions retain jurisdiction over the same facilities and services to the extent they involve origination or termination of jurisdictionally intrastate communications. In addition, as a result of the passage of the Telecommunications Act, state and federal regulators share responsibility for implementing and enforcing the domestic pro-competitive policies of the Telecommunications Act. In particular, state regulatory commissions have substantial oversight over the provision of interconnection and non-discriminatory network access by ILECs. Municipal authorities generally have some jurisdiction over access to rights of way, franchises, zoning and other matters of local concern.
The Company's Internet operations are not currently subject to direct regulation by the FCC or any other U.S. governmental agency, other than regulations applicable to businesses generally. However, the FCC continues to review its regulatory position on the usage of the basic network and communications facilities by ISPs. Although in an April 1998 Report, the FCC determined that ISPs should not be treated as telecommunications carriers and therefore should not be regulated, it is expected that future ISP regulatory status will continue to be uncertain. Indeed, in that report, the FCC concluded that certain services offered over the Internet, such as phone-to-phone IP telephony, may be functionally indistinguishable from traditional telecommunications service offerings, and their non-regulated status may have to be re-examined.
Changes in the regulatory structure and environment affecting the Internet access market, including regulatory changes that directly or indirectly affect telecommunications costs or increase the likelihood of competition from RBOC's or other telecommunications companies, could have an adverse effect on the Company's business. Although the FCC has decided not to allow local telephone companies to impose per-minute access charges on ISPs, and that decision has been upheld by the reviewing court, further regulatory and legislative consideration of this issue is likely. In addition, some telephone companies are seeking relief through state regulatory agencies. The imposition of access charges would affect the Company's costs of serving dial-up customers and could have a material adverse effect on the Company's business, financial condition and results of operations.
In addition to our Internet activities, the Company has recently focused attention on acquiring telecommunications assets and facilities, which is a regulated activity. Fulltel, the Company's wholly owned subsidiary, has received an received CLEC certification in the State of Oklahoma, and an important part of the Company's growth strategy is obtaining CLEC certification in certain other states. The Telecommunications Act requires CLEC's not to prohibit or unduly restrict resale of their services; to provide dialing parity, number portability, and nondiscriminatory access to telephone numbers, operator services, directory assistance, and directory listings; to afford access to poles, ducts, conduits, and rights-of-way; and to establish reciprocal compensation arrangements for the transport and termination of telecommunications traffic. In addition to federal regulation of CLEC's, the states also impose regulatory obligations upon CLEC's. While these obligations vary from state to state, most states require CLEC's to file a tariff for their services and charges; require CLEC's to charge just and reasonable rates for their services, and not to discriminate among similarly-situated customers; to file periodic reports and pay certain fees; and to comply with certain services standards and consumer protection laws. As a provider of domestic basic telecommunications services, particularly competitive local exchange services, the Company could become subject to further regulation by the FCC and/or another regulatory agency, including state and local entities.
The Telecommunications Act has caused fundamental changes in the markets for local exchange services. In particular, the Telecommunications Act and the FCC rules issued pursuant to it mandate competition in local markets and require that ILEC's interconnect with CLEC's. Under the provisions of the Telecommunications Act, the FCC and state public utility commissions share jurisdiction over the implementation of local competition: the FCC was required
to promulgate general rules and the state commissions were required to arbitrate and approve individual interconnection agreements. The courts have generally upheld the FCC in its promulgation of rules, including a January 25, 1999 U.S. Supreme Court ruling which determined that the FCC has jurisdiction to promulgate national rules in pricing for interconnection.
An important issue for CLEC's is the right to receive reciprocal compensation for the transport and termination of Internet traffic. The Company believes that, under the Telecommunications Act, CLEC's are entitled to receive reciprocal compensation from ILEC's. However, some ILEC's have disputed payment of reciprocal compensation for Internet traffic, arguing that ISP traffic is not local traffic. Most states have required ILEC's to pay CLEC's reciprocal compensation. However, in October 1998, the FCC determined that dedicated DSL service is an interstate service and properly tariffed at the interstate level. In February 1999, the FCC concluded that at least a substantial portion of dial-up ISP traffic is jurisdictionally interstate. The FCC also concluded that its jurisdictional decision does not alter the exemption from access charges currently enjoyed by ISPs. The FCC established a proceeding to consider an appropriate compensation mechanism for interstate Internet traffic. Pending the adoption of that mechanism, the FCC saw no reason to interfere with existing interconnection agreements and reciprocal compensation arrangements. The FCC order has been appealed. In addition, there is a risk that state public utility commissions that have previously considered this issue and ordered the payment of reciprocal compensation by the ILEC's to the CLEC's may be asked by the ILEC's to revisit their determinations, or may revisit their determinations on their own motion. To date, at least one ILEC has filed suit seeking a refund from a carrier of reciprocal compensation that the ILEC had paid to that carrier. There can be no assurance that any future court, state regulatory or FCC decision on this matter will favor the Company's position. An unfavorable result may have an adverse impact on the Company's potential future revenues as a CLEC.
As the Company becomes a competitor in local exchange markets, it will become subject to state requirements regarding provision of intrastate services. This may include the filing of tarriffs containing rates and conditions. As a new entrant, without market power, the Company expects to face a relatively flexible regulatory environment. Nevertheless, it is possible that some states could require the Company to obtain the approval of the public utilities commission for the issuance of debt or equity or other transactions which would result in a lien on its property used to provide intrastate services.
Competition
The market for Internet connectivity and related services is extremely competitive. The Company anticipates that competition will continue to intensify as the use of the Internet grows. The tremendous growth and potential market size of the Internet access market has attracted many new start-ups as well as existing businesses from different industries.
The Company believes that a reliable network, knowledgeable salespeople and the quality of technical support currently are the primary competitive factors in its targeted market and that price is usually secondary to these factors.
The Company's current and prospective competitors include, in addition to other national, regional and local ISPs, long distance and local exchange telecommunications companies, cable television, direct broadcast satellite, wireless communications providers and on-line service providers. While the Company believes that its network, products and customer service distinguish it from these competitors, most of these competitors have significantly greater market presence, brand recognition, and financial, technical and personnel resources than the Company.
ISP's
According to industry sources, there were over 6,700 ISP's in the United States and Canada in 1998, consisting of national, regional and local providers. The Company's current primary competitors include other ISP's with a significant national presence which focus on business customers, such as UUNet Technologies, Inc., GTE Internetworking (formerly BBN), Concentric Network and DIGEX. While the Company believes that its level of customer service and support
and target market focus distinguish it from these competitors, such competitors have greater market share, brand recognition, and financial, technical and personnel resources than the Company. The Company also competes with unaffiliated regional and local ISP's in our targeted geographic regions.
Telecommunications Carriers
The major long distance companies, also known as interexchange carriers, including AT&T, MCI WorldCom, Cable & Wireless/IMCI and Sprint, offer Internet access services and compete with the Company. Reforms in the federal regulation of the telecommunications industry have created greater opportunities for incumbent local exchange carriers, or ILEC's, including the RBOC's, and other CLEC's, to enter the Internet connectivity market. In order to address the Internet connectivity requirements of the business customers of long distance and local carriers, the Company believes that there is a move toward horizontal integration by ILEC's and CLEC's through acquisitions or joint ventures with, and the wholesale purchase of, connectivity from ISP's. The MCI/WorldCom merger (and the prior WorldCom/MFS/UUNet consolidation), GTE's acquisition of BBN, the acquisition by ICG Communications, Inc. of Netcom, Global Crossing's recently announced plans to acquire Frontier Corp. (and Frontier's prior acquisition of Global Center) and AT&T's recent purchase of IBM's global communications network are indicative of this trend. Accordingly, the Company expects that it will experience increased competition from the traditional telecommunications carriers. These telecommunications carriers, in addition to their greater network coverage, market presence, and financial, technical and personnel resources, also have large existing commercial customer bases.
Cable Companies, Direct Broadcast Satellite and Wireless Communications Companies
Many of the major cable companies have announced that they are exploring the possibility of offering Internet connectivity, relying on the viability of cable modems and economical upgrades to their networks. Continental Cablevision, Inc., Tele-Communications, Inc. ("TCI") and At Home Corporation (@Home) have announced trials to provide Internet cable service to their residential customers in select areas. Cable companies, however, are faced with large-scale upgrades of their existing plant equipment and infrastructure in order to support connections to the Internet backbone via high-speed cable access devices. Additionally, their current subscriber base and market focus is residential, which requires that they partner with business-focused providers or undergo massive sales and marketing and network development efforts in order to target the business sector. Several announcements also recently have been made by other alternative service companies approaching the Internet connectivity market with various wireless terrestrial and satellite-based service technologies. These include Hughes Network Systems' DirecPC product that provides high-speed data through direct broadcast satellite technology; CAI Wireless Systems Inc.'s announcement of an MMDS wireless cable operator launching data services via 2.5 to 2.7 GHz and high-speed wireless modem technology; Cellularvision's announcement that it is offering Internet access via high-speed wireless LMDS technology; and WinStar Communications, a 38 GHz radio company that wholesales its network capacity to other carriers and now offers high-speed Internet access to business customers. The Company believes that there is a trend toward horizontal integration involving cable companies through acquisitions or joint ventures between cable companies and telecommunications carriers. The acquisition of TCI by AT&T is indicative of this trend.
On-line Service Providers
The dominant on-line service providers, including Microsoft Network, America Online, Incorporated and Prodigy, Inc., have all entered the Internet access business by engineering their current proprietary networks to include Internet access capabilities. The Company competes to a lesser extent with these service providers, which currently are primarily focused on the consumer marketplace and offer their own content, including chat rooms, news updates, searchable reference databases, special interest groups and shopping. However, America Online's recent acquisition of Netscape Communications Corporation and related strategic alliance with Sun Microsystems will enable it to offer a broader array of IP-based services and products that could significantly enhance its ability to appeal to the business marketplace and, as a result, compete more directly with the Company. CompuServe has also announced that it will target Internet connectivity for the small to medium-sized business market.
The Company believes that its ability to attract business customers and to market value-added services is a key to its future success. However, there can be no assurance that the Company's competitors will not introduce comparable services or products at similar or more attractive prices in the future or that the Company will not be required to reduce its prices to match competition. Recently, many competitive ISP's have shifted their focus from individual customers to business customers. Moreover, there can be no assurance that more of the Company's competitors will not shift their focus to attracting business customers, resulting in even more competition for the Company. There can be no assurance that the Company will be able to offset the effects of any such competition or resulting price reductions. Increased competition could result in erosion of the Company's market share and could have a material adverse effect on its business, financial condition and results of operations.
Customers
In 1998, no customer represented in excess of 10% of the Company's gross revenues.
Employees
As of June 30, 1999, the Company had 12 employees employed in engineering, sales, marketing, customer support and related activities, and general and administrative functions. None of the Company's employees is represented by a labor union, and the Company considers its relations with its employees to be good. The Company also engages consultants from time to time with respect to various aspects of its business.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company is a regional provider of consumer Internet access and business services, offering innovative technological solutions for individuals, businesses, organizations, education institutions, as well as government agencies. The Company operates through itself and through two wholly owned subsidiaries, Fulltel and Animus.
The Company's revenues are derived primarily from providing Internet access services to individual and business subscribers. Revenues are comprised principally of recurring revenues from the Company's customer base, non-recurring start-up fees for modem and leased line connections and various forms of ancillary services including but not exclusive to hardware sales. The Company charge subscription fees, which are billed monthly or quarterly, in advance, typically under pre-authorized credit card accounts or automatic bank transfers. The Company has not yet generated any revenue from Fulltel.
Monthly subscriptions services revenue is recognized over the period in which the services are provided. Service revenues derived from dedicated access services, which require the purchase and installation of equipment at the customer's location, are recognized when the service is commenced. Fee revenues for ancillary services are recognized when performed.
Acceleration in the growth of the Company's subscriber base or changes in usage patterns among subscribers may increase operating costs. Acceleration in the growth of the subscriber base could require the Company to hire additional personnel and increase its expenses related to marketing, network infrastructure and customer support sooner than anticipated. An increase in peak time usage or an overall increase in usage by subscribers could adversely affect the Company's ability to consistently meet the demand for our access services. As a result, the Company may be required to hire additional personnel and increase expenses related to network infrastructure capacity with minimal corresponding increases in revenue on a per subscriber basis.
Acquisitions
The Company has expanded its operations in part through acquisitions, which has placed and may continue to place a significant strain on the Company's management, personnel, administrative, operational, financial and other resources. To successfully manage its growth, the Company will be required to continue to implement and improve information and operating systems, hire, train, and manage an increasing number of management and other personnel, monitor its operations and integrate new technologies as they be become available.
In April 1998, the Company acquired all the issued and outstanding stock of Animus Communcations Inc., a company engaged in the business of web hosting. Animus is currently doing business in 37 countries around the world and was responsible for approximately $250,000 of the Company's revenues in 1998.
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues
Revenues for the year ended December 31, 1998 were $1,001,787 compared to $511,903 for the year ended December 31, 1997. The increase in revenue was due principally to three factors: one, the increase in dial-up and leased line subscriber base; two, the entrance into the Value Added Reseller (VAR) and integration market, which includes sale of hardware; and three, the acquisition of Animus, which contributed approximately $250,000 of the Company's gross revenues for 1998.
Cost of Revenues
Cost of revenues for 1998 was $790,155 compared to $460,322 for 1997. Cost of revenues as a percentage of revenues for 1998 was 78.8% compared to 89.9% for 1997. The decrease in cost of revenues can be attributed to the higher margins that exist in the web hosting business.
Operating Expenses
Operating expenses for 1998 were $138,123 compared to $129,827 for 1997. The increase in operating expenses was attributable to higher advertising, payroll, professional fees and rent expense incurred in 1998 to support the increased revenue base.
Interest Expense
Interest expense for 1998 was $75,398 compared to $50,588 for 1997. The increase in interest expense was largely due to additional borrowing incurred to acquire Animus.
Net Loss
The Company incurred a net loss of $209,134 for 1998 compared to a net loss of $180,415 for 1997, an increase of approximately 16%. The increase in net loss was attributable principally to increased expenditures associated with increasing the capacity of the Company's network to accommodate the increase in subscribers expected to be generated when Fulltel's telephone operations commence.
Liquidity and Capital Resources
The expansion of the Company's business will require significant capital to fund capital expenditures, working capital needs, debt service and the cash flow deficits generated by operating losses. The Company's principal capital expenditure requirements include the purchase and installation of switches and transmission equipment collocated in ILEC central offices and the further development of operations support systems and other automated back office systems. Additionally, the growth of the Company's web hosting business will require significant capital expenditures.
To date, the Company has primarily funded its expenditures through bank borrowings and the sale of its equity securities. During the second quarter of 1998, the Company received proceeds of $648,500 through the sale of equity securities pursuant to Rule 504 of Regulation D of the Securities Act.
The Company expects to make significant capital outlays for the foreseeable future in order to continue the development activities called for in its current business plan and to fund expected operating losses. The Company currently estimates that the cash required to fund capital expenditures for its expansion plans will be approximately $500,000 in 1999. In order for the Company to implement its current business plan and finance its projected capital expenditures for 1999 and thereafter, the Company will be required to seek and obtain significant amounts of additional financing (debt and/or equity) within the next year. The Company's expansion plans in Oklahoma are dependent upon raising substantial additional financing in the near term. If the Company's plans or assumptions change, if its assumptions prove to be inaccurate, or if it experiences unanticipated costs or competitive pressures, the Company will be required to seek additional capital sooner than currently anticipated, possibly within the next three to six months. In particular, if the Company elects to pursue significant additional acquisition opportunities or to deploy more switches than currently planned, its cash needs may be increased substantially. There can be no assurance that the Company's current projection of cash flow (and losses) from operations (which will depend upon numerous future factors and conditions, many of which are outside of the Company's control) will be accurate. Because the Company's cost of developing new networks and services, funding other strategic initiatives and operating its business will depend on a variety of factors (including, among other things, the number of subscribers and the service for which they subscribe, the nature and penetration of services that may be offered by the Company, regulatory changes, and actions taken by competitors in response to the Company's strategic initiatives), it is almost certain that actual costs and revenue will vary from expected amounts, very likely to a material degree, and that such variations are likely to affect The Company's future capital requirements. Current cash balances will not be sufficient to fund the Company's current business plan beyond the next year. As a consequence, the Company intends to seek additional debt and/or equity financing to fund the Company's liquidity. There can be no assurance that the Company will be able to raise additional capital on satisfactory terms or at all. In the event that the Company is unable to obtain such additional capital or to obtain it on acceptable terms or in sufficient amounts, the Company will be required to delay the development of its network or take other actions that could have a material adverse effect on the Company's business, operating results and financial condition and its ability to achieve sufficient cash flow to service debt requirements.
The ability of the Company to fund the capital expenditures and other costs contemplated by its business plan and to make scheduled payments with respect to the bank borrowings, will depend upon, among other things, its ability to seek and obtain additional financing within the next year, to implement its business plan, to deploy its network and expand its operations and to obtain and retain a significant number of customers in its target markets, and the future operating performance of the Company and its subsidiaries. Each of these factors is, to a large extent, subject to economic, financial, competitive, political, regulatory and other factors, many of which are beyond the Company's control. The Company expects that it will generate operating losses for the foreseeable future and that its business will not generate positive cash flow for the foreseeable future. In addition, the Company will require significant amounts of additional financing, which may not be available, before it will be able to generate positive cash flow. No assurance can be given that the Company will be successful in developing and maintaining a level of cash flow from operations sufficient to permit it to pay the principal of, and interest and any other payments on, outstanding indebtedness. If the Company is unable to generate sufficient cash flow from operations to service its indebtedness, it may have to modify its growth plans, limit its capital expenditures, restructure or refinance its indebtedness or seek additional capital or liquidate its assets. There can be no assurance (i) that any of these
strategies could be effected on satisfactory terms, if at all, or (ii) that any such strategy would yield sufficient proceeds to service the Company's debt or otherwise adequately fund operations.
Year 2000 Issue
The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize the date using "00" as the year 1900 rather than the year 2000. The Company anticipates spending $500,000 on new systems by the end of 1999 from funds provided by the 504 Offering or from new sources of capital. However, specific expenditures for year 2000 costs are not being made related to the new systems. The Company has completed its assessment on the consequences of the year 2000 on information technology systems. As the Company has a relatively short history, virtually all systems are newly created or are being created and, during information technology development, year 2000 issues have been consistently addressed.
Other non-information technology systems which may be affected by the year 2000 issue include systems provided to the Company by third parties. The most significant third party systems are those which operate ILEC interfaces and billing records, switching equipment and customer premises equipment. The Company has been assured by significant third parties that year 2000 compliance will be accomplished by the end of 1999. If such compliance is not achieved by these third parties, it would have a material adverse effect on the Company's business, operating results and financial condition and its ability to achieve sufficient cash flow.
Impact of Inflation
The Company does not believe that inflation has had a significant impact on the Company's consolidated operations.
Seasonality
The Company's business is not considered to be seasonal.
Item 3. Description of Property.
The Company currently is headquartered in facilities consisting of approximately 1,800 square feet in Oklahoma City, of which approximately 800 square feet is leased on a month-to month basis, and approximately 1,000 square feet is leased under a lease agreement with a term expiring September 2000. The Company is finalizing negotiations for a new lease agreement for approximately 4,900 square feet in another facility. Although no definitive agreement has yet been executed, it is anticipated that the agreement will provide for monthly payments of approximately $4,000 commencing in September 1999. The Company also leases space in a number of traditional telephone company central offices and private facilities in which the Company's equipment is housed.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of June 30, 1999, concerning the beneficial ownership of Common Stock by each of the Company's directors, each executive officer named in the table under the heading "Item 5. Directors and Executive Officers, Promoters and Control Persons" and all directors and executive officers of the Company as a group, and by each person who is known by the Company to own more than 5% of the outstanding shares of Common Stock. Unless otherwise indicated, the beneficial owner has sole voting and investment power with respect to such stock.
Name and Address Shares Percent of
of Beneficial Holder(1) Beneficially Owned Class
-------------------------------- ------------------ ----------
Timothy J. Kilkenny*(2) 1,380,000(3) 65.72%
Laura L. Kilkenny*(2) (3) (3)
Roger s. Laubhan (4) (4)
Jason C. Ayers (5) (5)
All executive officers and directors
as a group (4 persons) 1,380,000 65.72%
---------------------
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* Director
(1) Unless otherwise noted, the Company believes that each person named in the
table has sole voting and investment power with respect to all shares
beneficially owned by such person.
(2) Address is c/o Fullnet Communications, Inc., 200 N. Harvey, Suite 1704,
Oklahoma City, Oklahoma 73102.
(3) Timothy J. Kilkenny and Laura L. Kilkenny hold 1,380,000 shares as joint
tenants. Amounts shown do not include options to purchase 120,000 shares at
$1.15 per share beginning October 2000.
(4) Pursuant to a stock bonus granted in June 1999 by the Board of Directors,
Mr. Laubhan has been granted a number of shares of common stock equal to 3%
of the fully diluted common stock outstanding at such date. Such shares
have not yet been issued, pending resolution of certain contingent
compensation, payable in the form of Common Stock and stock options, which
were to be paid to a third party in connection with a financial advisory
services agreement.
(5) Pursuant to a stock bonus granted in June 1999 by the Board of Directors,
Mr. Ayers has been granted a number of shares of common stock equal to 1%
of the fully diluted common stock outstanding at such date. Such shares
have not yet been issued, pending resolution of certain contingent
compensation, payable in the form of Common Stock and stock options, which
were to be paid to a third party in connection with a financial advisory
services agreement.
Item 5. Directors and Executive Officers, Promoters and Control Persons
Directors and Executive Officers
The following sets forth certain information as of June 30, 1999 concerning the directors and executive officers of the Company. The Board of Directors currently consists of two members, although the Company intends to increase the size of the Board in the near future. The executive officers of the Company are elected annually by the Board of Directors. The directors serve one year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. There are no family relationships between any of the directors and executive officers, other than between Timothy J. Kilkenny and Laura L. Kilkenny, who are husband and wife. In addition, there was no arrangement or
understanding between any executive officer and any other person pursuant to which any person was selected as an executive officer.
Name Age Position
---- --- --------
Timothy J. Kilkenny ........ 40 Chairman of the Board of Directors,
President and Chief executive Officer
Laura L. Kilkenny........... 42 Corporate Secretary and Director
Roger S. Laubhan............ 48 Vice President and Chief Technology Officer
Jason C. Ayers.............. 24 Vice President and President of Animus
Communications, Inc.
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Timothy J. Kilkenny has been President, Chief Executive Officer and Chairman of the Board of Directors of the Company since its inception in May 1995. Prior to that time, he spent 14 years in the financial planning business as a manager for both MetLife and Prudential. Mr. Kilkenny is a graduate of Central Bible College in Springfield, Missouri.
Laura L. Kilkenny, D.O., has been Corporate Secretary and a director of the Company since May 1995. Dr. Kilkenny received her Doctorate of Osteopathic Medicine in May 1997. She has had extensive banking and accounting experience since 1976 when she began a banking career that lasted until 1990 when she changed careers.
Roger S. Laubhan has been Vice President and Chief Technology Officer of the Company since April 1999. He served as Chief of Network Operations of the Company from December 1995 to April 1999. He has a B. S. degree in aeronautical technology from Oklahoma State University, and an MBA from Webster University of St. Louis, Illinois. Mr. Laubhan served 20 years in the United States Air Force as an instructor pilot, retiring with the rank of major. Mr. Laubhan has had formal training with Cisco and US Robotics and has 15 years of experience with personal computers.
Jason C. Ayers has been President of Animus since its acquisition by the Company in April 1998 and was elected a Vice President of the Company in April 1999. Mr. Ayers received a B. S. degree from Southern Nazarene University in May 1996 with a triple major in Computer Science, Math, and Physics. Upon graduating, he was a co-founder of Animus, a web hosting company. On April 1, 1998, Animus was acquired by the Company and Mr. Ayers assumed the role of President of the wholly owned subsidiary.
Key Employees
Dawn Deckman, 41, has been the Director of Sales and Marketing for the Company since April 1997. Ms. Deckman has been in sales and management in the telephony/data/Internet industry for the past five years.
Michael D Tomas, 27, has been IT Manager since June 1999 and an employee of the Company since July 1996. Mr Tomas currently is completing his studies at the University of Oklahoma for a degree in Management Information Systems. Mr. Tomas has formal training with Cisco, Win 3.1, Win95/98, and Windows NT 4.0 as well as LAN/WAN setup, including experience with wireless networking.
Item 6. Executive Compensation.
Set forth in the following table is information as to the compensation paid to the Company's Chief Executive Officer for each of the three years ended December 31, 1998. No officer or director of the Company received, during any of such periods, total compensation in excess of $100,000.
Summary Compensation Table
Annual Compensation
-------------------
Name and Principal Position Year Salary Other
--------------------------- ---- ------ -----
Timothy J. Kilkenny, Chairman of the Board
and Chief Executive Officer 1998 $31,200 $7,433(1)
1997 34,540 5,574(2)
1996 30,000 4,160(3)
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(1) Represents $1,875 of expense reimbursement for business use of Mr. Kilkenny's automobile and $5,558 of insurance premiums paid by the Company for the benefit of Mr. Kilkenny.
(2) Represents $1,414 of expense reimbursement for business use of Mr. Kilkenny's automobile and $4,160 of insurance premiums paid by the Company for the benefit of Mr. Kilkenny.
(3) Represents $4,160 of insurance premiums paid by the Company for the benefit of Mr. Kilkenny.
Stock Options Granted in Fiscal 1998
The Company does not have a stock option plan, nor were any stock options granted by the Company during fiscal 1998 outside a plan. In February 1999, options to acquire an aggregate of 120,000 shares of Common Stock were granted to Mr. Kilkenny. The options, which are not exercisable until October 2000, have an exercise price of $1.15 per share and are exercisable in whole or in part until October 2003.
Item 7. Certain Relationships and Related Transactions.
On March 26, 1998 the Company purchased 100% of the outstanding common stock of Animus Communications, Inc. ("Animus"), an Oklahoma corporation engaged in the business of providing Web Hosting Services, selling computer equipment and providing configuration and maintenance of the equipment. The aggregate purchase price for the Animus stock was $350,000, of which $175,000 was paid at closing with the remaining $175,000 paid in two installments subsequent to closing. In connection with the acquisition, Jason C. Ayers, Vice President of the Company and President of Animus, was paid approximately $28,542 in 1998 and $29,792 in 1999 for his 1,000 shares of Animus common stock, which represented approximately 16.67% of the total number of shares of Animus common stock outstanding. The pro rata price paid to Mr. Ayers by the Company for his 1,000 shares of Animus common stock was the same price paid to other stockholders of Animus.
In connection with the first installment payment of $50,000 due in September 1998 to the former Animus stockholders, Mr. Kilkenny advanced $50,000 to the Company. Monthly payments of principal and interest were paid by the Company until April 1999, when the $50,000 was repaid in full.
Item 8. Description of Securities.
The authorized capital stock of the Company consists of (i) 10,000,000 shares of Common Stock, having a par value of $.00001 per share, of which 2,099,928 shares were issued and outstanding at June 30, 1999. At such date, there were approximately 78 stockholders of record of the Common Stock.
Common Stock
The holders of Common Stock are entitled to one vote for each share on all matters submitted to a vote of stockholders. There is no cumulative voting with respect to the election of directors. Accordingly, holders of a majority of the shares entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences that may be applicable to any then outstanding class of preferred stock, the holders of Common Stock are entitled to receive such dividends, if any, as may be declared by the Board of Directors from time to time out of legally available funds. Upon liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets of the Company that are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of holders of any class of preferred stock then outstanding. The holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of Common Stock are subject to the rights of the holders of shares of any series of preferred stock that the Company may issue in the future.
Transfer Agents, Warrant Agent and Registrar
The transfer agent for the Common Stock is Securities Transfer Corporation, Dallas, Texas.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters.
General
The authorized capital stock of the Company consists of (i) 10,000,000 shares of common stock, having a par value of $.00001 per share, of which 2,099,928 shares were issued and outstanding at June 30, 1999. At such date, there were outstanding options to purchase an aggregate 120,000 shares of Common Stock. Additionally, a maximum of 200,000 shares of Common Stock as well as options to purchase an aggregate 90,000 shares of Common Stock may be issued pursuant to the terms of a financial advisory services agreement with a financial advisory firm. The agreement is the subject of a dispute between the Company and the financial advisor, and none of the shares or options have been issued pending resolution of the dispute. See "Item 5. Legal Proceedings." In June 1999, the Board of Directors granted stock bonuses to certain executive officers and employees of the Company in an aggregate amount equal to 7% of the fully diluted common stock outstanding at such date. Such shares have not yet been issued, pending resolution of the amounts of Common Stock and stock options payable in connection with the financial advisory services agreement.
Market Information
There is no public trading market for the Company's securities. Although the Company's common stock will be eligible for trading on the OTC Bulletin Board upon the effectiveness of this registration statement, there can be no assurance that a market maker will agree to quote the common stock on the OTC Bulletin Board. Hence, there can be no assurance that stockholders will be able to sell their shares should they desire to do so. See "Item 1. Description of Business-Risk Factors-Absence of Public Market."
Number of Stockholders
The number of beneficial holders of record of the Common Stock of the Company as of the close of business on June 30, 1999 was approximately 78.
Dividend Policy
To date, the Company has declared no cash dividends on its Common Stock, and does not expect to pay cash dividends in the next term. The Company intends to retain future earnings, if any, to provide funds for operation of its business.
Item 2. Legal Proceedings.
The Company is not currently engaged in any material legal proceedings. It is, however, subject to state commission, FCC and court decisions as they relate to the interpretation and implementation of the Telecommunications Act, the interpretation of CLEC interconnection agreements in general and our interconnection agreements in particular. In some cases, the Company may be deemed to be bound by the results of ongoing proceedings of these bodies or the legal outcomes of other contested interconnection agreements that are similar to agreements to which the Company is a party. The results of any of these proceedings could have a material adverse effect on the Company's business, prospects, financial condition and results of operations.
In February 1999, the Company entered into a financial advisory services agreement with a financial advisory firm, pursuant to which Company Common Stock and stock options were to be issued to such entity as partial compensation for services to be performed by the financial advisor. The agreement is the subject of a dispute between the Company and the financial advisor. A maximum 200,000 shares of Common Stock were to be issued pursuant to the terms of the agreement, as well as options to purchase an aggregate 90,000 shares of Common Stock at $1.25 per share beginning October 2000. The Common Stock and options have not yet been issued pending resolution of the dispute. As of August 11, 1999, there were no legal proceedings pending with respect to the matters in dispute.
Item 3. Changes in and Disagreements with Accountants.
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
In April 1999, the Company completed an offering of Common Stock, effected pursuant to Rule 504 of Regulation D of the Securities Act. Pursuant to the 504 Offering, an aggregate of 648,500 shares of Common Stock were issued. The following table sets forth, as of June 30, 1999, the use of the gross proceeds of the 504 Offering:
Start-up costs for Fulltel (1) $116,193
Note payable (2) 125,000
Note payable (3) 50,000
Marketing costs 7,800
Working capital 284,507
Commissions and advisory fees 65,000
--------
Total $648,500
========
----------------------------
|
(1) Includes consulting fees, accounting and legal costs associated with
obtaining the carrier license from the Oklahoma Corporation Commission,
which regulates telephone carriers in the state of Oklahoma.
(2) This note payable represented the final installment of the purchase price
of Animus Communications, Inc. ("Animus"), which was acquired by the
Company in March 1998 for an aggregate purchase price of $350,000, of which
$175,000 was paid in cash at closing with the balance due over a one-year
period. Animus provides web hosting services to entities in 38 countries.
(3) This note payable evidenced the Company's obligation to repay an advance
made to the Company in September 1998 by Timothy J. Kilkenny, the President
and principal stockholder of the Company. Monies advanced by Mr. Kilkenny
were used by the Company to make an installment payment due to the former
stockholders of Animus.
Item 5. Indemnification of Directors and Officers.
Section 1006(B)(7) of the General Corporation Act of the State of Oklahoma (the "OGCA") authorizes a corporation in its certificate of incorporation to eliminate or limit the personal liability of members of its board of directors to the corporation or its stockholders for monetary damages for violations of a director's fiduciary duty of care, including acts constituting gross negligence. Such a provision would have no effect on the availability of equitable remedies, such as an injunction or rescission, for breach of fiduciary duty. In addition, no such provision may eliminate or limit the liability of a director for breaching his duty of loyalty to the corporation or its shareholders, failing to act in good faith, engaging in intentional misconduct or knowingly violating a law, paying an unlawful dividend or approving an illegal stock repurchase, or executing any transaction from which the director obtained an improper personal benefit.
Section 1031 of the OGCA empowers a corporation to indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. With respect to actions or suits by or in the right of the corporation, such indemnification is limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit. Further, no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Additionally, a
corporation is required to indemnify its directors and officers against expenses to the extent that such directors or officers have been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein.
An indemnification can be made by the corporation only upon a determination made in the manner prescribed by the statute that indemnification is proper in the circumstances because the party seeking indemnification has met the applicable standard of conduct as set forth in the OGCA. The indemnification provided by the OGCA shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. A corporation also has the power to purchase and maintain insurance on behalf of any person covering any liability incurred by such person in his capacity as a director, officer, employee or agent of the corporation, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability. The indemnification provided by the OGCA shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
The Registrant's Charter and Bylaw Provisions
Section 7.1 of the Registrant's bylaws provides for indemnification to the fullest extent permitted by Section 1031 of the OGCA.
PART F/S
INDEX TO FINANCIAL STATEMENTS
The Financial Statements required by this Item are included at the end
of this report beginning on page F-1 as follows:
Consolidated Financial Statements of Fullnet Communications, Inc. (Fullnet)
Fullnet's Consolidated Financial Statements for the Years Ended December 31, 1998 and 1997
and Independent Auditor's Report............................................................. F-1
Independent Auditor's Report................................................................. F-2
Balance Sheets............................................................................... F-3
Income Statements............................................................................ F-5
Statements of Stockholders' Equity........................................................... F-6
Statements of Cash Flows..................................................................... F-7
Notes to Financial Statements................................................................ F-9
Fullnet's Consolidated Financial Statements for the
Six Months Ended June 30, 1999 (Unaudited)................................................... F-20
Consolidated Balance Sheet................................................................... F-21
Consolidated Income Statement................................................................ F-22
Condensed Consolidated Statement of Cash Flows............................................... F-23
Consolidated Statement of Shareholders' Equity............................................... F-24
Notes to Unaudited Consolidated Financial Statements......................................... F-25
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PART III
Item 1. Index to Exhibits.
The following exhibits are filed herewith:
Exhibit Number Name of Exhibit ------- --------------- 2.1 Certificate of Incorporation, as amended 2.2 Bylaws 3.1 Stock Option Agreement 6.1 Interconnection Agreement 6.2 Stock Purchase Agreement 6.3 Stock Option Agreement (to be included in Exhibit 3.1) |
Item 2. Description of Exhibits
Not applicable.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereto duly authorized.
August 11, 1999 FULLNET COMMUNICATIONS, INC.
By: /S/ Timothy J. Kilkenny
-----------------------
Timothy J. Kilkenny
President and Chief Executive Officer
|
Fullnet Communications, Inc. and Subsidiaries
Consolidated Financial Statements For the Years Ended December 31, 1998 and 1997
and
Independent Auditors' Report
Russell D. Robinson, CPA Warren Clinic Park
4606 East 67th Street, Suite 400
Charles L. Tefertiller, CPA Tulsa, Oklahoma 74136-4980
Phone: 918-492-8800
Norman C. Cross, Jr., CPA 1926-1985 Fax: 918-492-8808
www.crossandrobinson.com
|
ACCOUNTANTS AND AUDITORS
Independent Auditor's Report
Board of Directors
Fullnet Communications, Inc.
We have audited the accompanying consolidated balance sheets of Fullnet Communications, Inc. and its wholly-owned subsidiaries Animus Communications, Inc. and Fulltel, Inc. (Oklahoma corporations) as of December 31, 1998 and 1997 and the related consolidated statements of income, changes in shareholder's equity and cash flow for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statement are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount 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 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 Fullnet Communications, Inc. and its subsidiaries Animus Communications, Inc. and Fulltel, Inc. as of December 31, 1998 and 1997, and the results of its operations and their cash flow for the years then ended in conformity with generally accepted accounting principles.
CROSS AND ROBINSON
/S/ Cross and Robinson
---------------------------
Certified Public Accountants
Tulsa, Oklahoma
May 21, 1999
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Fullnet Communications, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
ASSETS
Current Assets 1998 1997
-------- --------
Cash $ 198 $ 3
Accounts receivable 105,809 24,855
Prepaid assets and other current assets 337 18,776
-------- --------
Total Current Assets 106,344 43,634
-------- --------
Property, Plant and Equipment, Net-Note 2 176,999 165,459
Goodwill-Note 12 302,667 --
Intangible Assets-Net of Accumulated
Amortization of $7,429-Note 3 64,726 67,669
Deferred Income Taxes-
Less Current Poriton-Note 6 17,500 --
-------- --------
Total Assets $668,236 $276,762
======== ========
Accompanying notes are an integral part of
the financial statements.
|
LIABILITIES AND SHAREHOLDER'S EQUITY
1998 1997
-------- --------
Current Liabilities
Bank notes payable-current portion-Notes 4 and 5 $ 5,424 $ 24,273
Capital lease obligations-Note 10 9,039 --
Note payable-Animus purchase-Note 12 122,405 --
Cash overdraft 8,061 3,464
Deferred revenue-Note 1 97,379 28,055
Accounts payable-trade 129,578 31,058
Accrued interest 3,366 --
Accrued payroll expenses 5,430 2,454
Due to related parties-Note 11 43,891 (500)
-------- --------
Total Current Liabilities 424,573 88,804
-------- --------
BAnk Line of Credit-Note 4 616,107 351,567
Bank Notes Payable Less Current Portion-Note 5 81,819 79,899
Capital Lease Obligations Less Current Portion-Note 10 1,153 --
Shareholder's Equity
Common stock, $1 par value: 50,000 shares authorized,
500 shares issued and outstanding 500 500
Additional paid-in capital -- --
Retained earnings (455,916) (244,008)
-------- --------
Total Shareholder's Equity (Deficit) (455,416) (243,508)
-------- --------
Total Liabilities and Shareholder's Equity $ 668,236 $ 276,762
========= =========
|
Accompanying notes are an integral part of the financial statements.
Fullnet Communications, Inc. and Subsidiaries
Consolidated Income Statements
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Revenue from Sales $1,001,787 $ 511,903
Cost of goods Sold 790,155 460,322
---------- ----------
Gross Profit 211,632 51,581
Selling, General and Administrative Expenses 349,755 181,408
---------- ----------
Loss from Operations (138,123) (129,827)
Other Income and Expenses
Other income 4,387 --
Interest expense 75,398 50,588
---------- ----------
Net Loss Before Income Taxes $ (209,134) $ (180,415)
Provisions for Income Taxes-Note 6 -- --
---------- ----------
Net Loss $ (209,134) $ (180,415)
========== ==========
Net Loss per Common Share-Note 7 $ (418) $ (361)
========== ==========
|
Accompanying notes are an integral part of the financial statements.
Fullnet Communications, Inc. and Subsidiaries
Consolidated Statements of Shareholder's Equity
For the Years Ended December 31, 1998 and 1997
Retained
Common Stock Earnings
Shares Amount (Deficit) Total
---------- ---------- ---------- ----------
Balance, January 1, 1997 500 $ 500 $ (63,593) $ (63,093)
Net loss from operations -- -- (180,415) (180,415)
---------- ---------- ---------- ----------
Balance, December 31, 1997 500 500 (244,008) (243,508)
Distributions of previous
Subchapter S earnings (2,774) (2,774)
Net loss from operations -- -- (209,134) (209,134)
---------- ---------- ---------- ----------
Balance, December 31, 1998 500 $ (455,916) $ (455,416)
========== ========== ========== ==========
|
Accompanying notes are an integral part of the financial statements.
Fullnet Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Cash Flows from Operating Activities:
Cash received from customers $ 942,236 $ 487,049
Other operating cash receipts 4,387 --
Cash paid to suppliers and employees (882,696) (548,088)
Interest paid (75,398) (25,148)
Taxes and other fees paid (19,579) (11,522)
Contributions to charity (250) (100)
---------- ----------
Net cash Used by Operating Activities (31,300) (97,809)
---------- ----------
Cash Flows from Investing Activities:
Plant and equipment purchases (30,393) (140,283)
Acquisition of subsidiary (175,000) --
Net purchase of investments -- (70,000)
---------- ----------
Net Cash used by Investing Activities (205,393) (210,283)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from long-term debt -- 2,827
Proceeds from shareholder loans 44,391 --
Proceeds from line-of-credit 308,329 369,423
Repayment of note on purchase of subsidiary (37,055) --
Repayment of long-term debt (16,929) (46,299)
Repayment of line-of-credit (43,789) (17,856)
Repayment of capital lease obligation (18,059) --
---------- ----------
Net Cash Provided by Financing Activities 236,888 308,095
---------- ----------
Accompanying notes are an integral part of
the financial statements.
|
Net Cash Provided 195 3
Cash at beginning of year 3 --
--------- ---------
Cash at End of Year $ 198 $ 3
========= =========
Reconciliation of Net Income to Net Cash
Cash Used by Operating Activities:
Net income (loss) $(209,134) $(180,415)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 105,594 45,844
(Increase) decrease in accounts receivable (56,778) (24,854)
(Increase) decrease in other current assets 18,439 40,173
Increase (decrease) in accounts payable 30,049 33,511
Increase (decrease) in deferred revenue 69,323 6,820
Increase (decrease) in loans from shareholder (2,773) --
Increase (decrease) in cash overdrafts 13,980 (18,888)
--------- ---------
Total adjustments 177,834 82,606
--------- ---------
Net Cash (Used) by Operating Activities $ (31,300) $ (97,809)
========= =========
Supplemental Disclosures:
Non-cash transactions affecting investing
and financing activities:
Debt issued as investment in subsidiary $ 175,000 $ --
Acquisition of subsidiary fixed assets $ 28,251 $ --
Acquired lease obligations of subsidiary $ (28,251) $ --
|
Accompanying notes are an integral part of the financial statements.
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of Organization and Significant Accounting Policies
Organization and Description of Business
Fullnet Communications, Inc. formerly CEN-COM of Oklahoma, Inc. ("Fullnet" or "the Company") was incorporated in Oklahoma on May 24, 1995 as an internet communications company. Fullnet has 30 locations in Oklahoma and will begin providing local access statewide beginning in 1999. Along with internet service, Fullnet also provides commercially dedicated ISDN to DS3 connectivity, WAN and LAN network expertise, web design and hosting, domain name registration, and co-location facilities.
On March 26, 1998 the Company purchased 100% of the outstanding common stock of Animus Communications, Inc. ("Animus"), an Oklahoma corporation engaged in the business of providing Web Hosting Services, selling computer equipment and providing configuration and maintenance of the equipment.
During 1998, a wholly-owned subsidiary of Fullnet was incorporated. This new company is Fulltel, Inc. ("Fulltel"), an Oklahoma corporation involved in providing local dial up for Internet access. This incorporation was accounted for using the purchase method of accounting. Fulltel had not begun its principal operations in 1998 and, therefore had no operating revenues or expenses for the year ended December 31, 1998.
Fulltel had no recorded assets at December 31, 1998 and shareholders' equity consisted of 200 shares of no-par-value common stock, with no related paid-in capital at that date. Consequently, the Company did not recognize any income from this investment for the year ended December 31, 1998.
Basis of Accounting
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles. The statements have been prepared on the accrual basis of accounting and include the assets, liabilities and results of operations of Fullnet Communications, Inc. and its wholly owned subsidiary corporation, Animus Communications, Inc. from the date of its acquisition. All significant intercompany transactions and accounts have been eliminated in the consolidated financial statements.
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of Organization and Significant Accounting Policies
(continued)
Cash and Cash Equivalents
The Company considers highly liquid investments (that are readily convertible to cash) purchased with original maturity dates of three months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized on a monthly basis over the life of each contract. Contract periods range from monthly to yearly. Deferred revenues are calculated for those contracts that continue subsequent to the current year-end.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation expense for the years ended December 31, 1998 and 1997, was $84,566 and $43,513, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets as follows:
Computers and equipment 5 years Furniture and fixtures 7 years
Income Taxes
The Company, with the consent of its shareholders, has elected under the Internal Revenue Code to be an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in the financial statements for the parent company.
Animus, a C Corporation, the wholly-owned subsidiary of Fullnet uses the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax basis of assets and liabilities at enacted tax rates in effect in the years in which the differences are expected to reverse.
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of Organization and Significant Accounting Policies
(continued)
Accounting Estimates
The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Note 2 - Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31, 1998 and 1997:
1998 1997
---------- ----------
Computers and equipment $350,747 $ 221,644
Furniture and Fixtures 5,785 4,920
Less accumulated depreciation (179,533) (61,105)
---------- ----------
$ 176,999 $ 165,459
========== ==========
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Note 3 - Intangible Assets and Acquisitions
On April 22, 1997, the Company purchased the equipment, accounts receivable, billed and unbilled, the internet customers and the customer lists of Fullnet of Tulsa, an Oklahoma corporation in exchange for cash of $100,000. This acquisition was accounted for under the purchase method of accounting and the excess of the purchase price over net assets acquired was recorded as an intangible asset in the amount of $70,000. This asset is being amortized over 15 years using the straight-line method. In connection with the acquisition, Fullnet of Tulsa, Inc. entered into a covenant not-to-compete agreement with Fullnet. Pursuant to the agreement, until April 22, 2000, the former owner will not engage in certain specific activities related to Fullnet Communications, Inc. or its business.
Included in the purchase of Animus were the start up costs of $2,155 associated with its incorporation. This asset is being amortized over 60 months using the straight-line method.
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 3 - Intangible Assets and Acquisitions (continued)
1998 1997
--------- ---------
Excess of purchase price over net
assets acquired, net of accumulated
amortization of $6,998 and $2,331 at
December 31, 1998 and 1997,
respectively. $ 63,002 $ 67,669
Start up costs associated with the
incorporation of Animus, net of
accumulated amortization of $431. 1,724 -
--------- ---------
$64,726 $67,669
========= =========
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Note 4 - Bank Notes Payable
The Company's note payable-bank represents a $687,000 line of credit of which $616,107 and $351,567 had been disbursed at December 31, 1998 and 1997, respectively. This note matures on September 15, 2002 and is personally guaranteed by the president of the Company. Interest is payable monthly at 9.5%. The note is collateralized by furniture and fixtures, accounts receivable and stock. At December 31, 1998, all of the Company's long-term debt is financed through one institution.
Note 5 - Other Long-Term Debt
Other long-term debt consists of the following at December 31, 1998 and 1997:
Note payable to bank collateralized by furniture, fixtures, accounts receivable, and stock with monthly payments of $444, including interest at 11.5% and matures, Septemeber 9, 2002. $ 31,048 $ 36,929
Note payable to bank collateralized by furniture, fixtures, accounts receivable and stock, with monthly payments of $788, including interest at 11% and matures April 1, 1998. - 1,896
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 5 - Other Long-Term Debt (continued)
Note payable to bank collateralized by furniture, fixtures, accounts receivable, and stock with montly payments of $798, including interest at 11% and matures
September 15, 2002. 56,195 65,347
--------- ---------
87,243 104,172
Less current portion (5,424) (24,273)
--------- ---------
$ 81,819 $ 79,899
========= =========
|
Aggregate maturities of the notes payable-bank and other long-term debt are as follows:
Year Amount ---------- ---------- 1999 $ 5,424 2000 6,062 2001 6,775 2002 7,572 2003 8,463 Thereafter $669,054 |
Note 6 - Income Taxes
The deferred tax assets and liabilities are as
follows at December 31, 1998:
Net operating loss carryforward $ 38,000
Valuation allowance (20,500)
----------
Net Deferred Tax Asset $17,500
==========
|
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 6 - Income Taxes (continued)
For financial reporting purposes, deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance of $20,500 has been established for the year ended December 31, 1998. Due to Fullnet's S-Corporation status (see Note 1), and the purchase of Animus during 1998 (see Note 12), there are no tax assets or liabilities recognized for the year ended December 31, 1997.
Realization of approximately $17,500 of the total deferred tax assets representing tax loss and credit carryforwards is dependent on the Company's ability to generate approximately $44,000 of future taxable income. Management believes that it is more likely than not that forecasted taxable income, including income that may be generated as a result of certain tax planning strategies, will be sufficient to utilize the tax carryforwards prior to their expiration in 2011 to partially recover the asset. However, there can be no assurance that the Company will meet its expectations of future income. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of a valuation allowance.
As of December 31, 1998, the Company had a net operating loss carryforward of approximately $ 95,000 for income tax purposes, expiring in years beginning in 2011. Deferred taxes reflect a combined federal and state tax rate of approximately 40%.
A reconciliation between the amount of federal and state income taxes, based on a forty percent (40%) tax rate, and the effective amount of income taxes based on continuing operations is as follows:
Statutory federal income taxes (refund) $ (76,417)
Exclusion of Subchapter S (earnings) loss 55,917
Valuation allowance 20,500
----------
Effective Income Taxes $ --
==========
|
Note 7 - Earnings Per Share of Common Stock
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," became effective in the fourth quarter of 1997 and requires two presentations of earnings per share - "basic and diluted".
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 7 - Earnings Per Share of Common Stock (continued)
Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common share (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. For the years ended December 31, 1998 and 1997, Fullnet Communciations, Inc. did not have any dilutive common shares.
Basic loss per share for the year ended December 31, 1998 and 1997 was computed as follows:
1998 1997
--------- ---------
Net loss from continuing operations
attributable to common shares $(209,134) $(180,415)
Weighted average common shares outstanding 500 500
Basic Loss Per Share From Continuing
Operations $ (418) $ (361)
========== ==========
|
Note 8 - Year 2000 Compliance (unaudited)
As the Year 2000 approaches, Fullnet Communications, Inc. recognizes the need to ensure its operations will not be adversely impacted by Year 2000 software failures. The Company is addressing this issue to ensure the availability and integrity of its financial systems and the reliability of its operational systems. Fullnet has established processes for evaluating and managing the risks and costs associated with this problem. The Company has and will continue to make certain investments in its software systems and applications to ensure that it is Year 2000 compliant. The financial impact to Fullnet of Year 2000 remediation costs is anticipated to be in the range of $300 to $500 in 1999. In addition, Fullnet is working with its suppliers and customers to ensure their compliance with Year 2000 issues in order to avoid any interruptions in its business. While Fullnet does not at this time anticipate significant problems with suppliers and customers, it is developing contingency plans with these third parties due to the possibility of compliance issues.
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 9 - Subsequent Events
Subsequent to December 31, 1998, Fullnet Communications, Inc. issued a subscription agreement under Regulation D, Rule 504 under the Securities and Exchanges Act of 1933. This agreement allows the sale of up to 1,000,000 shares of the Company's common stock at $1.00 per share. Additionally, on April 6, 1999 Fullnet paid the remaining balance on the note originally signed with Animus relating to their stock purchase in 1998 (see Note 1).
On February 15, 1999, the Company's Board of Directors approved an amendment to the Company's certificate of incorporation to increase authorized common shares from 50 thousand to 10 million shares and to effect a 2760-for-1 stock split with a reduction in par values from $1.00 to $0.00001. In addition, Timothy Kilkenny, sole shareholder, was granted a three year option to purchase 120,000 additional shares at a price of $1.15 per share beginning 18 months after the initial closing of the stock subscription mentioned in the previous paragraph. The Company also entered into a financial consulting agreement with third parties pursuant to which it will issue up to 220,000 shares and three year options to purchase an aggregate of 90,000 additional shares at a price of $1.25 per share beginning 18 months after the initial closing of the stock subscription.
Note 10 - Capital Leases
Due to the purchase of Animus by Fullnet during 1998 (see Note 12), certain capital lease obligations were acquired by the Company. Additionally, Fullnet held no capital lease obligations at December 31, 1997. Property held under capital leases, included with property owned on the balance sheet at December 31, 1998, consists of the following:
Machinery and Equipment
Computers $ 28,251
Less: accumulated depreciation (10,145)
----------
Property and equipment under
capital leases, net $ 18,106
==========
|
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 10 - Capital Leases (continued)
Capital lease obligation at December 31, 1998 consist of the following:
Non-cancelable equipment lease expiring
September 25, 1999, payable in monthly
installments aggregating $6,314 including
imputed interest at 10%, secured by
certain equipment. $ 6,059
Non-cancelable equipment lease expiring
April 24, 2000, payable in monthly
installments aggregating $4,836 including
imputed interest at 22.92%, secured by
certain equipment. 4,133
Less: current portion of capital lease
obligations (9,039)
Long-term capital lease obligations, net $ 1,153
=========
|
The following is a schedule of future lease payments under capital leases for the years ended December 31:
1999 $ 9,941
2000 1,209
Total minimum lease payments 11,150
Less: Imputed interest (958)
Present value of minimum lease payments $ 10,192
|
The Company and its subsidiary rent office and computer space through six different operating leases that are renewed yearly. Rental expense associated with these operating leases is charged to expenses in the year incurred and was included in the Consolidated Income Statement. Rental expense for the year ended December 31, 1998 and 1997 was $28,010 and $10,493, respectively.
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 11 - Related Party Transactions
The Company has an outstanding obligation in the amount of $43,891 at December 31, 1998 to the shareholder for advances made by the shareholder in connection with the acquisition of Animus Communications, Inc. (see Note 1). At December 31, 1997, the shareholder had an outstanding obligation to Fullnet in the amount of $500.
Note 12 - Purchase of Animus
As a result of the purchase of Animus by Fullnet, the shareholders of Animus would receive cash and a note totaling $350,000. An initial cash payment of $175,000 was paid at closing with the balance due over the period of one year without an interest charge. The financial statements reflect an imputed interest rate of 11% on the note balance resulting in a total discounted purchase price of $334,460.
On September 31, 1998, Fullnet made a payment of $45,825 on the non-interest-bearing note with the balance of $129,175 paid on April 1, 1999. Since the note payable has been discounted, the principal balance at December 3, 1998 is reflected in the financial statements as $122,405.
The consolidated financial statements reflect goodwill which is the excess of the purchase price ($334,460) over the net assets of the company purchased ($15,863) as well as the amount of amortization for the year ended December 31, 1998 ($15,930). Goodwill is being amortized using the straight-line method over 15 years.
The consolidated pro forma results of operations which follow assume that the acquisition had occurred at the beginning of the period presented. The calculations include adjustments for depreciation, amortization, and interest. The pro forma statements may not be indicative of the results that would have occurred if the acquisition had been effective on the date indicated or of the results that may be obtained in the future.
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 12 - Purchase of Animus (continued)
1998
-----------
Contract Revenue $ 1,079,480
Cost of Goods Sold (800,765)
-----------
Gross Profit 278,715
Selling, General and Administrative (417,261)
Other Income and Expenses
Other income 4,437
Interest expense (63,261)
-----------
Net Loss $ (197,370)
===========
Net Loss Per Common Share - Note 7 $ (395)
===========
|
Note 13 - Advertising
The Company expenses advertising production costs as they are incurred and advertising communication costs the first time the advertising takes place. Advertising expenses for the year ended December 31, 1998 and 1997 were $42,088 and $16,765, respectively.
Note 14 - Concentrations of Credit Risk
The Company operates and grants credit to customers in Oklahoma. Accounts receivable derived from retail sales are not collateralized. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base and their dispersion across different industries. As of December 31, 1998 and 1997, the Company had no significant concentrations of credit risk.
Fullnet's Consolidated Financial Statements for the Six Months Ended June 30, 1999
(Unaudited)
Fullnet Communications, Inc. and Subsidiaries Consolidated Balance Sheet
(Unaudited)
June 30, 1999
ASSETS
Current Assets
Cash $ 246,200
Accounts receivable 117,529
-----------
Total Current Assets 363,729
Property, Plant and Equipment, Net of Accumulated
Depreciation of $216,548 146,345
Goodwill - Net of Accumulated Amortization 292,047
Intangible Assets - Net of Accumulated
Amortization of $9,978 178,349
Loans to shareholders 9,937
-----------
Total Assets $ 990,407
|
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank notes and line of credit payable - current portion $ 56,711
Capital lease obligations, all current 4,798
Deferred revenue 114,196
Accounts payable - trade 53,368
Payroll liabilities 7,043
-----------
Total current liabilities 236,116
Bank Line of Credit and Loans payable 542,928
Bank Notes Payable Less Current Portion 78,872
Shareholders' Equity
Common stock, $.00001 par value:
10,000,000 shares authorized,
2,099,928 issued and outstanding 21
Additional paid-in capital 664,566
Retained earnings (deficit) (532,096)
-----------
Total Shareholders' Equity 132,491
-----------
Total Liabilities and Shareholders' Equity $ 990,407
===========
|
Accompanying notes are an integral part of the financial statements.
Fullnet Communications, Inc. and Subsidiaries Consolidated Income Statement
(Unaudited)
For the Six Months Ended June 30, 1999
Revenue from Sales $ 560,744
Cost of Goods Sold 453,412
------------
Gross Profit 107,332
Selling, General and Administrative Expenses 119,270
------------
Loss from Operations (11,938)
Other Income and Expenses
Interest expense (46,742)
------------
Net Loss Before Income Taxes (58,680)
Provisions for Income Taxes (17,500)
------------
Net Loss $ (76,180)
============
Net Loss per Common share $ .0363
============
|
Accompanying notes are an integral part of the financial statements.
Fullnet Communications, Inc. and Subsidiaries Condensed Consolidated Statement of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 1999
Increase (decrease) in Cash:
Cash Flows from Operating Activities:
Cash received from customers $ 565,841
Cash paid to suppliers and employees (596,758)
Interest paid (50,108)
---------
Net Cash Provided by (used in) Operating Activities (81,025)
---------
Net Cash Provided by (used in) Investing Activities:
Computer equipment purchased -6,361
Startup costs Fulltel (116,172)
---------
Net Cash Provided by (used in) Operating Activities (122,533)
---------
Net Cash Provided by (used in) Financing Activities:
Retirement of long-term debt (152,638)
Contributions to capital from transactions in common stock 664,087
Repayment of loan from shareholder (53,828)
---------
Net Cash Provided by (used in) Financing Activities 457,621
---------
Net Increase (Decrease) in Cash $ 254,063
Cash at the Beginning of the Period (net overdraft) (7,863)
---------
Cash at the End of the Period $ 246,200
=========
Reconciliation of Net Income to Net Cash
Cash Provided by Operating Activities:
Net income (loss) $ (76,180)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 50,184
(Increase) decrease in accounts receivable (11,720)
(Increase) decrease in prepaid expenses 337
(Increase) decrease in deferred taxes 17,500
Increase (decrease) in deferred revenue 16,817
Increase (decrease) in accounts payable (76,210)
Increase (decrease) in accrued interest (3,366)
Increase (decrease) in accrued payroll 1,613
---------
Net Cash (Used) by Operating Activities $ (81,025)
=========
|
Accompanying notes are an integral part of the financial statements.
Fullnet Communications, Inc. and Subsidiaries
Consolidated Statement of Shareholders' Equity
(Unaudited)
For the Six Months Ended June 30, 1999
Additional Retained
Common Stock Paid-In Earnings
Shares Par Value Capital (Deficit) Total
--------- ----------- ----------- ------------ -----------
Balance, January 1, 1999 500 $ 500 $ - $ (455,916) $ (455,416)
Stock split 2,760 for 1, par value reduced 1,380,000 (486) 486 - -
From $1 per share to $.00001 per share
Common stock issued, 719,928 shares at
$1, net of offering expenses of $56,341 719,928 7 664,080 - 664,087
Net loss from operations (76,180) (76,180)
---------- ------------- ----------- ------------ ------------
Balance, June 30, 1999 2,099,928 $ 21 $ 664,566 (532,096) $ 132,491
========= ============= =========== ============ ============
|
Accompanying notes are an integral part of the financial statements.
Fullnet Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1999, are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the consolidated annual financial statements and footnotes thereto for the year ended December 31, 1998.
NOTE 2 REGULATION D, RULE 504 OFFERING
In April 1999, the Company raised an aggregate of $648,500 in an offering of its common stock.
NOTE 3 OPTIONS ON COMMON STOCK
An option has been granted to Timothy J. Kilkenny to purchase 120,000 shares of the common stock of the Company at a price of $1.15 per share, beginning October 2000. Mr. Kilkenny is an officer, director and controlling shareholder of the Company.
A stock bonus was granted to Roger S. Laubhan in June 1999 equal to 3% of the fully diluted shares of common stock deemed to be outstanding at such date. A stock bonus was granted to Jason C. Ayers in June 1999 equal to 1% of the fully diluted shares of common stock outstanding at such date. Such shares have not yet been issued, pending resolution of certain contingent compensation, payable in the form of common stock and stock options, which were to be paid to a third party in connection with a financial advisory services agreement. Msrs. Laubhan and Ayers are officers of the Company.
EXHIBIT 2.1
CERTIFICATE OF CORRECTION
TO THE
AMENDED CERTIFICATE OF INCORPORATION
OF
FULLNET COMMUNICATIONS, INC.
FILED ON FEBRUARY 16, 1999
The undersigned corporation, an Oklahoma corporation, for the purpose of correcting its Amended Certificate of Incorporation filed on February 16, 1999, pursuant to Section 1007 of the Oklahoma General Corporation Act, hereby certifies:
1. The Amended Certificate of Incorporation filed on February 16, 1999, incorrectly provided that the corporation is authorized to issue one class of shares of capital stock, to be designated as "common stock", the total number of shares which the corporation shall have authority to issue and the par value of each share of common stock, are as follows:
Total Number Par Value Total Authorized of Shares of Each Share Common Stock 10,000,000 $1.00 $10,000,000 |
2. The Amended Certificate of Incorporation filed on February 16, 1999, shall be corrected as set forth below.
The corporation is authorized to issue one class of shares of capital stock, to be designated as "common stock", the total number of shares which the corporation shall have authority to issue and the par value of each share of common stock, are as follows:
Total Number Par Value Total Authorized of Shares of Each Share Common Stock 10,000,000 $0.00001 $100 |
IN WITNESS WHEREOF, this Corporation has caused this Certificate of Correction to be signed by its President this 17th day of March, 1999.
FULLNET COMMUNICATIONS, INC.
An Oklahoma corporation
By:/S/ Timothy J. Kilkenny
------------------------------
Timothy J. Kilkenny, President
|
AMENDED
CERTIFICATE OF INCORPORATION
OF
FULLNET COMMUNICATIONS, INC.
The undersigned corporation, an Oklahoma corporation, for purpose of amending its Certificate of Incorporation pursuant to Section 1077 of the Oklahoma General Corporation Act! hereby certifies:
1. Name.
A. No change, as filed May 24, 1995, and amended December 1 1995.
B. As amended: N/A
2. Registered Office.
A. No change, as filed May 24,1995.
B. As amended: N/A
3. Term.
A. No change, as filed May 24,1995.
B. As amended: N/A
4. Purpose.
A. No change, as filed May 24,1995.
B. As amended: N/A
5. Capital Stock:
A. The corporation is authorized to issue one class of shares of capital stock, designed as "common stock", the total number of authorized shares to be 50,000, each with a par value of $1.00 per share.
B. As amended: The corporation is authorized to issue one class of shares of capital stock, to be designated as "common stock", the total number of shares which the corporation shall have authority to issue and the par value of each share of common stock, are as follows:
Total Number Par Value Total Authorized of Shares of Each Share Common Stock
10 ,000,000 $1.00 $10, 000,000
6. This Amendment to Certificate of Incorporation was duly adopted in accordance with Section 1077 of the Oklahoma General Corporation Act. After being proposed by the directors and adopted by the shareholders in the manner and by the vote prescribed in said Section 1077 of the Oklahoma General Corporation Act.
IN WITNESS WHEREOF, this Corporation has caused this Certificate to be signed by its President and attested by its Secretary this 11th day of February, 1999.
FULLNET COMMUNICATIONS, INC.
An Oklahoma corporation
ATTEST:
/S/ Laura L. Kilkenny By: /S/ Timothy J. Kilkenny ---------------------------- -------------------------------- Laura L. KiIkenny, Secretary Timothy J. Kilkenny, President |
AMENDED
CERTIFICATE OF INCORPORATION
OF
CEN-COM OF OKLAHOMA, INC.
TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:
The undersigned corporation (this "Corporation"), an Oklahoma corporation, for the purpose of amending its Certificate of Incorporation pursuant to Section 1 077 of the Oklahoma General Corporation Act (the "Act"), hereby certifies:
1. Name.
A. The name of this Corporation is "CEN-COM of Oklahoma, Inc."
B. As amended: The name of this Corporation has been changed to: "Fullnet. Communications, Inc."
2. Registered Office.
A. No change, as filed May 24, 1995.
B. As amended: N/A
3. Term.
A. No change, as filed May 24, 1995.
B. As amended: N/A.
4. Purpose.
A. No change, as filed May 24, 1995.
B. As amended: N/A
5. Capital Stock.
A. No change, as filed May 24, 1995.
B. As amended: N/A
6. This Amendment to Certificate of Incorporation was duly adopted in
accordance with Act Section 1077, after being proposed by the directors and
adopted by the shareholders in the manner and by the vote prescribed in Act
Section 1077.
IN WITNESS WHEREOF, this Corporation has caused this Certificate to be signed by its President and attested by its Secretary, this 30th day of November, 1995.
CEN-COM OF OKLAHOMA, INC.,
an Oklahoma corporation
ATTEST:
/S/ Laura L. Kilkenny By: /S/ Timothy J. Kilkenny ---------------------------- ------------------------------ Laura L. KiIkenny, Secretary Timothy J. Kilkenny, President |
CERTIFICATE OF INCORPORATION
OF
CEN-COM OF OKLAHOMA, INC.
For the purpose of forming a for-profit stock corporation under and by virtue of the Oklahoma General Corporation Act (the "Act") the following Certificate of Incorporation is hereby adopted.
FIRST: Name. The name of the corporation is CEN-COM of Oklahoma, Inc. (hereinafter the "Corporation").
SECOND: Purpose. The purpose or purposes for which the corporation is organized is to engage in any lawful act or activity for which corporations may be now or hereafter organized under the Act,
THIRD: Capital Stock. This Corporation is authorized to issue only one
(1) class of shares of capital stock, to be designated "Common Stock." The total
number of shares of Common Stock which this Corporation shall have authority to
issue and the par value of each share of Common Stock are as follows:
Total Number Par Value of Total Authorized of Shares Each Share Common Stock 50,000 $1.00 $50,000.00 |
FOURTH: Initial Directors. The initial Board shall consist of one director and the name and address of the person who shall serve as director until the first annual meeting of stockholders or until his successor can be elected and qualified are:
Name Mailing Address
Timothy J. Kilkenny 837 SE. Crestland
Bartlesville, OK 74006
|
FIFTH: Registered Office. The name and street address of the registered agent of this Corporation in the State of Oklahoma and the street address of the registered office of this Corporation in the State of Oklahoma, which is the same as the street address of its registered agent, are:
Name Mailing Address
Timothy J. Kilkenny 837 S.E. Crestland
Bartlesville, OK 74006
|
SIXTH: Incorporator. The name and mailing address of the incorporator are as follows:
Name Mailing Address
Elaine Arnold Lakehoma Professional Center
106 N. Lakehoma Pkwy.
Mustang, OK 73064
|
SEVENTH: Term. The term of this Corporation shall be perpetual.
EIGHTH: Bylaws. The Bylaws for the governing of this Corporation may be adopted, amended, altered, repealed or readopted by the Board of Directors at any stated or special meeting of such board, but the powers of such directors in this regard shall at all times be subject to the rights of the shareholders to alter or repeal such Bylaws at any annual meeting of shareholders.
NINTH: Amendment. This Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Oklahoma at the time may be added or inserted in this Certificate of Incorporation, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon shareholders, directors or any other persons by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Section NINTH.
IN WITNESS WHEREOF, the undersigned, the incorporator of the above-named corporation, has hereunto signed this Certificate of incorporation on this 24th day of May, 1995.
/S/ Elaine Arnold
-------------
Elaine Arnold
|
EXHIBIT 2.2
BYLAWS
OF
CEN-COM OF OKLAHOMA, INC.
(An Oklahoma Corporation)
ARTICLE I
Offices
SECTION 1.1. Principal Office. The present location of the principal office for the transaction of the business of CEN-COM of Oklahoma, Inc. (the "Corporation") is 837 SE. Crestland, Bartlesville, Oklahoma 74006. The Board of Directors may change such principal office from time to time.
SECTION 1.2. Other Offices. The Corporation may have other offices at such places, within or without the State of Oklahoma, as the Board of Directors may designate or as the business of the Corporation may require from time to time.
ARTICLE II
Meetings of Shareholders
SECTION 2.1. Annual Meetings. The annual meetings of shareholders shall be held on the third Tuesday of the fourth month following the close of the fiscal year; provided that if such day falls on a legal holiday, then any such annual meeting of shareholders shall be held at the same time and place on the next day thereafter which is a business day. Any such annual meeting may be held at any other time which may be designated in a resolution adopted by the Board of Directors or by the written consent of shareholders holding a majority of the issued and outstanding voting shares of the Corporation. At the annual meeting, directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other proper business may be transacted.
SECTION 2.2. Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by law or by the Certificate of Incorporation, may be called at any time by the President. Such special meetings of the shareholders shall be called by the President, or by the Secretary, at the request in writing of the Board of Directors or at the request in writing of shareholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such requests shall state the purpose or purposes of the proposed meeting. Notice of such special meetings shall be given in the same manner as for annual meetings of shareholders. Notices of any special meeting shall state, in addition to the time, date and place of such meeting, the purpose or purposes of the meeting. Business transacted at any special meeting of shareholders shall be limited to
the purposes stated in the notice. Notice of a special meeting shall be given not less than ten (1 0) days nor more than sixty (60) days after the receipt of a request for a special meeting.
SECTION 2.3. Place of Meetings. All meetings of shareholders shall be held either at the principal office of the Corporation or at any other place within or without the State of Oklahoma as may be designated either by the Board of Directors or by the written consent of the shareholders entitled to vote at such meeting holding at least a majority of such shares given either before or after the meeting and filed with the Secretary of the Corporation.
SECTION 2.4. Notice of Meetings. Written notice of the time, date and place of each annual meeting of the shareholders shall be given to each shareholder as described in Section 8.4 not less than ten (10) nor more than sixty (60) days before each annual meeting.
SECTION 2.5. Voting List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least forty-eight (48) hours prior to each meeting of the shareholders, an alphabetical list of all shareholders entitled to vote at such meeting, with the number of shares entitled to be voted by each shareholder set forth opposite their respective names. The said officer shall produce the share ledger or a duplicate thereof, together with such list and shall keep it open either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held during the business hours of at least one (1) full day immediately preceding the convening thereof and until the close of such meeting, and it shall be subject to inspection at any time during such period by any shareholder or person representing shares. However, the said officer shall not be required to prepare and produce a list of shareholders in any case where the share ledger reasonably shows in alphabetical order by classes of shares all persons entitled to represent shares at such meeting with the number of shares entitled to be voted by each shareholder.
SECTION 2.6. Quorum and Required Vote; Adjourned Meetings. The holders
of a majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the shareholders for the transaction of business, except as
otherwise provided by statute or the Certificate of Incorporation of the
Corporation. When a quorum is present at any meeting, a majority of the shares
represented thereat and entitled to vote thereat shall decide any question
brought before such meeting. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum. Any shareholders' meeting, annual or special, whether or not a
quorum is present, may be adjourned from time to time by the holders of a
majority of the shares entitled to vote thereat, present in person or by proxy,
but in the absence of a quorum no other business may be transacted at such
meeting. It shall not be necessary to give any notice of the time and place of
the adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such announcement is taken, except that if
any shareholders' meeting, either annual or special, is adjourned for thirty
(30) days or more, notice of the adjourned meeting shall be given as in the case
of an original meeting.
SECTION 2.7. Voting. At each meeting of shareholders each shareholder entitled to vote shall vote in person or by proxy and he shall have one vote for each share standing registered in his name at the closing of the transfer books for such meeting, or the record date fixed for such meeting by the Board of Directors, as the case may be, or standing registered in his name at the time of such meeting if neither a date for the closing of the transfer books nor a record date for such meeting has been fixed by the Board of Directors. The voting at all meetings of shareholders may be viva voce but any qualified voter may demand a share vote by written ballot, whereupon such share vote shall be taken by written ballot each of which shall state the name of the shareholder voting and the number of shares voted by him, and if such ballot be cast by proxy, it shall also state the name of such proxy.
SECTION 2.8. Proxies. Any shareholder entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by proxy. The appointment of a proxy shall be in writing and signed by the shareholder but shall require no other attestation and shall be filed with the Secretary of the Corporation at or prior to the meeting. If any shareholder appoints two or more persons to act as proxies and if the instrument does not otherwise provide, then a majority of such persons present at the meeting, or if only one shall be present, then that one shall have and may exercise all of the powers conferred by such instrument upon all of the persons so appointed; and if such proxies be equally divided as to the right and manner of voting in any particular case, the vote shall be divided among the proxies. Any person holding shares in a representative or fiduciary capacity which he may represent in person may represent the same by proxy and confer general or discretionary power upon such a proxy. The authority of a proxy if not coupled with an interest may be terminated at will. Unless otherwise provided in the appointment, the proxy's authority shall cease three (3) years after the appointment. The termination of a proxy's authority by act of the shareholder shall, subject to the time limitation herein set forth, be ineffective until written notice of the termination has been given to the Secretary of the Corporation. Unless otherwise provided therein, an appointment filed with the Secretary shall have the effect of revoking all proxy appointments of prior date. A proxy's authority shall not be revoked by the death or incapacity of the maker unless before the vote is cast or the authority is exercised written notice of such death or incapacity is given to the Corporation.
SECTION 2.9. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of the shareholders, shall be as follows:
(a) Calling meeting to order;
(b) Calling of roll and checking proxies;
(c) Proof of notice of meeting;
(d) Reading of any unapproved minutes;
(e) Reports of officers;
(f) Reports of committees;
(g) Election of directors;
(h) Unfinished business;
(i) New business; and
(j) Adjournment.
SECTION 2.10. Action Without Meeting. Any action which, under any provisions of the laws of the State of Oklahoma or under the provisions of the Certificate of Incorporation or under these Bylaws may be taken at a meeting of the shareholders, may be taken without a meeting, without prior notice and without a vote if a consent in writing be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take action at a meeting at which all shares entitled to vote thereon were present and voted. Such consent shall be filed with the Secretary of the Corporation and made a part of the corporate records. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing.
ARTICLE Ill
Board of Directors
SECTION 3.1. Powers. All corporate powers, except those which are conferred upon or reserved to the shareholders by the Certificate of Incorporation, these Bylaws and the laws of the State of Oklahoma, shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed and conducted by, the Board of Directors. Without prejudice to such general power, but subject to the same limitations, the Board of Directors shall have the following powers:
(a) To select and remove all officers, agents and employees of the Corporation, prescribe such powers and duties for them as may not be inconsistent with applicable law, with the Certificate of Incorporation or these Bylaws and fix their compensation and to confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers and agents;
(b) To adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, as it may determine advisable;
(c) To authorize the issuance of shares of stock of the Corporation from time to time, upon such terms as may be in accordance with applicable law and to declare dividends from time to time in accordance with applicable law;
(d) To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor;
(e) To adopt such insurance, retirement and other benefits plans for directors, officers and agents of the Corporation and its subsidiaries as it may determine advisable; and
(f) To adopt regulations, not inconsistent with these Bylaws, for the management of the Corporation's business and affairs.
Section 3.2. Number, Election and Term of Office. The Board of Directors of the Corporation shall consist of one or more members. The shareholders at any meeting shall determine the number which shall constitute the Board of Directors and the number so determined shall remain fixed until changed at a subsequent meeting of the shareholders. The directors shall be elected at each annual meeting of the shareholders; however, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any meeting of the shareholders held for that purpose. Each director shall hold office until his successor is elected or until his earlier resignation or removal. A director need not be a shareholder of the Corporation.
SECTION 3.3. Vacancies. Vacancies in the Board of Directors may be filled by a majority of the directors then in office, though not less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the shareholders. A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors be increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors.
SECTION 3.4. Resignations. Upon the resignation of a director, a majority of the remaining directors or the sole remaining director shall have the power to elect a successor to take office when the resignation is to become effective.
SECTION 3.5. Removal. The entire Board of Directors or any individual director may be removed from office, with or without cause, by the vote of shareholders holding a majority of the issued and outstanding shares entitled to vote at any annual or special meeting of shareholders. New directors to fill vacancies created by removal may be elected at the same meeting of shareholders By the affirmative vote of a majority of the members of the Board of Directors then in office, the Board of Directors at any time may remove, for cause or without cause, any officer elected or appointed by the Board of Directors.
SECTION 3.6. Annual Meetings. An annual meeting of the Board of Directors for the purpose of election of officers of the Corporation and the transaction of any other business coming before such meeting shall be held each
year immediately following the adjournment of the annual meeting of the
shareholders and no notice of such meeting to the elected directors shall be
necessary in order to legally constitute the meeting, provided a majority of the
Board shall be present. If a majority of the Board shall not be present, then
such annual meeting may be held at such time as shall be fixed by the consent,
in writing, of all of the directors. Other meetings of the Board may be held as
shall from time to time be determined by the Board provided notice of the time,
date and place of any such meeting is given to each director not less than two
(2) days before such meeting.
SECTION 3.7. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. No notice of such regular meeting shall be required.
SECTION 3.8. Special Meetings. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the President or the Secretary or by any two directors by notice of the time, date and place thereof given to each director not less than two (2) days before such meeting. No business shall be considered at any special meeting other than the purposes mentioned in the notice given to each director of the meeting, except with the consent of all directors.
SECTION 3.9. Place of Meetings. Meetings of the Board of Directors shall be held at any place within or without the State of Oklahoma which has been designated from time to time by resolution adopted by the Board or by written consent of all members of the Board. In the absence of such designation, meetings shall be held at the principal office of the Corporation.
SECTION 3.10. Quorum and Required Vote; Adjourned Meetings. A majority of the directors shall constitute a quorum for the transaction of business at any meeting of the directors, and the acts of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors except as may be otherwise specifically provided by statute, by the Certificate of incorporation or by these Bylaws and except to adjourn as hereinafter provided. A quorum of the directors may adjourn any meeting of the directors to meet again at a stated day and hour; provided that in the absence of a quorum a majority of the directors present at any meeting of the directors, either regular or special, may adjourn to a later date but may not transact any business until a quorum has been secured. At any adjourned meeting at which a required number of directors shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned.
SECTION 3.11. Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed by resolution adopted by the Board of Directors. Members of special or standing committees may be allowed compensation for attending committee meetings, provided such compensation is authorized by resolution of the Board of Directors.
SECTION 3.12. Action without Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if all members of the Board consent thereto in writing. Such written action by unanimous consent shall have the same effect as action taken at a meeting of the Board of Directors and shall be filed with the Secretary of the Corporation and made a part of the minute of proceeding of the Board of Directors.
SECTION 3.13. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each such committee to consist of one (1) or more of the directors of the Corporation, that, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee so designated shall keep regular minutes of its meetings and shall report the same to the Board of Directors when required.
SECTION 3.14. Telephonic Meetings. Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting.
ARTICLE IV
Officers
Section 4.1. Officers. The officers of the Corporation shall, at a minimum, consist of a President and a Secretary. The Board of Directors may also choose additional officers, including a Chairman or Vice Chairman of the Board of Directors, one or more Vice Presidents, a Treasurer, and one or more Assistant Secretaries or Assistant Treasurers, and such other officers as may be appointed in accordance with Section 4.3. One person may hold two or more offices; provided that no person shall at the same time hold the offices of President and Secretary.
SECTION 4.2. Election. The officers of the Corporation, except such officers as may be appointed in accordance with Section 4.3 or 4.5, shall be elected annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified.
SECTION 4.3. Subordinate Officers. The Board of Directors may appoint, and may empower the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.
SECTION 4.4. Removal. Any officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting
thereof, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
SECTION 4.5. Resignation. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.6. Vacancies. A vacancy in any office because of death, removal, resignation, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office.
SECTION 4.7. Chairman of the Board. The Chairman of the Board, if any, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these Bylaws.
SECTION 4.8. Vice Chairman of the Board. The Vice Chairman of the Board, if any, shall perform such duties as the Board of Directors shall prescribe. In the absence or disability of the Chairman of the Board, the Vice Chairman shall perform the duties and exercise the powers of the Chairman of the Board.
SECTION 4.9. President. The President shall be the Chief Executive Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business, finances and affairs of the Corporation and all other powers normally held and exercised by the person serving as President of a corporation. The President shall:
(a) Preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, at all meetings of the Board of Directors;
(b) Sign or countersign, as may be necessary, all such bills, notes, checks, contracts and other instruments as may pertain to the ordinary course of the business of the Corporation;
(c) Execute deeds, bonds, mortgages, and contracts required to be executed under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation;
(d) Have the power to appoint all employees and agents of the Corporation whose appointment is not otherwise provided for and to fix the compensation thereof subject to the provisions of these Bylaws or suspend any employee or agent who shall not have been appointed by the Board of Directors and to suspend for cause, pending final action by the body which shall have appointed him, any officer other than an elected officer, or any employee or agent who shall have been appointed by the Board of Directors.
(e) Present a complete report of the business of the Corporation for the preceding fiscal year at the annual meeting of the shareholders and report to the Board of Directors from time to time all matters coming to his attention which materially affect the business of the Corporation; and
(f) Serve as a member of the Board of Directors and an ex-officio member of all standing committees, including the Executive Committee, if any; and possess such usual powers and duties of supervision and management as may pertain to the office of the President and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
SECTION 4.10. Vice President. In the absence or disability of the President, the Vice Presidents, if any, in the order determined by the Board of Directors, shall perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
SECTION 4.11. Secretary. The Secretary shall:
(a) Attend all meetings of the Board of Directors and the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall, when requested, perform like duties for all committees of the Board of Directors;
(b) Duly give or cause to be given all notices in accordance with these Bylaws or as required by law;
(c) Be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized;
(d) Sign, with the President or Vice President, all deeds, bonds, mortgages, contracts and other instruments when so ordered;
(e} Keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder;
(f) Have general charge of the stock transfer books of the Corporation; and
(g) In general, perform all duties as from time to time may be assigned to him by the President or by the Board of Directors.
SECTION 4.12. Assistant Secretaries. In the absence of the Secretary or in the event of his death, inability or refusal to act, the Assistant Secretaries in the order of their length of service as Assistant Secretary, unless otherwise determined by the Board of Directors, shall perform the duties of the Secretary, and when so acting shall have all the powers of, and be
subject to, all the restrictions upon the Secretary. They shall perform such duties as may be assigned to them by the Secretary, by the President, or by the Board of Directors.
SECTION 4.13. Treasurer. The Treasurer, if one is chosen or, if not, the Secretary, shall:
(a) Keep and maintain adequate and correct accounts of the properties and business transactions of the Corporation;
(b) Have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such depositories as shall be designated by the Board of Directors;
(c) Sign or countersign, as may be necessary, all such bills, notes, checks and other instruments relating to the fiscal affairs of the Corporation in the ordinary course of the business of the Corporation.
(d) Prepare, or cause to be prepared, a true statement of the Corporation's assets and liabilities as of the close of each fiscal year and a true statement of the results of the operations of the Corporation for the fiscal year then ended, all in reasonable detail; and
(e) In general, perform all duties as from time to time may be assigned to him by the President or by the Board of Directors.
SECTION 4.14. Assistant Treasurers. In the absence of the Treasurer or in the event of his death, inability or refusal to act, the Assistant Treasurers, in the order of their length of service as Assistant Treasurer, unless otherwise determined by the Board of Directors, shall perform the duties of the Treasurer, and when so acting shall have all the powers of, and be subject to, all the restrictions upon the Treasurer. They shall perform such other duties as may be assigned to them by the Treasurer, by the President, or by the Board of Directors.
SECTION 4.15. Delegation of Duties. In case of the absence or disability of any officer of the Corporation or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may, by a vote of the majority of the whole Board, delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer or to any director.
ARTICLE V
Shares of Stock
SECTION 5.1. Certificates of Stock. A certificate or certificates for shares of the capital stock of the Corporation shall be issued to each shareholder when any such shares are fully paid, showing the number of the shares of the Corporation standing on the books in his name. The form of such certificate shall be determined by the Board of Directors. All such certificates shall be signed by the President or a Vice President and the Secretary or an Assistant Secretary, or be authenticated by facsimiles of the signatures of the
President and Secretary or by a facsimile of the signature of the President and the written signature of the Secretary or an Assistant Secretary. Every certificate authenticated by a facsimile of a signature must be countersigned by a transfer agent or transfer clerk. Even though an officer who signed, or whose facsimile signature has been written, printed or stamped on, a certificate for shares shall have ceased by death, resignation or otherwise to be an officer of the Corporation before such certificate is delivered by the Corporation, such certificate shall be as valid as though signed by a duly elected, qualified and authorized officer, if it be countersigned by a transfer agent or transfer clerk. Such certificates shall also be numbered and sealed with the seal of the Corporation.
SECTION 5.2. Record of Shareholders. There shall be kept at the registered office of the Corporation in the State of Oklahoma a record containing the names and addresses of all shareholders of the Corporation, arranged in alphabetical order, the number and class of shares held by each and the dates when they respectively became the owners of record thereof; provided that the foregoing shall not be required if the Corporation shall keep at its registered office a statement containing the name and post office address, including street number, if any, of the custodian of such record. Duplicate lists may be kept in such other state or states as may, from time to time, be determined by the Board of Directors.
SECTION 5.3. Transfer Agents and Registrars. The Board of Directors may, in its discretion, appoint one or more banks or trust companies in such city or cities as the Board of Directors may deem advisable, from time to time, to act as Transfer Agents and Registrars of the shares of stock of the Corporation; and, upon such appointments being made, no certificate representing shares shall be valid until countersigned by one of such Transfer Agents and registered by one of such Registrars.
Section 5.4. Transfer of Shares. Transfers of stock of the Corporation shall be made on the books of the Corporation only upon authorization by the registered holder thereof or by his attorney lawfully constituted in writing and on surrender and cancellation of a certificate or certificates of a like number of shares of the same class properly endorsed or accompanied by a duly executed stock transfer power and payment of all taxes thereon, with such proof of authenticity of the signatures as the Corporation or its transfer agents may reasonably require.
SECTION 5.5. Shareholders Record Date and Closing Stock Books. The Board of Directors may fix, in advance, a time as a record date for the determination of the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting not more than sixty (60) days prior to the date of the meeting or action nor less than ten (10) days prior to the date of the meeting or action. The Board of Directors may also fix, in advance, a time as a record date for the determination of shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of shares or for the purpose of any other lawful action which shall be not more than sixty (60) days prior to the date of the event for the purpose of which it is fixed. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting or to receive a dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after the record date. In lieu of fixing a record date, the Board of Directors may close the books of the Corporation against any transfer of shares for a stated period but not to exceed in any case the maximum periods set forth above.
SECTION 5.6. Registered Shareholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the exclusive owner thereof for all purposes, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
SECTION 5.7. Lost Certificates. No new certificate for shares shall be issued in lieu of an old one unless the latter is surrendered and canceled at the same time; provided that if any certificate for shares is lost, stolen, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions, including indemnification of the Corporation reasonably satisfactory to it, as the Board of Directors shall determine.
ARTICLE VI
Execution of Instruments
SECTION 6.1. Contracts. The Board of Directors or any committee thereunto authorized may authorize any officer or officers, agent or agents, to enter into any contract or to execute and deliver in the name and on behalf of the Corporation any contract or other instrument, except certificates representing shares of stock of the Corporation, and such authority may be general or may be confined to specific instances.
SECTION 6.2. Checks or Drafts. All checks, drafts or other orders for the payment of money, notes, acceptances or other evidences of indebtedness issued by or in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall be determined from time to time by resolution of the Board of Directors.
SECTION 6.3. Deposits; Bank Accounts. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may from time to time designate or as may be designated by an officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board of Directors. The Board of Directors may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. Unless otherwise provided by resolution of the Board of Directors, endorsements for deposit to the credit of the Corporation in any of its duly authorized depositories may be made by hand-stamped legend in the name of the Corporation or by written endorsement by any officer without countersignature.
SECTION 6.4. Loans. No loans shall be contracted on behalf of the Corporation unless authorized by the Board of Directors, but when so authorized, unless a particular officer or agent is directed to negotiate the same, may be
negotiated, up to the amount so authorized, by the President or a Vice President or the Treasurer; and such officers are hereby severally authorized to execute and deliver in the name and on behalf of the Corporation notes or other evidences of indebtedness countersigned by the President or a Vice President for the amount of such loans and to give security for the payment of any and all loans, advances and indebtedness by hypothecating, pledging or transferring any part or all of the property of the Corporation, real or personal, at any time owned by the Corporation.
SECTION 6.5. Sale or Transfer of Securities Held by the Corporation. Stock certificates, bonds or other securities at any time owned by the Corporation may be held on behalf of the Corporation or sold, transferred or otherwise disposed of pursuant to authorization by the Board of Directors, or of any committee thereunto duly authorized, and when so authorized to be sold, transferred or otherwise disposed of, may be transferred from the name of the Corporation by the signature of the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
SECTION 6.6. Execution of Proxies. The President, or, in the absence or disability of the President, a Vice President, may authorize from time to time the signature and issuance of proxies to vote upon shares of stock of other corporations standing in the name of the Corporation or authorize the execution of consents to action taken or to be taken by such other corporation. All such proxies and consents shall be signed in the name of the Corporation by the President or a Vice President and by the Secretary or an Assistant Secretary.
ARTICLE VII
Indemnification
SECTION 7.1. Indemnification of Officers, Directors, Employees and
Agents. To the extent and in the manner permitted by the laws of the State of
Oklahoma and specifically as is permitted under Section 1031 of Title 18 of the
Oklahoma Statutes, the Corporation shall indemnify any person who, by reason of
the fact that such person 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, was or is made a party to, or is threatened
to be made a party to, any threatened, pending or completed action, suit, or
proceeding (whether civil, criminal, administrative, or investigative), other
than an action by or in the right of the Corporation, against all expenses
(including attorney's fees, judgments, fines and amounts paid in settlement)
actually and reasonably incurred by him resulting from and arising out of said
action, suit or proceeding.
ARTICLE VIII
General Provisions
SECTION 8.1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
SECTION 8.2. Seal. The corporate seal of the Corporation shall be circular in form and shall contain the name of the Corporation, the word "OKLAHOMA" and such other words or information as shall be determined by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced.
SECTION 8.3. Dividends. The Board of Directors may, out of funds legally available therefor, from time to time at any regular or special meeting, declare, and the Corporation may pay, dividends on its outstanding shares of capital stock as and when it deems expedient. Such dividends may be made in cash, property or shares of the capital stock of other securities of the Corporation.
SECTION 8.4. Notice. Whenever any notice is required or permitted to be given under the provisions of any law, the Certificate of Incorporation or these Bylaws, it shall not be construed to require personal notice unless expressly so stated, but such notice may be given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his address as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such mailing. Notice shall be deemed to have been duly given on the date of service if served personally or by telex, telecopier, cable, telegram or similar communication. Shareholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute.
SECTION 8.5. Waiver of Notice. Whenever any notice whatever is required to be given under the provisions of any law or of the Certificate of Incorporation or of these Bylaws, a written waiver thereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the shareholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of incorporation.
SECTION 8.6. Conflicts of Interest. Except as may be otherwise provided by the laws of the State of Oklahoma or the Certificate of Incorporation, no contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee thereof which authorizes the contract or transaction, or solely because his or their votes are accounted for such purpose, if: (a) the material facts as to which the relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or such committee, and the Board of Directors or Executive Committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors, or a committee which authorizes the contract or transaction.
SECTION 8.7. Loans to Officers or Employees. The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing contained in this section shall be construed to deny, limit or restrict the powers of guaranty or warranty of any Corporation at common law or under any statute.
SECTION 8.8. Amendment. These Bylaws may be amended, altered, changed or repealed at any annual or special meeting of the shareholders, provided notice of the proposed amendment, alteration, change or repeal is contained in the notice of such meeting, by the affirmative vote of a majority of the shares issued and outstanding, and entitled to vote thereat. These Bylaws also may be amended, altered, changed or repealed at any annual or special meeting of the Board of Directors, provided notice of the proposed amendment, alteration, change or repeal is contained in the notice of such meeting, by the affirmative vote of the members of the Board of Directors. Notwithstanding the preceding sentence, the fact that such power to amend, alter, change or repeal has been conferred upon the Board of Directors shall not divest the shareholders of the power, nor limit their power to amend, alter, change or repeal these Bylaws.
The above Bylaws are certified to have been adopted by the Board of Directors of the Corporation on the 30th day of May, 1995.
/S/ Joe B. Jones
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Secretary
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EXHIBIT 3.1
THIS STOCK OPTION AGREEMENT (this "Agreement") is made this 17th day of February, 1999, by and between FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), and TIMOTHY J. KILKENNY, an individual duly elected to serve as a the President and Chief Executive Officer of the Company (the "Grantee").
W I T N E S S E T H
WHEREAS, the Company desires to advance the interests of the Company and its shareholders by encouraging and providing for the acquisition of an equity interest in the Company by its key employees by providing additional incentives to such persons, and by enabling the Company to attract and retain the services of such persons who make substantial contributions to the Company through their ability, loyalty and efforts.
WHEREAS, Grantee is a key employee of the Company, and the Company desires to provide incentive to Grantee to continue to render valuable services to it in the form of an inducement to acquire a further proprietary interest in the Company by grant of an option to purchase shares of the Company's common stock, par value $.00001 (the "Common Stock").
NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, covenants, warranties and agreements and upon the terms and subject to the conditions hereinafter set forth, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Grantee the right and option to purchase, on the terms and conditions hereinafter set forth, an aggregate of 120,000 shares of the Common Stock at the purchase price of $1.15 per share ("Grantee's Options").
2. Time and Manner of Exercise.
(a) Grantee's Options shall vest and be exercisable beginning October 7, 2000. The right of Grantee to exercise Grantee's Options, subject to the terms and provisions of this Agreement, shall expire at the end of the third year following the date on which the option was granted. Once Grantee's Options become exercisable, they may be exercised in whole at any time or in part from time to time until the expiration or termination of the option, whether or not any option granted previously to the Grantee remains outstanding at the time of such exercise.
(b) Grantee's Options shall be exercised by written notice delivered to the Company at its principal offices at 200 N. Harvey, Suite 1704, Oklahoma City, Oklahoma, 73102, or such other address as the Company
shall designate in writing to the Grantee, setting forth the number of shares as to which the option is being exercised, and accomplished by payment of the option purchase price as follows:
(i) In cash;
(ii) By exchange of Common Stock valued at its Fair Market Value on the date of exercise;
(iii) By means of a brokers' cashless exercise procedure by the delivery to the Company of an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of proceeds necessary to pay the purchase price of the shares of Common Stock as to which such exercise relates; or
(iv) By any combination of the foregoing.
(c) Where payment of the purchase price is to be made with shares of Common Stock acquired under any compensation plan of the Company, such shares will not be accepted as payment unless the Grantee has acquired such shares at least six months prior to such payment.
(d) Upon delivery by Grantee to the Company of notice and payment as provided for in this section, the Company shall deliver to Grantee a certificate or certificates representing such shares of Common Stock.
3. Termination of Option.
(a) Upon cessation of service to the Company by Grantee (for reasons other than retirement or death), including cessation of service due to physical or mental disability that prevents such person from rendering further services to the Company as an employee, only those of Grantee's Options which are exercisable at the date of cessation of service shall be exercisable by the Grantee. Such options shall be exercisable until the first to occur of (i) the expiration of the remaining term of the option, or (ii) three months after cessation of service of the Grantee.
(b) Upon the retirement or death of the Grantee, options shall be exercisable as follows:
(i) Upon retirement of Grantee while an employee of the Company pursuant to a retirement plan maintained by the Company, Grantee's Options shall continue to be exercisable during their terms as if such person had remained an employee;
(ii) In the event of the death of Grantee while an employee of
the Company, the Grantee's Options shall be exercisable until the first to occur of (A) the expiration of the remaining term of the option or (B) one year after the date of the Grantee's death, but only to the extent that the Grantee would have been entitled to exercise the options had he lived during such period.
4. Adjustments in Shares. If the Company shall at any time change the number of issued shares of Common Stock without new consideration to the Company (such as by stock dividend or stock split), the total number of shares available under this Agreement, the number of shares to be granted to the Grantee pursuant to this Agreement, and the number and price of shares of Common Stock subject to outstanding options, shall be adjusted so that the aggregate consideration payable to the Company and the value of such options shall not be changed. If, during the term of Grantee's Options, the Common Stock shall be changed into another kind of stock or into securities of another corporation, whether as a result of a reorganization, recapitalization, sale, merger, consolidation, or other similar transaction, or if additional rights shall be offered with respect to the Common Stock, the Board shall cause adequate provision to be made so that the Grantee shall thereafter be entitled to receive, upon the due exercise of any outstanding options, the securities or rights that the Grantee would have been entitled to receive had he owned the Common Stock acquired on the exercise of such options on the effective date of any such transaction.
5. Rights Prior to Exercise. Neither the Grantee nor his or her legal representatives or beneficiaries shall have any of the rights of a stockholder with respect to any shares subject to any option until payment of the option purchase price and delivery of a certificate for such shares as provided herein.
6. Non-Transferability of Options. No option may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated otherwise than by will or by the laws of descent and distribution. Except as otherwise specifically provided herein, all options granted to Grantee under this Agreement shall be exercisable during the lifetime of such Grantee only by such Grantee. When the Grantee dies, the personal representative or other person entitled to succeed to the rights of the Grantee may exercise such rights, subject to furnishing to the Company proof satisfactory to the Company of his or her right to receive the option under Grantee's will or under the applicable laws of descent and distribution.
7. No Guaranteed Term of Office. Nothing in this Agreement, or any modification thereof, and no grant of an option, or any term thereof, shall be deemed an agreement or condition guaranteeing to any employee any particular term of office or limiting the right of the Company, the Board of Directors or the stockholders to terminate the employment of the Grantee.
8. Administration. The grant of options to Grantee pursuant to this Agreement shall be administered by the Board of Directors of the Company.
9. Other Provisions. This option is granted and delivered in the State of Oklahoma and is intended to be construed and enforced under the laws thereof. The provisions hereof shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors, and assigns.
IN WITNESS WHEREOF, this option is executed on behalf of the Company by its duly authorized officer and by Grantee as of the day and year first above written.
"COMPANY"
Fullnet Communications, Inc.
By: /s/ Timothy J. Kilkenny
------------------------
Name: Timothy J. Kilkenny
Title: President and Chief Executive Officer
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"GRANTEE"
/s/ Timothy J. Kilkenny ----------------------- Name: Timothy J. Kilkenny |
EXHIBIT 6.1
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE TELECOMMUNICATIONS ACT OF 1996
by and between
SOUTHWESTERN BELL TELEPHONE COMPANY
And
FULLTEL COMMUNICATIONS, INC.
SWBT/FULLTEL COMMUNICATIONS, INC.
Page 1 of 2
TABLE OF CONTENTS
1.0 DEFINITIONS....................................................................................3
2.0 INTERPRETATION AND CONSTRUCTION...............................................................11
3.0 RATES CHARGES AND IMPLEMENTATION - GENERALLY..................................................11
3.1 Implementation Schedule and Interconnection Activation Dates..................................11
3.2 Rates and Charges - Generally.................................................................12
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2).................................................12
4.1 Scope.........................................................................................12
4.2 Interconnection Coverage......................................................................13
4.3 Methods for Interconnection...................................................................14
4.4 Physical Architecture.........................................................................14
4.5 Technical Specifications......................................................................16
4.6 Interconnection in Additional Metropolitan Exchange Areas.....................................16
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC
PURSUANT TO SECTION 251(c)(2).....................................................................17
5.1 Scope of Traffic..............................................................................17
5.2 Responsibilities of the Parties...............................................................17
5.3 Reciprocal Compensation for Termination of Local Traffic......................................18
5.4 Reciprocal Compensation for Transit Traffic...................................................19
5.5 Reciprocal Compensation for Termination of IntraLATA Intexchange Traffic......................19
5.6 Compensation for Origination and Termination of Switched Access Service Traffic to or
From an IXC (Meet-Point Billing (MPB) Arrangements)...........................................20
5.7 Billing Arrangements for Compensation for Termination of IntraLATA, Local, Transit
and Optional Calling Area Traffic.............................................................21
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO
251(c)(2).........................................................................................23
6.1 Scope of Traffic..............................................................................23
6.2 Trunk Group Architecture and Traffic Routing..................................................23
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC...........................................23
7.1 Information Services Traffic..................................................................23
7.2 Line Status Verification (LSV)/Busy Line Interrupt (BLI) Traffic..............................23
7.3 Wireless Traffic..............................................................................24
7.4 911 Service...................................................................................24
8.0 SIGNALING.....................................................................................24
9.0 NUMBERING.....................................................................................25
10.0 RESALE - Sections 251(c)(4) and 251(b)(1).....................................................26
10.1 Availability of Retail Telecommunications Services............................................26
10.2 Availability of Retail Telecommunications Services for Resale.................................26
11.0 UNBUNDLED NETWORK ELEMENTS - SECTIONS 251(c)(3), 271(c)(2)(B)(II),
(IV),(V),(VI),(X).....................................................................................26
12.0 NOTICE OF CHANGES - SECTION 251(c)(5).........................................................26
13.0 COLLOCATION-SECTION 251(c)(6).................................................................27
14.0 NUMBER PORTABILITY - SECTIONS 251(b)(2), 271(c)(2)(B)(xi).....................................27
15.0 DIALING PARITY - SECTION 251(b)(3) AND 271(e)(2)..............................................27
16.0 ACCESS TO RIGHTS-OF-WAY - SECTION 251(b)(4)...................................................27
17.0 DATABASE ACCESS...............................................................................28
18.0 COORDINATED SERVICE CALLS.....................................................................28
18.1 Referral Announcement.........................................................................28
18.2 Coordinated Repair Calls......................................................................28
19.0 OTHER SERVICES 271(c)(2)(vii), 271(c)(2)(B)(viii)................................................29
19.1 White Pages...................................................................................29
19.2 Calling Name Information......................................................................29
19.3 Billing/Collecting/Remitting..................................................................29
19.4 911 Service...................................................................................29
19.5 Directory Assistance..........................................................................29
19.6 Direct Access.................................................................................29
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SWBT/FULLTEL COMMUNICATIONS,INC.
Page 2 of 2
19.7 Operator Services.............................................................................29
19.8 Clearinghouse Services........................................................................29
19.9 Hosting.......................................................................................29
19.10 Recording.....................................................................................29
19.11 Signaling System 7 Interconnection............................................................30
20.0 GENERAL RESPONSIBLITIES OF THE PARTIES............................................................30
21.0 EFFECTIVE DATE, TERM AND TERMINATION..............................................................31
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES......................................................32
23.0 SLAMMING..........................................................................................32
24.0 SEVERABILITY......................................................................................33
25.0 LIMITATION OF LIABILITY...........................................................................33
26.0 INDEMNIFICATION...................................................................................34
27.0 REGULATORY APPROVAL...............................................................................35
28.0 MISCELLANEOUS.....................................................................................35
28.1 Authorization.................................................................................35
28.2 Compliance and Certification..................................................................35
28.3 Law Enforcement...............................................................................36
28.4 Independent Contractor........................................................................36
28.5 Force Majeure.................................................................................36
28.6 Confidentiality...............................................................................37
28.7 Governing Law.................................................................................38
28.8 Taxes.........................................................................................38
28.9 Non-Assignment................................................................................39
28.10 Non-Waiver....................................................................................40
28.11 Audits........................................................................................40
28.12 Disputed Amounts..............................................................................40
28.13 Dispute Resolution............................................................................41
28.14 Notices.......................................................................................41
28.15 Publicity and Use of Trademarks or Service Marks..............................................42
28.16 Section 252(i) Obligations....................................................................43
28.17 Joint Work Product............................................................................43
28.18 Intervening Law...............................................................................44
28.19 No Third Party Beneficiaries; Disclaimer of Agency............................................44
28.20 No License....................................................................................44
28.21 Survival......................................................................................44
28.22 Scope of Agreement............................................................................44
28.23 Entire Agreement..............................................................................44
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SWBT/FULLTEL COMMUNICATIONS, INC.
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE TELECOMMUNICATIONS ACT OF 1996
This Interconnection Agreement under Sections 251 and 252 of the Telecommunications Act of 1996 ("Agreement"), is by and between Southwestern Bell Telephone Company, a Missouri Corporation ("SWBT"), and Fulltel Communications, Inc., an Oklahoma corporation ("CLEC").
WHEREAS, pursuant to Section 252(i) of the Federal Telecommunications Act of 1996, CLEC and SWBT have entered into an agreement on the same terms and conditions contained in the SWBT/Cox Oklahoma Telcom, Inc. Agreement for the State of Oklahoma ("the underlying Agreement.")
WHEREAS, the Parties acknowledge and agree that the rates, terms and conditions set forth in this Agreement are subject to any appeals and that Southwestern Bell reserves all appellate rights with respect to such rates, terms and conditions and does not waive any legal arguments by executing this Agreement. It is Southwestern Bell's intent and understanding of state and federal law, that any negotiations, appeal, stay, injunction or similar proceeding which impacts the applicability of such rates, terms or conditions to the underlying Agreement will similarly and simultaneously impact the applicability of such rates, terms and conditions to CLEC. In the event that any of the rates, terms and/or conditions herein are invalidated, modified or stayed by any action of any state or federal regulatory bodies, courts or regulatory agencies of competent jurisdiction ("such Actions"), the Parties shall immediately incorporate changes from the underlying Agreement, made as a result of such Actions, into this Agreement. Where revised language is not immediately available, the Parties shall expend diligent efforts to incorporate the results of such Actions into this Agreement on an interim basis, but shall conform this Agreement to the underlying Agreement, once such changes are filed with the Commission.
Pursuant to this Agreement for Local Wireline Network interconnection and Service Resale ("Agreement"), CLEC a Local Service Provider ("LSP") and Southwestern Bell Telephone Company ("SWBT") (collectively, "the Parties") will extend certain arrangements to one another within each LATA in which they both operate within the state of Oklahoma in which the Parties may operate within the term of this Agreement. This Agreement includes terms, conditions, and prices for network interconnection, access to unbundled network elements, ancillary network services, and retail services, provided at wholesale prices to CLEC, available for resale. The Agreement will be submitted to the Oklahoma Corporation Commission for regulatory concurrence.
Notwithstanding this mutual commitment, however, the Parties enter into this Agreement without prejudice to any positions they have taken previously, or may take in the future in any legislative, regulatory, or other public forum addressing any matters, including matters related to the types of arrangements prescribed by this Agreement.
The Parties agree and understand that SWBT and CLEC are proposing certain provisions in this Agreement, based on the FCC's First Report and Order, In the Matter of Implementing of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, released Aug. 8, 1996 ("FCC 1st Order") and the Second Report and Order and Memorandum Opinion and Order, In the Matter of Implementation of the Local Competition Provisions of the
SWBT/FULLTEL COMMUNICATIONS, INC.
Telecommunications act of 1996, CC Docket No. 96-98, released Aug. 8, 1996 ("FCC 2d Order"). To the extent that certain of the rules contained in the FCC 1st Order and the FCC 2d Order, or any other FCC Order, adopted to implement the Telecommunications Act of 1996, are deemed by the courts to be not effective, this Agreement shall be modified to comport with the final court decisions and subsequent FCC rules adopted to comply with the court's decisions and to the extent that such modifications prohibit the Parties from performing their obligations under this Agreement, then they may terminate this Agreement upon reasonable notice.
WHEREAS, the Parties want to interconnect their networks at mutually agreed upon points of interconnection to provide, directly or indirectly, Telephone Exchange Services (as defined below) and Exchange Access (as defined below) to residential and business end users predominantly over their respective telephone exchange service facilities in Oklahoma; and
WHEREAS, the Telecommunications Act of 1996 (the "Act") was signed into law on February 2, 1996; and
WHEREAS, the Parties intend to negotiate a permanent interconnection agreement pursuant to Section 251 of the Telecommunications Act of 1996; and
WHEREAS, the Act places certain duties and obligations upon, and grants certain rights to, Telecommunications Carriers; and
WHEREAS, SWBT is an Incumbent Local Exchange Carrier.
WHEREAS, the Parties should be able to efficiently exchange traffic and signaling at well-defined and standardized points of mutually agreed interconnection; and
WHEREAS, SWBT is willing to sell unbundled Network Elements and Ancillary Functions and additional features, as well as services for resale, on the terms and subject to the conditions of this Agreement; and
WHEREAS, CLEC is a Telecommunications Carrier and has requested that SWBT negotiate an Agreement with CLEC for the provision of interconnection, reciprocal compensation, resale and unbundled Network Elements (including Ancillary Functions and additional features) pursuant to the Act and in conformance with SWBT's duties under the Act; and
WHEREAS, for purposes of this Agreement, the Parties intend to operate where SWBT is the incumbent local exchange carrier and CLEC, a competitive local exchange carrier, is certified by the Oklahoma State Commission, as required.
WHEREAS, the Parties are entering into this Agreement to set forth the respective obligations of the Parties and the terms and conditions under which the Parties will interconnect their networks and provide other services as required by the Telecommunications Act of 1996 ("Act") and additional services as set forth herein; and
SWBT/FULLTEL COMMUNICATIONS, INC.
NOW, THEREFORE, in consideration of the mutual provisions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CLEC and SWBT hereby covenant and agree as follows:
SCOPE OF AGREEMENT
A. This Agreement sets forth the terms, conditions and prices under which SWBT agrees to provide (a) services for resale (hereinafter referred to as "Resold Services") (b) certain Unbundled Network Elements, (as specified in Appendix UNE) Ancillary Functions and additional features to CLEC (hereinafter collectively referred to as "Network Elements") for CLEC's own use or for resale to others, and (c) Interconnection and reciprocal compensation for the exchange of local traffic, for the termination of local traffic between SWBT and CLEC, for purposes of offering local exchange services. Unless otherwise provided in this Agreement, SWBT and CLEC will perform all of their obligations hereunder throughout, to the extent provided in the Appendices attached hereto. This Agreement includes all accompanying appendices.
B. In the performance of their obligations under this Agreement, the Parties shall act in consistent good faith with the intent of the Act. Where notice, approval or other action by a Party is permitted or required by any provision of this Agreement, (including, without limitation, the obligation of the parties to further negotiate the resolution of new or open issues under this Agreement) such action shall not be unreasonably delayed, withheld or conditioned.
1.0 DEFINITIONS
1.1 "Act" means the Communications Act of 1934 (47 U.S.C.
153(R)), as amended by the Telecommunications Act of 1996, and as from
time-to-time interpreted in the duly authorized rules and regulations of the FCC
or a Commission within its state of jurisdiction.
1.2 "Access Services" refers to the tariffed interstate and intrastate switched access and dedicated transport services offered for the origination and/or termination of interexchange traffic.
1.3 "Access Service Request" or "ASR" means the industry standard forms and supporting documentation used for ordering Access Services. The ASR will be used to order trunking, switching, unbundled elements, transport, services for resale and other facilities between CLEC and SWBT for Local Interconnection Service.
1.4 "Affiliate" means a person that (directly or indirectly) owns or controls, is owned or controlled by, or is under common ownership or control with, another person. For purposes of this paragraph, the term "own" means to own an equity interest (or the equivalent thereof) of more than 10 percent.
SWBT/FULLTEL COMMUNICATIONS, INC.
1.5 "Access Tandem Switches" are switches used to connect end offices to Interexchange Carrier Class 4 switches.
1.6 "Automatic Number Identification" or "ANI" is a switching system feature that forwards the telephone number of the calling party and is used for screening, routing and billing purposes.
1.7 "LSV/BLI Traffic" or "LSV/BLI Call" refers to an operator call between a CLEC operator and a SWBT operator to inquire as to the busy status of, or requesting an interruption of a call on a Local Exchange Telecommunications Service.
1.8 "Calling Party Number" or "CPN" is a feature of signaling system 7 (SS7) protocol whereby the ten (10) digit number of the calling party is forwarded from the end office serving that party.
1.9 "Central Office Switch" means a single switching system within the public switched telecommunications network, including the following:
a. "End Office Switches" which are Class 5 switches where end user Exchange Services are directly connected and offered.
b. "Tandem Office Switches" or "Tandems" which are switches, which may be Access Tandems or other, used to connect and switch trunk circuits between Central Office Switches and intra/interLATA carriers.
Central Office Switches may be employed as combination End Office/Tandem Office switches.
1.10 "CLASS Features" mean certain CCS-based features available to end users including, but not limited to: Automatic Call Back; Call Trace; Caller Identification and related blocking features; Distinctive Ringing; Call Waiting; Selective Call Forward; and Selective Call Rejection.
1.11 "Collocation" is the virtual or physical collocation service that SWBT provides in its designated wire centers.
1.12 "Collocation Arrangement", as more fully described in Appendix Collocation, means an arrangement whereby one Party's (the "Collocating Party") facilities are terminated in its equipment necessary for Interconnection or for access to Network Elements on an unbundled basis , which has been installed and maintained at the premises of a second Party (the "Housing Party"). Collocation may be "physical" or "virtual." In "Physical Collocation," the Collocating Party installs and maintains its own equipment in the Housing Party's premises. In "Virtual Collocation," the Housing Party installs and maintains the collocated equipment in the Housing Party's premises.
SWBT/FULLTEL COMMUNICATIONS, INC.
Collocation includes, but is not limited to, collocation of 38 GHz basic transmission equipment, provided it complies with the guidelines in SWBT's Physical Collocation Technical Publication provided to CLEC.
1.13 "Commissions" means the Oklahoma Corporation Commission and the FCC collectively, otherwise Commission means the Oklahoma Corporation Commission.
1.14 "Common Channel Signaling" or "CCS" is a special network, fully separate from the transmission path of the public switched network, that digitally transmits call set-up and network control data.
1.15 "Local Service Provider" or "LSP" is a telecommunications provider certified to provide Basic Exchange Telecommunications Service in geographic areas which may include SWBT's local exchange territory.
1.16 As used in this Agreement, "Dialing Parity" refers to both Local Dialing Parity and Toll Dialing Parity. "Dialing parity" means that a person that is not an affiliate of a local exchange carrier is able to provide telecommunications services in such a manner that customers have the ability to route automatically, without the use of any access code, their telecommunications to the telecommunications services provider of the customer's designation from among two or more telecommunications services providers (including such local exchange carrier).
1.17 "DID" means direct inward dialing.
1.18 "Digital Signal Level" means one of several transmission rates in the North American time-division multiplex hierarchy.
1.19 "Digital Signal Level 0" or "DS0" means the 64 Kbps zero-level signal in the North American time-division multiplex hierarchy.
1.20 "Digital Signal Level 1" or "DS1" means the 1.544 Mbps first-level signal in the North American time-division multiplex hierarchy. In the time-division multiplexing hierarchy of the telephone network, DS1 is the result of the initial level of multiplexing.
1.21 "Digital Signal Level 3" or "DS3" means the 44.736 Mbps third-level in the North American time-division multiplex hierarchy. In the time-division multiplexing hierarchy of the telephone network, DS3 is defined as the third level of multiplexing.
1.22 "Electronic File Transfer" refers to any system or process which utilizes an electronic format and protocol to send or receive data files.
1.23 "End User" means a third-party residence or business, that subscribes to telecommunications services provided by either of the Parties, or by another telecommunications service provider.
SWBT/FULLTEL COMMUNICATIONS, INC.
1.24 "Exchange Message Record" or "EMR" means the standard used for exchange of telecommunications message information among telecommunications carriers for billable, non-billable, sample, settlement and study data. EMR format is contained in Bellcore Practice BR-010-200-010 CRIS Exchange Message Record.
1.25 "Telephone Exchange Service" means (A) service within a telephone exchange, or within a connected system of telephone exchanges within the same exchange area operated to furnish to subscribers intercommunicating service of the character ordinarily furnished by a single exchange, and which is covered by the exchange service charge, or (B) comparable service provided through a system of switches, transmission equipment, or other facilities (or combination thereof) by which a subscriber can originate and terminate a telecommunication service.
1.26 "Fiber-Meet" means an interconnection architecture method whereby the Parties physically interconnect their networks via an optical fiber interface (as opposed to an electrical interface) at a mutually agreed upon location.
1.27 "Local Exchange Carrier" or "LEC" means an incumbent local exchange carrier or a Local Service Provider (LSP).
1.28 Forward Looking Long Run Incremental Cost (LRIC) as defined by the Commission means the long run forward looking additional cost caused by providing all volume-sensitive and volume-insensitive inputs required to provide a service or network element offered as a service, using economically efficient current technology efficiently deployed. LRIC also equals the cost avoided, in the long run, when a service or network element offered as a service is no longer produced. LRIC excludes costs directly and solely attributable to the production of other services or network elements offered as services, and unattributable costs which are incurred in common for all the services supplied by the firm. The long run means a period long enough so that the cost estimates are based on the assumption that all inputs are variable.
1.29 "Initial Billing Company" or "IBC" is as described in
Section 5.6.3 of this Agreement.
1.30 "Interconnection" is as described in the Act and refers to the connection of separate pieces of equipment, facilities, or platforms between or within networks for the purpose of transmission and routing of Telephone Exchange Service traffic and Exchange Access traffic
1.31 "Interconnection Activation Date" is the date that the construction of the joint facility interconnection arrangement has been completed, trunk groups have been established, and joint trunk testing is completed.
1.32 "Interexchange Carrier" or "IXC" means a carrier that provides, directly or indirectly, interLATA or intraLATA Telephone Toll
SWBT/FULLTEL COMMUNICATIONS, INC.
Services. For purposes of Section 6.0 of this Agreement, the term "IXC" includes any entity which purchases FGB or FGD Switched Exchange Access Service in order to originate or terminate traffic to/from CLEC's end users.
1.33 "Interim Number Portability" (INP) as referenced in this Agreement, is the capability of an end user to retain their telephone number when changing local service providers, using RCF or DID technology.
1.34 "IntraLATA Toll Traffic" means those intraLATA station calls that are not defined as Local Traffic in this Agreement.
1.35 "Integrated Services Digital Network" or "ISDN" is switched network service providing end-to-end digital connectivity for the simultaneous transmission of voice and data. ISDN is provisioned end-to-end pursuant to TR-444. Basic Rate Interface ISDN ("BRI-ISDN") provides for digital transmission of two analog or 64 Kbps digital data information bearing channels ("Bearer Channels") and one 16 Kbps data channel (2B+D).
1.36 "Line Information Database" or "LIDB" is as described in Appendix LIDB.
1.37 "Local Calling Area" is as described in Section 5.1.2 of this Agreement.
1.38 "Local Exchange Carrier" or "LEC" means any person that is engaged in the provision of telephone exchange service or exchange access. Such term does not include a person insofar as such person is engaged in the provision of a commercial mobile service under section 332(c),except to the extent that the Commission finds that such service should be included in the definition of such term.
1.39 "Local Exchange Routing Guide" or "LERG" is a Bellcore reference typically used by LECs, IXCs and CLCs to identify NPA-NXX routing and homing information.
1.40 "Local Serving Office" means the end office that serves an end user.
1.41 "Local Traffic," for purposes of intercompany compensation, means traffic that originates and terminates between or among end users within a SWBT local calling area defined in SWBT tariffs as they exist at the time of the signing of this agreement, including mandatory local calling scope arrangements, but excluding Optional EAS areas, if any. "Mandatory Local Calling Scope" is an arrangement that requires end users to subscribe to a local calling scope beyond their basic exchange serving area. In no event shall the Local Traffic area for purposes of local call termination billing between the Parties be decreased during the term of this Agreement.
1.42 "Losses" means any and all losses, costs (including court costs), claims, damages (including fines, penalties, and criminal or civil judgments and settlements), injuries, liabilities and expenses (including attorneys' fees).
SWBT/FULLTEL COMMUNICATIONS, INC.
1.43 "MECAB" refers to the Multiple Exchange Carrier Access
Billing document prepared by the Billing Committee of the Ordering and Billing
Forum (OBF), which functions under the auspices of the Carrier Liaison Committee
(CLC) of the Alliance for Telecommunications Industry Solutions (ATIS). The
MECAB document, published by Bellcore as Special Report SR-BDS-000983, contains
the recommended guidelines for the billing of access services provided to an IXC
by two or more LECs, or by one LEC in two or more states within a single LATA.
The latest release is issue No. 5, dated June 1994.
1.44 "MECOD" refers to the Multiple Exchange Carriers Ordering and Design Guidelines for Access Services - Industry Support Interface, a document developed by the Ordering/Provisioning Committee of the Ordering and Billing Forum (OBF), which functions under the auspices of the Carrier Liaison Committee (CLC) of the Alliance for Telecommunications Industry" Solutions (ATIS). The MECOD document, published by Bellcore as Special Report SR STS-002643, establishes methods for processing orders for access service which is to be provided to an IXC by two or more telecommunications providers. The latest release is issue No. 3, dated February 1996.
1.45 "Meet Point" is as described in Section 5.6.2 of this Agreement.
1.46 "Meet-Point Billing" or "MPB" refers to a billing arrangement whereby two or more Telecommunications Carriers jointly provide for switched access service to an IXC, with each LEC receiving an appropriate share of its switched access revenues as defined by its effective access tariffs.
1.47 "Metropolitan Exchange Area" means a geographical area defined in SWBT current tariffs effective December, 1996 as a metropolitan exchange local calling area. For example, Oklahoma City, Tulsa, and each separate Metropolitan Exchange Area.
1.48 "Multi-Frequency" or "MF" means signaling arrangements that make use of pairs of frequencies out of a group of six frequencies. MF signals are used for called number address signaling, calling number identification, ring-back, and coin control.
1.49 "Multiple Bill/Multiple Tariff method" is the meet-point billing method where each LEC prepares and renders its own meet point bill to the IXC in accordance with its own tariff for that portion of the jointly-provided Switched Access Service which the LEC provides. MECAB documents refer to this method as "Multiple Bill/Single Tariff."
1.50 "North American Numbering Plan" or "NANP" means the system of telephone numbering employed in the United States, Canada, and certain Caribbean
SWBT/FULLTEL COMMUNICATIONS, INC.
countries. It denotes the three digit Numbering Plan Area code and a seven digit telephone number made up of a three digit Central Office code plus a four digit station number.
1.51 "Network Element" means a facility or equipment used in the provision of a telecommunications service. Such term also includes features, functions, and capabilities that are provided by means of such facility or equipment, including subscriber numbers, data bases, signaling systems, and information sufficient for billing and collection or used in the transmission, routing, or other provision of a telecommunications service.
1.52 "Network Element Bona Fide Request" means the process described in Appendix UNE that is attached hereto and incorporated herein that prescribes the terms and conditions relating to a Party's request that the other Party provide a Network Element.
1.53 "Numbering Plan Area" or "NPA" is sometimes referred to as an area code. This is the three digit indicator that is defined by the "A", "B", and "C" digits of each 10-digit telephone number within the North American Numbering Plan (NANP). There are two general categories of NPA, "Geographic NPAs" and "Non-Geographic NPAs". A Geographic NPA is associated with a defined geographic area, and all telephone numbers bearing such NPA are associated with services provided within that Geographic area. A Non-Geographic NPA, also known as a "Service Access Code" (SAC Code) is typically associated with a specialized telecommunications service that may be provided across multiple geographic NPA areas.
1.54 "NXX", "NXX Code", or "Central Office Code" is the three digit switch entity indicator that is defined by the "D", "E", and "F" digits of a 10 digit telephone number within the North American Numbering Plan (NANP).
1.55 "Permanent Number Portability" or "PNP" means the use of the local routing number (LRN) database solution to provide fully transparent LNP for all customers and all providers without limitation.
1.56 "Point of Interface" or "POI" is a mutually agreed upon point of demarcation where the exchange of traffic between two LECs takes place.
1.57 "Pre-ordering and Ordering" is as described in Appendix OSS.
1.58 "Port" is as described in Appendix UNE.
1.59 "Provider" means a carrier who provides services to end users or other carriers.
1.60 "Rate Center" means the specific geographic point and corresponding geographic area associated with one or more NPA-NXX codes that have been assigned to a LEC for its provision of Telephone Exchange Service.
1.61 "Referral Service" means a process in which calls are routed to an announcement which states the new telephone number of an end user.
SWBT/FULLTEL COMMUNICATIONS, INC.
1.62 "Resale" is as described in Appendix Resale.
1.63 "Routing Point" means a location that a LEC or LSP has designated on its own network as the homing (routing) point for traffic, bearing a certain NPA-NXX designation, that is inbound to Basic Exchange Telecommunications Services provided by the LEC or LSP. The Routing Point is employed to calculate mileage measurements for the distance-sensitive transport element charges of Switched Access Services. Pursuant to Bellcore Practice BR 795-100-100, the Routing Point may be an "End Office" location, or a "LEC Consortium Point of Interconnection". Pursuant to that same Bellcore Practice, examples of the latter shall be designated by a common language location identifier (CLLI) code with (x)KD in positions 9, 10, 11, where (x) may be any alphanumeric A-Z or 0-9. The above referenced Bellcore document refers to the Routing Point as the Rating Point. The Routing Point must be located within the LATA in which the corresponding NPA-NXX is located. However, Routing Points associated with each NPA-NXX need not be the same as the corresponding Rate Center, nor must there be a unique and separate Routing Point corresponding to each unique and separate Rate Center; provided only that the Routing Point associated with a given NPA-NXX must be located in the same LATA as the Rate Center associated with the NPA-NXX.
1.64 "Service Control Point" or (SCP) is as described in Appendix UNE.
1.65 "Service Switching Point" or "SSP" is as described in Appendix UNE.
1.66 "Signaling Point" or "SP" is as described in Appendix UNE.
1.67 "Signal Transfer Point" or "STP" is as described in Appendix UNE.
1.68 "Signaling System 7 or "SS7" is as described in Appendix UNE.
1.69 "Special Access" means access other than switched access and provides a dedicated trunk or trunk group between A and Z locations.
1.70 "Subsequent Billing Company" or "SBC" is as described in
Section 5.6.3 of this Agreement.
1.71 "Switched Exchange Access Service" means the offering of transmission or switching services to Telecommunications Carriers for the purpose of the origination or termination of Telephone Toll Service. Switched Exchange Access Services include, but are not necessarily limited to: Feature Group A, Feature Group B, Feature Group D, 800/888 access, and 900 access and their successors or similar Switched Exchange Access services.
SWBT/FULLTEL COMMUNICATIONS, INC.
1.72 "Synchronous Optical Network" or "SONET" means an optical interface standard that allows inter-networking of transmission products from multiple vendors. The base rate is 51.84 Mbps (OC-1/STS-1) and higher rates are direct multiples of the base rate, up to 13.22 Gpbs.
1.73 "Tariff Services" as used throughout this Agreement refers to SWBT interstate tariffs and intrastate tariffs.
1.74 "Telecommunications Services" is as defined in the Act.
1.75 "Transit " is as defined in the Reciprocal Compensation
Section of this Agreement.
1.76 "Trunk Side" is as defined in Appendix UNE.
1.77 "Wholesale Discount" is as described in Appendix Resale.
1.78 "Wire Center" means an occupied structure or portion thereof in which a Party has the exclusive right of occupancy and which serves as a Routing Point for Switched Exchange Access Service.
2.0 INTERPRETATION AND CONSTRUCTION
In the event of any amendment of the Act or any legislative, regulatory, judicial order, rule or regulations, or other legal action that revises or reverses the Act, the FCC's Orders in FCC Docket Nos. 96-98 and 95-185 or any applicable FCC order or arbitration award purporting to apply the provisions of the federal Act, the Parties reserve all of their rights and remedies, including those to amend, alter, or revise this Agreement.
3.0 RATES CHARGES AND IMPLEMENTATION -- GENERALLY
3.1 IMPLEMENTATION SCHEDULE AND INTERCONNECTION ACTIVATION DATES
3.1.1 Pursuant to this Agreement, CLEC and SWBT agree to the following schedule of rates and charges:
The Parties agree to use the Commission's ordered interim rates from Cause No. PUD 960000218 (AT&T/SWBT Arbitration). The Parties agree to use such interim rates and charges until such time as new rates are established pursuant to a final and effective Commission order or more favorable rates are included in a final approved interconnection agreement between SWBT and another carrier. Such new rates shall be substituted in place of the interim rates previously established when final and effective or available in a final approved interconnection agreement. To the extent required by the Commission in the above referenced docket, such interim rates shall be subject to true-up.
3.1.2 Subject to the terms and conditions of this Agreement, Interconnection of the Parties' facilities and equipment pursuant to Sections 4.0, 5.0 and 6.0 for obtaining unbundled network elements, the transmission and routing of Telephone Exchange Service traffic; and for Exchange Access traffic
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shall be established on or before the corresponding "Interconnection Activation Date" shown for each such Metropolitan Exchange Area on Appendix DCO. Appendix DCO may be revised and supplemented from time to time upon the mutual agreement of the Parties to reflect the Interconnection of additional Metropolitan Exchange Areas pursuant to Section 4.7 by modifying or updating the DCO appendix.
3.2 RATES AND CHARGES -- GENERALLY
3.2.1 SWBT's prices for termination and transport of traffic, interconnection, access to unbundled network elements (including operational support systems), and ancillary services are based upon the forward looking long run incremental cost and including an appropriate allocation of forward looking joint and common costs, incurred by SWBT in providing the service. Prices are set forth in the attached Appendices, and comport with the Act and the Commission's decision in the permanent cost docket.
3.2.2 SWBT's wholesale discounts for resale services, set forth in the attached Appendices, are calculated in accordance with the standards set forth in the Act.
3.2.3 Where any request for services or elements under this Agreement entails the modification of existing facilities; where such request cannot be met by the offerings specified in this Agreement; where such a request entails a higher or lower level of quality than SWBT historically provided to itself; or where this Agreement and incorporated Appendices do not establish a price to recover the development, implementation, or other costs of meeting the request; the Bona Fide Request detailed in this document shall apply.
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)
4.1 Scope
This Section, 4.0, describes the physical architecture for Interconnection of the Parties' facilities and equipment for the transmission and routing of Telephone Exchange Service traffic and Exchange Access traffic pursuant to Section 251(c)(2) of the Act. Such Interconnections shall be equal in quality to that provided by the Parties to themselves or to any subsidiary, affiliate or Third Party. For purposes of this Section 4.0, "equal in quality" refers to functionally equivalent interfaces specifications, provisioning and installation intervals, and maintenance, testing and repair, and quality of performance. Appendix ITR prescribes the specific trunk groups (and traffic routing parameters) which will be configured over the physical connections described in this Section (4.0 ) to provide the facilities for the transmission and routing of Telephone Exchange Service traffic (as described in Section 5.0), Exchange Access traffic (as described in Section 6.0), LSV/BLI traffic (as described in Section 7.2), and E911/911 traffic (as described in Section 7.4). Use of this physical connection shall be limited to the trunk groups described in Appendix ITR.
4.2 Interconnection Coverage
The Parties shall provide for interoperation of their networks and shall interconnect their facilities as stated below:
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1. CLEC shall interconnect with SWBT's facilities as follows:
a. In each SWBT exchange area in which CLEC chooses to offer local exchange service, CLEC, at a minimum, will interconnect its network facilities to (a) one access tandem and (b) to each SWBT local tandem(s) or to each SWBT end office(s) (EOs). If CLEC desires a single point for interconnection within a LATA, CLEC agrees to purchase dedicated or common transport from SWBT to any other exchange within a LATA requested by CLEC, or CLEC may self-provision, or use a third party's facilities. The SWBT EOs and tandems through which CLEC will terminate its traffic will be called SWBT Interconnection Wire Centers and are to be identified in Appendix DCO attached hereto and incorporated herein by reference. As CLEC initiates exchange service operations in additional SWBT exchange areas, SWBT and CLEC shall agree upon additional SWBT Interconnection Wire Centers in each new exchange area. CLEC agrees that if SWBT establishes additional local tandems in an exchange area within which CLEC offers local exchange service, CLEC will interconnect to the additional tandems.
b. Interconnection to a SWBT local tandem(s) will provide CLEC local access to the SWBT end offices and NXXs which subtend that tandem(s), and to other Local Exchange Carriers (LECs) (subject to Section 7.3) which are connected to that tandem(s). Interconnection to SWBT EO(s) will provide CLEC access only to the NXXs served by that individual EO(s) to which CLEC interconnects.
c. Interconnection to a SWBT access tandem will provide CLEC interexchange access to SWBT, IXCs, LECs, and wireless providers (subject to Section 7.3) which are connected to that tandem. Where an access tandem also provides local tandem functions, interconnection to a SWBT access tandem serving that exchange will also provide CLEC access to SWBT's EOs with the same functionality described in (b) above.
d. Where CLEC requires ancillary services (e.g., Directory Assistance, Operator Assistance, 911/E911) additional interconnection to SWBT's Interconnection Wire Center(s) or special trunking will be required for interconnection to such ancillary services.
SWBT shall interconnect with CLEC's facilities under terms and conditions no less favorable than those identified in Section 4.2, Paragraph 1, above.
4.3 Methods for Interconnection
Where the Parties interconnect, for the purpose of exchanging traffic between networks, the Parties may use the following interconnection methods for each Tandem and End Office identified in Appendix DCO making use of facilities they own or lease from a third party.
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4.3.1 Physical Collocation Interconnection (PCI) is where CLEC provides fiber cable and connects to its equipment located in the SWBT Wire Center. CLEC owns and maintains CLEC's equipment.
4.3.2 Virtual Collocation Interconnection (VCI) is where CLEC provides fiber cable to SWBT for connection to CLEC's designated basic transmission equipment dedicated solely for CLEC's use, located in the SWBT Interconnection Wire Center. Where space is not available for physical collocation and space is available for virtual collocation and technical limitations do not exist, CLEC and SWBT agree to negotiate in good faith, an arrangement whereby CLEC shall be permitted to purchase transmission equipment that SWBT will install, maintain, and repair at the request of CLEC. If CLEC elects to remove such equipment it shall pay SWBT the cost of removal.
4.3.3 SONET-Based Interconnection (SBI) is where CLEC provides fiber cable to SWBT for connection to SWBT-designated basic transmission equipment located at the SIWC and dedicated solely for CLEC's use. SWBT owns and maintains the basic transmission equipment. This option shall be consistent with SWBT's SBI tariff as modified, if necessary, to comport with the ACT and FCC Order.
4.3.4 Leased Facility Interconnection (LFI) - where facilities exist, either Party may lease facilities from the other Party as mutually agreed.
4.3.5 Mid-span Fiber Interconnection - Where the Parties agree to interconnect through SONET technology, using a mutually agreeable originating line terminating multiplexer fiber optic terminal (FOT) details of this architecture are addressed in Appendix MSFI. This interconnection arrangement is limited to interconnecting trunks.
4.3.6 The Parties may agree to utilize another Interconnection Method as may be determined to be technically feasible in the future.
4.4 Physical Architecture
4.4.1 Using one or more of the Interconnection Methods described in Section 4.3 above, the Parties will agree on a physical architecture plan. This plan will be documented within Appendix DCO. The Parties agree to deploy a physical architecture plan per Metropolitan Serving Area which is mutually acceptable. Two architecture arrangements, End Span Meet (or End Point Meet) and Mid-Span Meet (or Mid-Point Meet), are discussed below. Additional physical architectures, as yet undefined, may evolve during the term of this Agreement. These future, as yet undefined architectures, can be deployed if mutually agreed upon.
4.4.2 As set forth in Appendix ITR, the Parties shall initially configure all Traffic Exchange Trunk groups as two-way, but utilized as one-way as described herein. The Parties agree that two-way trunking is the desired architecture and shall use their best efforts to mutually agree on a schedule for conversion to utilization of two-way trunks but not to exceed twelve (12) months from the Interconnection Activation Date.
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a. End Point Meet
Using the "End Point Meet" architecture, the Parties will
establish transport facilities from their own Central Office(s) to the other
party's Central Office(s) utilizing any method of interconnection described in
Section 4.3. Unless otherwise mutually agreed upon, each Party will use its own
or third party transport facilities to provide trunking as set forth in Exhibit
B. The Parties will be responsible for the appropriate sizing of the trunk
groups. Operation and maintenance of the transport facilities will be the
responsibility of the Party providing them.
If initially deployed as an End-Span Architecture, the deployment architecture may be migrated or groomed, upon mutual agreement, to a Mid-Span Meet architecture.
b. Mid-Span Meet
Using the "Mid-Span Meet" architecture, the Parties will agree upon a Network Interconnection Point (NIP). The NIP functions as a demarcation point for each Party. Each Party is responsible to provide the necessary trunking to its side of the NIP utilizing any method of interconnection described in Section 4.3 above. The Parties are mutually responsible for the appropriate sizing of the composite trunking facility. The Party providing the facility section is responsible for the operation and maintenance of the transport facility to the NIP.
A second NIP may be established, when mutually agreed upon, to eliminate a "single point of failure". The establishment of the second NIP may not require additional or increased trunking or facilities of either Party. Trunking from the initial NIP will be groomed or augmented to the second NIP upon mutual agreement.
When required, based on guidelines established pursuant to Appendix ITR, either Party may trunk directly to the other Party's EO. If the Party is virtually or physically collocated at the EO, then that collocation will be designated as a NIP. This collocation will be used for the transport of direct EO trunking, in addition to other uses. The collocated Party is responsible for the appropriate sizing, operation, and maintenance of the transport facility which will carry mutual traffic. In the instance where the Party is not collocated, the EO trunk group will be handed off at the original NIP and both Parties will be economically and technically responsible for the transport facility on their side of that NIP.
Unless otherwise mutually agreed upon, when Mid- Span Meet architecture has been deployed, it will remain as the architecture of choice during the term of this Agreement.
SWBT/FULLTEL COMMUNICATIONS, INC.
4.5 Technical Specifications
4.5.1 CLEC and SWBT shall work cooperatively to install and maintain a reliable network. CLEC and SWBT shall exchange appropriate information (e.g., maintenance contact numbers, network information, information required to comply with law enforcement and other security agencies of the Government and such other information as the Parties shall mutually agree) to achieve this desired reliability.
4.5.2 CLEC and SWBT shall work cooperatively to apply sound network management principles by invoking network management controls to alleviate or to prevent congestion.
4.5.3 Technical Publications that describes the practices, procedures, specifications and interfaces generally utilized by SWBT are identified herein. Technical Publications referred to herein assist the Parties in meeting their respective Interconnection responsibilities. Copies of the publications listed in this Agreement have been provided to CLEC by SWBT.
4.6 Interconnection in Additional Metropolitan Exchange Areas
4.6.1 If CLEC decides to offer Telephone Exchange Services in any other Exchange Areas in which SWBT also offers Telephone Exchange Services, CLEC shall provide written notice to SWBT of the need to establish Interconnection in such Exchange Areas pursuant to this Agreement.
4.6.2 The notice provided in Section 4.6.1 shall include (i) the initial Routing Point CLEC has designated in the Exchange Area; (ii) CLEC's requested Interconnection Activation Date; and (iii) a non-binding forecast of CLEC's trunking requirements.
4.6.3 Unless otherwise agreed by the Parties, the Parties shall designate the Wire Center that CLEC has identified as its initial Routing Point in the Exchange Area as the CLEC Interconnection Wire Center (CIWC) in that Exchange Area and shall mutually designate a SWBT Tandem Office Wire Center(s) within the Exchange Area as the SIWC(s) in that Exchange Area.
4.6.4 Unless otherwise agreed by the Parties, the Interconnection Activation Date in each new Exchange Area shall be targeted at ninety (90) days but in no event more than 150 days following the date on which CLEC delivered notice to SWBT of the need to establish Interconnection pursuant to Section 4.6.1. Within ten (10) business days of SWBT's receipt of CLEC's notice, SWBT and CLEC shall confirm the respective Wire Centers to be Interconnected and the Interconnection Activation Date for the new Exchange Area by attaching a supplementary schedule to Appendix DCO.
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5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC PURSUANT TO
SECTION 251(c)(2)
5.1 Scope of Traffic
This Section (5.0) prescribes parameters for Traffic Exchange trunk
groups the Parties shall establish over the Interconnections specified in
Section 4.0. The parties shall employ the Traffic Exchange trunk groups
specified, in this Section (5.0) and in Appendix ITR, for the transmission and
routing of all Local and IntraLATA Toll Traffic between the Parties.
5.1.1 For purposes of compensation under this Agreement, the telecommunications traffic traded between CLEC and SWBT will be classified as either Local Traffic, Transit Traffic, Optional Calling Area Traffic, IntraLATA Interexchange Traffic, InterLATA Interexchange Traffic, FGA Traffic, or Wireless Traffic. The compensation arrangement for the joint provision of Feature Group A (FGA) Services is covered in Appendix FGA, attached hereto and incorporated herein by reference. The compensation arrangement for the joint provision of Wireless Traffic is covered in Appendix Wireless, attached hereto and incorporated herein by reference. The Parties agree that, notwithstanding the classification of traffic under this Agreement, either Party is free, within the terms of this Agreement to define its own "local" calling area(s) for purposes of its provision of Telecommunications Services to its end users.
5.1.2 Calls originated by one Party's end user and terminated to the other Party's end user will be classified as "Local Traffic" under this Agreement if: (i) the call originates and terminates in the same SWBT exchange area; or (ii) originates and terminates within different SWBT Exchanges that share a common mandatory local calling area, e.g., mandatory Extended Area Service (EAS), mandatory Extended Local Calling Service (ELCS), or other like types of mandatory expanded local calling scopes.
5.2 Responsibilities of the Parties
5.2.1 Each Party will be responsible for the accuracy and completeness and quality of its data as submitted to the respective Parties involved.
5.2.2 Each Party will include in the information transmitted to the other, for each call being terminated on the other's network (where available), the originating Calling Party Number (CPN) or Automatic Number Identification (ANI).
5.2.3 The type of originating calling number transmitted depends on the protocol of the trunk signaling used for interconnection. Traditional toll protocol will be used with Multi-Frequency (MF) signaling, and ANI will be sent from the originating Party's end office switch to the terminating Party's tandem or end office switch.
5.2.4 Where one Party is passing CPN but the other party is not properly receiving information, the Parties will cooperate to rate the traffic correctly.
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5.3 Reciprocal Compensation for Termination of Local Traffic
5.3.1 The Compensation set forth below will apply to all Local Traffic as defined in Section 5.1.2 of this Agreement.
5.3.2 Applicability of Rates
i) The rates, terms, conditions in this Section
5.3 apply only to the termination of Local
Traffic, except as explicitly noted.
ii) The Parties agree to compensate each other
for the termination of Local Traffic on a
minute of use (MOU) basis.
5.3.3 Rate Elements
5.3.3.1. A Tandem rate element is applicable to
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Tandem Routed Local Traffic on a terminating local MOU basis and includes compensation for the following sub-elements.
i) Tandem Switching - compensation for the use of tandem switching functions.
ii) Tandem Transport - compensation for the transmission facilities between the local tandem and the end offices subtending that tandem.
iii) End Office Switching - compensation for the local EO office switching and line termination functions necessary to complete the transmission.
5.3.3.2 An End Office rate element applies to direct-routed Local Traffic, on a terminating local MOU basis, and includes compensation for End Office Switching. This includes direct-routed Local Traffic that terminates to offices that have combined tandem and End Office functions.
5.3.3.3 De minimis Provision. The first nine months of this agreement shall be a de minimis period. For purposes of Section 5.3.3 there shall be a monthly threshold de minimis level of Local Traffic below which no compensation will be paid by the Parties for termination of Local Traffic, unless the net of such terminating traffic results in Minutes of Use (MOUs) in excess of the threshold. Such de minimis level shall be 105% determined by comparing each Party's monthly MOU calculation. Such minutes of use shall be measured in seconds by call type and accumulated monthly and then rounded to the nearest one minute increment for billing purposes. This provision applies to Local Traffic only, which includes calls originated and terminated to/from mandatory local calling areas, but does not include Transit or CMRS Traffic. The Parties acknowledge and agree that any compensation which might accrue in an amount less than required by this Section shall be considered de minimis, however, the Parties shall exchange all records required under the Agreement
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even when the traffic exchanged between the Parties is de minimis. Whenever the traffic exchanged between the parties exceeds the 105% de minimis level, in any given month, the Parties shall bill or settle amongst themselves for all MOUs.
5.3.4 Local Traffic Interconnection Rates
Prices
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Tandem Switching $0.002822/MOU
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Tandem Transport
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Common
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Zone A $0.000621/MOU
Zone B $0.000393/MOU
Zone C $0.000519/MOU
End Office Switching
Zone A $0.007598/MOU
Zone B $0.005965/MOU
Zone C $0.005775/MOU
5.4 Reciprocal Compensation for Transit Traffic
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5.4.1 Transit Traffic allows one Party to send Local traffic to a third party network through the other Party's tandem. A Transit Traffic rate element applies to all MOUs between a Party and third party networks that transit the other Party's tandem switch. The originating Party is responsible for the appropriate rates unless otherwise specified. The Transit Traffic rate element is only applicable when calls do not originate with (or terminate to) the transit Party's end user.
All other traffic which transits a tandem shall be
treated as meet-point billing traffic unless otherwise agreed.
Each Party represents that it shall not send local traffic to the other Party that is destined for the network of a third party unless and until such Party has the authority to exchange traffic with the third party.
5.5 Reciprocal Compensation for Termination of IntraLATA Interexchange Traffic
5.5.1 For intrastate intraLATA interexchange service traffic, compensation for termination of intercompany traffic will be at terminating access rates for Message Telephone Service (MTS) and originating
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access rates for 800 Service, including the Carrier Common Line (CCL) charge, as set forth in each party's Intrastate Access Service Tariff. For interstate intraLATA service, compensation for termination of intercompany traffic will be at terminating access rates for MTS and originating access rates for 800 Service including the CCL charge, as set forth in each party's interstate Access Service Tariff.
5.6 Compensation for Origination and Termination of
Switched Access Service Traffic to or From an IXC
(Meet-Point Billing (MPB) Arrangements)
5.6.1 For interstate, interLATA traffic, terminating compensation will be at access rates as set forth in each Party's own applicable access tariffs.
5.6.2 The Parties will establish MPB arrangements, as mutually agreed upon, in order to provide Switched Access Services to IXCs via SWBT's access tandem switch in accordance with the MPB guidelines adopted by and contained in the Ordering and Billing Forum's MECOD and MECAB documents. CLEC's Meet Points with SWBT, and SWBT's Meet Points with CLEC shall be those identified in Appendix DCO and any supplements thereto.
5.6.3 Billing to IXCs for the Switched Exchange Access Services jointly provided by the Parties via Meet-Point Billing arrangement shall be according to the multiple bill/single tariff method. As described in the MECAB document, each Party will render a bill in accordance with its own tariff for that portion of the service it provides. For the purpose of this Agreement, CLEC is the Initial Billing Company (IBC) and SWBT is the Subsequent Billing Company (SBC). The assignment of revenues, by rate element, and the Meet-Point Billing percentages applicable to this Agreement are set forth in the Meet Point Billing Arrangement Revenue Assignment Schedule. The actual rate values for each element shall be the rates contained in that Party's own applicable access tariffs.
5.6.4 The Parties will maintain provisions in their respective federal and state access tariffs, or provisions within the National Exchange Carrier Association (NECA) Tariff No. 4, or any successor tariff, sufficient to reflect this MPB arrangement, including MPB percentages.
5.6.5 As detailed in the MECAB document, the Parties will, in accordance with accepted time intervals exchange all information necessary to accurately, reliably and promptly bill third Parties for Switched Access Services traffic jointly handled by the Parties via the Meet Point Arrangement. Each Party reserves the right to charge the other Party for the recording/processing functions it performs pursuant to Appendix Recording or nondiscriminatory terms and conditions. Information shall be exchanged in Exchange Message Record (EMR) format, on magnetic medium or via a mutually acceptable electronic file transfer protocol.
5.6.6 Initially, billing to IXCs for the Switched Access Services jointly provided by the parties via the MPB arrangement will be according to the multiple bill single tariff method, as described in the MECAB
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document. Each Party will render a bill to the IXC in accordance with its own tariff for that portion of the service it provides. Each Party will bill its own network access service rates to the IXC. The residual interconnection charge (RIC), if any, will be billed by the Party providing the End Office function.
5.6.7 Meet-Point Billing shall also apply to all jointly provided MOU traffic bearing the 900, 800, and 888 NPAs or any other non-geographic NPAs which may likewise be designated for such traffic in the future where the responsible party is an IXC. For 800 database queries performed by SWBT, SWBT will charge the provider of the Signaling Service Point for the database query in accordance with standard industry practices and at rates included in the attached Appendices.
5.6.8 Each Party shall coordinate and exchange the billing account reference ("BAR") and billing account cross reference ("BACR") numbers for the Meet Point Billing service. Each Party shall notify the other if the level of billing or other BAR/BACR elements change, resulting in a new BAR/BACR number.
5.6.9 Each Party will provide the other with the Exchange Access detailed usage data within thirty (30) days of the end of the billing period. SWBT will perform assembly and editing, messages processing and provision of Access Usage Records in accordance with Appendix Recording, which is attached hereto and incorporated herein by this reference. Each Party will provide to the other the Exchange Access Summary Usage Records within ten (10) working days after the date that a bill is rendered to the IXC by the initial Party. The Parties reserve the right to charge for such data and will negotiate mutual and reciprocal charges.
5.6.10 Errors in information transmission and/or
billing may be discovered by CLEC, the IXC or SWBT. Both SWBT and CLEC agree to
provide the other Party with notification of any discovered errors within two
(2) business days of the discovery.
5.6.11 In the event of a loss of data, both Parties shall cooperate to reconstruct the lost data within sixty (60) days of notification and if such reconstruction is not possible, shall accept a reasonable estimate of the lost data, based upon an extrapolation from no more than three (3) to twelve (12) months of prior usage data, if available.
5.7 Billing Arrangements for Compensation for Termination of IntraLATA, Local, Transit, and Optional Calling Area Traffic
5.7.1 Other than for traffic described in Section 5.6 above, each Party shall deliver monthly settlement statements for terminating the other Party's traffic based on a mutually agreed schedule as follows:
For billing purposes, each Party shall, unless otherwise agreed, pass the originating call record for the recording, record exchange and billing of traffic using the guidelines as set forth in the Technical Exhibit Settlement Procedures (TESP), provided by SWBT to CLEC.
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(a) Where CLEC has direct/high usage trunks to a SWBT end office with overflow trunking through a SWBT tandem, billing for the Tandem Traffic will be calculated as follows:
total originating MOUs to SWBT's end office recorded by CLEC
less direct end office terminating MOUs recorded by SWBT
equals total MOUs to be compensated as Tandem traffic
(b) Where CLEC has direct/high usage trunks to a third party with overflow trunking through a SWBT tandem, CLEC must differentiate the originating MOU records for the Parties to ascertain how many MOUs should be compensated as Transit Traffic. If CLEC is unable to differentiate the originating MOU records, the Parties shall mutually agree upon a surrogate method for calculating the basis for Transit Traffic charges owed to SWBT.
5.7.1.1 On a monthly basis, each Party will record its originating MOU including identification of the originating and terminating NXX for all intercompany calls.
5.7.1.2 Each Party will transmit the summarized originating MOU from Section 5.7.1.1 above to the transiting and/or terminating Party for subsequent monthly intercompany settlement billing.
5.7.1.3 Bills rendered by either Party will be paid within 30 days of receipt subject to subsequent audit verification.
5.7.1.4 Detailed technical descriptions and requirements for the recording, record exchange and billing of traffic are included in the Technical Exhibit Settlement Procedures (TESP), a copy of which has been provided to CLEC by SWBT.
5.7.2 MOUs for the rates contained herein will be measured in seconds by call type, accumulated each billing period into an aggregate number of seconds and rounded to the nearest one minute increment for billing purposes in accordance with 5.3.3.3.
5.7.3 Each Party will multiply the tandem routed and end office routed terminating MOUs by the appropriate rate contained in the attached Appendices to determine the total monthly billing to each Party.
5.7.4 If the percentage of calls passed by either Party with CPN is greater than ninety percent (90%), all calls exchanged without CPN information will be billed as either Local Traffic or IntraLATA Toll Traffic in direct proportion to the minutes of use (MOU) of calls exchanged with CPN information. If the percentage of calls passed with CPN is less than 90%, all calls passed without CPN will be billed as IntraLATA Toll Traffic.
SWBT/FULLTEL COMMUNICATIONS, INC.
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO 251(c)(2)
6.1 Scope of Traffic
Section 6.0 prescribes parameters for certain trunk groups ("Access Toll Connecting Trunks") to be established over the Interconnections specified in Section 4.0 for the transmission and routing of Exchange Access traffic between CLEC Telephone Exchange Service end users and IXCs via a SWBT access tandem.
6.2 Trunk Group Architecture and Traffic Routing
6.2.1 The Parties shall, as mutually agreed upon, jointly establish Access Toll Connecting Trunks as described in Appendix ITR, by which they will jointly provide tandem-transported Switched Exchange Access Services to IXCs to enable SWBT and CLEC end users to originate and receive traffic to/from such IXCs.
6.2.2 Access Toll Connecting Trunks shall be used solely for the transmission and routing of Switched Exchange Access to allow CLEC or SWBT end users to originate and terminate traffic to/from any IXCs which is connected to the other's Access Tandem. In addition, the trunks shall be used to allow CLEC's or SWBT's end users to connect to, or be connected to, the 800 Services of any Telecommunications Carrier connected to the other Party's Access Tandem.
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC
7.1 Information Services Traffic
7.1.1 At such time as the Parties shall agree to route intraLATA Information Services Traffic to one another, they shall agree to exchange rating and billing information to effectively allow the Parties to bill their end users and to charge reciprocal rates.
7.2 Line Status Verification (LSV)/Busy Line Interrupt (BLI) Traffic
7.2.1 Each Party's operator bureau shall accept LSV and BLI inquiries from the operator bureau of the other Party in order to allow transparent provision of LSV/BLI Traffic between the Parties' networks. Only one LSV attempt will be made per end user operator bureau call, and the applicable charge shall apply whether or not the line is busy at the time of verification and if the called party releases the line. Only one BLI attempt will be made per end user operator telephone call, and the applicable charge shall apply whether or not the called party releases the line.
7.2.2 Each Party shall route LSV/BLI Traffic inquiries between the Parties' respective operator bureaus over trunks described in Appendix ITR.
7.2.3 Each Party shall compensate the other Party for LSV/BLI Traffic as set forth in the Appendix OS.
SWBT/FULLTEL COMMUNICATIONS, INC.
7.3 Wireless Traffic
7.3.1 Appendix Wireless sets forth the terms and conditions under which the Parties will distribute revenue from their joint provision of Wireless Interconnection Service for mobile to landline traffic terminating through the Parties' respective wireline switching networks within a LATA. If either Party enters into an interconnection agreement with a CMRS provider, Appendix Wireless shall no longer be applicable between the Parties with respect to such CMRS providers.
7.3.2 SWBT will apply the Local Transit Traffic rate to CLEC for calls that originate on CLEC's network and are sent to SWBT for termination to a CMRS Provider as long as such Traffic can be identified as wireless traffic. CLEC will apply the Local Transit Traffic rate to SWBT for such calls that originate on SWBT's network and are sent through CLEC's network for termination on a CMRS Provider's network. Each Party shall be responsible for interconnection agreements with CMRS providers for terminating compensation regarding traffic originating on the Party's network and terminating on the CMRS provider's network. The originating Party agrees to indemnify the transiting Party for any claims of compensation that may be made by the CMRS provider against the transiting Party regarding compensation for such traffic.
7.3.3 When traffic is originated by either Party to a CMRS Provider, and the traffic cannot be specifically identified as wireless traffic for purposes of compensation between SWBT and CLEC, the traffic will be treated, in comport with its origination and termination, as either Local or Access and the appropriate compensation rate will apply.
7.4 911 Service
7.4.1 Pursuant to Section 271(c)(2)(B)(vii) of the Act, SWBT will make nondiscriminatory access to 911 service available under the terms and conditions of Appendix 911, attached hereto and incorporated by reference.
7.4.2 CLEC shall route 911 traffic over trunks as described in Appendix ITR.
8.0 SIGNALING
The SWBT signaling publications that describe the practices, procedures and specifications generally utilized by SWBT for signaling purposes and are listed in Appendix TP which is attached hereto and incorporated herein. Copies of these publications have been provided to CLEC.
8.1 The Parties will cooperate on the exchange of Transactional Capabilities Application Part (TCAP) messages to facilitate interoperability of CCS-based features between their respective networks, including all CLASS features and functions, to the extent each Party offers such features and functions to its end users. All CCS signaling parameters will be provided including, without limitation, calling party number (CPN), originating line information (OLI), calling party category and charge number.
SWBT/FULLTEL COMMUNICATIONS, INC.
9.0 NUMBERING
9.1 Nothing in this Agreement shall be construed to limit or otherwise adversely impact in any manner either Party's right to employ or to request and be assigned any NANP number resources including, but not limited to, central office (NXX) codes pursuant to the Central Office Code Assignment Guidelines1, or to establish, by tariff or otherwise, Exchanges and Rating Points corresponding to such NXX codes. Each Party is responsible for administering the NXX codes assigned to it.
9.2 At a minimum, in those Exchange Areas where CLEC intends to provide local exchange service, CLEC shall obtain a separate NXX code for each SWBT exchange wherein CLEC intends to offer service to end users. This will enable CLEC and SWBT to identify the jurisdictional nature of traffic for intercompany compensation until such time as both Parties have implemented billing and routing capabilities to determine traffic jurisdiction on a basis other than NXX codes.
9.3 Each Party agrees to make available to the other, up-to-date listings of its own assigned NPA-NXX codes, along with associated Rating Points and Exchanges.
9.4 To the extent SWBT serves as Central Office Code Administrator for a given region, SWBT will work with CLEC in a neutral and nondiscriminatory manner, consistent with regulatory requirements, in regard to CLEC's requests for assignment of central office code(s) (NXX) consistent with the Bellcore (or the succeeding organization assuming this function) Central Office Code Assignment Guidelines.
9.5 Each Party is responsible to program and update its own switches and network systems to recognize and route traffic to the other Party's assigned NXX codes at all times. Neither Party shall impose fees or charges on the other Party for such required programming and updating activities.
9.6 Each Party is responsible to input required data into the Routing Data Base Systems (RDBS) and into the Bellcore Rating Administrative Data Systems (BRADS) or other appropriate system(s) necessary to update the Local Exchange Routing Guide (LERG), unless negotiated otherwise.
9.7 Neither Party is responsible for notifying the other Parties' end users of any changes in dialing arrangements, including those due to NPA exhaust, unless otherwise ordered by the Commission, the FCC, or a court.
9.8 NXX Migration
Where either Party has activated an entire NXX for a single end user, or activated more than half of an NXX for a single end user with the remaining numbers in that NXX either reserved for future use or otherwise unused, if such
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end user chooses to receive service from the other Party, the first Party shall cooperate with the second Party to have the entire NXX reassigned in the LERG (and associated industry databases, routing tables, etc.) to an End Office operated by the second Party. Such transfer will require development of a transition process, to minimize impact on the Network and on the end user(s)' service and will be subject to appropriate industry lead times (currently 45 days) for movements of NXXs from one switch to another. The Party to whom the NXX is migrated will pay NXX migration charges of $10,000 per NXX.
10.0 RESALE -- SECTIONS 251(c)(4) and 251(b)(1)
10.1 Availability of Retail Telecommunications Services
SWBT shall offer to CLEC for resale at wholesale rates its Telecommunications Services, as described and in comport with Section 251(c)(4) of the Act, pursuant to the terms and conditions of the Appendix, "Resale" attached hereto, which are intended to comport with and be subject to the Act, and incorporated herein by this reference.
10.2 Availability of Retail Telecommunication Services for Resale
CLEC shall make available its Telecommunications Services for resale at rates to SWBT in accordance with Section 251(b)(1) of the Act.
11.0 UNBUNDLED NETWORK ELEMENTS - SECTIONS 251(c)(3), 271(c)(2)(B) (II),
(IV),(V),(VI),(X)
SWBT shall provide CLEC access to unbundled network elements for the provision of a telecommunication service as described in Section 251(c)(3) of the Act, pursuant to the terms and conditions of the Appendix, "UNE" which is intended to be subjected to and in comport with the Act and the Commissions' Orders, is attached hereto and incorporated herein by this reference.
12.0 NOTICE OF CHANGES -- SECTION 251(c)(5)
Nothing in this Agreement shall limit either Party's ability to upgrade its network through the incorporation of new equipment, new software or otherwise. If a Party makes a change in its network which it believes will materially affect the interoperability of its network with the other Party, the Party making the change shall provide at least ninety (90) days advance written notice of such change to the other Party. Notwithstanding the foregoing, if either Party establishes additional tandems in an exchange area in which the other Party offers local exchange service, that Party will provide the other Party with not less than 180 days' advance notification of same, and with greater notification when practicable. Both Parties agree to coordinate interconnection matters consistent with the requirements of the Americans with Disabilities Act (42 U.S.C. 12101) and with Sections 255 and 256 of the Act. In addition, the Parties will comply with the Network Disclosure rules adopted by the FCC in CC Docket No. 96-98, Second Report and Order, as may be amended from time to time. The Party upgrading its network shall be solely responsible for the cost and effort of accommodating such changes in its own network.
SWBT/FULLTEL COMMUNICATIONS, INC.
13.0 COLLOCATION -- SECTION 251(c)(6)
13.1 SWBT shall provide to CLEC facilities for the Physical Collocation of equipment necessary for Interconnection (pursuant to Section 4.0 of this Agreement), access to Network Elements on an unbundled basis, or once collocated, connection to the networks of third parties, except that SWBT may provide for Virtual Collocation to achieve the same ends if SWBT demonstrates to the Commission that Physical Collocation is not practical for technical reasons or because of space limitations, as provided in Section 251(c)(6) of the Act. SWBT shall provide such Collocation for the purpose of network Interconnection or access to Network Elements on an unbundled basis, except as otherwise mutually agreed to in writing by the Parties or as required by the FCC or the appropriate Commission, subject to this Agreement.
13.2 Except as otherwise ordered by the Commission or the FCC, or as mutually agreed to by CLEC and SWBT, Physical or Virtual Collocation shall be available at a Central Office Switch location classified as an end office location, a serving wire center, a local, sector, or access tandem office location, a remote node that serves as a rating point for special access or switched access transport, or other locations as required by the Act or Commissions' Order.
13.3 Attached hereto as Appendix Collocation, is the SWBT/CLEC Collocation agreement which sets forth terms and conditions under which SWBT shall provide physical collocation to CLEC in SWBT's Central central office in Oklahoma City. Additionally, Appendix Collocation is a generic collocation agreement which sets forth the terms and conditions under which SWBT shall provide physical collocation to CLEC for all future collocation arrangements between the Parties during the term of this Agreement. The prices and time frames for any future collocations requested by CLEC will be determined on a case-by-case basis. These variables are indicated by underlining (indicating blanks) in the generic appendix.
14.0 NUMBER PORTABILITY -- SECTIONS 251(b)(2), 271(c)(2)(B)(xi)
The Parties agree to provide Interim Number Portability (INP) to one another pursuant to terms and conditions outlined in Appendix PORT attached hereto and incorporated herein.
15.0 DIALING PARITY -- SECTION 251(b)(3) and 271(e)(2)
15.1 The Parties shall provide Local Dialing Parity to each other as required under Section 251(b)(3) of the Act.
15.2 SWBT shall provide IntraLATA Dialing Parity in accordance with
Section 271(e)(2) of the Act.
16.0 ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4)
To the extent required by Section 251(b)(4) of the Act, each Party
shall provide the other Party access to the poles, ducts, rights-of-way and
conduits (including riser conduit) it owns or controls in accordance with
Section 224 of the Act on the terms, conditions and prices set forth in Appendix
Poles, Conduits and Rights-of-Way to this Agreement.
SWBT/FULLTEL COMMUNICATIONS, INC.
17.0 DATABASE ACCESS
In accordance with Section 271 of the Act and Appendices UNE, 800, LIDB Validation, AIN, LIDB, CNAM, and OSS, SWBT shall provide CLEC with nondiscriminatory access to databases and associated signaling necessary for call routing and completion. When requesting access to databases not otherwise provided for in this Agreement, or appropriate interfaces, regardless of whether they constitute unbundled Network Elements, CLEC will use the Network Element Bona Fide Request process.
18.0 COORDINATED SERVICE CALLS
18.1 Referral Announcement. The Party formerly providing service to an end user shall provide a Basic Referral announcement, reciprocally and free of charge on the abandoned telephone number. The announcement will state that the called number has been disconnected or changed and will provide the end user's new telephone number if it is listed.
(a) Basic Intercept Referral Announcements are to be provided on residential numbers for the same period of time that a Party provides to its own end users, but at a minimum, for thirty (30) days where facilities exist and the threat of telephone number exhaustion is not imminent.
Basic Intercept Referral Announcements for a single line business end user and the primary listed telephone number for DID and "Centrex-type" end users, shall be available for a minimum of thirty (30) days or the life of the White Pages directory, whichever is greater. If the threat of telephone number exhaustion becomes imminent for a particular Central Office, the service provider may reissue a disconnected number prior to the expiration of the directory, for the same period of time that a Party provides to its own end users, but no earlier than thirty (30) days after the disconnection of the business telephone number.
18.2 Coordinated Repair Calls. The Parties will employ the following procedures for handling misdirected repair calls:
(a) The Parties will inform their respective end users of the correct telephone numbers to call to access their respective repair bureaus.
(b) To the extent the correct provider can be determined, misdirected repair calls will be referred to the proper provider of local exchange service in a courteous manner, at no charge, and the end user will be provided the correct contact telephone number.
In responding to misdirected repair calls, neither Party shall make disparaging remarks about each other, nor shall they use these repair calls as the basis for internal referrals or to solicit customers or to market services, nor shall they initiate extraneous communications beyond the direct referral to the correct repair telephone number.
(c) The Parties will provide their respective repair contact numbers to one another on a reciprocal basis.
SWBT/FULLTEL COMMUNICATIONS, INC.
19.0 OTHER SERVICES 271(c)(2)(vii), 271(c)(2)(B)(viii)
19.1 White Pages. In accordance with Section 271(c)(2)(B) of the Act, SWBT will make nondiscriminatory access to White Pages service available under the terms and conditions of the Appendix "WP", attached hereto and incorporated by reference.
19.2 Calling Name Information. The Parties shall provide, on mutually agreeable and reciprocal terms, each other with access to Calling Name information of their respective end users whenever one Party initiates a query from a Signaling System Point for such information associated with a call terminating to an end user who subscribes to a calling name service.
19.3 Billing/Collecting/Remitting. The Parties will jointly agree to terms and conditions for Billing, Collecting and Remitting for alternated billed local message as described in the Appendix "BCR", attached hereto and incorporated by reference.
19.4 911 Service. Pursuant to Section 271(c)(2)(B)(vii) of the Act, SWBT will make nondiscriminatory access to 911 service available under the terms and conditions of Appendix 911, attached hereto and incorporated by reference. CLEC shall route 911 traffic over trunks as described in the Appendix "ITR".
19.5 Directory Assistance (DA). Pursuant to Section 271(c)(B)(vii) of the Act, SWBT will provide nondiscriminatory access to DA services under the terms and conditions identified in the Appendix "DA", which is attached hereto and make a part hereof.
19.6 Direct Access (DIRECT). Pursuant to the Act and the Commissions' Orders, SWBT will provide nondiscriminatory access to published subscriber listing information contained in SWBT's Directory Assistance DA Database under the terms and conditions identified in the Appendix, "DIRECT", which is attached hereto and made a part hereof.
19.7 Operator Services. At CLEC's request, SWBT shall provide nondiscriminatory access to Operator Services under the terms and conditions identified in the Appendix "OS" which is attached hereto and make a part hereof.
19.8 Clearinghouse Services. To the extent requested by CLEC, SWBT shall provide for the tracking of message revenues from certain messages to facilitate the transfer of revenues between the billing company the earning company through the Clearinghouse Services provided by SWBT pursuant to the terms and conditions in the Appendix "CH", which is attached hereto and made a part hereof.
19.9 Hosting. At CLEC's request, SWBT shall perform hosting responsibilities for the provision of billable message data and/or access usage data received from CLEC for distribution to the appropriate billing and/or processing location or for delivery to CLEC of such data via SWBT's internal network or the nationwide CMDS network pursuant to the Appendix "HOST", which is attached hereto and made a part hereof.
SWBT/FULLTEL COMMUNICATIONS, INC.
19.10 Recording. At CLEC's request, SWBT shall perform recording functionality for CLEC pursuant to the Appendix "RECORDING", which is attached hereto and made a part hereof. These functions associated with recording will include assembly and editing, message processing and provision of Access Usage Record (AURs). These records will be generated by SWBT and provided to CLECwithin the time frame agreed upon between the companies.
19.11 Signaling System 7 Interconnection. At CLEC's request, SWBT shall perform SS7 interconnection services for CLEC pursuant to the Appendix "SS7", which is attached hereto and made a part hereof.
20.0 GENERAL RESPONSIBILITIES OF THE PARTIES
20.1 SWBT and CLEC shall each use their best efforts to meet the Interconnection Activation Dates.
20.2 Each Party is individually responsible to provide facilities within its network that are necessary for routing, transporting, measuring, and billing traffic from the other Party's network and for delivering such traffic to the other Party's network in the standard format compatible with SWBT's network as referenced in Bellcore's BOC Notes on LEC Networks Practice No. SR-TSV-002275, and to terminate the traffic it receives in that standard format to the proper address on its network. The Parties are each solely responsible for participation in and compliance with national network plans, including the National Network Security Plan and the Emergency Preparedness Plan.
20.3 Each Party shall, unless otherwise agreed, adhere to the requirements for the recording, record exchange, and billing of traffic using the guidelines as set forth in the Technical Exhibit Settlement Procedures (TESP), previously provided by SWBT to CLEC. Reference to this technical publication is included in Appendix TP which is attached hereto and incorporated herein by reference.
20.4 Neither Party shall use any service related to or use any of the services or elements provided in this Agreement in any manner that interferes with other persons in the use of their service, prevents other persons from using their service, or otherwise impairs the quality of service to other carriers or to either Party's end users, and either Party may discontinue or refuse service, but only for so long as the other Party is violating this provision. Upon such violation, either Party shall provide the other Party notice of the violation at the earliest practicable time.
20.5 Each Party is solely responsible for the services it provides to its end users and to other Telecommunications Carriers.
20.6 The Parties shall work cooperatively to minimize fraud associated with third-number billed calls, calling card calls, and any other services related to this Agreement.
20.7 At all times during the term of this Agreement, each Party shall keep and maintain in force at each Party's expense all insurance required by law (e.g. workers' compensation insurance) as well as general liability insurance for personal injury or death to any one person, property damage resulting from any one incident, automobile liability with coverage for bodily injury for property damage. Upon request from the other Party, each Party shall provide to
SWBT/FULLTEL COMMUNICATIONS, INC.
the other Party evidence of such insurance (which may be provided through a program of self insurance, in which case bonds, letters of credit, or escrows will be established in comport with mutual agreement).
20.8 In addition to its indemnity obligations under Section 26.0, each Party shall provide, in its tariffs and contracts with its end users that relate to any Telecommunications Service provided or contemplated under this Agreement, that in no case shall such Party or any of its agents, contractors or others retained by such parties be liable to any end user or third party for (i) any Loss relating to or arising out of this Agreement, whether in contract or tort, that exceeds the amount such Party would have charged the applicable end user for the service(s) or function(s) that gave rise to such Loss, and (ii) any Consequential Damages (as defined in Section 26.3 below).
20.9 Unless otherwise stated, each Party will render a monthly bill to the other for service(s) provided hereunder. Remittance in full will be due within thirty (30) days of that billing date. Interest shall apply on overdue amounts (other than Disputed Amounts which are subject to Section 28.12) at the rate specified in Section 28.12, unless otherwise specified in an applicable tariff. Each Party reserves the right to net delinquent amounts against amounts otherwise due the other.
20.10 SWBT is participating with the industry to develop standardized methods through the OBF and shall implement ordering and billing formats/processes consistent with industry guidelines as capabilities are deployed. Where such guidelines are not available SWBT will provide CLEC with information on its ordering and billing format/process and requirements at the earliest practicable time.
21.0 EFFECTIVE DATE, TERM, AND TERMINATION
21.1 This Agreement shall be effective not later than ten (10) days after approval by the Oklahoma Commission when it has determined that the Agreement complies with Sections 251 and 252 of the Act ("Effective Date").
21.2 The terms of the Agreement will commence upon approval by the Oklahoma Corporation Commission and will expire on August 1, 2000 (the "Term"). Absent the receipt by one Party of written notice from the other Party at least sixty (60) days prior to the expiration of the Term to the effect that such Party does not intend to extend the Term of this Agreement, this Agreement shall automatically renew and remain in full force and effect on and after the expiration of the Term until terminated by either Party pursuant to Section 21.4.
21.3 Either Party may terminate this Agreement in the event that the other Party fails to perform a material obligation that disrupts the operation of either Party's network and/or end user service and fails to cure such material nonperformance within forty-five (45) days after written notice thereof.
21.4 If pursuant to Section 21.2 this Agreement continues in full force and effect after the expiration of the Term, either Party may terminate this
SWBT/FULLTEL COMMUNICATIONS, INC.
Agreement one hundred eighty (180) days after delivering written notice to the
other Party of its intention to terminate this Agreement, subject to Section
21.5. Neither Party shall have any liability to the other Party for termination
of this Agreement pursuant to this Section 21.4 other than its obligations under
Section 21.5.
21.5 Upon termination or expiration of this Agreement in accordance with this Section 21.0:
(a) each Party shall promptly pay all amounts (including any late payment charges) owed under this Agreement; and
(b) each Party 's indemnification obligations shall survive.
Upon expiration or termination the Parties will negotiate a successor agreement; during such period, each Party shall continue to perform its obligations and provide the services described herein that are to be included in the successor agreement until such time as the latter agreement becomes effective; provided however, that if the Parties are unable to reach agreement within six (6) months after termination or expiration of this Agreement, either Party has the right to submit this matter to the Commission for resolution. Until a survivor agreement is reached or the Commission resolves the matter, whichever is sooner, the terms, conditions, rates, and charges stated herein will continue to apply, subject to a true-up based on the Commission action, if any.
21.6 Except as specifically set forth in this Agreement, no remedy set forth herein is intended to be exclusive and each and every remedy shall be cumulative and in addition to any other rights or remedies now or hereafter existing under applicable law or otherwise.
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES, FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT AND THE PARTIES DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE. ADDITIONALLY, NEITHER SWBT NOR CLEC ASSUMES RESPONSIBILITY WITH REGARD TO THE CORRECTNESS OF DATA OR INFORMATION SUPPLIED BY THE OTHER WHEN THIS DATA OR INFORMATION IS ACCESSED AND USED BY A THIRD PARTY.
23.0 SLAMMING
Each Party will abide by applicable state commission rules when obtaining end user authorization to change an end user's local service provider to itself and in assuming responsibility for any applicable charges. Failure to obtain end user authorization prior to changing such end user's local service provider shall be considered slamming. Only an end user can initiate a challenge to a change in its local exchange telephone service. Each Party shall make available proof of end user authorization upon request.
SWBT/FULLTEL COMMUNICATIONS, INC.
24.0 SEVERABILITY
24.1 The Parties negotiated the services, arrangements, Interconnection, terms and conditions of this Agreement by the Parties as a total arrangement and are intended to be nonseverable, subject only to Section 24.2 of this Agreement.
24.2 In the event the Commission, the FCC, or a court rejects any portion or determines that any provision of this Agreement is contrary to law, or is invalid or unenforceable for any reason, the Parties shall continue to be bound by the terms of this Agreement, insofar as possible, except for the portion rejected or determined to be unlawful, invalid, or unenforceable. In such event, the Parties shall negotiate in good faith to replace the rejected, unlawful, invalid, or unenforceable provision and shall not discontinue service to the other party during such period if to do so would disrupt existing service being provided to an end user. Nothing in this Agreement shall be construed as requiring or permitting either Party to contravene any mandatory requirement of federal or state law, or any regulations or orders adopted pursuant to such law.
25.0 LIMITATION OF LIABILITY
25.1 Except for indemnity obligations under this Agreement, or except as otherwise provided in specific appendices, each Party's liability to the other Party for any Loss relating to or arising out of any negligent act or omission in its performance under this Agreement, whether in contract or tort, shall not exceed in total the amount SWBT or CLEC has to or would have charged the other Party during the year of the negligent act or omission for the affected service(s) or function(s) that were not performed or were otherwise improperly performed. Provided however, in no event shall either Party's liability to the other for any act or omission under this Agreement exceed the total dollar amount of services provided to or received by the liable Party in the contract year.
25.2 Except for Losses alleged or made by an end user of either Party, or except as otherwise provided in specific appendices, in the case of any Loss alleged or made by a third party arising under the negligence or willful misconduct of both Parties, each Party shall bear, and its obligation under this section shall be limited to, that portion (as mutually agreed to by the Parties) of the resulting expense caused by its own negligence or willful misconduct or that of its agents, servants, contractors, or others acting in aid or concert with it.
25.3 In no event shall either Party have any liability whatsoever to the end users of the other Party for claims arising from the provision of the other Party's service to its end user, including claims for interruption of service, quality of service or billing disputes.
25.4 In no event shall either Party have any liability whatsoever to the other Party for any indirect, special, consequential, incidental, or punitive damages, including but not limited to loss of anticipated profits or revenues or other economic loss in connection with or arising from anything said, omitted or done hereunder (collectively "Consequential Damages"), even if the other Party has been advised of the possibility of such damages; provided however, that the foregoing shall not limit a Party's obligation under this Agreement to indemnify, defend and hold the other Party harmless against any amounts payable to a third party for any Losses or Consequential Damages of such third party.
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26.0 INDEMNIFICATION
26.1 In no event shall either Party have any liability whatsoever to the end users of the other Party for claims arising from the provision of the other Party's service to its end user, including claims for interruption of service, quality of service or billing disputes.
26.2 In no event shall either Party have any liability whatsoever to the other Party for any indirect, special, consequential, incidental, or punitive damages, including but not limited to loss of anticipated profits or revenues or other economic loss in connection with or arising from anything said, omitted or done hereunder (collectively "Consequential Damages"), even if the other Party has been advised of the possibility of such damages; provided however, that the foregoing shall not limit a Party's obligation under this Agreement to indemnify defend and hold the other Party harmless against any amounts payable to a third party for any Losses or Consequential Damages of such third party.
26.3 In the case of any Loss alleged or made by an end user of either Party, the Party whose end user alleged or made such Loss (Indemnifying Party) shall defend and indemnify the other Party (Indemnified Party) against any and all such claims or Loss by its end users regardless of whether the underlying service was provided or unbundled element was provisioned by the Indemnified Party, unless the Loss was caused by the gross negligence or intentional misconduct of the other (Indemnified) Party.
26.4 Each Party shall be indemnified, defended and held harmless by the other Party against any Loss arising from a Party's use of services or elements provided under this Agreement involving:
26.4.1 Tort claims, including claims for libel, slander, invasion of privacy, or infringement of copyright arising from a Party's own communications or the communications of its end users; or
26.4.2 Claims for patent, trademark, infringement or other infringement or intellectual property rights, arising from the Party's use of services or unbundled elements provided under this Agreement.
26.5 The Indemnifying Party agrees to defend any suit brought against the Indemnified Party for any Loss identified in this Section or specific appendices. The Indemnified Party agree to notify the Indemnifying promptly in writing of any written claims, lawsuits or demands for which the Indemnifying Party may be responsible under this Agreement. The Indemnified Party shall cooperate in every reasonable way to facilitate defense or settlement. The Indemnifying Party shall have the right to control and conduct the defense and settlement of any action or claim subject to the consultation of the Indemnified Party. The Indemnifying Party shall not be responsible for any settlement unless the Indemnifying Party approved such settlement in advance and agrees to be bound by the settlement agreement.
SWBT/FULLTEL COMMUNICATIONS, INC.
27.0 REGULATORY APPROVAL
The Parties understand and agree that this Agreement will be filed with the Commission and may thereafter be filed with the FCC. Each Party covenants and agrees to fully support approval of this Agreement by the Commission or the FCC under Section 252 of the Act without modification. Additionally, the Parties agree that so long as SWBT fully implements the terms and conditions of this Agreement, CLEC will not oppose SWBT's Section 271 (of the Act) application.
CLEC represents that it is, or intends to become, a provider of Telephone Exchange Service to residential and business subscribers offered exclusively over its own Telephone Exchange Service facilities or predominantly over its own Telephone Exchange Service facilities in combination with the use of unbundled Network Elements purchased from another entity and the resale of the Telecommunications Services of other carriers.
28.0 MISCELLANEOUS
28.1 Authorization.
(a) SWBT is a corporation duly organized, validly existing and in good standing under the laws of the State of Missouri and has full power and authority to execute and deliver this Agreement and to perform the obligations hereunder.
(b) CLEC is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.
28.2 Compliance and Certification.
28.2.1 Each Party shall comply with all federal, state, and local laws, rules, and regulations applicable to its performance under this Agreement.
28.2.2 Each Party warrants that it has obtained all necessary state certification required in those states in which it has ordered services from the other Party pursuant to this Agreement. Upon request by any state governmental entity, each Party shall provide proof of certification.
28.2.3 Each Party represents and warrants that any equipment, facilities or services provided to the other Party under this Agreement comply with the Communications Law Enforcement Act (CALEA). Each Party shall indemnify and hold the other Party harmless from any and all penalties imposed upon the other Party for such noncompliance and shall at the non-compliant Party's sole cost and expense, modify or replace any equipment, facilities or services provided to the other Party under this Agreement to ensure that such equipment, facilities and services fully comply with CALEA.
SWBT/FULLTEL COMMUNICATIONS, INC.
28.3 Law Enforcement.
28.3.1 SWBT and CLEC shall handle law enforcement requests as follows:
(a) Intercept Devices: Local and federal law enforcement agencies periodically request information or assistance from local telephone service providers. When either Party receives a request associated with an end user of the other Party, it shall refer such request to the Party that serves such end user, unless the request directs the receiving Party to attach a pen register, trap-and-trace or form of intercept on the Party's facilities, in which case that Party shall comply with any valid request.
(b) Subpoenas: If a Party receives a subpoena for information concerning an end user the Party knows to be an end user of the other Party, it shall refer the subpoena to the requesting party with an indication that the other Party is the responsible company, unless the subpoena requests records for a period of time during which the Party was the end user's service provider, in which case the Party will respond to any valid request.
(c) Emergencies: If a Party receives a request from a law enforcement agency for temporary number change, temporary disconnect, or one-way denial of outbound calls for an end user of the other Party by the receiving Party's switch, that Party will comply with an valid emergency request. However, neither Party shall be held liable for any claims or damages arising from compliance with such requests on behalf of the other Party's end user and the Party serving such end user agrees to indemnify and hold the other Party harmless against any and all such claims.
28.4 Independent Contractor. Each Party and each Party's contractor shall be solely responsible for the withholding or payment of all applicable federal, state and local income taxes, social security taxes and other payroll taxes with respect to its employees, as well as any taxes, contributions or other obligations imposed by applicable state unemployment or workers' compensation acts. Each Party has sole authority and responsibility to hire, fire and otherwise control its employees.
28.5 Force Majeure. Neither Party shall be liable for any delay or failure in performance of any part of this Agreement from any cause beyond its control and without its fault or negligence including, without limitation, acts of nature, acts of civil or military authority, government regulations, embargoes, epidemics, terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear accidents, floods, work stoppages, equipment failure, cable cuts, power blackouts, volcanic action, other major environmental disturbances, unusually severe weather conditions, inability to secure products or services of other persons or transportation facilities or acts or omissions of transportation carriers In such event, the Party affected shall, upon giving prompt notice to the other Party, be excused from such performance on a day-to-day basis to the extent of such interference (and the other Party shall likewise be excused from performance of its obligations on a day-for-day basis
SWBT/FULLTEL COMMUNICATIONS, INC.
to the extent such Party's obligations related to the performance so interfered with). The affected Party shall use its best efforts to avoid or remove the cause of nonperformance and both Parties shall proceed to perform with dispatch once the causes are removed or cease.
28.6 Confidentiality.
28.6.1 All information, including but not limited to specifications, microfilm, photocopies, magnetic disks, magnetic tapes, drawings, sketches, models, samples, tools, technical information, data, employee records, maps, financial reports, and market data, (i) furnished by one Party (the "Disclosing Party") to the other Party (the "Receiving Party") dealing with customer-specific, facility-specific, or usage-specific information, other than customer information communicated for the purpose of publication or directory database inclusion, 911, call processing, billing or settlement or as otherwise mutually agreed upon, or (ii) in written, graphic, electromagnetic, or other tangible form and marked at the time of delivery as "Confidential" or "Proprietary," or (iii) communicated orally and declared to the Receiving Party at the time of delivery, or by written notice given to the Receiving Party within ten (10) days after declaration to be "Confidential" or "Proprietary" (collectively referred to as "Proprietary Information"), shall remain the property of the Disclosing Party.
28.6.2 Upon request by the Disclosing Party, the Receiving Party shall return all tangible copies of Proprietary Information, whether written, graphic, or otherwise. In the event of the expiration or termination of this Agreement for any reason whatsoever, each Party shall return to the other Party or destroy all Proprietary Information and other documents, work papers and other material (including all copies thereof) obtained from the other Party in connection with this Agreement.
28.6.3 Each Party shall keep all the other Party's Proprietary Information confidential in the same manner in which it keeps its own Proprietary Information confidential, and shall use the other Party's Proprietary Information only for performing the covenants contained in the Agreement and shall disclose such Proprietary Information only to those employees, contractors, agents or Affiliates who have a need to know. Neither Party shall use the other Party's Proprietary Information for any other purpose except upon such terms and conditions as may be agreed upon between the Parties in writing.
28.6.4 Unless otherwise agreed, the obligations of confidentiality and nonuse set forth in the Agreement do not apply to such Proprietary Information as:
(i) was at the time of receipt already known to the receiving Party free of any obligation to keep it confidential evidenced by written records prepared prior to delivery by the disclosing Party; or
(ii) is or becomes publicly known through no wrongful act of the receiving Party; or
(iii) is rightfully received from a third person having no direct or indirect secrecy or confidentiality obligation to the disclosing Party with respect to such information; or
SWBT/FULLTEL COMMUNICATIONS, INC.
(iv) is independently developed by an employee, agent, or contractor of the receiving Party which individual is not involved in any manner with the provision of services pursuant to the Agreement and does not have any direct or indirect access to the Proprietary Information; or
(v) is disclosed to a third person by the disclosing Party without similar restrictions on such third person's rights; or
(vi) is approved for release by written authorization of the disclosing Party; or
(vii) is required to be made public by the Receiving Party pursuant to applicable law or regulation provided that the receiving party shall provide the Disclosing Party with written notice of such requirement as soon as possible and prior to such disclosure. The Disclosing Party may then either seek appropriate protective relief from all or part of such requirement or, if it fails to successfully do so, it shall be deemed to have waived the Receiving Party's compliance with Section 29.6 with respect to all or part of such requirement. The Receiving Party shall use all commercially reasonable efforts to cooperate with the Disclosing Party in attempting to obtain any protective relief which such Disclosing Party chooses to obtain. Notwithstanding the foregoing, SWBT shall be entitled to disclose confidential information on a confidential basis to regulatory agencies upon request for information as to SWBT's activities under the Act.
28.6.5 Notwithstanding any other provision of this Agreement, the Proprietary Information provisions of this Agreement shall apply to all information furnished by either Party to the other in furtherance of the purpose of this Agreement, even if furnished before the date of this Agreement.
28.6.6 Pursuant to Section 222(b) of the Act, both parties agree to limit their use of Proprietary Information received from the other to the permitted purposed identified in the Act.
28.7 Governing Law. For all claims under this Agreement that are based upon issues within the jurisdiction (primary or otherwise) of the FCC, the exclusive jurisdiction and remedy for all such claims shall be as provided for by the FCC and the Act. For all claims under this Agreement that are based upon issues within the jurisdiction (primary or otherwise) of the Commission, the exclusive jurisdiction for all such claims shall be with such Commission, and the exclusive remedy for such claims shall be as provided for by such Commission. In all other respects, this Agreement shall be governed by the domestic laws of the state of Oklahoma without reference to conflict of law provisions.
28.8 Taxes.
28.8.1 Each Party purchasing services hereunder shall pay or otherwise be responsible for all federal, state, or local sales, use, excise, gross receipts, transaction or similar taxes, fees, or surcharges (hereinafter
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"Tax") levied against or upon such purchasing party (or the providing Party when such providing Party is permitted by applicable law to pass along to the purchasing party such taxes, fees, or surcharges), except for any Tax on either party's corporate existence, status, or income. Whenever possible, these amounts shall be billed as a separate item on the invoice. To the extent a sale is claimed to be for resale tax exemption, the purchasing party shall furnish the providing party a proper resale tax exemption certificate as authorized or required by statute or regulation by the jurisdiction providing said resale tax exemption. Failure to timely provide said resale tax exemption certificate will result in no exemption being available to the purchasing Party until such time as the purchasing Party presents a valid certification. Failure to timely provide said resale tax exemption certificate will result in no exemption being available to the purchasing Party until such time as the purchasing Party presents a valid certificate.
28.8.2 With respect to any purchase of services, facilities or other arrangements, if any Tax is required or permitted by applicable law to be collected from the purchasing party by the providing party, then (i) the providing party shall bill the purchasing party for such Tax, (ii) the purchasing party shall remit such Tax to the providing party and (iii) the providing party shall remit such collected Tax to the applicable taxing authority.
28.8.3 With respect to any purchase hereunder of services, facilities or arrangements that are resold to a third party, if any Tax is imposed by applicable law on the end user in connection with any such purchase, then (i) the purchasing party shall be required to impose and/or collect such Tax from the end user and (ii) the purchasing party shall remit such Tax to the applicable taxing authority. The purchasing party agrees to indemnify and hold harmless the providing party on an after-tax basis for any costs incurred by the providing party as a result of actions taken by the applicable taxing authority to collect the Tax from the providing party due to the failure of the purchasing party to pay or collect and remit such tax to such authority.
28.8.4 If the providing party fails to collect any Tax as
required herein, then, as between the providing party and the purchasing party,
(i) the purchasing party shall remain liable for such uncollected Tax and (ii)
the providing party shall be liable for any penalty and interest assessed with
respect to such uncollected Tax by such authority. However, if the purchasing
party fails to pay any taxes properly billed, then, as between the providing
party and the purchasing party, the purchasing party will be solely responsible
for payment of the taxes, penalty and interest.
If the purchasing party fails to impose and/or collect any Tax from end users as required herein, then, as between the providing party and the purchasing party, the purchasing party shall remain liable for such uncollected Tax and any interest and penalty assessed thereon with respect to the uncollected Tax by the applicable taxing authority. With respect to any Tax that the purchasing party has agreed to pay or impose on and/or collect from end users, the purchasing party agrees to indemnify and hold harmless the providing party on an after-tax basis for any costs incurred by the providing party as a result of actions taken by the applicable taxing authority to collect the Tax from the providing Party due to the failure of the purchasing party to pay or collect and remit such Tax to such authority.
28.9 Non-Assignment. This Agreement shall be binding upon every subsidiary of either Party that is engaged in providing Telephone Exchange and Exchange Access services in any territory within which SWBT is an Incumbent Local Exchange Carrier as of the date of this Agreement (the "SWBT Territory") and shall continue to be binding upon all such entities regardless of any
SWBT/FULLTEL COMMUNICATIONS, INC.
subsequent change in their ownership. Each Party covenants that, if it sells or otherwise transfers to a third party its Telephone Exchange and Exchange Access network facilities within the SWBT Territory, or any portion thereof, to a third party, it will require as a condition of such transfer that the transferee agree to be bound by this Agreement with respect to services provided over the transferred facilities. Except as provided in this paragraph, neither Party may assign or transfer (whether by operation of law or otherwise) this Agreement (or any rights or obligations hereunder) to a third party without the prior written consent of the other Party; provided that each Party may assign this Agreement to a corporate Affiliate or an entity under its common control or an entity acquiring all or substantially all of its assets or equity by providing prompt written notice to the other Party of such assignment or transfer. The Parties agree that such consent shall not be unreasonably withheld. Any attempted assignment or transfer that is not permitted is void ab initio. Without limiting the generality of the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the Parties' respective successors and assigns.
28.10 Non-Waiver. Failure of either Party to insist on performance of any term or condition of this Agreement or to exercise any right or privilege hereunder shall not be construed as a continuing or future waiver of such term, condition, right or privilege.
28.11 Audits. Each Party to this Agreement will be responsible for the accuracy and quality of its data as submitted to the respective Parties involved. Where SS7 is deployed, each Party shall pass Calling Party Number (CPN) information on each call carried over the Traffic Exchange trunks; provided that so long as the percentage of calls passed with CPN is greater than ninety percent (90%), all calls exchanged without CPN information shall be billed as either Local Traffic or IntraLATA Toll Traffic in direct proportion to the minutes of use of calls exchanged with CPN information. If the percentage of calls passed with CPN is less than 90%, all calls passed without CPN shall be billed as IntraLATA Toll Traffic.
Upon reasonable written notice and at its own expense, each Party or its authorized representative (providing such authorized representative does not have a conflict of interest related to other matters before one of the Parties) shall have the right to conduct an audit of the other Party to give assurances of compliance with the provisions of this Agreement; provided, that neither Party may request more than two (2) such audits within any twelve-month period. This includes on-site audits at the other Party's or the Party's vendor locations. Each Party, whether or not in connection with an audit, shall maintain reasonable records for a minimum of 24 months and provide the other Party with reasonable access to such information as is necessary to determine amounts receivable or payable under this Agreement. Each Party's right to access information for audit purposes is limited to data not in excess of 24 months in age.
28.12 Disputed Amounts.
28.12.1 No claims, under this Agreement or its Appendices, shall be brought for disputed amounts more than twenty-four (24) months from the date of occurrence which gives rise to the dispute. Under this Section 28.12, if any portion of an amount due to a Party (the "Billing Party") under this Agreement is subject to a bona fide dispute between the Parties, the Party billed (the "Non-Paying Party") shall within sixty (60) days of its receipt of the invoice containing such disputed amount give notice to the Billing Party of the amounts it disputes ("Disputed Amounts") and include in such notice the specific details and reasons for disputing each item. The Non-Paying Party shall
SWBT/FULLTEL COMMUNICATIONS, INC.
pay when due (i) all undisputed amounts to the Billing Party and (ii) all Disputed Amounts to Billing Party.
28.12.2 If the Parties are unable to resolve the issues
related to the Disputed Amounts in the normal course of business within sixty
(60) days after delivery to the Billing Party of notice of the Disputed Amounts,
each of the Parties shall appoint a designated representative who has authority
to settle the dispute and who is at a higher level of management than the
persons with direct responsibility for administration of this Agreement. The
designated representatives shall meet as often as they reasonably deem necessary
in order to discuss the dispute and negotiate in good faith in an effort to
resolve such dispute.
28.12.3 If the Parties are unable to resolve issues related to the Disputed Amounts within forty-five (45) days after the Parties' appointment of designated representatives pursuant to Section 28.12.2, then either Party may file a complaint with the Commission to resolve such issues or proceed with any other remedy pursuant to law or equity. The Commission may direct release of any or all funds (including any accrued interest) in the escrow account, plus applicable late fees, to be paid to either Party.
28.12.4 The Parties agree that all negotiations pursuant to this Section 28.12 shall remain confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and state rules of evidence.
28.12.5 Any undisputed amounts not paid when due shall accrue interest from the date such amounts were due at the lesser of (i) one and one-half percent (1 1/2%) per month or (ii) the highest rate of interest that may be charged under applicable law.
28.13 Dispute Resolution.
28.13.1 No claims shall be brought for disputes arising under this Agreement or its Appendices more than twenty-four (24) months from the date of occurrence which gives rise to the dispute.
28.13.2 For disputes other than disputed amounts under this Agreement or its Appendices, each Party shall appoint a designated representative as set forth in Section 28.12.2 and if unable to resolve the dispute, proceed as set forth in Section 28.12.3.
28.14 Notices. Any notice to a Party required or permitted under this Agreement shall be in writing and shall be deemed to have been received on the date of service if served personally; on the date receipt is acknowledged in writing by the recipient if delivered by regular mail; or on the date stated on the receipt if delivered by certified or registered mail or by a courier service that obtains a written receipt. Notice may also be provided by facsimile, which shall be effective on the next Business Day following the date of transmission as reflected in the facsimile confirmation sheet. "Business Day" shall mean Monday through Friday, SWBT/CLEC holidays excepted. Any notice shall be delivered using one of the alternatives mentioned in this section and shall be directed to the applicable address indicated below or such address as the Party
SWBT/FULLTEL COMMUNICATIONS, INC.
to be notified has designated by giving notice in compliance with this section, except that notices to a Party's 24-hour contact number shall be by telephone and/or facsimile and shall be deemed to have been received on the date transmitted.
To CLEC: Fulltel Communications, Inc.
Timothy J. Kilkenny, President and CEO
837 Crestland
Bartlesville, OK 74006
918-971-1239 (Fax)
and copy to:
Rudolph J. Geist
Wilkes, Artis, Hedrick & Lane
1666 K Street, N.W., Suite 1100
Washington, D.C. 20006
202-457-7814 (Fax)
To SWBT: Account Manager
Four Bell Plaza, 7th Floor
Dallas, TX 75202
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For CLEC:
Engineering/Operations Manager
405-235-5688
For SWBT:
Area Manager-NSMC Control
1-800-792-2662
28.15 Publicity and Use of Trademarks or Service Marks.
28.15.1 The Parties agree not to use in any advertising or
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sales promotion, press releases, or other publicity matters any endorsements, direct or indirect quotes, or pictures implying endorsement by the other Party or any of its employees without such Party's prior written approval. The Parties will submit to each other for written approval, prior to publication, all publicity matters that mention or display one another's name and/or marks or contain language from which a connection to said name and/or marks may be inferred or implied; the Party to whom a request is directed shall respond promptly. Nothing herein, however, shall be construed as preventing either Party from publicly stating the fact that it has executed this Agreement with the other Party.
28.15.2 Nothing in this Agreement shall grant, suggest, or imply any authority for one Party to use the name, trademarks, service marks, or trade names of the other for commercial purposes without prior written approval.
SWBT/FULLTEL COMMUNICATIONS, INC.
28.16 Section 252(i) Obligations. If either Party enters into an
agreement (the "Other Agreement") approved by the Commission or FCC pursuant to
Section 252 of the Act (regardless of whether the approved agreement was
negotiated or arbitrated) which provides for the provision of arrangements
covered in this Agreement to another requesting Telecommunications Carrier,
including an Affiliate, such Party shall make available to the other Party such
arrangements upon the same rates, terms and conditions as those provided in the
Other Agreement. At its sole option, the other Party may avail itself of either
(i) the Other Agreement in its entirety or (ii) the prices, terms and conditions
of the Other Agreement that directly relate to any of the following duties as a
whole:
(1) Interconnection - Section 251(c)(2) of the Act; or
(2) Exchange Access - Section 251(c)(2) of the Act; or
(3) Unbundling - Section 251(c)(3) of the Act; or
(4) Wireless Traffic (Section 7.4 of this Agreement); or
(5) Resale - Section 251(c)(4) of the Act (Appendix Resale); or
(6) Collocation - Section 251(c)(6) of the Act (Section 13.0 of this
Agreement); or
(7) Number Portability - Section 251(b)(2) of the Act (Section 14.0
of this Agreement); or
(8) Database Access - Section 271(c)(2)(B)(x) of the Act (Section
17.0 of this Agreement); or
(9) Access to Rights of Way - Section 251(b)(4) of the Act (Section
16.0 of this Agreement); or
(10) White Pages - Section 271(c)(2)(B)(viii) of the Act (Appendix
White Pages).
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In addition to any rights set forth above, CLEC at its option may obtain any interconnection service or network element, at the same rates, terms, and conditions, which results from an arbitration and is contained in an approved agreement. However, to the extent SWBT appeals or otherwise seeks modification of such arbitration results in a manner that stays the effectiveness of that approved agreement, then the results will not be considered effective until such time as the stay is lifted.
In the event CLEC exercises its rights under this Section, it may retain provisions within this Agreement that are otherwise specific to its wireless technology.
28.17 Joint Work Product. This Agreement is the joint work product of the Parties and has been negotiated by the Parties and their respective counsel and shall be fairly interpreted in accordance with its terms and, in the event of any ambiguities, no inferences shall be drawn against either Party.
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28.18 Intervening Law. This Agreement is entered into as a result of both private negotiation between the Parties and the incorporation of some of the results of arbitration by the Oklahoma Corporation Commission. If the actions of Oklahoma or federal legislative bodies, courts, or regulatory agencies of competent jurisdiction invalidate, modify, or stay the enforcement of laws or regulations that were the basis for a provision of the contract which is reflective of the Arbitration Award approved by the Commission, the affected provision shall be invalidated, modified, or stayed as required by action of the legislative body, court, or regulatory agency. In such event, the Parties shall expend diligent efforts to arrive at an agreement respecting the modifications to the Agreement required. If negotiations fail, disputes between the Parties concerning the interpretation of the actions required or provisions affected by such governmental actions shall be resolved pursuant to the dispute resolution process provided for in this Agreement. The invalidation, stay, or modification of the pricing provisions of the FCC's First Report and Order in CC Docket No. 96-98 (August 8, 1996) and the FCC's Order on Reconsideration (September 27, 1996) shall not be considered an invalidation, stay, or modification requiring changes to provisions of the Agreement required by the Commission Arbitration Award, in that the FCC's pricing provisions are not the basis for the costing and pricing provisions of the Commission's Arbitration Award.
28.19 No Third Party Beneficiaries; Disclaimer of Agency. This Agreement is for the sole benefit of the Parties and their permitted assigns, and nothing herein express or implied shall create or be construed to create any third-party beneficiary rights hereunder. Except for provisions herein expressly authorizing a Party to act for another, nothing in this Agreement shall constitute a Party as a legal representative or agent of the other Party, nor shall a Party have the right or authority to assume, create or incur any liability or any obligation of any kind, express or implied, against or in the name or on behalf of the other Party unless otherwise expressly permitted by such other Party. Except as otherwise expressly provided in this Agreement, no Party undertakes to perform any obligation of the other Party, whether regulatory or contractual, or to assume any responsibility for the management of the other Party's business.
28.20 No License. No license under patents, copyrights or any other intellectual property right (other than the limited license to use consistent with the terms, conditions and restrictions of this Agreement) is granted by either Party or shall be implied or arise by estoppel with respect to any transactions contemplated under this Agreement.
28.21 Survival. The Parties' obligations under this Agreement which by their nature are intended to continue beyond the termination or expiration of this Agreement shall survive the termination or expiration of this Agreement.
28.22 Scope of Agreement. This Agreement is intended to describe and enable specific Interconnection and compensation arrangements between the Parties. This Agreement does not obligate either Party to provide arrangements not specifically provided herein.
28.23 Entire Agreement. The terms contained in this Agreement and any Schedules, Exhibits, Appendices, tariffs and other documents or instruments referred to herein, which are incorporated into this Agreement by this reference, constitute the entire agreement between the Parties with respect to the subject matter hereof, superseding all prior understandings, proposals and
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other communications, oral or written. Neither Party shall be bound by any preprinted terms additional to or different from those in this Agreement that may appear subsequently in the other Party's form documents, purchase orders, quotations, acknowledgments, invoices or other communications. This Agreement may only be modified by a writing signed by an officer of each Party.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of this _____ day of _________________, 19____ .
Fulltel Communications, Inc. *Southwestern Bell Telephone Company
By: By:
Printed: Printed:
Title: Title: President - Industry Markets
----------------------------
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AECN/OCN #_____________
* The Parties acknowledge that on January 25, 1999, the United States Supreme Court issued its opinion in AT&T Corp. v. Iowa Utilities Bd., 1999 WL 24568 (U.S.). The Parties further acknowledge and agree that neither party had a full opportunity to factor that decision into the Section 252(i) adoption and preparation of this Agreement and that by executing this Agreement, neither Party waives any of its rights, remedies, or arguments with respect to such decision, including its rights under the intervening law clause of this Agreement, and any legal or equitable rights of review (including court reconsideration).
EXHIBIT 6.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into this 26th day of March, 1998, by and among ROBERT L. GRUENEWALD, WILLIAM TOOMBS RICHARDSON, JR., Trustee of the William Toombs Richardson, Jr. 1995 Revocable Trust dated May 25, 1995, STEVE R. BAILEY, Trustee of the Steve R. Bailey Living Trust dated October 28, 1994, KEVIN HACKLER, JASON AYERS and TRAVIS CHRISTOPHER LUX, (hereinafter sometimes individually referred to as a "Seller" and hereinafter collectively, jointly and severally referred to as the "Sellers"); and FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Purchaser").
EXPLANATORY STATMENT
A. The Sellers constitute all of the shareholders and all of the directors of ANIMUS COMMUNICATIONS, INC. ("Company"), an Oklahoma corporation that is engaged in the business of providing Web Hosting Services, selling computer equipment and providing configuration and maintenance thereof (the "Web Services").
B. The Sellers own of record and beneficial]y and in the aggregate 6,000 shares of the $1.00 common stock (the "Common Stock") of the Company (such 6,000 shares of Common Stock shall be hereinafter collectively referred to as the "Sellers' Shares"). The Sellers' Shares constitute all of the issued and outstanding capital stock of the Company.
C. The Sellers desire to sell, assign, transfer and deliver to Purchaser, and the Purchaser desires to purchase, all, but not less than all, of the Sellers Shares on the terms and subject to the conditions hereinafter contained.
NOW, THEREFORE, in consideration of the Explanatory Statement that shall be deemed to be a substantive part of this Agreement, the mutual covenants, promises agreements, representations and warrantees contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged the parties hereby agree as follows:
1. Purchase and Sale of the Sellers Shares.
1.1. Purchase and Sale. On the terms and subject to the conditions set forth in this Agreement, at the Closing on the Closing Date, the Sellers shall each sell, assign, transfer and deliver to the Purchaser and the Purchase shall purchase from each of the Sellers, that number of the Sellers' Shares as is set forth opposite the name of each of the Sellers as follows:
Number of Sellers
Shares That Shall Be
Sellers Sold to Purchaser
------- -----------------
Robert L. Gruenewald 1,000
William Toombs Richardson, Jr.,
Trustee of the William Toombs
Richardson, Jr. 1995 Revocable
Trust Agreement dated the 25th
day of May, 1995 1,000
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust
dated October 28,1994 1,000
Kevin Hackler 1,000
Jason Ayers 1,000
Travis Christopher Lux 1,000
------
TOTAL SHARES 6,000
======
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1.2. Purchase Price: Transfer of Securities.
1.2.1. The total purchase price that shall be paid by Purchaser to the Sellers for the Sellers Shares shall be Three Hundred Fifty Thousand and no/100 Dollars ($350,000.00) (the "Purchase Price"), subject to the following terms. Of that Purchase Price, One Hundred Seventy-Five Thousand and no/100 Dollars ($175,000.00) shall be paid at the Closing by bank cashier's check or by wire transfer into bank accounts to be designated by Sellers, and allocated among the Sellers as follows:
Names Consideration ----- ------------- Robert L. Gruenewald $ 23,333.00 William Toombs Richardson, Jr., Trustee of the William Toombs Richardson, Jr. 1995 Revocable Trust Agreement dated the 25th day of May, 1995 40,834.00 |
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust
dated October 28, 1994 40,834.00
Kevin Hackler 23,333.00
Jason Ayers 23,333.00
Travis Christopher Lux 23,333.00
TOTAL $ 175,000.00
============
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1.2.2. Fifty Thousand and no/100 Dollars ($50,000.00) of the Purchase Price shall be paid six months from the date of Closing by bank cashier's check or wire transfer to bank accounts designated by Sellers and allocated among the Sellers as follows:
Name Consideration
---- -------------
William Toombs Richardson, Jr.
Trustee of the William Toombs
Richardson, Jr. 1995 Revocable
Trust Agreement dated the 25th
day of May, 1995 $ 14,583.00
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust
dated October 28, 1994 14,583.00
Robert L. Gruenewald 5,208.50
Kevin Hackler 5,208.50
Jason Ayers 5,208.50
Travis Christopher Lux 5,208.50
--------
TOTAL $ 50,000.00
===========
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1.2.3. The remaining One Hundred Twenty-Five Thousand and no/l00 Dollars ($125,000.00) of the Purchase Price, subject to the provisions of paragraph 1.2.4. hereof, shall be paid on April 1, 1999, by bank cashier's check or funds wire transferred into accounts designated to each Seller and allocated among the Sellers as follows:
Names Consideration
Robert L. Gruenewald $ 29,792.00
William Toombs Richardson, Jr.,
Trustee of the William Toombs
Richardson, Jr. 1995 Revocable
Trust Agreement dated the 25th
day of May, 1995 2,916.00
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust
dated October 28, 1994 2,916.00
Kevin Hackler 29,792.00
Jason Ayers 29,792.00
Travis Christopher Lux 29,792.00
TOTAL $125,000.00
===========
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1.2.4. The final payment of One Hundred Twenty-Five Thousand and no/100 Dollars ($125,000.00) may be adjusted downward to reflect the one year gross revenues actually produced by Company. If Company's gross revenue at the end of 12 months of operation does not equal or exceed the purchase Price, i.e. $350,000.00, the final payment will be adjusted so that the final Purchase Price is equal to the gross revenue attributable to Company's business between April 1, 1998 and March 31, 1999. "Gross revenue" is defined as total cash receipts during the period April 1,1998 through March 31, 1999, plus the accounts receivable on the books at March 31, 1999.
1.2.5. At Closing, the Sellers shall deliver to the Purchaser stock certificate numbers 001, 004, 005, 007, 008, and 009 of the Company, representing the Sellers' Shares owned of record and beneficially by each of the Sellers, duly endorsed in blank, or accompanied by assignments separate from certificate duly endorsed in blank. Sellers represent and warrant to the Purchaser that at the time of such transfer, the Sellers' Shares shall be free and clear of all liens, security interests and encumbrances.
1.2.6. Purchaser will execute a Promissory Note (the "Note") on the balance of the Purchase Price not paid at closing ($175,000.00) which Note shall be co-made by the Purchaser and TIMOTHY J. KILKENNY ("Kilkenny"), the principal shareholder of PURCHASER. The co-making of the Promissory Note by Kilkenny is a part of the consideration to Sellers from Purchaser. A copy of the Promissory Note to be delivered to Sellers at Closing is attached hereto as Exhibit "A" and made a part hereof.
1.2.7. Prior to or at closing, Sellers shall cause Company to distribute to Sellers all accounts receivable and cash of the Company in existence through March 31, 1998. The sale of Company by Sellers specifically does not include cash or accounts receivable of Company.
2. Closing
2.1. The closing of the purchase and sale of the Sellers' Shares provided for by this Agreement (referred to throughout this Agreement as the "Closing") shall take place at the offices of Animus Communications, Inc., 200 N. Harvey, Suite 1704, Oklahoma City, Oklahoma, 73102, on March 26, 1998, at 11:00 A.M., or at such other date, time and place to be agreed upon in writing by all the parties.
2.2. At the Closing, the following actions, among others, shall occur:
2.2.1. The Sellers shall deliver to the Purchaser:
2.2.1.1. Share Certificates owned by sellers properly endorsed in blank;
2.2.1.2. Resignation of all Officers and Directors of Company.
2.2.2. Purchaser shall deliver to Sellers:
2.2.2.1. Cashier's checks or wire transfer advices in the amounts set out in paragraph 1.2.1. hereof.
2.2.2.2. The Promissory Note executed by Purchaser and Kilkenny in the form as set out on Exhibit "A" hereto.
2.2.2.3. Certificate of Authority of the Secretary of Purchaser in the form as set out on Exhibit "B" hereto and made a part hereof.
2.2.3. Company shall distribute to Sellers all cash and accounts receivable of Company if such distribution has not been effected prior to closing.
3. Representations and Warranties.
3.1. Representations and Warranties of Sellers. The Sellers represent and warrant to the Purchaser that to Sellers' best knowledge and belief:
3.1.1. Ownership of Sellers' Shares. Each Seller is the sole and exclusive record and beneficial owner of that number of the Sellers' shares as is set forth opposite his name in Section 1.1. hereof, subject to the provisions of a Shareholder's Agreement by and among the Sellers and the Company. The Sellers possess good title to the Sellers' Shares, and own
the Sellers' Shares free and clear of any and all security interests, agreements, restrictions, claims, liens, pledges and encumbrances of any nature or kind. Subject to the Shareholder's Agreement, the Sellers have the absolute and unconditional right to sell, assign, transfer and deliver the Sellers' Shares to the Purchaser in accordance with the terms of this Agreement.
3.1.2. Due Organization, Good Standing, Authority of the Company. The Company is a corporation duly organized, validly existing as a stock corporation, and in good standing under the laws of the State of Oklahoma. Company has full right, power and authority to own its properties and assets, and to carry on its business as a provider of Web Services. The Company is duly licensed, qualified and authorized to do business as a foreign corporation, and is in good standing, in each jurisdiction in which the properties and assets owned by it or the nature of the business conducted by it makes such licensing, qualification and authorization legally necessary. A complete and correct copy of the Company's certificate of incorporation, as amended to the date of this Agreement (the "Certificate"), and bylaws as amended to the date of this Agreement (the "Bylaws"), have been heretofore provided to Purchaser. The Certificate and the Bylaws are in full force and effect, and the Company is not in breach or violation of any of the provisions thereof.
3.1.3. Validity of Agreement. The Sellers have the legal capacity and authority to enter in to this Agreement. This Agreement is a valid and legally binding obligation of the Sellers and is fully enforceable against the Sellers in accordance with its terms, except as such enforceability may be limited by general principles of equity, bankruptcy, insolvency, moratorium and similar laws relating to creditors' rights generally.
3.1.4. Capitalization, the Company Stock: Related Matters. Company's authorized capital stock consists of 50,000 shares of common stock, $1.00 par value per share, of which 6,000 shares, namely, the Sellers' Shares, are issued and outstanding and owned of record and beneficially by each Seller as is set forth opposite the name of each Seller in Section 1.1. hereof. The Sellers' Shares have been duly, legally and validly issued, and are fully paid and nonassessable. Delivery of the Sellers' Shares by the Sellers to the Purchaser at the Closing on the closing Date pursuant to this Agreement will transfer to the Purchaser full and entire legal and equitable title to 100% of the issued and outstanding capital stock of the Company.
3.1.5. No Subsidiaries. The Company oes not have any subsidiaries and does not, directly or indirectly, own any interest in or control any corporation, partnership, joint venture or other business entity.
3.1.6. Agreement not in conflict with Other Instruments: Required Approvals Obtained. The execution, delivery and performance of this Agreement by the Sellers and the consummation of the transactions contemplated by this Agreement will not (a) violate or require any registration, qualification, consent, approval, or filing under, (i) any law, statute, ordinance, rule or regulation (hereinafter collectively referred to as "Laws") of any federal, state or local government (hereinafter collectively referred to as "Governments") or any agency, bureau, commission or instrumentality of any Governments (hereinafter collectively referred to as "Governmental Agencies"), or (ii) any judgment, injunction, order, writ or
decree of any court, arbitrator, Government or Governmental Agency by which the Company or any of its assets or Properties is bound; (b) conflict with, require any consent, approval, or filing under, result in the breach or termination of any provision of, constitute a default under, result in the acceleration of the performance of the Company's obligations under, or result in the creation of any claim, security interest, lien, charge, or encumbrance upon any of the Company's properties, assets, or businesses pursuant to (i) the Company's Certificate or Bylaws, (ii) any indenture, mortgage, deed of trust, license, permit, approval, consent, franchise, lease, contract or other instrument or agreement to which the Company is a party or by which the Company or any of the Company's assets or properties is bound, or (iii) any judgment, injunction, order, writ or decree of any court, arbitrator, Government or Governmental Agency by which the Company of any of its assets or properties is bound.
3.1.7. Conduct of Business in Compliance with Regulatory and Contractual Requirements. The Company has conducted and is conducting the Company's business in compliance with all applicable Laws of all Governments and Governmental Agencies.
3.1.8. Legal Proceedings. There is no action, suit, proceeding, claim, arbitration or investigation by any Government, Governmental Agency or other Person (a) pending to which Company is a party, (b) threatened against or relating to Company or any of Company's assets or businesses, (c) challenging Company's right to execute, acknowledge, seal, deliver, perform under or consummate the transactions contemplated by this Agreement, or (d) asserting any right with respect to any of the Sellers' Shares, and there is no basis for any such action, suit, proceeding, claim, arbitration or investigation.
3.1.9. Financial Statements: Undisclosed Liabilities. The Financial Statements dated as of the 31st day of December, 1997 are in accordance with the books and records of Company, and are true, correct and complete and accurately present Company's financial position for the periods then ended, all in conformity with accounting principles utilized by the Company on a consistent basis during each period and on a basis consistent with that of prior periods. Except (a) as disclosed in the Financial Statements, and (b) as disclosed in this Agreement, Company has no liabilities or obligations of any nature or kind, known or unknown, whether accrued, absolute, contingent or otherwise.
3.1.10. Tax Matters. Company has duly and timely filed with all appropriate Governmental Agencies, all tax returns, information returns and reports required to be filed by Company. Company has paid in full all taxes (including taxes withheld from employees' salaries and other withholding taxes and obligations), interest, penalties, assessments and deficiencies owned by Company to all taxing authorities. All information reported on the Returns is true, accurate and complete. All claims by the IRS or any state taxing authorities for taxes due and payable by Company have been paid by Company. All federal income tax returns required to be filed by Company have either been examined by the IRS, or the period during which any assessments may be made by the IRS has expired without waiver or extension for all years, and any deficiencies or assessments claimed or made have been paid, settled or fully provided for in Company's Financial Statements. Company has not adopted a plan
of complete liquidation under the Internal Revenue code of 1986, as amended (the "Code"), or filed a consent pursuant to Section 341(f) of the code. Company is not a party to, and is not aware of, any pending or threatened action, suit, proceeding or assessment against it for the collection of taxes by any Governmental Agency.
3.1.11. Accounts Receivable and Accounts Payable. Company's accounts receivable (collectively, the "Accounts Receivable") Are bona fide accounts receivable, the full amount of which is actually owing to Company. Company's accounts payable arose from bona fide transactions in the ordinary course of Company's business.
3.1.12. No Real Property. Company does not own or have any interest in any real estate.
3.1.13. Condition of Personal Property. The Company has sole and exclusive, good and merchantable title to all of the Personal Property owned by it, free and clear of all pledges, claims, liens, restrictions, security interests, charges and other encumbrances. AU of the Personal Property is in good repair and good operating condition, fit for its intended purposes, and is adequate for the continuation of Company's business as a provider of Web Services and in selling computer equipment provider.
3.1.14. Pension Plans. Company does not own or have any interest in any pension plans.
3.1.15. Benefit Plans. With respect to each benefit plan Company may have an interest in, Company has complied with all reporting and disclosure obligations under ERISA, and all documents arid report forms submitted for such purposes are complete and accurate in all materiel respects. Also, with respect to each Benefit Plan, (a) no prohibited transaction (as defined in Section 4975 of the Code and Section 406 of ERISA) has occurred; (b) each Benefit Plan is in conformity with ERISA and all other applicable laws; (c) Company is not in default in any material respect in performing any of its contractual or legal obligations; (d) all Persons having any fiduciary responsibility are in compliance in all material respects with the applicable provisions of ERISA; (e) there has not been a breach of any fiduciary duty; (f) there are no pending ruling requests or appeals (either formal or informal), investigations, or audits by or before any Governmental Agency; and (g) there is no claim, demand, suit, proceeding or cause of action pending, or threatened with respect to any Benefit Plan, and there is no liability except for reasonable and customary administrative expenses and benefits payable pursuant to the terms of each Benefit Plan.
3.1.16. Employee Relations and Employment Agreements.
3.1.16.1. None of Company's employees is represented by a labor organization. No petition for representation has ever been filed with the National Labor Relations Board (the "NLRB") with respect to employees. Sellers are not aware of any union organizational activity with respect to Company and have no reason to believe that any such activity is being contemplated.
3.1.16.2. Company is not in violation of applicable equal employment opportunity laws, wage and hour laws, occupational safety and health laws, federal labor laws or any other Laws of any government or Governmental Agency relating to employment. Sellers have disclosed to the Purchaser the status of all investigations, claims, charges and employment-related suits or controversies which have occurred with respect to Company since its incorporation or which are presently pending or threatened with respect to Company under any employment related Law of any Government or Governmental Agency (including common law). Company has satisfied and performed fully all judgments, decrees, conciliation agreements, or settlement agreements by which it is bound or to which it is subject concerning employment-related matters
3.1.16.3. Except as provided in Exhibit "C", Company has not entered into any employment agreement and all employees can be terminated at will. Company has no contractual obligation or special termination or severance arrangement in respect of any employee.
3.1.16.4. Company has paid all wages due (including all required taxes, insurance, and withholding thereon) through the date of this Agreement.
3.1.17. Books and Records; Fiscal Year; Method of Accounting. Company has made available to the Purchaser all of its tax, accounting, corporate and financial books and records. The books and records pertaining to Company's business made available to the Purchaser are true, correct and complete, have been maintained on a current basis, and fairly reflect the basis for Company's financial condition and results of operations as set forth in its Financial Statements. Company has consistently used the fiscal year ending December 31 as its taxable year, and has consistently used the cash receipts and disbursements method of accounting for tax purposes.
3.1.18. Adverse Conditions. The Sellers have no knowledge of any present or future condition, state of facts or circumstances which has affected or may affect adversely the business of Company or prevent Company from carrying on its business.
3.1.19. Full Disclosure. This Agreement (including the Exhibits hereto) does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained herein not misleading. There is no fact known to Sellers or Company which is not disclosed in this Agreement which materially adversely affects the accuracy of the representations and warranties contained in this Agreement or Company's financial condition, results of operations, business or prospects.
3.1 20. No Brokerage. The Sellers have not incurred any obligation or liability, contingent or otherwise, for brokerage fees, finder's fees, agent's commissions or the like in connection with this Agreement or the transactions contemplated hereby.
3.2. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to Sellers that:
3.2.1. Due Organization; Good Standing; Power. The Purchaser is a corporation duly organized, validly existing, and in good standing under the laws of the State of Oklahoma. The Purchaser has all requisite corporate power to enter into this Agreement and to perform its obligations hereunder.
3.2.2. Authorization and Validity of Documents. The execution, delivery and performance of this Agreement by the Purchaser, and the consummation by the Purchaser of the transactions contemplated hereby, have been duly and validly authorized by the Purchaser. This Agreement has been duly executed and delivered by the Purchaser and is a legal, valid and binding obligation of the Purchaser.
3.2.3. No Brokerage. The Purchaser has not incurred any obligation or liability, contingent or otherwise, for brokerage fees, finder's fees, agent's commissions or the like In connection with this Agreement or the transactions contemplated hereby.
3.2.4. Adverse Conditions. The Purchase has no knowledge of any present or future condition, state of facts or circumstances which have affected or may affect adversely the business of Purchaser or prevent Purchaser from carrying on its business or which would prevent or render Purchaser unable to timely complete the defined purchase provisions of this Agreement.
3.2.5. Full Disclosure. This Agreement (including the Exhibits hereto) does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained herein not misleading. There is no fact known to Purchaser which is not disclosed in this Agreement which materially adversely affects the accuracy of the representations and warranties contained in this Agreement or Purchaser's financial condition, results of operations, business or prospects.
4. Covenants against Competition.
4.1. Sellers' Agreement Not to Compete. For a period of three (3) years commencing on the date of Closing, Sellers shall not, within Oklahoma County, Oklahoma, directly or indirectly, own, manage, operate, joint or control, or participate in the ownership, management, operation or control of, or be a shareholder or employee of, or a consultant to, any business, firm, corporation or entity which is conducting any business which competes with the Web Services. As a violation by Sellers of the provisions of this section could cause irreparable injury to the Purchaser and there is no adequate remedy at law for such violation, the Purchaser shall have the right, in addition to any other remedies available to it, at law or in equity, to enjoin Sellers in a court of equity for violating such provisions.
To the extent that any provision or portion of this section shall be held, found or deemed to be unreasonable, unlawful or unenforceable by a court of competent jurisdiction, then any such provision or portion thereof shall be deemed to be modified to the extent necessary in order that any such
provision or portion thereof shall be legally enforceable to the maximum extent permitted by applicable law, and any court of competent jurisdiction shall, and the parties hereto do hereby expressly authorize, request and empower any court of competent jurisdiction to enforce any such provision or portion thereof or to modify any such provision or portion thereof in order that any such provision or portion thereof shall be enforced by such court to the maximum extent permitted by applicable law.
5. Liabilities of Seller. With the exception of certain contractual obligations of Company as set out on Exhibit "D" hereto, all liabilities of Seller shall be paid by Seller on or before Closing.
6. Additional Covenants of the Parties. At the Closing on the Closing Date:
6.1. Resignations of Officers and Directors of Company. The resignation of each of Company's officers and directors effective at the Closing on the Closing Date shall have been executed and delivered to Purchaser by each such officer and director.
7. Indemnification.
7.1. Indemnification by the Sellers. The Sellers shall defend, indemnify and hold harmless the Purchaser, its officers, directors, shareholders, agents, servants and employees, and their respective heirs, personal and legal representatives, guardians, successors and assigns, from and against any and all claims, threats, liabilities, taxes, interest, fines, penalties, suits, actions, proceedings, demands, damages, losses, costs and expenses (including attorneys' and experts' fees and court costs) of every kind and nature arising out of, resulting from, or in connection with:
7 1.1. Any misrepresentation or breach by Sellers or any of Sellers of any representation or warranty contained in this Agreement.
7.1.2. Any nonfulfillment, failure to comply or breach by Sellers or any of Sellers of or with any covenant, promise or agreement of the Sellers or any of Sellers contained in this Agreement.
7.1.3. Any act, failure to act or omission prior to the Closing Date by any Participant.
7.2. Indemnification by the Purchaser. The Purchaser shall defend, indemnify and hold harmless the Sellers and their respective heirs, personal and legal representatives, guardians, successors and assigns, from and against any and all claims, threats, liabilities, taxes, interest, fines, penalties, suits, actions, proceedings, demands, damages, losses, costs and expenses (including attorneys' and experts' fees and court costs) of every kind and nature arising Out of, resulting from, or in connection with:
7.2.1. Any misrepresentation, omission or breach by Purchaser of any representation or warranty contained in this Agreement.
7.2.2. Any nonfulfillment, failure to comply or breach
by the Purchaser of or with any covenant, promise or agreement of the Purchaser contained in this Agreement.
8. General.
8.1. Survival of Representations, Warranties, and Agreements. All of the representations, warranties, covenants, promises and agreements of the parties contained in this Agreement (or in any document delivered or to be delivered pursuant to this Agreement or in connection with the Closing) shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.
8.2. Entire Agreement. This Agreement (including all Exhibits hereto which are incorporated herein by this reference) constitutes the full, entire and integrated agreement between the parties hereto with respect to the subject matter hereof, and supercedes all prior negotiations, correspondence, understandings and agreements among the parties hereto respecting the subject matter hereof.
8.3. Assignability. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto.
8.4. Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, each other Person who is indemnified under any provision of this Agreement, and their respective heirs, personal and legal representatives, guardians, successors and, in the case of Purchaser, its permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights, remedies, obligations or liabilities.
8.5. Severability. Any provision of this Agreement which is held by a court of competent jurisdiction to be prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability, without invalidating or rendering unenforceable the remaining provisions of this Agreement.
8.6. Amendment; Waiver. No provision of this Agreement may be amended, waived or otherwise modified without the prior written consent of all of the parties hereto. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement herein contained. The waiver by any party hereto of a breach of any provision or condition contained in this Agreement shall not operate or be construed as a waiver of any subsequent breach or of any other conditions hereof.
8.7. Section Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
8.8. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.
8.9. Applicable Law. This Agreement is made and entered into, and shall be governed by and construed in accordance with, the laws of the State of Oklahoma.
8.10. Remedies. The parties hereto acknowledge that the Sellers' Shares are unique; that any claim for monetary damages may not constitute an adequate remedy; and that it may therefore be necessary for the protection of the parties and to carry out the terms of this Agreement to apply for the specific performance of the provisions hereof. Accordingly, no objection to the form of the action or the relief prayed for in any proceeding for specific performance of this Agreement shall be raised by any party, in order that such relief may be expeditiously obtained by an aggrieved party. All parties may proceed to protect and enforce their rights hereunder by a suit in equity, transaction at law or other appropriate proceeding, whether for specific performance or for an injunction against a violation of the terms hereof or in aid of the exercise of any right, power or remedy granted hereunder or by law, equity or statute or otherwise. No course of dealing and no delay on the part of any party hereto in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice its rights, powers or remedies, and no right, power or remedy conferred hereby shall be exclusive of any other right, power or remedy referred to herein or flow or hereafter available at law, in equity, by statute or otherwise.
8.11. Notices. All notices, offers, acceptances, exercises of options, waivers and other acts under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or sent by first class mail with postage prepaid, or sent by telex, telegram or facsimile, as follows:
If to the Sellers:
ANIMUS COMMUNICATIONS, INC.
Attn: Bobby Gruenewald
1062 Cumberland Mansion
Yukon, OK 73099
With a copy to:
John M. Coffey, Esq.
WHTE, COFFEY, GALT & FITE, P.C.
6520 N. Western, Suite 300
Oklahoma City, OK 73116
(405) 842-7545
Fax - (405) 840-989O
If to the Purchaser:
FULLNET COMMNICATIONS, INC.
200 N. Harvey, Suite 1706
Oklahoma City, OK 73102
or to such other address as a party shall have specified by notice in writing to the other parties. All such notices, requests, demands, waivers and communications shall be deemed to have been received on the date of personal delivery or on the third business day after the mailing thereof or on the date of confirmation of transmission of any telex, telegram or facsimile.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date first above written.
SELLERS:
/S/ Robert L. Gruenewald -------------------------------------------------- Robert L. Gruenewald /S/ William Toombs Richardson, Jr. -------------------------------------------------- William Toombs Richardson, Jr., Trustee of the William Toombs Richardson, Jr. 1995 Revocable Trust Agreement dated the 25th of May, 1995 /S/ Steve R. Bailey -------------------------------------------------- Steve R. Bailey, Trustee of the Steve R. Bailey Living Trust dated October 28, 1994 /S/ Kevin Hackler -------------------------------------------------- Kevin Hackler /S/ Jason Ayers -------------------------------------------------- Jason Ayers /S/ Travis C. Lux -------------------------------------------------- Travis Christopher Lux |
PURCHASER:
FULLNET COMMUNICATIONS, INC.
ATTEST:
/S/ Laura L. Kilkenny By:/S/ Timothy J. Kilkenny ---------------------------- -------------------------------- Laura L. Kilkenny, Secretary Timothy J Kilkenny, President |