ITEM 1. Front of Registration Statement and Outside Front Cover of Prospectus
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Competitive Companies, Inc.
(Name of small business issuer in our charter)
Nevada 7389 65-1146821
(State or other jurisdiction of (Primary Standard (I.R.S. Emplyer
incorpoartion or organization Industrial Classification Identifiaction Number)
Code Number)
3751 Merced Drive, Suite A Riverside, CA
92503
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 909.687.6100
3751 Merced Drive, Suite A Riverside, CA 92503
(Address of principal place of business or intended principal place of business)
Corporate Creations Network, Inc
8275 South Eastern Avenue, Suite 200 Las Vegas NV 89123
1 305 672 0686
(Name, address and telephone number of agent for service)
Copies to:
M.T. Williams, Esq.
Williams Law Group, P.A.
2503 W. Gardner Ct.
Tampa FL 33611
Phone: 813.831.9348
Fax: 813.832.5284
SHARES ARE BEING OFFERED BY SELLING SHAREHOLDERS AS FOLLOWS:
Common stock, $.001 2,559,361
par value
Class B Preferred, 1,495,436
$.001 par value
Class C Preferred, 1,000,000
$.001 par value
1
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of each class of maximum maximum Amount of
securities to be Amount to be offering price aggregate registration
registered registered per unit (1) offering price fee
Common stock, $.001 2,559,361 (2) $3.00 $7,678,083.00 $1,920.00
par value
Class B Preferred, 1,495,436 (2) $.001 $1,495.00 $1.00
$.001 par value
Class C Preferred, 1,000,000 (2) $.001 $1,000.00 $1.00
$.001 par value
------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Selling shareholders hold all of the shares that we are registering.
These shares will be sold at negotiated prices. We will not receive proceeds
from the sale of shares from the selling shareholders.
We hereby amend this registration statement on such date or dates as may be
necessary to delay our effective date until we will file a further amendment
which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until this Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a) may determine.
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ITEM 1. Front of Registration Statement and Outside Front Cover of
Prospectus
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. OUR SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS
COMPETITIVE COMPANIES, INC.
SUBJECT TO COMPLETION, DATED JANUARY 11, 2002
Our selling shareholders are offering:
2,559,361 shares of our common stock, $.001 par value
1,495,436 shares of Class B preferred stock, $.001 par value
1,000,000 shares of Class C preferred stock, $.001 par value
The selling shareholders owning common stock may offer their shares of common
stock at $3.00 per share. The selling shareholders owning Class B and Class C
stock may offer their shares of preferred stock at $.01 per share. When the
Class B and Class C shares are converted, the selling shareholders owning the
underlying common stock may offer their shares of common stock at $3.00 per
share. We will pay all expenses of registering the securities.
Our common stock is not now qualified for quotation on the Over-the-Counter
Bulletin Board or listed on any national securities exchange or the NASDAQ stock
market.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED
ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.SEE "RISK
FACTORS" BEGINNING ON PAGE 12.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Offering Information
Price to Public (1) Underwriting Estimated Offering Proceeds to
Discounts and Expenses (3) Company (4)
Commissions (2)
Per Share
Common Stock $3.00 N/A N/A N/A
Class B Preferred Stock $.01 N/A N/A N/A
Class C Preferred Stock $.01 N/A N/A N/A
Total $0.0 $0.0 $0.0 $0.0
(1) The offering price has been arbitrarily determined and does not bear any
relationship to our assets, results of operations, or book value, or to any
other generally accepted criteria of valuation. Prior to this offering, there
has been no market for our securities. The offering price for the selling
shareholders' shares has been determined solely by management.
(2) Selling Shareholders hold all of the shares that we are registering. Because
we are not selling any of our shares, there are no underwriting commissions
involved in this offering.
(3) Does not include offering costs, including filing, legal, and accounting
estimated at $50,000. We have agreed to pay all the costs of this offering.
Selling security holders will pay no offering expenses.
(4) We will not receive proceeds from the sale of shares from the selling
shareholders.
The date of this preliminary prospectus is January 11, 2002.
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ITEM 2. Inside Front and Outside Back Cover Pages of Prospectus
TABLE OF CONTENTS
ITEM 1. Front of registration Statement and Outside Front Cover of Prospectus...1
ITEM 2. Inside Front and Outside Back Cover Pages of Prospectus.................3
ITEM 3. SUMMARY INFORMATION.....................................................6
RISK FACTORS............................................................12
We have incurred losses since inception, considered on a pro forma
basis after our recent reorganization, and may incur future losses.
You will be unable to determine whether we will ever become profitable
which subjects you to risk of loss on your investment...................12
If we need and are unable to generate excess operating cash flow or
obtain additional financing, we will have to curtail our expansion
plans, which will reduce the value of your investment...................12
If we fail to obtain and retain sufficient numbers of customers within
our targeted customer groups, we may have to seek alterantive revenue
sources that may cause substantial delays in our operations and our
revenues will be reduced................................................
We may not be able to provide our products and services if we do not
connect or continue to connect with the traditional carriers, our
primary competitors.....................................................17
If we do not maintain arrangements with the Internet service providers,
the profitability of our Internet access services will suffer...........17
Our revenues will be reduced if we do not establish and maintain
effective resale agreements for long distance service...................17
We may lose the assets of Huntington Partners acquired in the
reorganization if we do not satisfy certain conditions within 210 days
of the closing of the reorganization which would reduce our revenues....17
Our business is depemdent upon our Chief Financial Officer, Larry
Halstead, and our significant employees, David Bower, management
information systems director and Judy Kline, customer service mananger.
If we lose the service of Mr. Halstead, Mr. Bower or Ms. Kline,
development of our business plan may be slower than anticipated.........18
If we are unable to attract and retain qualified personnel, we may be
unable to develop or retain a sufficient customer base to fund our
operations, or implement our business plan..............................18
Because conflicts of interest exist with our officers and directors,
you should exercise caution before you invest in our common stock.......18
We may not have sufficient financial resources to successfully compete
in the telecommunications business......................................18
Our failure to comply with the government rules and regulations may
reduce our revenues.....................................................18
Our officers and directors have substantial control over business.......18
If our common stock is considered a penny stock, any investment in our
common stock is a high-risk investment and is subject to restrictions
on marketability; you may be unable to sell your shares.................19
Because there is no public market fro ur common stock, you may be
unable to sell your investment in our common stock......................19
If the price of our stock is less than three dollars per share upon
opening and during the initial five days of trading, subject to
extension, we may havt to issue a substantial number of additional
shares of common stock, which could reduce the value of your
investment..............................................................19
Issuance of our preferred stock could depress the market value of your
investment and have a potential anti-takeover effect....................19
If our common stock becomes tradable on the Over-the-Counter Bulletin
Board, sales of our common stock to the public could reduce the price
of our common stock and decrease public interest in our common stock....19
Because we have never paid dividends, you should exercise caution
before making an investment in our common stock.........................19
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ITEM 4. USE OF PROCEEDS.........................................................19
ITEM 7. SELLING SHAREHOLDERS....................................................20
ITEM 8. PLAN OF DISTRIBUTION....................................................23
ITEM 9. LEGAL PROCEEDINGS.......................................................24
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS...........24
ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........26
ITEM 12.DESCRIPTION OF SECURITIES...............................................27
ITEM 13.INTEREST OF NAMED EXPERTS AND COUNSEL...................................31
ITEM 14.DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
LIABILITIES.............................................................31
ITEM 15.ORGANIZATION WITHIN THE LAST FIVE YEARS.................................31
ITEM 16.BUSINESS................................................................33
ITEM 17.MANAGEMENTS DISCUSSION AND ANALYSIS.....................................40
ITEM 18.DESCRIPTION OF PROPERTY.................................................58
ITEM 19.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................58
ITEM 20.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................60
ITEM 21.EXECUTIVE COMPENSATION .................................................65
ITEM 22.FINANCIAL STATEMENTS....................................................69
ITEM 23.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................................115
PART II.........................................................................116
ITEM 24.INDEMNIFICATION OF OFFICERS AND DIRECTORS...............................117
ITEM 25.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.............................118
ITEM 26.RECENT SALES OF UNREGISTERED SECURITIES.................................119
ITEM 27.EXHIBITS................................................................120
ITEM 28.UNDERTAKINGS............................................................121
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ITEM 3. SUMMARY INFORMATION AND RISK FACTORS
PROSPECTUS SUMMARY
This prospectus contains statements about our future business operations
that involve risks and uncertainties. Our actual results could differ
significantly from our anticipated future operations, as a result of many
factors, including those identified under the "Risk Factors" section of this
prospectus beginning on page 12. The prospectus summary contains a summary of
all material terms of the prospectus. You should carefully read all information
in the prospectus, including the financial statements and their explanatory
notes, under the Financial Statements section beginning on page F-1 prior to
making an investment decision.
Our Company
Competitive Companies, Inc. is the name of the company formed in October
2001 solely to facilitate a December 2001 reorganization which included the
assets of Huntington Telecommunications Partners, LP, a California limited
partnership and the operations of Competitive Companies, Inc., a Nevada
corporation originally formed March 1998. The transaction was effected as
follows:
StepAction
1. Competitive Companies Holdings, Inc. was formed to facilitate the
reorganization
2. Competitive Companies Holdings formed CCH Aquistion, a subsidiary
to aquire Competitive Companies
3. Competitive Companie merged into CCH Aquisition, with Competitive
Companies as the surviving company
4. Competitive Companies Holdings acquired the assets of Huntington
Partners
5. Competitive Companies changed its name to Competitive Holdings
6. Competitive Companies Holdings changed its name to Competitive
Companies
6
The diagram below shows how the transaction was effected.
7
The diagram below shows how we are currently organized.
8
As a result of the reorganization, Competitive Companies owns the assets of
Huntington Partners and has as a wholly owned subsidiary Competitive Holdings.
Competitive Holdings has two wholly owned subsidiaries:
o Competitive Communications, Inc. which was incorporated under the laws of
the state of California in February 1996.
o CCI Residential Services, Inc. which was incorporated under the laws of the
state of California in January 2000. Our principal executive offices are
located at 3751 Merced Drive, Suite A, Riverside, CA 92503. Our telephone
number is 909.687.6100.
We are authorized to issue 70,000,000 shares of common stock of which
5,912,061 shares are outstanding. We are authorized to issue 10,000,000 shares
of preferred stock in series A, B, and C. There are 4,000,000 shares of the
Class A preferred stock outstanding, 1,495,436 shares of the Class B preferred
stock outstanding, and 1,000,000 shares of the Class C preferred stock
outstanding.
Our Business
We primarily provide local and long distance telephone services, cable
television services, and Internet access services to apartment complexes. As a
competitive local and long distance telecommunications company, we also offer
local and long distance telephone services and Internet access services to other
residential customers as well as business customers. Our operations are located
in Riverside, California, and approximately 80% of our customers are located in
California.
The Offering
This offering is comprised entirely of shares of our common stock held by our
selling shareholders. Our selling shareholders are offering:
2,559,361 shares of our common stock, .001 par value
1,495,436 shares of Class B preferred stock, $.001 par value
1,000,000 shares of Class C preferred stock, $.001 par value
The selling shareholders owning common stock may offer their shares of common
stock at $3.00 per share. The selling shareholders owning Class B and Class C
stock may offer their shares of preferred stock at $.01 per share. When the
Class B and Class C shares are converted, the selling shareholders owning the
underlying common stock may offer their shares of common stock at $3.00 per
share. We will not receive any of the proceeds from the sale of the shares of
common stock offered by the selling shareholders. We anticipate offering expenses
of approximately $50,000.
Financial Summary
Because this is only a financial summary, it does not contain all the financial
information that may be important to you. Therefore, you should carefully read
all the information in this prospectus, including the financial statements and
their explanatory notes before making an investment decision.
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Selected Historical Financial Information
The following selected historical financial information of Competitive Companies
and Huntington Partners has been derived from their respective historical
financial statements, and should be read in conjunction with the financial
statements and the notes, which are included in this prospectus/consent
solicitation.
COMPETITIVE COMPANIES
SELECTED HISTORICAL FINANCIAL INFORMATION
Nine Months Nine Months
ended ended Year Ended Year Ended
September September December 31, December 31,
30, 200130, 2000 2000 1999
Statement of operations data:
Revenues $ 1,361,252 $ 1,180,634 $ 1,555,799 $ 1,452,489
Operating Expenses 1,467,876 1,239,896 1,690,345 17,102,037
Loss from Operations (106,624) (59,262) (134,546) (15,649,548)
Other Income (expense) (34,218) (37,232) (50,206) (77,343)
Loss before taxes (140,842) (96,494) (184,752) (15,726,891)
Income tax expense 0 0 0 0
Net loss (140,842) (96,494) (184,752) (15,726,891)
Common Share Data:
Net loss per share (0.03) (0.02) (0.04) (3.82)
Book value 0.06 0.09
Weighted average common
shares outstanding 4,912,061 4,875,000 4,912,061 4,118,000
Period end shares outstanding 4,912,061 4,875,000 4,912,061 4,852,061
Balance Sheet Data:
Total assets $ 964,185 $ 1,057,693
Working Capital (Deficit) 136,484 350,335
Shareholders' Equity 304,811 445,653
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HUNTINGTON PARTNERS
SELECTED HISTORICAL FINANCIAL INFORMATION
Nine Months Nine Months
ended ended Year Ended Year Ended
September 30, September 30, December 31, December 31,
2001 2000 2000 1999
Statement of operations data:
Revenues $ 477,478 $ 549,857 $ 708,088 $ 715,063
Operating Expenses 451,684 648,025 781,888 755,243
Income (Loss) from Operations 25,794 (98,168) (73,800) (40,180)
Other Income (expense) 0 0 0 0
Income (Loss) before taxes 25,794 (98,168) (73,800) (40,180)
Income tax expense 0 0 0 0
Net income (loss) 25,794 (98,168) (73,800) (40,180)
Common Share Data:
Net income (loss) per share* 0.02 (0.10) (0.07) (0.04)
Book value* 0.23 0.23
Weighted average common shares
Outstanding* 1,000,000 1,000,000 1,000,000 1,000,000
Period end shares outstanding * 1,000,000 1,000,000 1,000,000 1,000,000
Balance Sheet Data:
Total assets 256,335 $ 248,943
Working Capital 229,503 123,367
Shareholders' Equity 229,503 203,709
* Assumes that 1,000,000 shares are outstanding as if the merger occurred.
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RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED IN THIS PROSPECTUS INVOLVES
A HIGH DEGREE OF RISK. WE CANNOT ASSURE PROSPECTIVE INVESTORS THAT WE
WILLCONTINUE OPERATIONS, GENERATE REVENUES, OR MAKE A PROFIT IN THE FUTURE. NO
PURCHASE OF THE COMMON STOCK SHOULD BE MADE BY ANY PERSON WHO CANNOT AFFORD A
TOTAL LOSS OF HIS OR HER INVESTMENT.
In addition to the other information provided in this prospectus, you should
carefully consider the following risk factors in evaluating our business before
purchasing any of our common stock.
We have incurred losses since inception, considered on a pro forma basis after
our recent reorganization, and may incur future losses. You will be unable to
determine whether we will ever become profitable which subjects you to the risk
of loss on your investment.
We have not yet generated a profit from operations. Our operating losses
considered on a pro forma basis after our recent reorganization from inception
to September 30, 2001 totaled approximately $17,200,000. As of September 30,
2001 considered on a pro forma basis after our recent reorganization, we had a
combined stockholders' equity of approximately $530,000. As of September 30,
2001, we only had $8,000 in current cash available to finance our operations and
planned expansion. We anticipate that we will be able to generate sufficient
operating cash flow to finance continued operations during the next 12 months.
If we need financing to support our expansion plans but are unable to obtain it,
we will have to curtail our expansion plans and the value of your investment may
be reduced.
Our future business will involve substantial costs, primarily those costs
associated with the following:
o High speed internet service with local & long distance package-business
& residential
o Cable television service-currently served apartments
o Affinity (charitable) program
o Pay off open leases, system purchase, and notes payable
o High speed internet service-currently served apartments
o Acquire new apartment complexes for telephone, cable television, and internet
service
We need approximately $15,000,000 to finance all of our expansion plans. We do
not anticipate that our revenues will be sufficient to finance these activities.
Accordingly, we will need traditional bank financing or financing from debt or
equity offerings. However, if we are unable to obtain financing when needed, we
may be forced to curtail our operations and our future growth plans, which could
reduce our revenues and potential profitability and the value of your
investment.
12
We may not be able to provide our products and services if we do not connect or
continue to connect with the traditional carriers, our primary competitors.
Traditional carriers are established providers of local telephone services to
all or virtually all telephone subscribers within their respective service
areas. Many competitive carriers, including us, have experienced difficulties in
working with the traditional carriers with respect to initiating, connecting,
and implementing the systems used by these competitive carriers to order and
receive network elements and wholesale services and locating the competitive
carriers' equipment in the offices of the traditional carriers.
Competitive Communications entered into a connection agreement with BellSouth
which became effective October 1, 1996, and covers nine states including:
Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina, and Tennessee. This agreement has been renewed. In February 2000
it entered into connection agreements with PacBell and GTE in California and are
now operating as a newer local phone companies in California. The agreement with
PacBell expires in June 2002, provided that notice of termination is given at
least 120 days prior to the expiration date. If no notice is given, the
agreement continues until ended with 45 days advance written notice by either
party. The agreement with GTE automatically renews each year unless either party
gives prior written notice of termination. In Mississippi we must upgrade our
switch to accommodate required features and have rates approved in order to
commence operating.
As a competitive carrier, we must coordinate with traditional carriers so that
we can provide local service to customers on a timely and competitive basis. The
Telecommunications Act created incentives for regional Bell operating companies
to cooperate with competitive carriers and permit access to their facilities by
denying such companies the ability to provide in-region long distance services
until they have satisfied statutory conditions designed to open their local
markets to competition. The regional Bell operating companies in our markets are
not yet permitted by the FCC to offer long distance services. These companies
may not be accommodating once they are permitted to offer long distance service.
Currently Verizon is permitted to offer both local and long distance service in
some our mutual service areas, but we have not yet noticed any impact on our
markets.
If we cannot obtain the cooperation of a regional Bell operating company in a
region, whether or not we have been authorized to offer long distance service,
our ability to offer local services in such region on a timely and
cost-effective basis will be harmed.
We may lose the assets of Huntington Partners acquired in the reorganization if
we do not satisfy certain conditions within 210 days of the closing of the
reorganization, which would reduce our revenues.
13
The reorganization agreement with Huntington Partners gives them rescission
rights if we do not satisfy certain conditions within 120 days of the closing of
the reorganization including having this registration statement declared
effective and securing a qualification for quotation for our securities on the
over the counter bulletin board. Any rescission would result in our losing the
revenue producing assets we acquired, which would reduce our revenues.
Day-to-day management decisions are made by our Chief Financial Officer, Larry
Halstead, and our significant employees, David Bower, management information
systems director and Judy Kline, customer service manager. If we lose the
services of Mr. Halstead, Mr. Bower or Ms. Kline, development of our business
plan may be slower than anticipated.
The success of our business is dependent upon the expertise of our Chief
Financial Officer, Larry Halstead, who will continue to control our day-to-day
business affairs after this offering. It is also dependent upon two significant
employees, David Bower and Judy Kline. Because they are essential to our
operations, you must rely on their management decisions. We have not entered
into any agreement with them that would prevent them from leaving us, nor have
we obtained any key man life insurance relating to them. If we lose their
services, we may not be able to hire and retain another Chief Financial Officer,
management information systems director or custormer service manager with
comparable experience. As a result, the loss of any of these individual's
services could reduce our revenues.
Our operations are subject to possible conflicts of interest; there are no
assurances that we will resolve these conflicts in a manner favorable to our
minority shareholders.
Our officers and directors are involved in other business activities and may, in
the future, become involved in such other business opportunities. If other business
opportunities become available, our officers and directors may face a conflict in
selecting between our business objectives and their own. This is particularly
true of our President, David Kline II, who spends almost all of his time on
other business matters. We have not formulated a policy for the resolution of
such conflicts. Future transactions or arrangements between or among our
officers, directors and shareholders, and companies they control, may result in
conflicts of interest, which may have an unfavorable impact on the rights of
minority shareholders or reduce our revenues.
Our management has significant control over stockholder matters, which may
affect the ability of minority stockholders to influence our activities.
Collectively, our officers and directors beneficially own approximately 60% of
our outstanding common stock. In addition, they own 4,125,000 options or
warrants which are exercisable to purchase additional shares of common stock at
an average price of $0.19 during the next five years. They also own 4,000,000
shares of Class A convertible preferred stock which may be converted into
20,000,000 additional shares of common stock for no additional consideration
under certain circumstances in the future. As such, our officers/ directors and
their family members control the outcome of all matters submitted to a vote by
the holders of our common stock, including the election of our directors,
amendments to our certificate of incorporation and approval of significant
corporate transactions. Additionally, our officers and directors could delay,
deter or prevent a change in our control that might be beneficial to our other
stockholders.
14
Because our common stock is considered a penny stock, any investment in our
common stock is considered a high-risk investment and is subject to restrictions
on marketability; you may be unable to sell your shares.
If our common stock becomes tradable in the secondary market, we may be subject
to the penny stock rules adopted by the Securities and Exchange Commission that
require brokers to provide extensive disclosure to its customers prior to
executing trades in penny stocks. These disclosure requirements may cause a
reduction in the trading activity of our common stock, which in all likelihood
would make it difficult for our shareholders to sell their securities. For
additional details concerning the disclosure requirements under the penny stock
rules, see the section entitled Penny Stock Considerations at page 68 below.
Certain Nevada corporation law provisions could prevent a potential takeover of
us which could adversely affect the market price of our common stock or deprive
you of a premium over the market price.
We are incorporated in the State of Nevada. Certain provisions of Nevada
corporation law could adversely affect the market price of our common stock.
Because Nevada corporation law requires board approval of a transaction
involving a change in our control, it would be more difficult for someone to
acquire control of us. Nevada corporate law also discourages proxy contests
making it more difficult for you and other shareholders to elect directors other
than the candidates nominated by our board of directors.
SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS
Some of the statements in this prospectus are "forward-looking statements".
These forward-looking statements involve certain known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. These
factors include, among others, the factors set forth above under "Risk Factors".
The words "believe," "expect," "anticipate," "intend," "plan," and similar
expressions identify forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements. We undertake no obligation
to update and revise any forward-looking statements or to publicly announce the
result of any revisions to any of the forward-looking statements in this
document to reflect any future or developments. However, the Private Securities
Litigation Reform Act of 1995 is not available to us as a non-reporting issuer.
ITEM 4. USE OF PROCEEDS
Not Applicable. We will not receive any proceeds from the sale of the securities
by the selling shareholders.
ITEM 5. DETERMINATION OF OFFERING PRICE
Our management has determined the offering price for the selling shareholders'
shares. The offering price has been arbitrarily determined and does not bear any
relationship to our assets, results of operations, or book value, or to any
other generally accepted criteria of valuation. Prior to this offering, there
has been no market for our securities.
ITEM 6. DILUTION
We are not offering any shares in this registration statement. All shares are
being registered on behalf of our selling shareholders.
Under the terms of our Class B preferred stock, we must issue additional shares
of common stock upon conversion for no additional consideration if the average
of the opening bid and ask price on the over the counter bulletin board is less
than $3.00. In addition, under the terms of our Class C preferred stock, we must
issue additional shares of common stock upon conversion for no additional
consideration if the average of first 5 days trading bid and ask price on the
15
over the counter bulletin board is less than $3.00, subject to adjustment. If
this occurs, it could significantly dilute the value of your shares.
ITEM 7. SELLING SECURITY HOLDERS
The selling security holders named below are selling the securities. The table
assumes that all of the securities will be sold in this offering. However, any
or all of the securities listed below may be retained by any of the selling
security holders, and therefore, no accurate forecast can be made as to the
number of securities that will be held by the selling security holders upon
termination of this offering. We believe that the selling security holders
listed in the table have sole voting and investment powers with respect to the
securities indicated. We will not receive any proceeds from the sale of the
securities by the selling shareholders.
Name of Stockholder Nature Percentage
# of No. before/after Relationship
Shr-hldr Business Shares offering to Company
=============================================================================================================
SELLING SHAREHOLDERS WITH COMMON STOCK AND CLASS B PREFERRED STOCK
1 Albright, Lee B. 10,000 0.17/0
1 Beck, Michael W. 5,000 0.08/0
1 Bedan, Debra 1,000 0.02/0
1 Betourne, Richard A. & Irma M.,Joint Tenants 30,000 0.51/0
1 Bohan, Brian 10,000 0.17/0
1 Claussen, Richard 5,000 0.08/0
1 DATALECT, INC. Computer Software 5,000 0.08/0
1 Deromedi, Patrick J. 30,000 0.51/0
1 Dinero, Gina M. 5,000 0.08/0
1 Frasco, Dennis 1,000 0.02/0
1 Frasco, Karen K. 3,000 0.05/0
1 Frasco, Michael 1,000 0.02/0
1 Frederic, Douglas 1,000 0.02/0
1 Freeman, Wynne K. 20,000 0.34/0
1 Gooden, Donald R. 10,000 0.17/0
1 Gray, Mary 10,000 0.17/0
1 Gutierrez, Michael & Lisa, Joint Tenants 5,000 0.08/0
1 Hammer, James E. 106,250 1.80/0
1 Hammer, Paul H. & Valerie, Joint Tenants 63,158 1.07/0
1 Hammer, Susan 75,000 1.27/0
1 Hannah, Robert 10,000 0.17/0
1 Hartwell, James H. & Patricia, Joint Tenants 10,000 0.17/0
1 I.Robert Beton Trust 10,000 0.17/0
1 Isaac, Odell & Day, Amy,Joint Tenants 50,000 0.85/0
1 James J. Healey Group Investments 46,500 0.79/0
1 Johnson, Barbara 10,000 0.17/0
1 Johnson, Leslie 5,000 0.08/0
1 Johnson, Robert 10,000 0.17/0
1 KELLYSHARES, LTD. International
Business Consulting 30,000 0.51/0
1 Klein, Andrew 56,000 0.95/0
1 Klein, Jonathan & Jane,Joint Tenants 20,000 0.34/0
1 Krasovich, Edward J. TRUST 5,000 0.08/0
1 Landis, Lyle D. & Mary T., Joint Tenants 10,000 0.17/0
1 Lewis, David E. 10,000 0.17/0
1 Madsen Holdings, Ltd. 200,000 3.38/0
1 Manufactured Home Lots, Inc. Real Estate
& Construction 20,000 0.34/0
1 Martin, Lee J. & Alison, Joint Tenants 15,000 0.25/0
1 McClendon, Paul 10,000 0.17/0
1 McKnight, Dana Alan 10,000 0.17/0
1 Middelhede, Carsten 20,000 0.34/0
1 Mongrain, Raymond E. & Veltkamp, Darrell R. 10,000 0.17/0
1 Moore, Richard & Denise E., Joint Tenants 85,500 1.45/0
1 Nist, John E. 5,000 0.08/0
1 Nowick, Martin E. MD PC Profit Sharing Plan Restated 40,000 0.68/0
1 O'Shaughnessy, Brian J. 50,000 0.85/0
1 O'Shaughnessy, Daniel 25,000 0.42/0
1 O'Shaughnessy, Kevin 5,000 0.08/0
1 Rancho Coastal Realty Inc. Real Estate 10,000 0.17/0
16
Name of Stockholder Nature Percentage
# of No. before/after Relationship
Shr-hldr Business Shares offering to Company
=============================================================================================================
1 Reding, David 114,444 1.94/0
1 Ruff, Christopher D. & Cydney J., Joint Tenants 17,500 0.30/0
1 Rusty Bartell Weiss-TTEE, The Weiss Rev. Trust 10,000 0.17/0
1 Simon, Howard M. 20,000 0.34/0
1 Simone, Ed 10,000 0.17/0
1 Steinhauser, Gregg 20,000 0.34/0
1 Sterling Trust Company, Trustee;
FBO: Martin E. Nowick, Acct. No. 052424 10,000 0.17/0
1 Sterling Trust Company, Trustee;
FBO: Susan K. Nowick, Acct. No. 052425 10,000 0.17/0
1 T. BABA & Co. Agriculture 39,084 0.66/0
1 The Kaites Family Trust 30,000 0.51/0
1 Van Lanen, David 10,000 0.17/0
1 Wanderer, H. J. 10,000 0.17/0
1 Xavier, Frank 10,000 0.17/0
TOTAL 1,495,436
SELLING SHAREHOLDERS WITH COMMON STOCK ONLY
1 Bilcorp, Inc. Investments 2,000 0.03/0
1 Boettcher, Harry G. 12,300 0.21/0
1 Halstead, Dean S. 4,500 0.08/0 Son of Larry Halstead
1 O'Shaughnessy, Brian J. 40,125 0.68/0
1 Woods, Jerald 5,000 0.08/0 Director
TOTAL 63,925
SELLING SHAREHOLDERS WITH COMMON STOCK AND CLASS C PREFERRED STOCK
1 Huntington Telecommunications Partnership, L.P. 1,000,000 16.91/0 General Partner, David
Hewitt, Director
17
We intend to seek qualification for sale of the shares in those states where the
shares will be offered. That qualification is necessary to resell the shares in
the public market and only if the shares are qualified for sale or are exempt
from qualification in the states in which the selling shareholders or proposed
purchasers reside. There is no assurance that the states in which we seek
qualification will approve resales of the shares.
ITEM 8. PLAN OF DISTRIBUTION
Our selling shareholders are offering 2,559,361 shares of our common stock,
$.001 par value per share; 1,495,436 shares of Class B preferred stock, $.001
par value; 1,000,000 shares of Class C preferred stock, $.001 par value.
The securities offered by this prospectus will be sold by the selling
shareholders or by those to whom such shares are transferred. We are not aware
of any underwriting arrangements that have been entered into by the selling
security holders. The distribution of the securities by the selling shareholders
may be effected in one or more transactions that may take place in the
over-the-counter market, including broker's transactions, privately negotiated
transactions or through sales to one or more dealers acting as principals in the
resale of these securities.
Any of the selling shareholders, acting alone or in concert with one another,
may be considered statutory underwriters under the Securities Act of 1933, if
they are directly or indirectly conducting an illegal distribution of the
securities on behalf of our corporation. For instance, an illegal distribution
may occur if any of the selling shareholders were to provide us with cash
proceeds from their sales of the securities. If any of the selling shareholders
are determined to be underwriters, they may be liable for securities violations
in connection with any material misrepresentations or omissions made in this
prospectus. In addition, the selling shareholders and any brokers and dealers
through whom sales of the securities are made, may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, and the
commissions or discounts and other compensation paid to such persons may be
regarded as underwriters' compensation.
The selling shareholders may pledge all or a portion of the securities owned as
collateral for margin accounts or in loan transactions, and the securities may
be resold pursuant to the terms of such pledges, margin accounts or loan
transactions. Upon default by such selling shareholders, the pledgee in such
loan transaction would have the same rights of sale as the selling shareholders
under this prospectus. The selling shareholders may also enter into exchange
traded listed option transactions, which require the delivery of the securities
listed under this prospectus. The selling shareholders may also transfer
securities owned in other ways not involving market makers or established
trading markets, including directly by gift, distribution, or other transfer
without consideration, and upon any such transfer the transferee would have the
same rights of sale as such selling shareholders under this prospectus.
In addition to the above, each of the selling shareholders and any other person
participating in a distribution will be affected by the applicable provisions of
the Securities Exchange Act of 1934, including, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the securities by
the selling shareholders or any such other person.
Upon this registration statement being declared effective, the selling
shareholders may offer and sell their shares from time to time until all of the
shares registered are sold; however, this offering may not extend beyond two
years from the initial effective date of this registration statement.
There can be no assurances that the selling shareholders will sell any or all of
the securities. In order to comply with state securities laws, if applicable,
the securities will be sold in jurisdictions only through registered or licensed
brokers or dealers. In various states, the securities may not be sold unless
these securities have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is
18
complied with. Under applicable rules and regulations of the Securities Exchange
Act of 1934, as amended, any person engaged in a distribution of the securities
may not simultaneously engage in market-making activities in these securities
for a period of one or five business days prior to the commencement of such
distribution.
All of the foregoing may affect the marketability of our securities. Pursuant to
the various agreements we have with the selling shareholders, we will pay all
the fees and expenses incident to the registration of the securities, other than
the selling security holders' pro rata share of underwriting discounts and
commissions, if any, which is to be paid by the selling shareholders.
Should any substantial change occur regarding the status or other matters
concerning the selling shareholders, we will file a Rule 424(b) prospectus
disclosing such matters.
ITEM 9. LEGAL PROCEEDINGS
We are not aware of any pending or threatened legal proceedings, in which we are
involved.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The board of directors elects our executive officers annually. A majority vote
of the directors who are in office is required to fill vacancies. Each director
shall be elected for the term of one year, and until his successor is elected
and qualified, or until his earlier resignation or removal. There are no family
relationships between any of the directors and executive officers. Our directors
and executive officers are as follows:
NAME AGE TITLE SERVED SINCE
David Kline II 38 Chairman, C.E.O, President, 1985
C.O.O. & Director
Larry Halstead 57 Sec./Treas., C.F.O. &
Director 1996
Michael Godfree 59 V.P., Business Development
& Director 1997
Jerald Woods 52 V.P. & Director 1997
David Hewitt 55 Director 2001
The following is a brief summary of the business experience of these individuals:
David "DK" Kline II, is our co-founder and has served as president, chief
operating officer and director since inception, but since March 1999 has served
in such capacities on a very limited basis. In December 1999 he became the
chairman of the board and chief executive officer on the death of his father,
David Kline, Sr., who was a co-founder and served as Chairman and Chief
Executive Officer from our founding in 1998. From 1996 to the present DK has
served as the president of Competitive Communications, Inc., our wholly owned
subsidiary, and commenced serving as president of CCI Residential Services, Inc.
upon our incorporation in January 2000. From 1992 to 1996, DK served as
president of Western Telephone & Television, Riverside, California. This was the
forerunner company of Competitive Communications, Inc. Western Telephone &
Television developed the concept of bundling telephone and cable television
service for apartment complexes. DK is a factory certified technician on all the
telephone systems, voice mail systems and cable equipment ends we use. DK
co-authored and programmed our proprietary billing system. Since March 1999, he
has spent over 95% of his time as Regional Account Manager with Electric
Lightwave, Inc. It is anticipated that he will reassume his duties on a
full-time basis if and when we secure additional capital for the implementation
19
of our future plans. DK has a Bachelor of Arts in Chemistry from California
Lutheran University, 1984.
Larry Halstead has been Secretary/Treasurer, Chief Financial Officer and
Director since inception. He has served in the same capacity for Competitive
Communications, Inc. since 1996 and of CCI Residential Services, Inc. since
January 2000. From 1994 to 1996 he was Executive Consultant Sales and Marketing
for Integrated Cargo Management Systems, Inc., of San Antonio, Texas, where he
was responsible for designing, planning, developing, and marketing a satellite
and cellular based cargo tracking and monitoring system. His background includes
over 30 years in high technology based industries including computers and
telecommunications, strategic business planning and development, sales and
marketing, regulatory filing, logistics, and system build-out. From 1972 through
1994 he worked for I/O Computing, Long Beach, California, as Sales and Data
Processing Manager; EECO, Inc. Hotel Systems Division, Santa Ana, California, as
Marketing Service Manager and Planning Manager; for Standard Logic, Inc.,
Corona, California, as Marketing Vice President; Compu-Source, El Toro,
California, as Vice President Sales & Marketing and Partner; and The Wellington
Financial Group, San Antonio, Texas, as Regional Director. While at EECO, Inc.
and Standard Logic, Inc. he spearheaded the development of the first system
interface between a hotel "private" telephone switch and a point-of-sale system
with the hotel front desk computer system allowing for automated and immediate
posting of charges to the guest's folio. From 1966 to 1997, Mr. Halstead held a
number of command and other key positions in the U.S. Army and the Army Reserve,
achieving the rank of Colonel upon retirement in 1997. From 1988 to 1991, he was
Deputy Chief of Staff for Logistics for a command covering most of the Western
United States. From 1994 to 1997, as the Army's Emergency Preparedness Liaison
Officer for Texas, he was responsible for coordinating F.E.M.A. and state
emergency requirements with the Texas Adjutant General and the F.E.M.A. Regional
Director. Mr. Halstead received a Bachelor of Science in Biology from the
University of California, Irvine, 1977. He is a graduate of Air War College in
1987, and is certified as a Logistician by the U.S. Army.
Michael Godfree has been Vice President, Business Development and Director since
1998. He has over fourteen years in the telecommunications industry. Since 1995
Mr. Godfree has been president and a major stockholder of APMSAFE.COM (American
Privacy Management, Inc.), a company that develops and sells out of a patented
algorithm, encryption products and public key infrastructure solutions for
privacy problems on the electronic highway. In 2000 he became a director of
Biometric Verification Inc., and Biometric Verification Holdings Inc. From 1986
to 1995 he provided telecommunications consulting services to the
telecommunications industry through his company, TSC. While at TSC he provided
consultation in Federal Communications Commission filing and licensing
requirements, and in both wireless and wireline infrastructure development. In
1984 he founded, and from 1984 to 1986, he was president of American National
Cellular which was one of the initial private companies in the United States to
offer individuals equity ownership in cellular phone infrastructure. Mr. Godfree
was educated at Newbattle Abbey College, Dalkeith, Edinburgh, Scotland;
Occidental College, Los Angeles; and the University of Sussex, Brighton,
England, from which he holds a Bachelor of Arts Degree in Law.
Jerald Woods has been Vice President and Director since 1998. From 1994 to 2000
he was an officer and director of APMSAFE.COM (American Privacy Management,
Inc.), a company which has developed an encryption technology for the Internet.
From 1988 to 1994 he was chairman and director for American Digital
Communications, Inc. a public company which was involved in the build out of 220
and 800 Mega Hertz systems. Mr. Woods has over fourteen years of
telecommunications experience, and has co-founded five public companies. From
1984 to 1989 he hosted and produced "Breakthroughs in Technology," an investment
program specializing in high technology companies, which aired for thirty
minutes, five-days per week on Financial News Network (FNN) prior to FNN being
acquired by CNBC. He currently is President of JLW Communications Services,
which provides connections with hospitals to meet the new Health Insurance
Portability and Accountability Act (HIPAA) requirements. He also serves as a
director for Pico Medical located in Bethesda, Maryland, which has developed
several new products in health care fields.
20
David Hewitt has been a Director since December 2001. From 1994 to date, he has
been Co-Founder and President of Huntington Partners, Inc., a real estate and
business venture firm. From 1989 to 1992, he was Co-Founder and Managing
Director of Trilateral Company, a real estate firm. He has an MBA with
Distinction from Amos Tuck School of Business Administration at Dartmouth
College and an AB from University of Rochester.
Election of Directors
Our bylaws provide that the board of directors shall consist of five members
until changed by amendment to the articles of incorporation or by amendment to
the applicable section of the bylaws, adopted by the majority of the voting
power of the corporation.
Family Relationships
There are no family relationships among our officers, directors, or persons
nominated for such positions.
Significant Employees
Since inception in 1996, Judy Kline has been Customer Service Manager of
Competitive Communications, Inc., a wholly owned subsidiary of Competitive
Companies, Inc. From 1985 to 1996 she served in the same capacity at Western
Telephone & Television, the forerunner of Competitive Communications, Inc. From
1978 to 1984 she was Assistant Controller at Sav-On Drugs in Anaheim,
California. She has been active in many philanthropic organizations including
the Assistance League of Long Beach and Nightingales of Memorial Hospital. She
is the mother of the Company's chairman of the board, chief executive officer
and president David Kline II. In 2001 she was elected to the board of directors
of CCI Residential Service, Inc., a wholly owned subsidiary of Competitive
Communications, Inc.
David Bower, MIS Manager, has been with the Company since inception in 1996. In
1996 he was promoted from senior Analyst to MIS Manager and is responsible for
maintaining and upgrading the Hartline billing system, liaison with telephone
providers, technical support on the Company's telephone, cable television, and
internet services, and technical assistance to customer service. From 1994 to
1996 he served as Programmer/Analyst and Programmer at Western Telephone &
Television, the forerunner of Competitive Communications, Inc. From 1990 to 1994
he was a Computer Analyst/Data Entry Specialist at Pot O' Gold Inc., Irvine,
California. In 2001, Mr. Bower was elected to the board of directors of
Competitive Communications, Inc., a wholly owned subsidiary of Competitive
Companies, Inc. In 1995, he received a Bachelor of Arts in Mathematics from the
University of California, Riverside.
Legal Proceedings
No officer, director, or persons nominated for such positions, promoter or
significant employee has been involved in legal proceedings that would be
material to an evaluation of our management.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the ownership, as of the date of this
registration statement, of our common stock by each person known by us to be the
beneficial owner of more than 5% of our outstanding common stock each of our
directors all executive officers and our directors as a group. To the best of
our knowledge, all persons named have sole voting and investment power with
respect to such shares, except as otherwise noted. There are not any pending or
anticipated arrangements that may cause a change in control of our company.
21
NameNumber of SharesPercentage
Michael Godfree 275,000 4.7
Larry Halstead 315,000 5.3
David Kline II 1,750,000 29.6
Jerald Woods 188,600 3.2
Huntington 1,000,000 16.7
Telecommunications
Partners, L.P. (1)
All directors and 3,528,600 59.4
named executive
officers (as a group
of 5 persons)
(1) Mr. David Hewitt is the president of the corporate general partner of
Huntington Telecommunications Partners, L.P.
This table is based upon information derived from our stock records. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, we believe that each of the shareholders named
in this table has sole or shared voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages are based upon
5,912,061 shares of common stock outstanding.
ITEM 12. DESCRIPTION OF SECURITIES
The following description as a summary of the material terms of the
provisions of our articles of incorporation and bylaws, is qualified in its
entirety. The articles of incorporation and bylaws have been filed as exhibits
to the registration statement of which this prospectus is a part.
Authorized Capital StockShares Of Capital Stock
Outstanding
Common 70,000,000 5,912,061
Preferred 10,000,000 4,000,000 - Class A
1,495,436 - Class B
1,000,000 - Class C
Common stock
We are authorized to issue 70,000,000 shares of no par common stock. There are
5,912,061 of common stock held of record by 125 stockholders.
All shares of common stock outstanding are, and the common stock to be
outstanding upon completion of this offering will be, validly issued, fully paid
and non-assessable.
Each share of common stock entitles the holder to one vote, either in person or
by proxy, at meetings of shareholders. The holders are not permitted to vote
their shares cumulatively. Accordingly, the shareholders of our common stock who
hold, in the aggregate, more than fifty percent of the total voting rights can
elect all of our directors and, in such event, the holders of the remaining
minority shares will not be able to elect any of the such directors. The vote of
the holders of a majority of the issued and outstanding shares of common stock
entitled to vote thereon is sufficient to authorize, affirm, ratify or consent
to such act or action, except as otherwise provided by law.
22
Holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board of directors out of funds legally available. We
have not paid any dividends since our inception, and we presently anticipate
that all earnings, if any, will be retained for development of our business. Any
future disposition of dividends will be at the discretion of our Board of
Directors and will depend upon, among other things, our future earnings,
operating and financial condition, capital requirements, and other factors.
Holders of our common stock have no preemptive rights or other subscription
rights, conversion rights, redemption or sinking fund provisions. Upon our
liquidation, dissolution or winding up, the holders of our common stock will be
entitled to share ratably in the net assets legally available for distribution
to shareholders after the payment of all of our debts and other liabilities.
There are not any provisions in our Articles of Incorporation or our by-laws
that would prevent or delay change in our control.
Preferred stock
We are authorized to issue 10,000,000 shares of preferred stock
Class A preferred stock
4,000,000 shares of Class A convertible preferred stock were issued by us to
various founding stockholders and management in December 1999. These 4,000,000
shares are convertible into 20,000,000 shares of common stock. Conversion may
occur at any time, in whole or in part up to the number of shares set forth
below with the achievement of the following events for a period commencing on
the date such event was achieved and ending on December 31, 2010.
The conversion events are as follows:
EventNumber of shares of common stock
issued upon conversion
Achieving 100% increase in the 10,000,000
combined number of owned
apartment complex passings plus
non-apartment complex customers
Achieving 10,000 customers in the 5,000,000
combined number of owned apartment
complex passings and non-apartment
complex customers
Achieving 20,000 customers in the 5,000,000
combined number of owned apartment
complex passings and non-apartment
complex customers
o An apartment complex passing is an individual apartment under direct
contract with it for telephone, television or Internet service.
o A non-apartment complex customer is a non-apartment residential or business
customer that is counted once for each major service to which they
subscribe.
Conversion events are based on customer base existing as of December 9, 1999.
Class B convertible preferred shares
We have issued 1,495,436 shares of Class B convertible preferred stock entitling
persons owning the Class B shares the following:
The stock shall convert into such number or fraction thereof shares of common
stock based upon the following:
23
1- the fraction: [average of opening bid and ask price on the over the counter bulletin board/$3.00]
divided by
the fraction: [average of opening bid and ask price on the over the counter bulletin board/$3.00]
For example, assume average opening bid/ask of $2.00. 1 - 2/3 = 1/3. 1/3divided
by 2/3 = .5 additional share of common stock issued upon conversion.
Class C convertible preferred shares
We have issued 1,000,000 shares of Class C convertible preferred stock entitling
persons owning the Class C shares the following:
The stock shall convert into such number or fraction there of shares of common
stock based upon the following:
If the average of the closing bid price for the common stock for first five
business day period immediately following the closing of the reorganization
agreement during which the common stock is qualified for quotation on the
over the counter bulletin board is less than $3.00 per share, the number of
shares of common stock to be issued upon conversion of the Class C
preferred stock shall be the product obtained by multiplying the following
conversion ratio by the 1,000,000 shares of Class C preferred stock held by
Huntington Partners. The conversion ratio shall be one minus the adjusted
price divided by the adjusted price. The adjusted price shall be determined
by dividing the closing bid price for the common stock for first five
business day period immediately following the closing of the reorganization
agreement during which the common stock is qualified for quotation on the
over the counter bulletin board by $3.00. For purposes of determining the
closing bid price for the common stock for first five business day period
immediately following the closing of the reorganization agreement during
which the common stock is qualified for quotation on the over the counter
bulletin board, purchases of our common stock by us or our affiliates or
persons controlled by us or our affiliates shall be disregarded. In
addition, if trades have not been executed on at least three of those five
days, the adjustment period shall be extended until our common stock shall
have been traded on at least three days, and the average closing bid price
for those three trading days shall be the price used in the formula.
For example, assume average of first 5 days closing bid of $2.00, and no other
adjustments under the formula. The conversion would occur as follows:
o 1 - 2/3 = 1/3.
o 1/3divided by 2/3 = .5.
o .5 x 1,000,000 = 500,000.
Accordingly, 500,000 shares of common stock would be issued to Huntington
Partners upon conversion of the Class C preferred stock.
If we at any time after the date of the reorganization we effect a subdivision
of our outstanding common stock or preferred stock, the conversion ratios as
determined above will be proportionately adjusted. Holders of the all classes of
preferred shares are not entitled to preferential dividend rights, redemption or
voting rights.
We presently have no plans to issue any additional shares of preferred stock.
However, preferred stock may be issued with preferences and designations as the
board of directors may from time to time determine. The board may, without
stockholders approval, issue preferred stock with voting, dividend, liquidation
and conversion rights that could dilute the voting strength of our common
24
stockholders and may assist management in impeding and unfriendly takeover or
attempted changes in control.
There are no restrictions on our ability to repurchase or reclaim our preferred
shares while there is any arrearage in the payment of dividends on our preferred
stock.
Options
We have 5,040,000 outstanding non-statutory options to the following:
Name Number of Option Exercise Price Number Currently
Exercisable
Officers, Directors & Affiliates:
Larry Halstead 1,000,000 $0.001 600,000
Jerald Woods 500,000 $1.00 0
Judy Kline (1) 2,625,000 $0.001 1,575,000
Sub-Total4,125,0002,175,000
Others:
Employees 445,000 $0.001 347,000
Employees 300,000 $0.85 0
Employees 70,000 $1.00 0
James Gibson 50,000 $1.00 0
James Healey 50,000 $1.00 0
Sub-Total915,000347,000
Total5,040,0002,522,000
(1) Judy Kline is an employee of Competitive Companies and mother Mr. David
Kline II, Competitive Companies' Chairman, C.E.O., President, C.O.O. & Director.
As Mr. Kline is over 21 years of age and does not live with his mother, he
disclaims beneficial ownership of the shares underlying Ms. Kline's options.
The general terms to exercise the options for all except James Healey, James
Gibson and Jerald Woods are the same. Exercise dates and amounts which can be
exercised vary. No options may be exercised until two years after initial grant
of the individual option. Options are normally exercisable over a five-year
period as follows: at the end of:
o First year - 0%,
o Second year - 40%
o Third through fifth year - 20% each year.
Mr. Healey and Mr. Gibson are independent agents for the sale of our products.
The options granted them and Mr. Woods require certain levels of performance
from them in order for them to exercise each level.
25
Dividends
Holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by our board of directors out of funds legally available.
Holders of preferred stock are not entitled to receive dividends. We have not
paid any dividends since our inception and presently anticipate that all
earnings, if any, will be retained for development of our business. Any future
disposition of dividends will be at the discretion of our Board of Directors and
will depend upon, among other things, our future earnings, operating and
financial condition, capital requirements, and other factors.
Transfer Agent and Registrar
We are the transfer agent and registrar for our preferred and common stock.
ITEM 13. INTEREST OF NAMED EXPERTS AND COUNSEL
Not Applicable
ITEM 14. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES LIABILITIES
Our bylaws, subject to the provisions of Nevada law, contain provisions which
allow the corporation to indemnify any person against liabilities and other
expenses incurred as the result of defending or administering any pending or
anticipated legal issue in connection with service to it if it is determined
that person acted in good faith and in a manner which he reasonably believed was
in the best interest of the corporation. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to our
directors, officers and controlling persons, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
ITEM 15. ORGANIZATION WITHIN LAST FIVE YEARS
Competitive Communications
In 1998, Competitive Companies, Inc. was formed to acquired the stock of
Competitive Communications, Inc. from Mr. David Kline II. Mr. Kline II owned a
100% equity interest in Competitive Communications. Mr. Kline II negotiated the
transaction for Competitive Communications and Mr. Halstead negotiated the
transaction for Competitive Companies. The parties agreed upon a price of
3,302,700 shares of common stock 1,000,000 shares of Class A convertible
preferred stock based upon the fact that the at the time of the agreement
Competitive Communications had annual revenues of approximately $1,000,000. The
parties agreed to a value of $1 per share for the 3,302,700 shares of common
stock and 5,000,000 shares of common stock underlying the preferred stock and
agreed upon a formula of 8 times approximate annual revenues.
Huntington Telecommunications Partners. L.P./Competitive Companies, Inc. Reorganization
Competitive Companies, Inc. is current the name of the company formed in October
2001 solely to facilitate a December 2001 reorganization which included the
assets of Huntington Telecommunications Partners, LP, a California limited
partnership and the operations of Competitive Companies, Inc., a Nevada
corporation originally formed March 1998. The transaction was effected as
follows:
StepAction
1. Competitive Companies Holdings, Inc. was formed to facilitate the
reorganization
2. Competitive Companies Holdings formed CCH Acquisition, a subsidiary
to acquire Competitive Companies
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3. Competitive Companies merged into CCH Acquisition, with Competitive
Companies as the surviving company
4. Competitive Companies Holdings acquired the assets of Huntington Partners
5. Competitive Companies Holdings changed its name to Competitive Companies
6. CCH Acquisition changed its name to Competitive Holdings
As a result of the reorganization, Competitive Companies owns the assets of
Huntington Partners and has as a wholly owned subsidiary Competitive Holdings.
Competitive Holdings has two wholly owned subsidiaries:
o Competitive Communications, Inc. which was incorporated under the laws of the
state of California in February 1996.
o CCI Residential Services, Inc. which was incorporated under the laws of the state
of California in January 2000.
The assets of Huntington Partners are part of the private telephone and cable
television systems owned by Huntington Partners and installed under right of
entry agreements at four apartment complexes in California. Right of entry
agreements include private telephone service to residents at all four complexes
that is provided under telephone and cable television services for residents at
two of the four complexes.
The purchase price paid to Huntington Partners at closing was one million shares
of common stock of Competitive Companies Holdings. The initial purchase price
will be increased, if at all, as provided in the one million shares of Class C
preferred stock to be issued as additional payment for the assets. If the
average of the closing bid price for the Competitive Companies' common stock for
the adjustment period is less than $3.00 per share, Competitive Companies will
issue to Huntington Partners additional shares of its common stock so that the
total number of shares received by the Huntington Partners, including common
stock delivered on account of the Initial purchase price, when valued at the
opening price shall have an aggregate nominal value of $3,000,000. If the
opening price is $3.00 or over per share, no additional shares shall be issued.
For purposes of determining the opening price, purchases of common stock by the
Competitive Companies or its affiliates or persons controlled by the Competitive
Companies or its affiliates shall be disregarded. The adjustment period refers
to the five business day period immediately following the closing; provided
however, that if trades have not been executed on at least three of those five
days, the adjustment period shall be extended until the common stock shall have
been traded on at least three days, and the average closing bid price for those
three trading days shall be the opening price.
The fair market value of Huntington Partners was determined as follows: Based
upon 1999 cash flow of approximately $708,000. The remaining life of the
Partnerships contracts at that time was 17 years. Without factoring inflation,
this means projected cash flow over the remaining contract period of
approximately $12,000,000. The parties agreed upon a value equal to 25% of this
amount based upon arms'-length negotiation. Mr. David Hewitt is President of the
corporation which is the General Partner of Huntington Partners.
The amount of shares issued to Competitive Companies was determined by issuing
one share of common stock, Class A preferred stock, and Class B preferred stock
of Competitive Companies for each outstanding share of common stock, Class A
preferred stock, and Class B preferred stock of Competitive Companies. In
addition, options on the same terms and conditions as existed in Competitive
Companies prior to the merger were issued to the option holders at the time of
the merger. The number of shares issued was determined based upon the same
method used in determining the number of shares issued to Huntington Partners.
Competitive Companies Holdings and CCH Acquisition entered into these
transactions as an accommodation to Competitive Companies and Huntington
Partners. Competitive Companies entered into these transactions in order to have
the assets and cash flow of Huntington Partners reflected in its financial
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statements. Huntington Partners entered into these transactions in order to
divest its interest in telecommunications assets and pursue other investment
opportunities.
ITEM 16. BUSINESS
We provide telecommunications services primarily to residents of apartment
complexes, and other users, including business and residential, in primary and
secondary metropolitan areas in California, Alabama, and Mississippi, and
anticipate offering these services across the United States as our business
expands. We offer a set of telecommunications products and services including:
o Local telephone services
o Domestic and international long distance services
o Enhanced voice, data and internet services
In addition, we have developed our own billing and back office systems we call
Hartline that enables us to enter, schedule and track a customer's order from
the point of sale to the installation and testing of service. Apartment complex
customers are serviced completely by our proprietary Hartline system.
We generally price our services at a discount of 5% to 10% below the prices
charged by the traditional local phone companies.
The business was founded in 1985 by a management team led by David Kline, Sr.,
the former President, Chief Operating Officer and co-founder of Superior
Communications, Inc, and is now led by his son, David Kline II.
As of September 30, 2001, we were operational in 10 apartment complexes in
California, Mississippi, and Alabama using 8 of our own telephone switches.
Subsidiaries
Unlike many of our competitors, we operate with both a regulated and
non-regulated company. One of our subsidiaries, Competitive Communications,
Inc., is regulated and our other subsidiary CCI Residential Services, Inc. is
unregulated.
Under the Telecommunications Act of 1996, our regulated subsidiary, Competitive
Communications, can receive significantly discounted prices from the existing or
traditional local phone companies and long distance carriers, thereby reducing
our costs compared to the prices we would have to pay without having this
status.
Our other subsidiary, CCI Residential Services, is a non-regulated company and
thus can sign individual agreements with property owners allowing for payments
to the property owner of a portion of the revenue CCI Residential receives from
the apartment complex residents on the owner's property, and legally avoid the
more onerous rate filing requirements of its regulated subsidiary and other
regulated carriers.
Competitive Communications buys or leases telephone-switching equipment and
leases transmission capacity from other carriers and then provides
telecommunications services to our non-regulated subsidiary, CCI Residential
Services, which in turn provides these services to residents of apartment
complexes. Competitive Communications also directly offers these services to
other residential and business customers.
Services
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Competitive Communications
Competitive Communications offers the following services in most of its markets:
o Local and long distance services to business and non-apartment complex residential
customers
o Calling cards to business and non-apartment complex residential customers
o Internet services to business and non-apartment complex residential customers
o PC lease to own program
o Local area network connection
o Resale of traditional phone company services
To offer these services, Competitive Communications generally must secure
certification from a state regulator and typically must file rates or price
lists for the services that it will offer. The certification process varies from
state to state; however, the fundamental requirements are largely the same.
State regulators require new entrants to demonstrate that they have secured
adequate financial resources to establish and maintain good customer service.
New entrants must show that they possess the knowledge and ability required to
establish and operate a telecommunications network.
In addition, Competitive Communications must enter into connection agreements
with traditional carriers. Competitive Communications entered into a connection
agreement with BellSouth which became effective October 1, 1996, and covers nine
states including: Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina, and Tennessee. This agreement has been renewed.
In February 2000 it entered into connection agreements with PacBell and GTE in
California and are now operating as a newer local phone companies in California.
The agreement with PacBell expires in June 2002, provided that notice of
termination is given at least 120 days prior to the expiration date. If no
notice is given, the agreement continues until ended with 45 days advance
written notice by either party. The agreement with GTE automatically renews each
year unless either party gives prior written notice of termination. In
Mississippi we must upgrade our switch to accommodate required features and have
rates approved in order to commence operating.
CCI Residential Services
CCI Residential Services provide the following products and services:
o Local and long distance services to apartment complex customers
o Calling cards to apartment complex customers
o Internet services to apartment complex customers
o Internet content control software
o PC "Lease to Own" program
o Cable/satellite television services to apartment complex customers
o Wake-up call service
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o Music on hold
To offer these services to apartment complex customers, CCI Residential Services
must sign a contract with the apartment owner. These are multi-year contracts
normally range from 10 to 20 years. They provide for the owner to share in a
percentage of the revenue we receive from servicing the complex. The percentage
received may vary for 0% to 11%, based on the total revenue received, the types
of services provided, the term of the contract and other negotiated factors. If
the complex is being built, CCI Residential must plan for, have approved, and
install underground cabling. If the complex is already built, it must survey the
cabling needs and negotiate the use of the cable with the owner. It must secure
state approval to conduct business in the state, establish service from
Competitive Communications if available or with the traditional local phone
companies until Competitive Communications is certified.
Local Telephone Services
Both subsidiaries offer local telephone services, including local telephone
calls as well as other features such as:
o Call forwarding
o Call waiting
o Dial back
o Caller ID
o Speed dialing
o Calling cards
o Three way calling
o E-911
o Voice mail
Long Distance Services
We offer a full range of domestic and international long distance services.
These services include "1+" outbound calling, inbound toll free service, and
such services as calling cards, operator assistance, and conference calling.
Internet Services
We offer dial-up Internet access services via conventional modem connections,
and software that can be used to filter out selected materials, i.e.,
pornographic and hate oriented material. In the future we plan to offer high
speed Internet service to our residential, business and apartment complex
customers.
Markets
Our business plan covers most of the primary and secondary metropolitan areas in
the U.S. Initially; we will concentrate on the western, southwestern, and
southern United States. The order in which we develop our market will depend on
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where we acquire the most financially beneficial contracts with apartment
complex owners.
Each month we receive requests from owners of apartment complexes from all over
the United States that meet the installation criteria for our switches and
service. Signing these contracts is contingent on having sufficient capital to
provide for the cost of installing the switching equipment and covering initial
negative cash flow until the subscriber base is high enough to cover operating
costs. Business and residential access lines will be added in the areas near
these switches and services either through our own switches or through resale
agreements with the traditional local phone companies.
Customers
We have chosen to focus primarily on apartment complexes, residential, and small
to medium size business customers in large and medium size markets. To help
distinguish us from competitors who have adopted a similar strategy, we offer
potential customers one-stop shopping services through a single point of
contact. In addition, we are actively pursuing apartment complex customers
throughout all of our target markets.
Sales and Customer Support
We use the following approaches in our three primary targeted market segments:
o Apartment complex customers---We use direct sales, trade journal advertising,
referrals, and exhibitor trade shows.
o Small/medium/large businesses customers---We use both direct sales and in the
future expect to add professional sales agents that have established business
relationships with the prospective customer as well as local media advertising.
o Residential customers---We use primarily direct sales including radio advertising,
direct marketing and radio to ethnic groups, and apartment complex customers
moving from one of our shared tenant services locations.
We offer comprehensive package of communications services together with
traditional local and long distance services. The package of comprehensive
services we offer is generally not available from the traditional local phone
companies, or available only at higher prices.
Depending upon our ability to finance our planned expansion, we anticipate
developing an agent program to sell to business and residential customers. We
believe that we can attract and retain highly qualified sales agents by offering
them the opportunity to:
o Participate in the potential economic returns made available through a results-oriented
commission package and stock options
o Market a comprehensive set of products and services and customer care options
o Work with an experienced, success-proven, and customer service oriented company
In addition, we intend to implement a charity donation program in which
customers can specify their charity to which we will pay 5% of their long
distance payment. We intend to market this to charities directly or through the
anticipated future sales agency network.
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Customer Service
We believe we are one of the few telecommunications service providers not using
automated attendants and voice mail in lieu of real people to answer our
customer service lines. We plan to maintain this human touch for quality
customer service, communications and problem solving for all of our apartment
complex, business, and residential customers.
Infrastructure
Equipment
We will continue to pursue what we refer to as a limited build strategy. Under
this strategy, we will
o Purchase and install certain switches in apartment complexes where we have contracts
with the owner of the apartment complex;
o Locate our hub equipment, switches, in or near one of our apartment complex sites
or the central office facilities of traditional local phone companies; and
o Lease network elements from the traditional local phone companies or resell
services until growth justifies our ownership of additional network equipment.
We believe that this limited build strategy offers a number of economic benefits.
o It allows us to enter into a new market in a six-to nine-month time frame,
less than half the 18-24 months generally required under the traditional
build first, sell later approach required before the Telecommunications Act
established a framework for newer local phone companies to acquire network
elements.
o It reduces the initial capital requirements in each market, allowing us to
focus our initial capital resources on the critical areas of sales,
marketing and operations support systems, instead of on constructing
extensive fiber optic networks to each customer.
We are implementing this limited build strategy in the three states where we are
now operating: California, Mississippi, and Alabama. We lease circuits to
connect the central office facilities of traditional local phone companies with
our apartment complex switches. In addition, we have deployed 8 of our own
switches to serve 10 apartment complexes. As our business develops, subject to
obtaining the necessary financing, we will purchase more equipment ourselves.
Hartline Billing and Automated Back Office System
Our Hartline system enters, schedules, provisions, and tracks a customer's order
from the point of sale to the installation and testing of service. It also
interfaces with trouble management, inventory, billing, collection and customer
service systems.
For our apartment complex customers, our processes are automated. For our
non-apartment complex customers, we intend to automate most of the processes
involved in switching a customer to our networks. Our goal is to accelerate the
time between customer order and service installation, reduce overhead costs and
provide exceptional customer service. To achieve this goal, we are continuing to
develop and enhance our Hartline system to support the growth of our operations
into the non-apartment complex markets.
Regulation
Our telecommunications services business is subject to federal, state and local
regulation.
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Federal Regulation
The FCC regulates interstate and international telecommunications services,
including the use of local telephone facilities to originate and end interstate
and international calls. We operate under the 1996 Telecommunications Act, that
allows any entity to enter any telecommunications market, subject to reasonable
state regulation of safety, quality and consumer protection.
With respect to our domestic service offerings, Competitive Communications, Inc.
has filed rates with the FCC stating the rates, terms and conditions for our
interstate services. Our rates are generally not subject to pre-effective review
by the FCC, and can be amended on one day's notice. Our interstate services are
provided in competition with the traditional local phone, regional and national
companies. With limited exceptions, the current policy of the FCC for most
interstate access services dictates that traditional local phone companies
charge all customers the same price for the same service. Thus, the traditional
local phone companies generally cannot lower prices to those customers likely to
contract for their services without lowering charges for the same service to all
customers in the same geographic area, including those whose telecommunications
requirements would not justify the use of such lower prices. The FCC may,
however, alleviate this constraint on the traditional local phone companies and
permit them to offer special rate packages to very large customers, as we have
done in a few cases, or permit other forms of rate flexibility. The FCC has
adopted some proposals that significantly lessen the regulation of traditional
local phone companies that are subject to competition in their service areas and
provide such traditional local phone companies with additional flexibility in
pricing their interstate switched and special access on a central office
specific basis; and is considering expanding such flexibility.
Under authority granted by the FCC, we will resell the international
telecommunications services of other common carriers between the United States
and international points. In connection with such authority, our subsidiary,
Competitive Communications, Inc., has filed rates with the FCC stating the
rates, terms and conditions for our international services.
State Regulation
State regulatory agencies have regulatory jurisdiction when our facilities and
services are used to provide intrastate services. A portion of our current
traffic may be classified as intrastate and therefore subject to state
regulation. We expect to offer more intrastate services as our business and
product lines expand and state regulations are modified to allow increased local
services competition. For other than shared tenant services, in order to provide
intrastate services, we generally must obtain a certificate of public
convenience and necessity from the state regulatory agency and comply with state
requirements for telecommunications utilities, including state rate
requirements.
Similar to the FCC, state agencies require us to file periodic reports, pay
various fees and assessments, and comply with rules governing quality of
service, consumer protection, and similar issues. Although the specific
requirements vary from state to state, they tend to be more detailed than the
FCC's regulation because of the strong public interest in the quality of basic
local exchange service. We intend to comply with all applicable state
regulations, and as a general matter do not expect that these requirements of
industry-wide applicability will harm our business. However, new regulatory
burdens in a particular state may affect the profitability of our services in
that state.
Local Regulation
Our networks are subject to numerous local regulations such as building codes
and licensing. Such regulations vary on a city-by-city and county-by-county
basis. If we decide in the future to install our own fiber optic transmission
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facilities, we will need to obtain rights-of-way over private and publicly owned
land. Such rights-of-way may not be available to us on economically reasonable
or advantageous terms.
Future Operations
We plan to accomplish our future plan of operations as follows:
Date, or Number of
Months after Receipt of
Expected Manner of Additional Financing Estimated
Occurrence or Method when Step Should Be Cost of
Milestone of Achievement Accomplished Completion
1-Provide High Speed Internet Service with Local & Long Distance Package-Business & Residential
GOAL: To increase sales by approximately $400,000 per month of current and new
services to new customers, expand bundled services, improve cash flow, and
provide agent packages
Pilot Test
Acquire antennae site lease Sign business park owner December 2001 $500 & $0-Will receive commissions
Acquire wireless provider Sign wholesale contract December 2001 $0-will receive wholesale payments
Install antennae Wholesaler installs January 2002 $0-Installed at wholesaler's expense
Make billing system & procedure changes Add pricing and descriptions January 2002 $0-Part of on-going updates
Provide "Test Basis" services Test service to Park owner & CCI January 2002 $0-Pay only usage fees
Monitor test, evaluate and release Company technicians & customer January 2002 $500
service, speed & reliability
Limited Implementation
Acquire 10 business customers Sign local, long distance, February 2002 $1,000 & $0-Pay only usage fees. Customer's
high speed internet package pay for service in advance and usage
with 10 business park tenants each month
Modify agent package Add high speed internet, local & February 2002 $1,000-Management will complete
long distance to agent package
Sign and train initial 5 master agents in Sign and train agents on a local, March 2002 $2,000 & $0-Agents receive commission only
California long distance, and high speed and managed by Sales & Marketing
internet package to sell to Director. Brochures and training done
businesses and residential in-house. Master agents train their own
customers within 25 mile radius of sub-agents.
antennae
Full Implementation
Sell monthly to at least 50 businesses Sold direct and through agents March-April 2002 $0-Agents receive commission only
Sell monthly to at least 50 residentials Sold direct and through agents March-April 2002 $0-Agents receive commission only
Acquire server computer & webmaster Funded through potential public
offer of stock or other as yet
unidentified sources 1 Month $95,000-Approximate cost of server plus
annualized salary, benefits, and taxes
Sell monthly to at least 100 businesses Sold direct and through agents May-December 2002 $0-Agents receive commission only
Sell monthly to at least 100 residentials Sold direct and through agents May-December 2002 $0-Agents receive commission only
2-Improve Cable Television Service-Currently Served Apartments
GOAL: To marginally increase sales, significantly increase channels and reduce
costs of current and new services to current/new apartment television customers
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Pilot Test
Evaluate current providers & competitors Parameters: increase channels, November 2001-Done $0
reduce costs, maintain/improve
reception, increase revenue, find buyer
for current equipment & pre-sell
Select system Based on parameters November 2001-Done $0
Select test site Based on company parameters November 2001-Done $0
Order and install equipment at test site Company technicians Dec 2001-Jan 2002 $0-Anticipate sale of current equipment will
cover cost of new, lower cost equipment
Monitor test, evaluate and release Company technicians & customer January 2002 $0
service, reliability and reception
Sell current excess equipment Sell to other cable January 2002 $0-Should cover cost of new equipment
providers/wholesalers
Full Implementation
Order and install equipment at all other site Company technicians January 2002 $0-Anticipate sale of current equipment will
cover cost of new, lower cost equipment
Sell current excess equipment Sell to other cable January 2002 $0-Should cover cost of new equipment
providers/wholesalers
3-Implement affinity (Charitable) Program
GOAL: To increase business and residential sales and cash flow using charitable
organizations and providing contributions in customers' names
Test Program
Develop affinity program Parameters: competitive local and long December 2001 $1,000-Labor, manuals & brochures
distance prices, 5-10% donation of long
distance paid service to registered charity
of customer's choice, market in California,
market direct & through agents, modify
billing system to accommodate
Sign 2 charities/churches Direct market to charity/church January 2002 $1,000
Charity/church markets to donors/
members
Monitor, evaluate and release Management evaluate profitability, bad Jan-Feb 2002 $0
debt
Produce program, train master agents & Sign and train agents on affinity March 2002 $2,000-$0-agents receive commissions only
release program to sell to charities, churches,
& non-profit organizations in California
Full Implementation
Sell monthly to at least 5 charities/churches Sold direct and through agents March-December 2002 $0-Agents receive commission only
4-Pay Off Open Leases, System Purchase, and Notes Payable
GOAL: To payoff current equipment leases on time, pay off system purchase and
notes in advance thereby improving cash flow by approximately $12,400 per
month and eliminating approximately $325,450 in debt
Pay off equipment leases Pay off leases and exercise buyout April 2002 Approximately $37,000 in remaining
options as they come to their end payments and buyout to be taken from
Improves cash flow by approximately current cash flow
$6,000 per month
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Pay off system purchase Pay off system purchased previously 1 Month $207,450-Payoff principal using equity
for interest only at 10% interest, balance investment
due April 2004 and increase cash flow
by $1,729 per month
Pay off notes payable Pay off current notes and increase cash 1 Month $81,000 to pay off principal using equity
flow by approximately $4,683 per month investment
5-Provide High Speed Internet Service-Currently Served Apartments
GOAL: To increase sales by approximately $20,000 per month of current and new
services to current/new apartment customers, improve cash flow, and expand
bundled services
Pilot Test Site
Select test site Based on company parameters October 2001-Done $0
Select system Based on company parameters October 2001-Done $0
System available Selected system in manufacturer's December 2001 $0
test. Completion due November 2001
Advise apartment owner & tenants Letters to owner & tenants of high 1 Month $300-Fliers and postage
speed internet plans
Purchase initial system Sign purchase agreement 1 Month $15,000-For system and initial negative
cash flow until customer base increased
Pre-sell 10 apartment customers (test) 30-45 day installation commitment 1 Month $100-Reduced 6 month price-cover costs
telephone/flier solicitation/special
Make billing system & procedure changes Add pricing and descriptions 1 Month $0-Part of on-going updates
Personnel training Factory training 1 Month $3,000-For factory training & expenses
Receive & install system Company technicians 1-2 Months $1,500-Travel & labor expenses
Connect test customers Company technicians 2 Months $0-included above
Monitor test, evaluate and release Company technicians & customer 2-3 Months $500
service, speed & reliability
Full Implementation at Test Site
Sell up to 47 total customers at site Fliers in billing, customer service 2-3 Months $100-Customer pays in advance
solicits, 2-5 days installation commitment
Sell up to 48 additional customers 30-45 day installation commitment 4-5 Months $100-Customer pays in advance
Purchase additional ports order from manufacturer 4-5 Months $11,000-For system
Receive & install additional ports on system Company technicians 4-5 Months $1,500-Travel & labor expenses
Install Additional Sites
Develop release & installation schedule Based on company parameters 1 Month $0-Start when funding for test received
Order & install systems at 6 more sites Based on company parameters 3-12 Months $100,000- For system and initial negative
cash flow until customer base increased,
and travel & labor expenses
6-Acquire New Apartment Complexes for Telephone, Cable Television, and Internet Service
GOAL: To increase: annual sales by approximately $7,000,000 to $8,000,000, cash
flow, customer base, and areas serviced
Contact currently serviced complex owners Direct solicitation of current complex May-June 2002 $0
owners for additional business at other
complexes they own and leads to other
affiliates that own complexes
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Sign service agreements for 5 apartment Funded through potential public offer 1 Month $3,000-Estimated travel expenses
complexes, each with 300 units or more of stock or other as yet unidentified sources
Order and purchase equipment Funded through potential public offer 1 Month $1,750,000-At approximately $350,000 per
of stock or other as yet unidentified sources installation of telephone switch, cable
television equipment, & internet equipment
Hire additional staff for expansion Add and train 4 technicians, 1 1 Month $400,000-Approximate annualized salary,
supervisor, 1 chief operating officer, taxes, and benefits
1 additional customer service person,
1 additional mis person
Upgrade current telephone systems Add to switches or replace switches 1-4 Months $750,000-Approximately. Work to be done
to give features that allow service to during periods when new installations are
other carriers in order to increase not being installed
revenue from current switches
Sign additional service agreements for at Funded through potential public offer 2-12 Months $18,000-Estimated travel expenses
least 30 apartment complexes, each with of stock or other as yet unidentifiedsources.
300 units or more sources. Sign at least 2-3 service agreements per month
Order and purchase equipment Funded through potential public offer of 3-12 Months $10,500,000-At approximately $350,000 per
stock or other as yet unidentified sources installation of telephone switch, cable
television equipment, & internet equipment
Hire additional staff for expansion Add and train 5 technician, 2 supervisor, 3-12 Months $570,000-Approximate annualized salary,
1 chief executive officer, 8 additional taxes, and benefits
customer service person, 1 additional
mis person, 2 accounting person
Decreases:
Milestone
1-Failure to raise approximately $95,000 would eliminate the addition of
internet server equipment and a webmaster which we anticipate would reduce
internet services and could reduce acquisition of additional internet
customers and affect future growth.
2-We believe that failure to raise additional funds would have no affect on this
milestone since the project is expected to generate enough from the sale of
existing equipment to offset the cost of the new, less expensive equipment,
increase cash flow, and increase channel selection for the customers.
3-We don not anticipate requiring additional funding to test and implement this
project.
4-Equipment leases are expected to be paid off by April 2002 from existing cash
flow. Failure to raise approximately $288,450 in additional funding will
continue to require approximately $6,412 to be paid from current cash flow
until the notes are paid in full and the system price is paid off.
5-Failure to raise approximately $133,100 would eliminate the addition of high
speed internet service to currently services apartment tenants. This could
also reduce the number of telephone customers at each complex since they
may elect to use a competitive service that offers both telephone and high
speed internet servce.
6-Failure to raise approximately $13,421,000 would eliminate the upgrading of
current systems to carry traffic from other carriers and significantly
reduce our future growth.
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The cost of these activities must all be funded with future debt or equity
financing. We have not identified any sources for such financing.
Competition
The telecommunications industry is highly competitive. We believe that the
principal competitive factors affecting our business will be pricing levels and
clear pricing policies, customer service, and to a lesser extent the variety of
services offered. Our ability to compete effectively will depend upon our
continued ability to maintain high quality, market-driven services at prices
generally equal to or below those charged by our competitors. To maintain our
competitive posture, we believe that we must be in a position to reduce our
prices in order to meet reductions in rates, if any, by others. Any such
reductions could reduce our revenues. Many of our current and potential
competitors have financial, personnel and other resources, including brand name
recognition, substantially greater than those, as well as other competitive
advantages over us.
In each of the markets we target, we will compete principally with the
traditional local phone companies serving that area, such as PacBell, BellSouth
or Southwestern Bell. We believe the regional Bell operating companies' primary
agenda is to be able to offer long distance service in their service
territories.
As a recent entrant in the integrated telecommunications services industry, we
have not achieved and do not expect to achieve a significant market share for
any of our services. Recent regulatory initiatives allow newer local phone
companies such as our subsidiary, Competitive Communications, to connect with
traditional local phone companies facilities. Although this provides increased
business opportunities for us, such connection opportunities have been and
likely will continue to be accompanied by increased pricing flexibility for and
relaxation of regulatory oversight of the traditional local phone companies.
Traditional local phone companies have long-standing relationships with
regulatory authorities at the federal and state levels. While recent FCC
administrative decisions and initiatives provide increased business
opportunities to telecommunications providers such as us, they provide the
traditional local phone companies with increased pricing flexibility for their
private line and special access and switched access services.
Other Market Entrants
We face, and expect to continue to face, competition from other current and
potential market entrants, including long distance carriers seeking to enter,
reenter or expand entry into the local exchange market such as AT&T, Time
Warner, MCI WorldCom, Verizon and Sprint, and from other newer local phone
companies, resellers of local exchange services, competitive providers, cable
television companies, electric utilities, microwave carriers, wireless telephone
system operators and private networks built by large end users.
A number of companies similar to ours have entered or announced their intention
to enter into one or more of the same markets as us. We believe that not all of
them, however, are pursuing the same target customers as us.
We expect to increasingly face competition from companies offering long distance
data and voice services over the Internet. Such companies could enjoy a
significant cost advantage because they do not pay carrier access charges or
universal service fees.
Data/Internet Service Providers
The Internet services market is highly competitive, and we expect that
competition will continue to intensify. Our competitors in this market will
include other Internet service providers, other telecommunications companies,
online services providers and Internet software providers. Many of these
competitors have greater financial, technological and marketing resources than
those available to us.
38
Employees
As of September 30, 2000, we had 8 full-time, of which 2 are management, 3 are
technical and 3 are administrative, and 4 part-time employees, of which 1 is
management, 1 is technical and 2 are administrative. None of our employees are
represented by a collective bargaining agreement. We believe that we enjoy good
relationships with our employees.
ITEM 17. MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS-COMPETITIVE COMPANIES, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenues. Total revenues increased $180,618, or 15.3%, to $1,361,252 for
the first nine months of 2001 from $1,180,634 for the first nine months of 2000.
$161,398 (89.4%) of the increase was due to increased sales revenue by us to
apartment complex customers serviced under contracts between us and the
apartment complex owners. Although the apartment complexes have experienced
lower occupancy rates because of current economic conditions and we are
currently serving approximately 4% fewer apartment customers than in 2000,
revenues have increased by 14% due to customers making more long distance and
billable local zone calls. Sales to non-apartment unit business and residential
customers under our status as a competitive local exchange carrier increased by
49.7% compared to the first nine months of 2000 and provided $19,220 (10.6%) of
the increased revenue. A portion of the 4% fewer apartment customers in some of
the complexes have selected to use telephone services from the traditional local
carrier who can currently provide high-speed Internet access in their area.
Management believes that the apartment complexes will experience lower occupancy
rates over at least the next six months that may slightly reduce future revenue
from serviced apartment complexes.
The majority of the revenue (95.8% and 96.7%, respectively) for the first nine
month periods for 2001 and 2000 was derived principally from the sale of long
distance and local telephone service and cable television to apartment complex
unit subscribers and consisted of:
o the monthly recurring charge for basic telephone and/or cable television service;
o usage based charges for local and long distance calls;
o charges for services, such as call waiting and call forwarding; and
o to a lesser extent, non-recurring charges, such as charges for additional lines
for an existing customer.
The remaining revenue (4.3% and 3.3%, respectively) was from the increased sales
to non-apartment unit business and residential customers.
We anticipate an increase in revenue resulting from the reorganization and
revenue from Huntington Telecommunications Partners, and additional direct and
agent sales to non-apartment unit business and residential customers. Addition
of high speed internet access at currently-serviced apartment complexes, and
acquisition of new contracts with apartment owners for telephone, television,
and high speed internet services to their complexes is contingent on uncertain
future financing to acquire the required equipment. Had the reorganization with
Huntington Telecommunications Partners occurred January 1, 2001, total combined
revenue for the period ending September 30, 2001, would have been $1,712,530.
This would have equaled an increase in revenue of $531,896, or 31.1%, compared
39
to Competitive Companies first nine months ending September 30, 2000 and
compared to the 15.3% increase in revenue the company achieved without the
reorganization. We expect that the combined year-end 2001 revenue will reflect a
comparable increase.
Gross Margin. Gross margin decreased $99,815, or 23.4%, to $327,574 for
the first nine months of 2001 from $427,389 for the first nine months of 2000.
During the first nine months, gross margin as a percentage of total revenues
decreased to 24.1% in 2001 from 36.2% in 2000. Approximately 93.8% of the
reduction in gross margin during the first nine months of 2001 compared to the
first nine months of 2000 was related to the reduction of approximately 4% of
apartment complex unit subscribers. The fixed cost to service these subscribers
remained approximately the same, but had to be spread over slightly fewer
customers which impacted the overall gross margin. In addition, apartment
customers made more non-billable local zone calls. We are charged by the local
service provider at per-minute, tariffed, business zone rates and provides the
apartment customer with residential rates that include some zones at no charge.
When apartment customers increase their local, unbillable call time our cost
increases without offsetting revenue. Approximately 6.2% of the reduction in
gross margin was due to lower margins on sales to non-apartment unit business
and residential customers. The margin for business and residential customers
compared to the margin for apartment unit customers is significantly lower
resulting in an overall lower gross margin, but produces increased revenue for
the company. We were able to prevent additional reduction in gross margin
related to the sales to business and residential customers by being able to
assimilate these without additional customer service representatives, technical
support, on-site technicians or management personnel although some increases in
direct labor costs for current employees did contribute to the increased cost
and resultant lower gross margin. Management believes that gross margin can be
increased over the next year after the reorganization with Huntington
Telecommunications Partners, and if we acquire additional systems and customers
and can increase the number of customers serviced without a directly correlated
increase in personnel. However, gross margin as a percent of sales may decrease
if too many of the additional customers are non-apartment unit business and
residential customers, since the gross margin is less on these types of
customers. Recently, the company re-negotiated with our major long distance
carrier to reduce our long distance rates by approximately 15% per year, signed
an agreement with one of the local, traditional carriers for service for rate
reductions of approximately 18%, and signed with another local carrier to
provide service at a reduction of approximately 23.6% lower than the cost of
using our past traditional local carrier. Since the company maintains very
competitive pricing, these cost reductions did not require any offsetting
reduction in prices for service to our subscribers. We anticipate that these
cost reductions coupled with the reorganization with Huntington
Telecommunications Partners will begin showing significant improvement in
operating profit, gross margin and cash flow during the first quarter of 2002.
Other Operating Expenses. Other operating expenses decreased $52,453, or
10.8%, to $434,198 in the first nine months of 2001 from $486,651 in the first
nine months of 2000. Increases were experienced in non-direct labor employee
compensation ($19,290 or 12.7%), office rent and system's equipment upgrades and
additions ($8,780 or 8.7%). We anticipate these will continue to increase in the
future as employee compensation increases and additional personnel are hired, as
built-in facilities lease increases occur, and as new equipment is added.
Provision for bad debts also increased $9,432, or 29%, to $41,887 during the
first nine months of 2001 compared to $32,455 during the first nine months of
2000. The increased provision for bad debts was primarily due to the increases
in business and residential customers. As more non-apartment complex unit
customers are added we anticipate that bad debt may increase. Since we control
the last mile access for the apartments we have under contract, we can more
readily control these customers' access to other carriers. If these customers
have an unpaid account, we can refuse to allow access through our switch to
other carriers. Since we do not have control to this extent over non-apartment
unit customers, we expect the bad debt related to these customers to be higher
than it is for apartment unit customers. However, even with the non-apartment
unit customers added, our average bad debt during the first three quarters of
2001, was approximately 3.1% of revenue (compared to approximately 2.8% for the
first three quarters of 2000), still below the 4-6% normally experienced by the
telephone service industry. During the first three quarters of 2001 compared to
the first three quarters of 2000, decreases occurred in professional fees
($29,901 or 44.3%), and stock based compensation (to zero from $60,000). Since
40
the negotiations for the buyout, acquisition, and reorganization of all
partnerships have been completed, we do not anticipate any significant,
additional professional fees associated with these efforts. We do anticipate
increases in future professional fees associated with costs related to our
efforts to become a publicly trading company and on-going professional fees for
auditing and legal services if and when that occurs, and increases in stock
based compensation incentives for employees and agents. However, management will
attempt to provide any such future stock based compensation in a manner that
will affect the financials as minimally as possible. Although general and
administrative costs remained relatively the same during the comparable first
three quarters of 2001 and 2000, management anticipates that general and
administrative costs will increase as additional customers are added and
expenses are incurred as the company grows. The buyout of the last partnership
system occurred as expected in the first quarter of 2001 and used approximately
97% of our cash reserve at that time. Management believes that the increases in
cash flow from the additional non-apartment unit customers, the acquisition of
the last partnership, combined with the positive cash flow anticipated from the
reorganization with Huntington Telecommunications Partners, and the anticipated
results from the recent cost reduction actions taken by management will be
sufficient to maintain operational cash flow needs. However, the anticipated
positive cash flow will not be sufficient to grow the business and contract with
apartment complex owners to install telephone switches, cable services, and
high-speed Internet services for their apartment complexes. Although the
apartment complexes require significant, initial capital investment, the gross
margins, customer penetration, and bad debt are significantly better than the
business and residential customer market.
Other Income (Expense), Net. The total other expense-net, decreased by
$3,014 for the first nine months of 2001 to $34,218, from total other
expense-net of $37,232 for the first nine months of 2000. This resulted in an
8.1% decrease in total other expense-net for the first nine months of 2001
compared to the first nine months of 2000. Interest and other income (expense),
net, is related to interest expenses on notes payable and equipment leases, and
interest income from financial institutions on our cash. During the time from
the first nine months of 2000 to the first nine months of 2001, we completed two
of our leases and purchased the equipment for $1 buyouts. As other leases reach
maturity, management intends to exercise our buyout rights. During the second
quarter of 2002, management will be able to positively affect cash flow as the
currently remaining leases come to term and are paid off thus eliminating
approximately $6,000 in monthly costs associated with leases and notes payable.
This will help to offset the reduction in interest income previously realized
from the cash reserve that was used in the first quarter of 2001 to purchase the
last partnership system. To acquire additional systems in the future, we may use
a combination of: (1) cash flow from operations, (2) additional leases and/or,
(3) funding through as yet unidentified sources.
Many securities analysts use the measure of earnings before deducting interest,
taxes, depreciation and amortization, also commonly referred to as EBITDA, as a
way of evaluating telecommunications companies and other companies that have
inherently high initial capital investment requirements. Telecommunications
companies initial capital investments are high due to the expenses incurred in
developing their network of switches, securing interconnection agreements, and
meeting regulatory requirements. Our EBITDA for the first nine months of 2001
decreased 46% to -$14,123 versus $30,273 for the first nine months of 2000. Had
the reorganization with Huntington Telecommunications Partners occurred January
1, 2001, the combined EBITDA for the first nine months of 2001 would have
increased by approximately 314% to $125,231 versus the same period in 2000.
Management anticipates EBITDA from current operations, the reorganization and
future additional business will continue to increase.
LIQUIDITY AND CAPITAL RESOURCES
Cash received from operations was primarily from telephone and cable subscriber
revenue generated by our telephone and cable TV service at apartment complexes,
and administration and billing revenue from management functions we performed
for properties owned by partnerships. Additional revenue was generated from
residential and business telephone and Internet customers.
41
Net cash provided by operating activities for the first three quarters of 2001
totaled $128,988. This is a significant improvement (1403%) over the $8,583 net
cash provided by operating activities for the first three quarters of 2000.
Net cash used for investing activities for the first three quarters of 2001
totaled $253,876 versus $12,558 for the first three quarters of 2000. $250,000
of the 2001 expenditure was to purchase total ownership of the last remaining
partnership system that we managed and which serviced 376 telephone and 376
television passings (apartments). The remaining $3,876 was used to upgrade cable
television facilities at the purchased property. The 2000 expenditures were made
in support of operations to expand the number of cable television channels for
selected apartment unit customers. By providing the additional channels, we have
been able to increase the rates charged to our apartment customers.
Net cash used in financing activities for the first three quarters of 2001
totaled $97,350, a 19.5% reduction compared to the $120,907 for the same period
in 2000. These were primarily for monthly payments on outstanding notes and
capital leases. No proceeds from the issuance of common stock were received in
the first three quarter of 2001.
Positive cash flow for the first three quarters of 2001 totaled $31,638 versus a
negative cash flow of $112,324 during the first three quarters of 2000. Although
management anticipated lower cash flow during the last two quarters of 2001 due
to lower market penetration related primarily to reduced occupancy at our
serviced apartment complexes and lower margins on our business and residential
customers, management believes that the cash flow from operations will improve
in 2002 due to third and fourth quarter 2001 operation cost reductions and
revenue increases associated with lower negotiated prices from our telephone and
satellite/cable television vendors; increases in our customer base through
addition of resale residential and business customers telephone customers;
increases in service charges, products and services to our apartment customers;
and cost avoidance through the reorganization with Huntington Telecommunications
Partnership.
We had $8,060 of cash and cash equivalents as of September 30, 2001, that was a
97.1% decrease of $267,730 from $275,790 on September 30, 2000. Over 93% of this
decrease resulted from the purchase of the last remaining partnership system
that the we had previously managed. The remaining reduction was related to
payment of lease obligations, and retirement of long-term note debt. Management
expects we will incur additional expenses in 2002 as we increase our cable
television line-up, upgrades our telephone systems, and possibly provide high
speed Internet service to some of our apartment unit customers. We expect to be
able to pay for most of these expenses from cash flow. For future growth,
additional financing from as yet unidentified sources and lease financing of
telephone switching installations and cable television headend equipment will be
needed over the next 18 months to meet our working capital needs related to our
intended expansion.
RESULTS OF OPERATIONS-HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenues. Total revenues decreased $72,379, or -13.2%, to $477,478 for the
first three quarters of 2001 from $549,857 for the first three quarters of 2000.
The decrease is attributable to lower occupancy at the apartment complexes where
Huntington telecommunications Partners has telephone and/or cable television
systems installed, a higher number of local call minutes that the partnership
pays for but are not billable to the customer, minor changes in the customers'
long distance calling patterns, and a small increase in tenants subscribing to
telephone services from the traditional local carrier who can currently provide
high-speed internet access. Competitive Companies, the manager of the
partnership's telephone and cable television systems, has plans to add high
speed internet service to our product mix at the partnership's apartment
complexes, but funding for this is presently contingent on additional financing
from as yet unidentified sources.
42
Operating Expenses. Operating expenses decreased $196,341, or 30.3%, to
$451,684 in the first three quarters of 2001 from $-98,168 in the first three
quarters of 2000. Approximately 74% of the decrease was due to reduced billing
costs for phone and cable service from Competitive Companies. Phone and cable
service expenses from Competitive Companies in the first three quarters of 2001
decreased $146,502, or 34.9%, to $273,622 from $420,124 in the first three
quarters of 2000. Approximately 26% of the operating expense decrease was due to
elimination of banking lock-box costs. In August 2000, as part of the agreement
related to the anticipated reorganization with Competitive Companies, Huntington
Telecommunications Partners' customers were directed to commence sending their
payments directly to Competitive Companies' offices instead of to Huntington
Telecommunications Partners' lock-box. This resulted in approximately $50,000 in
annual cost savings to Huntington Telecommunications Partners and customers'
payments on their accounts were posted in a timelier manner. Competitive
Companies has continued to provide Huntington Telecommunications Partners with
financial information related to these payments in addition to the other
information that we have previously provided under the terms of the
reorganization with Competitive Companies. The change in payment arrangements
slightly increased administrative fees from Competitive Companies by $5,287 to
$52,524 for the first three quarters of 2001 compared to $47,237 for the first
three quarters of 2000. The partnership's management fees for the first three
quarters of 2001 were reduced by $2,308 (-14.9%) to $13,230 compared to $15,538
for the first three quarters of 2000. Some of the additional management
functions that Huntington Telecommunications Partners previously had to perform
were absorbed by Competitive Companies with only minor impact on Competitive
Companies operational costs. Commissions to the apartment owners has decreased
by $6,679 (approximately 19%) from $35,554 for the first three quarters of 2000
to $28,875 for the same period in 2001 due to the lower penetration that
resulted primarily from lower occupancy rates. Commission payments to apartment
property owners are on a tiered percentage of revenue that is tied to the
percent of total units that take the offered services. If occupancy is low, it
reduces the total number of customers as a percentage of total units resulting
in lower earned commissions. The $2,609 reduction from $5,700 to $3,091 in the
provision for bad debts for the first three quarters of 2000 compared to the
same period in 2001, respectively, resulted primarily from the change in
customers sending their payments to Competitive Companies instead of to the
partnerships lock box and thus reducing processing time and improving collection
time. The partnership's average bad debt during the first three quarters of 2001
was approximately 0.7% of revenue (compared to approximately 1% for the first
three quarters of 2000), well below the 4-6% normally experienced by the
telephone service industry. Depreciation for this same period increased $6,833
to $80,342 from $73,509 in 2000 resulting from additional equipment upgrades to
the cable television systems at the apartment complexes. As a result of the
reorganization it is anticipated that current Huntington Telecommunications
Partners management fees costs will be eliminated, further reducing operational
costs.
Net Profit. Huntington Telecommunications Partners made a net profit of
$25,794 for the first three quarters of 2001 compared to a net loss of $98,168
for the first three quarters of 2000. This resulted from the reduced costs of
telephone and cable service (approximately 74% of the reduction in cost)
provided by Competitive Companies and the elimination of the lock box
(approximately 26% of the reduction in cost) as discussed above.
Affect of Reorganization. Competitive Companies' management believes
that the reorganization of Huntington Telecommunications Partners, L.P. and
Competitive Companies will result in a net reduction in costs due to increased
efficiencies in operations. Based on Huntington Telecommunication Partners
Statement of Operations for the three quarters ending September 30, 2001,
compared to the three quarters ending September 30, 2000, management believes
that approximately $100,000 per year in cost avoidance could result from the
reorganization, and the resultant entity would have better cash flow, positive
EBITDA, and potential for improving and achieving profitability although there
is no guarantee that this will happen.
Many securities analysts use the measure of earnings before deducting interest,
taxes, depreciation and amortization, also commonly referred to as EBITDA, as a
way of evaluating telecommunications companies and other companies that have
inherently high initial capital investment requirements. Telecommunications
43
companies initial capital investments are high due to the expenses incurred in
developing their network of switches, securing interconnection agreements, and
meeting regulatory requirements. The EBITDA for Huntington telecommunications
Partners for the first three quarters of 2001 increased 433% to $152,513 versus
$28,599 for the first three quarters of 2000. Based on this and without
considering any additional cost avoidance resulting from the reorganization, had
the reorganization with Competitive Companies occurred on January 1, 2001,
management estimates the combined EBITDA profit for the first three quarters of
2001 of $125,231 would have been approximately $94,958 or 314% more than the
$30,273 for the same period in 2000 and result in higher revenue for the
resultant company and still have a positive cash flow from operating activities.
LIQUIDITY AND CAPITAL RESOURCES
Cash received from operations was primarily from telephone and cable
subscriber revenue generated by our telephone and cable TV service at apartment
complexes.
Net cash used by operating activities for the three quarters ended
September 30, 2001, totaled $22,537. This was primarily due to the $127,724 in
receivables from Competitive Companies as an offset for customer payments
Competitive Companies had received. This transaction is related to the
anticipated reorganization between Huntington Communications Partners, and
Competitive Companies.
No cash was used for equipment purchases for the three quarters ended
September 30, 2001.
Cash at the end of the third quarter of 2001 decreased by $32,410 to
$15,784 from $48,194 at September 30, 2000 instead of increasing, due to the
receivables from Competitive Companies related to the anticipated reorganization
between Huntington Communications Partners, and Competitive Companies.
RESULTS OF OPERATIONS-COMPETITIVE COMPANIES, INC.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
Revenues. Total revenues increased $47,989, or 12.4%, to $434,743 for the
third quarter of 2001 (July 1, 2001 through September 30, 2001) from $386,754
for the first three months of 2000. $38,894 (81%) of the increase was due to
increased telephone and cable television service revenue by us to apartment
complex customers serviced under contracts between us and the apartment complex
owner. Although the apartment complexes have experienced lower occupancy rates
because of current economic conditions and we are currently serving
approximately 4% fewer apartment customers than in 2000, revenues have increased
by 12.4% during the third quarter of 2001 compared to the same period last year
due to customers making more long distance and billable local zone calls. Sales
to non-apartment unit business and residential customers under our status as a
competitive local exchange carrier increased by 81.4% compared to the third
quarter of 2000 and provided $9,095 (19%) of the increased revenue. A portion of
the 4% fewer apartment customers in some of the complexes have selected to use
telephone services from the traditional local carrier who can currently provide
high-speed Internet access in their area. Management's milestone of adding high
speed internet service to our product mix at apartment complexes is presently
contingent on funding through potential additional financing from as yet
unidentified sources. Management believes that the apartment complexes will
experience lower occupancy rates over at least the next six months that may
slightly reduce future revenue from serviced apartment complexes.
44
The majority of the revenue (95.3% and 97.1%, respectively) for the third
quarter periods for 2001 and 2000 was derived principally from the sale of long
distance and local telephone service and cable television to apartment complex
unit subscribers and consisted of:
- the monthly recurring charge for basic telephone and/or cable television service;
- usage based charges for local and long distance calls;
- charges for services, such as call waiting and call forwarding; and
- to a lesser extent, non-recurring charges, such as charges for additional lines
for an existing customer.
The remaining revenue (4.7% and 2.9%, respectively) was from the increased sales
to non-apartment unit business and residential customers.
We anticipate an increase in revenue resulting from the reorganization and
revenue from Huntington Telecommunications Partners, and additional direct and
agent sales to non-apartment unit business and residential customers. Addition
of high speed internet access at currently-serviced apartment complexes, and
acquisition of new contracts with apartment owners for telephone, television,
and high speed internet services to their complexes is contingent on potential
additional financing from as yet unidentified sources to acquire the required
equipment. Had the reorganization with Huntington Telecommunications Partners
occurred January 1, 2001, total combined revenue for the quarter ending
September 30, 2001, would have been approximately $540,200. This would have
equaled an increase in revenue of approximately $154,500, or approximately 29%,
compared to the quarter ending September 30, 2000, and compared to the 12.4% the
company achieved without the reorganization. We expect that the combined
year-end 2001 revenue will reflect a comparable increase.
Gross Margin. Gross margin decreased $60,242, or 37.9%, to $98,841 for the
third quarter of 2001 from $159,083 for the same period in 2000. During the
third quarter of 2001, gross margin as a percentage of total revenues decreased
to 23% in 2001 from 41% in 2000. Approximately 92.4% of the reduction in gross
margin during the third quarter of 2001 compared to the third quarter of 2000
was related to the reduction of approximately 4% of apartment complex unit
subscribers. The fixed cost to service these subscribers remained approximately
the same, but had to be spread over slightly fewer customers which impacted the
overall gross margin. In addition, apartment customers made more non-billable
local zone calls. We are charged by the local service provider at per-minute,
tariffed, business zone rates and provides the apartment customer with
residential rates that include some zones at no charge. When apartment customers
increase their local, unbillable call time our cost increases without offsetting
revenue. Approximately 7.6% of the reduction in gross margin was due to lower
margins on sales to non-apartment unit business and residential customers. The
margin for business and residential customers compared to the margin for
apartment unit customers is significantly lower resulting in an overall lower
gross margin, but produces increased revenue for the company. We were able to
prevent additional reduction in gross margin related to the sales to business
and residential customers by being able to assimilate these without additional
customer service representatives, technical support, on-site technicians or
management personnel although some increases in direct labor costs for current
employees did contribute to the increased cost and resultant lower gross margin.
Management believes that gross margin can be increased over the next year as we
reorganize with Huntington Telecommunications Partners, and if we acquire
additional systems and customers and can increase the number of customers
serviced without a directly correlated increase in personnel. However, gross
margin as a percent of sales may decrease if too many of the additional
customers are non-apartment unit business and residential customers, since the
gross margin is less on these types of customers. During the third quarter of
2001 management observed occupancy at serviced apartment complexes trending
downward. Realizing that the we had fixed costs associated with apartment
complexes, management investigated additional ways to improve margin and cash
flow. In this endeavor, the company recently re-negotiated with our major long
distance carrier to reduce our long distance rates by approximately 15% per
45
year, signed an agreement with one of the local, traditional carriers for
service for rate reductions of approximately 18%, and signed with another local
carrier to provide service at a reduction of approximately 23.6% lower than the
cost of using our past traditional local carrier. Since the company maintains
very competitive pricing, these cost reductions did not require any offsetting
reduction in prices for service to our subscribers. We anticipate that these
cost reductions coupled with the reorganization with Huntington
Telecommunications Partners will begin showing significant improvement in
operating profit, gross margin and cash flow during the first quarter of 2002.
Other Operating Expenses. Other operating expenses decreased $42,556, or
21.7%, to $153,377 in the third quarter of 2001 from $195,933 in the same period
in 2000. Increases were experienced in non-direct labor employee compensation
($6,921 or 13%), and general and administrative costs ($14,719 or 21.6%).
Management anticipates these will continue to increase in the future as employee
compensation increases, additional personnel are hired, as additional customers
are added, and expenses are incurred as the company grows. Provision for bad
debts also increased $29,157, or over 500%, to $23,384 during the third quarter
of 2001 compared to $5,773 during the same period in 2000. The increased
provision for bad debts was primarily due to the increases in business and
residential customers and in anticipation of the down turn in the overall
economy. As more non-apartment complex unit customers are added we anticipate
that bad debt may increase, so we have increased provision for bad debt
accordingly. Since we control the last mile access for the apartments we have
under contract, we can more readily control these customers' access to other
carriers provided they remain tenants of the complex. If these current tenant
customers have an unpaid account, we can refuse to allow access through our
switch to other carriers. Since we do not have control to this extent over
non-apartment unit customers or apartment unit customers that move off-site, we
anticipate the bad debt related to these customers will be higher than it is for
current apartment unit customers given the current economic conditions. Our bad
debt provision during the third quarter of 2001, was approximately 5.4% of
revenue (compared to approximately -1.5% for the first three quarters of 2000).
This is within the 4-6% normally experienced by the telephone service industry.
During the third quarter of 2001 compared to the third quarter of 2000,
decreases occurred in office rent and system's equipment upgrades and additions
($19,301 or 33.6%), stock based compensation (to zero from $60,000), and
professional fees ($13,779 or 79.4%). As built-in facilities lease increases
occur, as we add new equipment, and as the company grows we anticipate increases
in office rent and equipment. Since the negotiations for the buyout,
acquisition, and reorganization of all partnerships has been completed, we do
not anticipate any significant, additional professional fees associated with
these efforts. We do anticipate increases in future professional fees associated
with costs related to our efforts to become a publicly trading company and
on-going professional fees for auditing and legal services if and when that
occurs. We expect to incur increases in stock based compensation incentives for
employees and agents. However, management will attempt to provide any such
future stock based compensation in a manner that will affect the financials as
minimally as possible and provide performance incentives for the recipients.
Other Income (Expense), Net. Interest and other income (expense), net, is
related to interest expenses on notes payable and equipment leases, and interest
income from financial institutions on our cash. The total other expense-net,
increased by $8,654 for the third quarter of 2001 to $10,772, from total other
expense-net of $2,068 for the same period in 2000. This was due to a loss of
offsetting interest income. During the first quarter of 2001, the company bought
out the last partnership for $250,000 cash resulting in loss of interest income
previously realized on the cash. During the time from the third quarter of 2000
to the third quarter of 2001, the company completed two of our leases and
purchased the equipment for $1 buyouts. As other leases reach maturity,
management intends to exercise our buyout rights. During the second quarter of
2002, management will be able to positively affect cash flow as the currently
remaining leases come to term and are paid off thus eliminating approximately
$6,000 in monthly costs associated with leases and notes payable. This will help
to offset the reduction in interest income previously realized from the cash
reserve that was used in the first quarter of 2001 to purchase the last
partnership system. To acquire additional systems in the future, the company may
use a combination of: (1) cash flow from operations, (2) additional leases
and/or, (3) funding through as yet unidentified sources.
46
Management believes that the increases in cash flow from the additional
non-apartment unit customers, the acquisition of the last partnership, combined
with the positive cash flow anticipated from the reorganization with Huntington
Telecommunications Partners, and the anticipated results from the recent cost
reduction actions taken by management and future lease buy-outs will be
sufficient to maintain operational cash flow needs. However, the anticipated
positive cash flow will not be sufficient to grow the business and contract with
apartment complex owners to install telephone switches, cable services, and
high-speed Internet services for their apartment complexes. Although the
apartment complexes require significant, initial capital investment, the gross
margins, customer penetration, and bad debt are significantly better than the
business and residential customer market.
LIQUIDITY AND CAPITAL RESOURCES
Cash received from operations was primarily from telephone and cable subscriber
revenue generated by our telephone and cable TV service at apartment complexes,
and administration and billing revenue from management functions we performed
for properties owned by partnerships. Additional revenue was generated from
residential and business telephone and Internet customers.
Net cash provided by operating activities for the third quarter of 2001 totaled
$21,360. This is a reduction of 70% over the $70,641 net cash provided by
operating activities for the third quarter of 2000.
No cash was used for investing activities for the third quarter of 2001 versus
$1,755 for the third quarter of 2000. The 2000 expenditures were made in support
of operations to expand the number of cable television channels for selected
apartment unit customers. By providing the additional channels, we have been
able to increase the rates charged to our apartment customers. We anticipate
future purchases of equipment as we grow. Significant equipment purchases cannot
be funded from cash flow, but will require additional capital infusion through
possible future additional financing from as yet unidentified sources or
third-party leasing arrangements.
Net cash used in financing activities for the third quarters of 2001 totaled
$24,076, a 74% reduction compared to the $92,700 for the same period in 2000.
These were primarily for monthly payments on outstanding notes and capital
leases. No proceeds from the issuance of common stock were received in the third
quarter of 2001. The company intends to use leasing financing in the future as
one method of adding new equipment and services to both existing and future
customers.
Cash flow for the third quarter of 2001 totaled -$2,716 versus a cash flow of
-$22,059 during the third quarter of 2000. Although management anticipated lower
cash flow during the last two quarters of 2001 due to lower market penetration
related primarily to reduced occupancy at our serviced apartment complexes and
lower margins on our business and residential customers, management believes
that the cash flow from operations will improve in 2002 due to third and fourth
quarter 2001 operation cost reductions and revenue increases associated with
lower negotiated prices from our telephone and satellite/cable television
vendors, increases in our customer base through addition of resale residential
and business customers telephone customers, increases in service charges and
products and services to our apartment customers, and cost avoidance through the
reorganization with Huntington Telecommunications Partnership.
The we had $8,060 of cash and cash equivalents as of September 30, 2001, that
was a 97.1% decrease of $267,730 from $275,790 on September 30, 2000. Over 93%
of this decrease resulted from the purchase of the last remaining partnership
system that the we had previously managed. The remaining reduction was related
to payment of lease obligations, and retirement of long-term note debt.
Management expects the company to incur additional expenses in 2002 as we
increase our cable television line-up, upgrades our telephone systems, and
possibly provide high speed Internet service to some of our apartment unit
customers. We expect to be able to pay for most of these expenses from cash
47
flow. For future growth, additional financing from as yet unidentified sources
and lease financing of telephone switching installations and cable television
headend equipment will be needed over the next 18 months to meet our working
capital needs related to our intended expansion.
RESULTS OF OPERATIONS-HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
Revenues. Total revenues decreased $53,137, or -26.5%, to $147,458 for the
third quarter of 2001 from $200,595 for the third quarter of 2000. The decrease
is attributable to lower occupancy at the apartment complexes where Huntington
telecommunications Partners has telephone and/or cable television systems
installed, a higher number of local call minutes that the partnership pays for
but are not billable to the customer, minor changes in the customers' long
distance calling patterns, and a small increase in tenants subscribing to
telephone services from the traditional local carrier who can currently provide
high-speed internet access. Competitive Companies, the manager of the
partnership's telephone and cable television systems, has plans to add high
speed internet service to our product mix at the partnership's apartment
complexes, but funding for this is presently contingent on additional financing
from as yet unidentified sources.
Operating Expenses. Operating expenses decreased $70,228, or 34.3%, to
$134,297 in the third quarter of 2001 from $204,525 in the third quarter of
2000. All of the decrease was due to reduced billing costs for phone and cable
service from Competitive Companies. Administrative fees increased for the third
quarter 2001 by $11,649 to $18,228 compared to $6,579 for the same period in
2000. This was related to costs involved in performing administrative functions
until the reorganization with Competitive Companies is complete and for
professional fees incurred in this endeavor. In August 2000, as part of the
agreement related to the anticipated reorganization with Competitive Companies,
Huntington Telecommunications Partners' customers were directed to commence
sending their payments directly to Competitive Companies' offices instead of to
Huntington Telecommunications Partners' lock-box. This resulted in approximately
$50,000 in annual cost savings to Huntington Telecommunications Partners and
customers' payments on their accounts were posted in a timelier manner.
Competitive Companies has continued to provide Huntington Telecommunications
Partners with financial information related to these payments in addition to the
other information that we have previously provided under the terms of the
reorganization with Competitive Companies. The change in payment arrangements
slightly increased administrative fees from Competitive Companies, but most of
the increase during the third quarter 2001 was due to professional services in
preparation for the reorganization with Competitive Companies. The partnership's
management fees, commissions, depreciation and amortization, and bad debts
provision did not significantly change for the third quarters of 2001 compared
to the third quarter 2000. During the third quarter of 2000, some of the
additional management functions that Huntington Telecommunications Partners
previously had to perform were absorbed by Competitive Companies with only minor
impact on Competitive Companies operational costs.
Net Profit. Huntington Telecommunications Partners made a net profit of
$13,161 for the third quarter of 2001 compared to a net loss of $3,929 for the
third quarter of 2000. This resulted from the reduced costs of telephone and
cable service provided by Competitive Companies, and the assumption of certain
administrative functions by Competitive Companies in preparation for the
reorganization.
Affect of Reorganization. Competitive Companies' management believes that
the reorganization of Huntington Telecommunications Partners, L.P. and
Competitive Companies will result in a net reduction in costs due to increased
efficiencies in operations. Based on Huntington Telecommunication Partners
Statement of Operations for the third quarter ending September 30, 2001,
compared to the third quarter ending September 30, 2000, management believes
that approximately $100,000 per year in cost avoidance could result from the
48
reorganization, and the resultant entity would have better cash flow, positive
EBITDA, and potential for improved profitability.
LIQUIDITY AND CAPITAL RESOURCES
Cash received from operations was primarily from telephone and cable
subscriber revenue generated by our telephone and cable TV service at apartment
complexes.
Net cash used by operating activities for the third quarter ended September
30, 2001, totaled $8,679. This was primarily due to the $40,989 in receivables
from Competitive Companies as an offset for customer payments Competitive
Companies had received. This transaction is related to the anticipated
reorganization between Huntington Communications Partners, and Competitive
Companies.
No cash was used for equipment purchases for the third quarter ended
September 30, 2001.
Cash at the end of the third quarter of 2001 decreased by $32,410 to $15,784
from $48,194 at September 30, 2000, due primarily to the receivables from Competitive
Companies related to the anticipated reorganization between Huntington Communications
Partners, and Competitive Companies.
RESULTS OF OPERATIONS-COMPETITIVE COMPANIES, INC.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenues. Total revenues increased $103,310, or 7.1%, to $1,555,799 for the year
ended December 31, 2000 from $ 1,452,489 for 1999. Approximately 80% of this
increase was due to an increase in the volume of sales to apartment complex
customers resulting from our previous acquisition from a competitor of an
existing telephone system and rights-of-entry that services two apartment
complexes with 706 passings. When we acquired the system, the penetration was at
62%. As of December 31, 2000, penetration was at 87%. The remaining increase was
due to sales to non-apartment complex customers, and Internet service to both
apartment complex customers and non-apartment complex customers.
Gross Margin. Gross margin increased $104,373, or 29.2%, to $461,407 for the
year ended December 31, 2000, from $357,034 for the year ended December 31,
1999. During 2000, gross margin as a percentage of total revenues increased to
29.7% from 24.6% in 1999 primarily because of two factors. A substantial portion
of the increase (approximately 78%) was due to the negotiation of lower carrier
rates from other long distance providers from whom we purchase intrastate,
interstate and international service. A portion of the savings related to the
reduced rates was passed on to customers to maintain our price competitiveness.
Another significant factor that improved the gross margin by approximately 21%
was the allocation of the existing direct labor over a larger revenue base.
Although we acquired two apartment complexes with an additional 706 passings,
and added CLEC and Internet customers we were able to assimilate these without
additional customer service representatives, technical support, on-site
technicians or management personnel. Management believes that gross margin can
continue to be increased over the next year due to the acquisition of the assets
of Huntington Partners, and if we acquire additional systems and customers and
can increase the number of customers serviced without a directly correlated
increase in personnel.
49
Other Operating Expenses. Other operating expenses decreased $15,410,629, or
96.3%, to $595,953 in 2000 from $16,006,582 in 1999. The 1999 stock based
compensation expenses of $15,443,278 related to preferred shares issued to key
management personnel. Although these shares are exercisable based on
management's achieving specific goals which had not been achieved, management
decided to reflect all of this expense during 1999. The $60,000 stock based
compensation expense during 2000 was for outside consultant compensation. If the
stock based compensations for both years is not taken into account, the decrease
in total other operating expenses is $27,352 or 4.9%. Additionally, depreciation
increased to $102,407 in 2000 by $13,626 or 15.3% from $88,781 in 1999. This was
primarily due to depreciation associated with the purchase and acquisition of
the system servicing 706 apartment units. Employee compensation increased by
$82,453 or 56.5% to $228,427 from $145,974. 76% if this increase in employee
compensation and benefits are related to the moving of management compensation
for the President and Chief Financial Officer from general and administrative
expenses to employee compensation and benefits. The remainder resulted from
increases in employee compensation, related taxes, and increases in health
insurance costs. Professional fees increased to $95,444 from $66,501 or 43.5%.
This increase was associated with the negotiations for the buyout and
acquisition of current partnerships and costs related to our filing to become a
publicly trading company. Since the partnership buyout negotiations are
complete, management anticipates that professional fees in this area will be
significantly less in 2001. However, professional fees associated with becoming
a publicly trading company may significantly increase.
We commenced offering services to competitive local exchange carrier residential
and business customers in 2000. Since we anticipated that we would experience a
higher bad debt in this market versus the apartment complex market, we have
increased our provision for bad debt from $23,282 or 1.6% of revenues in 1999 to
$40,183 or 2.6% of revenues in 2000 which reflects our current and projected bad
debt level. This is still significantly lower than industry averages that
normally range from 4-5% of revenues. General and administrative costs decreased
by $167,973 or 80% to $41,991 from $209,964. Approximately $62,611 or 37% of
this reduction was related to moving expenses for management compensation from
general and administrative expenses to employee compensation and benefits.
Approximately $43,000 of this reduction in costs was due to our move in 1999 to
a larger, consolidated, leased facility, and facility improvements and equipment
purchased. A reduction of approximately $62,000 in general and administrative
expenses was due to cancellation of agency fees related to cancelled agency
agreements.
Other operating expenses as a percentage of total revenues decrease to 38.3% in
2000 from 1102.0% during 1999 primarily due to stock based compensation expenses
as discussed above. Without the stock based compensation, the decrease in other
operating expenses as a percentage of total revenues would have been
approximately 34.4% in 2000 versus 38.8% in 1999. During 2001, management
anticipates no additional stock based compensation. Management does expect
employee compensation and benefits, bad debt, and depreciation expenses will
increase as additional systems are added and additional residential and business
customers are added. We further anticipate professional fees related to a public
offering will be incurred upon approval of the SEC filing and public offer of
stock. The buyout of the last partnership occurred in the first quarter of 2001,
and as anticipated, required a large portion of our cash reserve. However,
management believes that cash flow from operations will be sufficient to
maintain current operational needs.
Loss from Operations. The loss from operations decreased approximately 99.1%
from $15,649,548 to $134,546. Without considering the stock based compensation,
operations reflected a loss of $74,546 in 2000 versus a loss of $206,271 in
1999.
50
Other Expense-Interest Expense. Interest expense decreased by $27,137 or 35.1%
to $50,206 for 2000 versus $77,343 for 1999. Interest is related to interest
expenses on notes payable and equipment leases. It was partially offset by
income from financial institutions on our cash. Since we paid a large portion of
our cash reserves for the system we purchased in the first quarter of 2001, we
expect interest expenses to increase in 2001 due to the lack of offsetting
interest income related to the previous cash reserve. During 2000 we completed
two of our leases and purchased the equipment for $1 buyouts. All but one of our
remaining leases have a $1 buyout condition. The one exception has a buyout at
fair market value. As other leases reach maturity, we intend to exercise our
buyout rights. All other current system leases mature in 2002. In the future, we
may use additional leases to acquire additional systems.
Many securities analysts use the measure of earnings before deducting interest,
taxes, depreciation and amortization, also commonly referred to as "EBITDA," as
a way of evaluating telecommunications companies and other companies that have
inherently high initial capital investment requirements. Telecommunications
companies initial capital investments are high due to the expenses incurred in
developing their network of switches, securing connection agreements, and
meeting regulatory requirements. After eliminating stock based compensation
expense, as projected in 1999, we had EBITDA profit of $27,861for 2000 versus a
loss of $40,147 for 1999.
Income Taxes. In 2000 we had net operating loss carry forwards of approximately
$750,000 for income tax purposes. These carry forwards expire at various times
through the year ended December 31, 2020.
We made capital expenditures of approximately $24,237 and $45,927 during 2000
and 1999, respectively, for property, plant, equipment, software and hardware
necessary in conducting our business. We also used capital, raised from the sale
of our stock, during 1999 to fund our operations. In the future, we expect to
make additional capital expenditures to improve current operations, equipment
and services, and to add and install new telephone switching equipment, cable TV
equipment, and high speed Internet equipment to accommodate additional customers
and sites.
On December 31, 2000, we owned and/or managed switching equipment located
in 8 locations servicing 10 apartment complexes with a total of 3,975 passings
(apartments) consisting of 2,975 telephone passings and 990 cable television
passings. We also had approximately 150 residential and business telephone
customers in California as a competitive local exchange carrier.
51
RESULTS OF OPERATIONS-HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenues. Total revenues decreased $6,975, or 1.0%, to $708,088 for the year
ended December 31, 2000 from $715,063 for the year ended December 31, 1999. This
decrease was due to small changes in calling patterns of customers, and
occupancy factors of apartment complexes where our switches are installed.
Operating Expenses. Operating expenses increased $26,645, or 3.5%, to $781,888
during 2000 from $755,243 in 1999. The increase is primarily due to an increase
in the cost of telephone long distance and cable services rates.
Net Loss. The net loss increased by $33,620 for 2000 to $73,800, from a net loss
of $40,180 for 1999. This resulted in a 83.7% increase in net loss for 2000
compared to 1999. This resulted from the increase in phone and cable services
costs (8.6%), an increase in commissions (5.3%), and a small increase in
depreciation (0.5%); but was partially offset by reductions in administration
fees primarily due to a reduction in related banking charges as the banking
function was turned over to us in October 2000 (-27.4%), bad debt provision
(-58.1%), and management fees (-5.2%).
Affect of Asset Acquisition. Management believes that the acquisition of assets
of Huntington Partners will result in a net reduction in costs due to increase
efficiencies in operations. Based on Huntington Partners Statement of Operations
for the year ended December 31, 1999 (the last full year of their partnership
management), management estimates that approximately $73,000 per year in cost
avoidance will result.
Many securities analysts use the measure of earnings before deducting interest,
taxes, depreciation and amortization, also commonly referred to as "EBITDA," as
a way of evaluating telecommunications companies and other companies that have
inherently high initial capital investment requirements. Telecommunications
companies initial capital investments are high due to the expenses incurred in
developing their network of switches, securing connection agreements, and
meeting regulatory requirements. Huntington Partners had EBITDA profit of
$26,557 and an EBITDA profit of $59,727 for the year ended December 31, 2000 and
1999, respectively. Based on this and an estimated $73,000 in cost avoidance,
had the transactions closed on January 1, 2000, management estimates the
combined EBITDA profit for 2000 would have been approximately $99,557.
PROPOSED PLAN OF EXPANSION
We need approximately $15,000,000 to finance all of our expansion plans. However,
other than operating cash flow, which is not anticipated to be available to fund
the expansion plans, we have no sources of financing identified. Even if we identify
sources for such financing:
o Additional financing may not be available on commercially reasonable terms or
available at all
o Additional financing may result in dilution to existing and future equity holders; and
o If we issue debt instruments, we will be subject to increased debt obligations
that will impose a greater financial strain upon our operations.
Any financing will be used to fund implementation of the milestones listed
below. If we do not secure this amount from excess operating cash flow or
additional financing, the milestones listed below may not be achieved within the
anticipated time period, if at all. The milestones are listed in the order in
which we will apply the desired additional financing, if obtained.
52
Date, or Number of
Months after Receipt of
Expected Manner of Additional Financing Estimated
Occurrence or Method when Step Should Be Cost of
Milestone of Achievement Accomplished Completion
1-Provide High Speed Internet Service with Local & Long Distance Package-Business & Residential
GOAL: To increase sales by approximately $400,000 per month of current and new
services to new customers, expand bundled services, improve cash flow, and
provide agent packages
Pilot Test
Acquire antennae site lease Sign business park owner December 2001 $500 & $0-Will receive commissions
Acquire wireless provider Sign wholesale contract December 2001 $0-will receive wholesale payments
Install antennae Wholesaler installs January 2002 $0-Installed at wholesaler's expense
Make billing system & procedure changes Add pricing and descriptions January 2002 $0-Part of on-going updates
Provide "Test Basis" services Test service to Park owner & CCI January 2002 $0-Pay only usage fees
Monitor test, evaluate and release Company technicians & customer January 2002 $500
service, speed & reliability
Limited Implementation
Acquire 10 business customers Sign local, long distance, February 2002 $1,000 & $0-Pay only usage fees. Customer's
high speed internet package pay for service in advance and usage
with 10 business park tenants each month
Modify agent package Add high speed internet, local & February 2002 $1,000-Management will complete
long distance to agent package
Sign and train initial 5 master agents in Sign and train agents on a local, March 2002 $2,000 & $0-Agents receive commission only
California long distance, and high speed and managed by Sales & Marketing
internet package to sell to Director. Brochures and training done
businesses and residential in-house. Master agents train their own
customers within 25 mile radius of sub-agents.
antennae
Full Implementation
Sell monthly to at least 50 businesses Sold direct and through agents March-April 2002 $0-Agents receive commission only
Sell monthly to at least 50 residentials Sold direct and through agents March-April 2002 $0-Agents receive commission only
Acquire server computer & webmaster Funded through potential public
offer of stock or other as yet
unidentified sources 1 Month $95,000-Approximate cost of server plus
annualized salary, benefits, and taxes
Sell monthly to at least 100 businesses Sold direct and through agents May-December 2002 $0-Agents receive commission only
Sell monthly to at least 100 residentials Sold direct and through agents May-December 2002 $0-Agents receive commission only
2-Improve Cable Television Service-Currently Served Apartments
GOAL: To marginally increase sales, significantly increase channels and reduce
costs of current and new services to current/new apartment television customers
53
Pilot Test
Evaluate current providers & competitors Parameters: increase channels, November 2001-Done $0
reduce costs, maintain/improve
reception, increase revenue, find buyer
for current equipment & pre-sell
Select system Based on parameters November 2001-Done $0
Select test site Based on company parameters November 2001-Done $0
Order and install equipment at test site Company technicians Dec 2001-Jan 2002 $0-Anticipate sale of current equipment will
cover cost of new, lower cost equipment
Monitor test, evaluate and release Company technicians & customer January 2002 $0
service, reliability and reception
Sell current excess equipment Sell to other cable January 2002 $0-Should cover cost of new equipment
providers/wholesalers
Full Implementation
Order and install equipment at all other site Company technicians January 2002 $0-Anticipate sale of current equipment will
cover cost of new, lower cost equipment
Sell current excess equipment Sell to other cable January 2002 $0-Should cover cost of new equipment
providers/wholesalers
3-Implement affinity (Charitable) Program
GOAL: To increase business and residential sales and cash flow using charitable
organizations and providing contributions in customers' names
Test Program
Develop affinity program Parameters: competitive local and long December 2001 $1,000-Labor, manuals & brochures
distance prices, 5-10% donation of long
distance paid service to registered charity
of customer's choice, market in California,
market direct & through agents, modify
billing system to accommodate
Sign 2 charities/churches Direct market to charity/church January 2002 $1,000
Charity/church markets to donors/
members
Monitor, evaluate and release Management evaluate profitability, bad Jan-Feb 2002 $0
debt
Produce program, train master agents & Sign and train agents on affinity March 2002 $2,000-$0-agents receive commissions only
release program to sell to charities, churches,
& non-profit organizations in California
Full Implementation
Sell monthly to at least 5 charities/churches Sold direct and through agents March-December 2002 $0-Agents receive commission only
4-Pay Off Open Leases, System Purchase, and Notes Payable
GOAL: To payoff current equipment leases on time, pay off system purchase and
notes in advance thereby improving cash flow by approximately $12,400 per
month and eliminating approximately $325,450 in debt
Pay off equipment leases Pay off leases and exercise buyout April 2002 Approximately $37,000 in remaining
options as they come to their end payments and buyout to be taken from
Improves cash flow by approximately current cash flow
$6,000 per month
54
Pay off system purchase Pay off system purchased previously 1 Month $207,450-Payoff principal using equity
for interest only at 10% interest, balance investment
due April 2004 and increase cash flow
by $1,729 per month
Pay off notes payable Pay off current notes and increase cash 1 Month $81,000 to pay off principal using equity
flow by approximately $4,683 per month investment
5-Provide High Speed Internet Service-Currently Served Apartments
GOAL: To increase sales by approximately $20,000 per month of current and new
services to current/new apartment customers, improve cash flow, and expand
bundled services
Pilot Test Site
Select test site Based on company parameters October 2001-Done $0
Select system Based on company parameters October 2001-Done $0
System available Selected system in manufacturer's December 2001 $0
test. Completion due November 2001
Advise apartment owner & tenants Letters to owner & tenants of high 1 Month $300-Fliers and postage
speed internet plans
Purchase initial system Sign purchase agreement 1 Month $15,000-For system and initial negative
cash flow until customer base increased
Pre-sell 10 apartment customers (test) 30-45 day installation commitment 1 Month $100-Reduced 6 month price-cover costs
telephone/flier solicitation/special
Make billing system & procedure changes Add pricing and descriptions 1 Month $0-Part of on-going updates
Personnel training Factory training 1 Month $3,000-For factory training & expenses
Receive & install system Company technicians 1-2 Months $1,500-Travel & labor expenses
Connect test customers Company technicians 2 Months $0-included above
Monitor test, evaluate and release Company technicians & customer 2-3 Months $500
service, speed & reliability
Full Implementation at Test Site
Sell up to 47 total customers at site Fliers in billing, customer service 2-3 Months $100-Customer pays in advance
solicits, 2-5 days installation commitment
Sell up to 48 additional customers 30-45 day installation commitment 4-5 Months $100-Customer pays in advance
Purchase additional ports order from manufacturer 4-5 Months $11,000-For system
Receive & install additional ports on system Company technicians 4-5 Months $1,500-Travel & labor expenses
Install Additional Sites
Develop release & installation schedule Based on company parameters 1 Month $0-Start when funding for test received
Order & install systems at 6 more sites Based on company parameters 3-12 Months $100,000- For system and initial negative
cash flow until customer base increased,
and travel & labor expenses
6-Acquire New Apartment Complexes for Telephone, Cable Television, and Internet Service
GOAL: To increase: annual sales by approximately $7,000,000 to $8,000,000, cash
flow, customer base, and areas serviced
Contact currently serviced complex owners Direct solicitation of current complex May-June 2002 $0
owners for additional business at other
complexes they own and leads to other
affiliates that own complexes
55
Sign service agreements for 5 apartment Funded through potential public offer 1 Month $3,000-Estimated travel expenses
complexes, each with 300 units or more of stock or other as yet unidentified sources
Order and purchase equipment Funded through potential public offer 1 Month $1,750,000-At approximately $350,000 per
of stock or other as yet unidentified sources installation of telephone switch, cable
television equipment, & internet equipment
Hire additional staff for expansion Add and train 4 technicians, 1 1 Month $400,000-Approximate annualized salary,
supervisor, 1 chief operating officer, taxes, and benefits
1 additional customer service person,
1 additional mis person
Upgrade current telephone systems Add to switches or replace switches 1-4 Months $750,000-Approximately. Work to be done
to give features that allow service to during periods when new installations are
other carriers in order to increase not being installed
revenue from current switches
Sign additional service agreements for at Funded through potential public offer 2-12 Months $18,000-Estimated travel expenses
least 30 apartment complexes, each with of stock or other as yet unidentifiedsources.
300 units or more sources. Sign at least 2-3 service agreements per month
Order and purchase equipment Funded through potential public offer of 3-12 Months $10,500,000-At approximately $350,000 per
stock or other as yet unidentified sources installation of telephone switch, cable
television equipment, & internet equipment
Hire additional staff for expansion Add and train 5 technician, 2 supervisor, 3-12 Months $570,000-Approximate annualized salary,
1 chief executive officer, 8 additional taxes, and benefits
customer service person, 1 additional
mis person, 2 accounting person
Decreases:
Milestone
1-Failure to raise approximately $95,000 would eliminate the addition of
internet server equipment and a webmaster which we anticipate would reduce
internet services and could reduce acquisition of additional internet
customers and affect future growth.
2-We believe that failure to raise additional funds would have no affect on this
milestone since the project is expected to generate enough from the sale of
existing equipment to offset the cost of the new, less expensive equipment,
increase cash flow, and increase channel selection for the customers.
3-We don not anticipate requiring additional funding to test and implement this
project.
4-Equipment leases are expected to be paid off by April 2002 from existing cash
flow. Failure to raise approximately $288,450 in additional funding will
continue to require approximately $6,412 to be paid from current cash flow
until the notes are paid in full and the system price is paid off.
5-Failure to raise approximately $133,100 would eliminate the addition of high
speed internet service to currently services apartment tenants. This could
also reduce the number of telephone customers at each complex since they
may elect to use a competitive service that offers both telephone and high
speed internet servce.
6-Failure to raise approximately $13,421,000 would eliminate the upgrading of
current systems to carry traffic from other carriers and significantly
reduce our future growth.
56
If we fail to secure adequate funds to accomplish the objectives outlined above,
we will be able to conduct only limited expansion or no expansion at all. Our
limited expansion could decrease our planned growth and operations in the
following areas:
o High speed internet service with local & long distance package-business & residential
o Cable television service-currently served apartments
o Affinity (charitable) program
o Pay off system purchase and notes payable
o High speed internet service-currently served apartments
o Acquire new apartment complexes for telephone, cable television, and internet service
ITEM 18. DESCRIPTION OF PROPERTY
We are headquartered in Riverside, California, where we lease approximately
3,100 square feet of offices and warehouse space for approximately $2,300 per
month. The lease expires in 2002. We generally are provided minimal space at no
charge, from 100 to 200 square feet, for our telecommunications equipment at
each of the apartment complexes where we have systems installed.
Our offices are in good condition and are sufficient to conduct our operations.
We believe that our leased facilities are adequate to meet our needs for the
next 12 months. However, as we begin to deploy additional systems and build our
networks, we will need to increase our headquarters office space, add equipment
rooms at newly contracted apartment complexes, and contract for co-location of
switching facilities at traditional carriers. We anticipate such facilities are
available to meet our development and expansion needs in existing and projected
target markets for the foreseeable future.
ITEM 19. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Competitive Communications
In 1998, Competitive Companies, Inc. was formed to acquired the stock of
Competitive Communications, Inc. from Mr. David Kline II. Mr. Kline II owned a
100% equity interest in Competitive Communications. Mr. Kline II negotiated the
transaction for Competitive Communications and Mr. Halstead negotiated the
transaction for Competitive Companies. The parties agreed upon a price of
3,302,700 shares of common stock 1,000,000 shares of Class A convertible
preferred stock based upon the fact that the at the time of the agreement
Competitive Communications had annual revenues of approximately $1,000,000. The
parties agreed to a value of $1 per share for the 3,302,700 shares of common
stock and 5,000,000 shares of common stock underlying the preferred stock and
agreed upon a formula of 8 times approximate annual revenues.
Huntington Telecommunications Partners. L.P./Competitive Companies, Inc. Reorganization
Competitive Companies, Inc. is current the name of the company formed in October
2001 solely to facilitate a December 2001 reorganization which included the
assets of Huntington Telecommunications Partners, LP, a California limited
partnership and the operations of Competitive Companies, Inc., a Nevada
corporation originally formed March 1998. The transaction was effected as
follows:
StepAction
1. Competitive Companies Holdings, Inc. was formed to facilitate the reorganization
2. Competitive Companies Holdings formed CCH Acquisition, a subsidiary to
acquire Competitive Companies
3. Competitive Companies merged into CCH Acquisition, with Competitive Companies
as the surviving company
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4. Competitive Companies Holdings acquired the assets of Huntington Partners
5. Competitive Companies Holdings changed its name to Competitive Companies
6. CCH Acquisition changed its name to Competitive Holdings
As a result of the reorganization, Competitive Companies owns the assets of
Huntington Partners and has as a wholly owned subsidiary Competitive Holdings.
Competitive Holdings has two wholly owned subsidiaries:
o Competitive Communications, Inc. which was incorporated under the laws of the
state of California in February 1996.
o CCI Residential Services, Inc. which was incorporated under the laws of the state
of California in January 2000.
The assets of Huntington Partners are part of the private telephone and cable
television systems owned by Huntington Partners and installed under right of
entry agreements at four apartment complexes in California. Right of entry
agreements include private telephone service to residents at all four complexes
that is provided under telephone and cable television services for residents at
two of the four complexes.
The purchase price paid to Huntington Partners at closing was one million shares
of common stock of Competitive Companies Holdings. The initial purchase price
will be increased, if at all, as provided in the one million shares of Class C
preferred stock to be issued as additional payment for the assets. If the
average of the closing bid price for the Competitive Companies' common stock for
the adjustment period is less than $3.00 per share, Competitive Companies will
issue to Huntington Partners additional shares of its common stock so that the
total number of shares received by the Huntington Partners, including common
stock delivered on account of the Initial purchase price, when valued at the
opening price shall have an aggregate nominal value of $3,000,000. If the
opening price is $3.00 or over per share, no additional shares shall be issued.
For purposes of determining the opening price, purchases of common stock by the
Competitive Companies or its affiliates or persons controlled by the Competitive
Companies or its affiliates shall be disregarded. The adjustment period refers
to the five business day period immediately following the closing; provided
however, that if trades have not been executed on at least three of those five
days, the adjustment period shall be extended until the common stock shall have
been traded on at least three days, and the average closing bid price for those
three trading days shall be the opening price.
The fair market value of Huntington Partners was determined as follows: Based
upon 1999 cash flow of approximately $708,000. The remaining life of the
Partnerships contracts at that time was 17 years. Without factoring inflation,
this means projected cash flow over the remaining contract period of
approximately $12,000,000. The parties agreed upon a value equal to 25% of this
amount based upon arms'-length negotiation. Mr. David Hewitt is President of the
corporation which is the General Partner of Huntington Partners.
The amount of shares issued to Competitive Companies was determined by issuing
one share of common stock, Class A preferred stock, and Class B preferred stock
of Competitive Companies for each outstanding share of common stock, Class A
preferred stock, and Class B preferred stock of Competitive Companies. In
addition, options on the same terms and conditions as existed in Competitive
Companies prior to the merger were issued to the option holders at the time of
the merger. The number of shares issued was determined based upon the same
method used in determining the number of shares issued to Huntington Partners.
Competitive Companies Holdings and CCH Acquisition entered into these
transactions as an accommodation to Competitive Companies and Huntington
Partners. Competitive Companies entered into these transactions in order to have
the assets and cash flow of Huntington Partners reflected in its financial
statements. Huntington Partners entered into these transactions in order to
divest its interest in telecommunications assets and pursue other investment
opportunities.
58
ITEM 20. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is no established public trading market for our securities. No market
exists for our securities and a regular trading market may not develop, or if
developed, may not be sustained. A shareholder in all likelihood, therefore,
will not be able to resell his or her securities should he or she desire to do
so when eligible for public resales. Furthermore, it is unlikely that a lending
institution will accept our securities as pledged collateral for loans unless a
regular trading market develops. Although we have held preliminary discussions
with one market maker concerning the NASD requirements for qualifying our
securities for quotation on the Over-the-Counter Bulletin Board, we have no
plans, proposals, arrangements, or understandings with any person with regard to
the development of a trading market in any of our securities.
Options, Warrants, Convertible Securities
Preferred stock
We are authorized to issue 10,000,000 shares of preferred stock.
Class A preferred stock
4,000,000 shares of Class A convertible preferred stock were issued by us to
various founding stockholders and management in December 1999. These 4,000,000
shares are convertible into 20,000,000 shares of common stock. Conversion may
occur at any time, in whole or in part up to the number of shares set forth
below with the achievement of the following events for a period commencing on
the date such event was achieved and ending on December 31, 2010.
The conversion events are as follows:
Event Number of shares of common stock
issued upon conversion
Achieving 100% increase in the 10,000,000
combined number of owned apartment
complex passings plus non-apartment
complex customers
Achieving 10,000 customers in the 5,000,000
combined number of owned apartment
complex passings and non-apartment
complex customers
Achieving 20,000 customers in the 5,000,000
combined number of owned apartment
complex passings and non-apartment
complex customers
o An apartment complex passing is an individual apartment under direct contract
with it for telephone, television or Internet service.
o A non-apartment complex customer is a non-apartment residential or business
customer that is counted once for each major service to which they subscribe.
Conversion events are based on customer base existing as of December 9, 1999.
59
Class B convertible preferred shares
We have issued 1,495,436 shares of Class B convertible preferred stock entitling
persons owning the Class B shares the following:
The stock shall convert into such number or fraction thereof shares of common
stock based upon the following:
1 -
the fraction: [average of opening bid and ask price on the over the counter bulletin board/$3.00]
divided by
the fraction: [average of opening bid and ask price on the over the counter bulletin board/$3.00]
For example, assume average opening bid/ask of $2.00. 1 - 2/3 = 1/3. 1/3 divided
by 2/3 = .5 additional share of common stock issued upon conversion.
Class C convertible preferred shares
We have issued 1,000,000 shares of Class C convertible preferred stock entitling
persons owning the Class C shares the following:
The stock shall convert into such number or fraction there of shares of common
stock based upon the following:
1 -
the fraction: [average of first 5 days trading bid and ask price on the over the counter bulletin board/$3.00]
divided by
the fraction: [average of first 5 days trading bid and ask price on the over the counter bulletin board/$3.00]
For example, assume average of first 5 days trading bid/ask of $2.00. 1 - 2/3 =
1/3. 1/3 divided by 2/3 = .5 additional share of common stock issued upon
conversion.
The conversion rate for all classes is subject to proportional adjustment in the
event of a stock split, stock dividend or similar recapitalization event
effecting such shares. Holders of the all classes f preferred shares are not
entitled to preferential dividend rights, redemption or voting rights.
Issuance of preferred stock with voting and conversion rights may reduce the
voting power of the holders of common stock, including voting rights of the
holders of common stock. In certain circumstances, an issuance of preferred
stock could have the effect of decreasing the market price of the common stock.
We have no plans to issue any shares of preferred stock in the future.
Options
We have 5,040,000 outstanding non-statutory options to the following:
Name Number of Option Exercise Price Number Currently
Exercisable
Officers, Directors & Affiliates:
Larry Halstead 1,000,000 $0.001 600,000
Jerald Woods 500,000 $1.00 0
Judy Kline (1) 2,625,000 $0.001 1,575,000
Sub-Total4,125,0002,175,000
60
Others:
Employees 445,000 $0.001 347,000
Employees 300,000 $0.85 0
Employees 70,000 $1.00 0
James Gibson 50,000 $1.00 0
James Healey 50,000 $1.00 0
Sub-Total915,000347,000
Total5,040,0002,522,000
(1) Judy Kline is an employee of Competitive Companies and mother Mr. David
Kline II, Competitive Companies' Chairman, C.E.O., President, C.O.O. & Director.
As Mr. Kline is over 21 years of age and does not live with his mother, he
disclaims beneficial ownership of the shares underlying Ms. Kline's options.
The general terms to exercise the options for all except James Healey, James
Gibson and Jerald Woods are the same. Exercise dates and amounts which can be
exercised vary. No options may be exercised until two years after initial grant
of the individual option. Options are normally exercisable over a five-year
period as follows: at the end of:
o First year - 0%,
o Second year - 40%
o Third through fifth year - 20% each year.
Mr. Healey and Mr. Gibson are independent agents for the sale of our products.
The options granted them and Mr. Woods require certain levels of performance
from them in order for them to exercise each level.
Sales under Rule 144
There are 824,100 shares of our common stock held by non-affiliates and
3,528,600 shares of our common stock held by affiliates that Rule 144 of the
Securities Act of 1933 defines as restricted securities. The remaining 1,559,361
shares are held by non-affiliates but are not restricted securities and are
eligible for resale under the provisions of Rule 144. No shares have been sold
pursuant to Rule 144 of the Securities Act of 1933 and no shares are eligible to
be resold pursuant to Rule 144. We have agreed to register all of the shares
held by our existing non-affiliate selling shareholders and 1,000,000 shares
held by an affiliate. We have also issued and intend to issue in the future
common stock subject to an employee benefit plan.
Once this registration statement is effective, the shares of our common stock
being offered by our selling shareholders will be freely tradable without
restrictions under the Securities Act of 1933, except for any shares held by our
"affiliates," which will be restricted by the resale limitations of Rule 144
under the Securities Act of 1933 except as registered under this registration
statement.
In general, under Rule 144 as currently in effect, any of our affiliates and any
person or persons whose sales are aggregated who has beneficially owned his or
her restricted shares for at least one year, may be entitled to sell in the open
market within any three-month period a number of shares of common stock that
does not exceed the greater of (i) 1% of the then outstanding shares of our
common stock, or (ii) the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also affected by limitations on manner of sale, notice requirements, and
61
availability of current public information about us. Non-affiliates who have
held their restricted shares for one year may be entitled to sell their shares
under Rule 144 without regard to any of the above limitations, provided they
have not been affiliates for the three months preceding such sale.
Further, Rule 144A as currently in effect, in general, permits unlimited resales
of restricted securities of any issuer provided that the purchaser is an
institution that owns and invests on a discretionary basis at least $100 million
in securities or is a registered broker-dealer that owns and invests $10 million
in securities. Rule 144A allows our existing stockholders to sell their shares
of common stock to such institutions and registered broker-dealers without
regard to any volume or other restrictions. Unlike under Rule 144, restricted
securities sold under Rule 144A to non-affiliates do not lose their status as
restricted securities.
As a result of the provisions of Rule 144, all of the restricted securities
could be available for sale in a public market, if developed, beginning 90 days
after the date of this prospectus. The availability for sale of substantial
amounts of common stock under Rule 144 could reduce prevailing market prices for
our securities.
Penny Stock Considerations
Our shares will be "penny stocks" as that term is generally defined in the
Securities Exchange Act of 1934 to mean equity securities with a price of less
than $5.00. Our shares thus will be subject to rules that impose sales practice
and disclosure requirements on broker-dealers who engage in certain transactions
involving a penny stock.
Under the penny stock regulations, a broker-dealer selling a penny stock to
anyone other than an established customer or accredited investor must make a
special suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $100,000 individually or
$300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required to:
o Deliver, prior to any transaction involving a penny stock, a disclosure
schedule prepared by the Securities and Exchange Commissions relating to
the penny stock market, unless the broker-dealer or the transaction is
otherwise exempt;
o Disclose commissions payable to the broker-dealer and our registered
representatives and current bid and offer quotations for the securities;
o Send monthly statements disclosing recent price information pertaining to
the penny stock held in a customer's account, the account's value and
information regarding the limited market in penny stocks; and
o 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, prior to conducting any penny stock transaction in the
customer's account.
Because of these regulations, broker-dealers may encounter difficulties in their
attempt to sell shares of our common stock, which may affect the ability of
selling shareholders or other holders to sell their shares in the secondary
market and have the effect of reducing the level of trading activity in the
secondary market. These additional sales practice and disclosure requirements
could impede the sale of our securities, if our securities become publicly
traded. In addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities. Our shares in all
probability will be subject to such penny stock rules and our shareholders will,
in all likelihood, find it difficult to sell their securities.
62
Holders
As of the date of this registration statement, we had 125 holders of record of
our common stock. We have one class of common stock outstanding and three
classes of preferred stock outstanding.
Dividends
We have not declared any cash dividends on our common stock since our inception
and do not anticipate paying such dividends in the foreseeable future. We plan
to retain any future earnings for use in our business. Any decisions as to
future payments of dividends will depend on our earnings and financial position
and such other facts as the board of directors deems relevant. We are not
limited in our ability to pay dividends on our securities.
Penny Stock Considerations
Our shares may be "penny stocks" as that term is generally defined in the
Securities Exchange Act of 1934 to mean equity securities with a price of less
than $5.00. Our shares may be subject to rules that impose sales practice and
disclosure requirements on broker-dealers who engage in certain transactions
involving a penny stock.
Under the penny stock regulations, a broker-dealer selling a penny stock to
anyone other than an established customer or "accredited investor" must make a
special suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required to:
o Deliver, prior to any transaction involving a penny stock, a disclosure
schedule prepared by the Securities and Exchange Commissions relating to
the penny stock market, unless the broker-dealer or the transaction is
otherwise exempt;
o Disclose commissions payable to the broker-dealer and our registered
representatives and current bid and offer quotations for the securities;
o Send monthly statements disclosing recent price information pertaining to
the penny stock held in a customer's account, the account's value and
information regarding the limited market in penny stocks; and
o 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, prior to conducting any penny stock transaction in the
customer's account.
Because of these regulations, broker-dealers may encounter difficulties in their
attempt to sell shares of our common stock, which may affect the ability of
selling shareholders or other holders to sell their shares in the secondary
market and have the effect of reducing the level of trading activity in the
secondary market. These additional sales practice and disclosure requirements
could impede the sale of our securities, if our securities become publicly
traded. In addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities. Our shares may be subject
to such penny stock rules and our shareholders will, in all likelihood, find it
difficult to sell their securities.
Reports to Shareholders
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission.
63
Where You Can Find Additional Information
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 with respect to the common stock in this offering. This
prospectus, which constitutes a part of the registration statement, does not
contain all the information set forth in the registration statement. For further
information about us and the shares of common stock to be sold in the offering,
please refer to the registration statement and the exhibits and schedules
thereto. The registration statement and exhibits may be inspected, without
charge, and copies may be obtained at prescribed rates, at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The registration statement and other information filed
with the SEC is also available at a web site maintained by the SEC at
http://www.sec.gov.
ITEM 21. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth summary information concerning the compensation
received for services rendered to us during the years ended December 31, 2000
and 1999, respectively by the Chief Executive Officer. No other executive
officers received aggregate compensation during our last fiscal year which
exceeded, or would exceed on an annualized basis, $100,000. Other annual
compensation consists of health and life insurance premiums and automobile lease
payments.
64
Summary Compensation Table
Annual Compensation
Name and All Other Annual
Principal PositionYearSalary (1)BonusCompensation
David Kline, Sr. 1999 $ 66,724 $ - $ 11,506
Chief Executive Officer
David Kline II
President 1999 $ 8,800 $ 4,954
Chief Executive Officer & 2000 $ 1,022 $ 4,270
President
(1) Includes other personal items paid on behalf of Mr. Kline, Sr.
As of September 30, 2001, we had paid David Kline II a salary of $10,218, no bonus,
and all other compensation of $0.
No other annual compensation, including a bonus or other form of compensation;
and no long term compensation, including restricted stock awards, securities
underlying options, LTIP payouts, or other form of compensation, were paid to
David Kline II during these periods.
On December 23, 1999, the board of directors appointed David Kline II to assume
the duties of Chairman of the Board and Chief Executive Officer. This was in
addition to his duties as President. This appointment resulted from the sudden
death of David Kline, Sr. on December 23, 1999.
Employment Agreements
We have entered into five-year employment agreements with our president and CFO
which require initial annual base salary of approximately $77,000 and $68,000
respectively, and unless earlier ended, are subject to automatic extension for
an additional period of two years. The officers' annual base salaries will be
increased to $130,000 and $115,000, respectively if we are able to raise
$1,000,000 of investment capital. The president has deferred compensation
payable under his employment agreement until he begins to devote full time to
the business.
In addition to their annual base salary, both of the executives are entitled to
amounts under an executive bonus plan in any fiscal year in which our earnings
before taxes and charitable contributions, called PT-PC, is $1,000,000 or more.
Under the plan, 6% of the PT-PC is available for executive officers and an
additional 6% for non-executive officers to be paid as cash bonuses no less
often than annually. Through December 31, 1999, no amounts have been awarded
under this plan.
In addition to the base salary, the president and CFO shall be entitled during
the employment period to receive such additional benefits as may be provided for
them or to which they may become entitled because his position, tenure, salary,
age, health or other qualifications make them eligible to participate.
Additional benefits means:
o Participation in bonus and incentive compensation plans or pools, stock
option, bonus, award or purchase plans, retirement plans, and other benefit
plans, if any;
o Life, health, medical, dental, accident, and other personal insurance
coverage provided for employees or their dependents;
65
o Directors' and officers' liability insurance coverage and charter or bylaw
provisions or contracts providing for indemnification of corporate
personnel or elimination or limitation of their liabilities as such;
o Automobile or related compensation per guidelines approved by the board of
directors;
o Use of our property and facilities and other perquisites of employment;
o Paid vacation, leave or holidays;
o Any and all other compensation, benefits and perquisites of employment with
us, if any, other than base salary; and
o Reasonable moving and personal expenses in connection with company required
relocations.
The employment of the president and CFO ends on the date of the occurrence of
any of the following events:
o Expiration of the employment period
o The death of the president or CFO, respectively
o Fifteen days after the date on which we have given the president or CFO
written notice of the termination of employment by reason of permanent
physical or mental incapacity that prevents him from performing the
essential elements of his respective position for a period of six
consecutive months or more as determined by a medical professional selected
by us, in our sole discretion, and by us acting in good faith
o After five days' written notice to the president or CFO for cause, which
shall include only the following:
o Intentional misconduct or gross negligence by the president or CFO in the
course of employment
o The commission or perpetration by the president or CFO of any fraud against
us or others in connection with his employment
o The commission by the president or CFO of such acts or dishonesty, fraud or
misrepresentation or other acts of moral turpitude as would prevent the
effective performance of his duties
o Knowingly causing or permitting us to violate any law, which violation
shall have a material effect on us
o The failure to perform, breach, or violation by the president or CFO of any
of his material obligations under the agreement which continues after
fifteen days' written notice has been given to him by us specifying the
failure to perform, breach, or violation
o Upon at least sixty days' advance written notice by the president or CFO
o Upon at least sixty days' advance written notice by us based solely on
concurrence of a minimum of 4/5th of the board of directors
In the event the president's or CFO's employment under the employment agreement
is ended for the reasons set forth in bullet points 3 or 6 above, we shall pay
the president or CFO an amount equal his then base salary multiplied by
twenty-four months and shall continue to provide his medical insurance for a
period of twenty four months following such termination.
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Upon any termination
o The president's or CFO's estate in the case of death shall immediately be
paid all accrued base salary which would otherwise be due and payable and
accrued vacation pay, all to the date of termination.
o Benefits accrued under our benefit plans, if any, will be paid in
accordance with such plans.
o Bonuses shall be paid at the end of the fiscal year if earned, with the
amount prorated by the number of days during the fiscal year the president
or CFO was employed.
The president or CFO have agreed that during the term of their respective
employment, they will not engage, directly or indirectly, or be interested as
director, officer, partner, consultant, principal, shareholder, or otherwise in
any firm, corporation, or other entity in the business of developing, producing,
distributing, or selling any product competitive with our products in any
geographic area in which we engage in the same or similar business without our
express written consent.
Compensation of Directors
We have not agreed to pay our directors who are not officers or employees any
stated salary, but by resolution of the board a fixed sum and expense of
attendance, if any, may be allowed for attendance at each regular and special
meeting of the board or our committees. On the date of appointment to the board,
each board member or employee board member shall be granted an option to
purchase at the fair market value an aggregate of 5,000 shares of Class A common
stock. The option shall vest and become exercisable at the rate of 20% per year
after the expiration of the first year following the date on which the option is
granted and shall be exercisable in full only after the expiration of five 5
years following the date the option was granted.
Executive Bonus Plan (ExBP)
The ExBP Plan for Competitive Communications was adopted in April 1996. The plan
is intended to enables us to recruit, reward, retain and motivate employees and
to attract and retain outside directors, agents and consultants on a basis
competitive with industry practices. Under the plan, 6% of
pre-tax-pre-charitable contribution (PT-PC) for executive officers and an
additional 6% PT-PC for non-executive officers will be paid as cash bonuses no
less often than annually.
The ExBP Plan will be administered by the board of directors or the compensation
committee of the board of directors. The committee has sole authority and
discretion under the ExBP Plan to designate eligible participants and determine
the conditions and limitations applicable to such awards, if any. The awards may
be granted singly or together with other awards, or as replacement of, in
combination with, or as alternatives to, grants or rights under the ExBP Plan or
other employee benefit plans. Awards under the ExBP Plan may be issued based on
past performance, as an incentive for future efforts or contingent upon the
future performance. No amounts have been awarded under the Plan.
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ITEM 22. FINANCIAL STATEMENTS
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma combined condensed financial statements
include the historical and pro forma effects of the acquisition of Huntington
Partners. These pro forma financial statements also include the historical and
pro forma effects of the issuance of 1 million shares of common stock ($1
million).
The following unaudited pro forma combined condensed financial statements have
been prepared by the management of Competitive Companies from its historical
consolidated financial statements and the historical financial statements of
Huntington Partners which are included in this form SB-2. The unaudited pro
forma combined Condensed statements of operations reflect adjustments as if the
transactions had occurred on January 1, 2000. The unaudited pro forma combined
condensed balance sheet reflects adjustments as if the transactions had occurred
on September 30, 2001. See "Note 1 - Basis of Presentation." The pro forma
adjustments described in the accompanying notes are based upon preliminary
estimates and certain assumptions that management believes are reasonable in the
circumstances.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of what the financial position or results of operations
actually would have been if the transaction had occurred on the applicable dates
indicated. Moreover, they are not intended to be indicative of future results of
operations or financial position. The unaudited pro forma combined condensed
financial statements should be read in conjunction with the historical
consolidated financial statements of the Competitive Companies and Huntington
Partners and related notes thereto which are included in this form SB-2.
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F-1
COMPETITIVE COMPANIES AND HUNTINGTON PARTNERS
AND COMPETITIVE COMPANIES HOLDINGS, INC.
COMBINED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2001
(Unaudited)
Huntington
Competitive Telecommunications Competitive Companies
Companies, Inc.Partners, L.P.Holding, Inc.AdjustmentsTotals
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 8,060 $ 15,784 $ - A $ (15,784) $ 8,060
Receivables:
Accounts, net of allowance for doubtful accounts
of $86,200 an $62,815, respectively 172,919 51,493 - 224,412
Affiliate - 189,058 - A (189,058) -
Unbilled 21,981
Prepaid expenses and other current assets 4,202 - 4,202
Total current assets 207,162 256,335 - (204,842) 258,655
PROPERTY AND EQUIPMENT - NET 707,677 - - B 554,415 1,251,825
C (10,267)
OTHER ASSETS:
Acquired intangible - Contracts - B 231,866 225,921
D (5,945)
Goodwill - B - -
D -
Other 49,346 - 49,346
49,346 - - 225,921 275,267
TOTAL $ 964,185 $256,335 $ - $ 565,227 $ 1,785,747
=========== ======== ========= ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 70,678 $ 26,832 $ - $ - $ 97,510
Due to Affiliate 189,058 - A (189,058) -
Current maturities of long-term debt 65,319 - 65,319
Current maturities of capital lease obligations 25,386 - 25,386
Accrued and other liabilities 62,384 - 62,384
Total current liabilities 412,825 26,832 - (189,058) 250,599
LONG-TERM DEBT (net of current maturities) 246,549 - - 246,549
CAPITAL LEASE OBLIGATIONS (net of current maturities) - - - -
Total liabilities 659,374 26,832 - (189,058) 497,148
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class A convertible preferred stock 4,000 - 4,000
Class A common stock 4,912 1 A,B 999 5,912
Additional paid-in capital 16,702,161 1,037,500 999 A,B (39,499) 17,701,161
Deficit (16,406,262) (807,997) (1,000) 792,785 (16,422,474)
Subscriptions receivable - - - -
Total stockholders' equity 304,811 229,503 - 754,285 1,288,599
TOTAL $ 964,185 $256,335 $ - $ 565,227 $ 1,785,747
=========== ======== ========= ========== ===========
69
F-2
COMPETITIVE COMPANIES AND HUNTINGTON PARTNERS
AND COMPETITIVE COMPANIES HOLDINGS, INC.
COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
Huntington
Competitive Telecommunications Competitive Companies
Companies, Inc.Partners, L.P.Holding, Inc.AdjustmentsTotals
REVENUES $ 1,361,252 $ 477,478 $ - A $ (126,200) $ 1,712,530
COSTS OF REVENUES 1,033,678 315,727 - A (126,200) 1,223,205
GROSS PROFIT 327,574 161,751 - - 489,325
OTHER OPERATING EXPENSES:
Depreciation 88,495 80,342 - C 10,267 179,104
Employee compensation 170,681 - - - 170,681
Occupancy 21,455 - - - 21,455
Professional fees 37,603 - - - 37,603
Provision for bad debts 41,887 - - - 41,887
Amortization of goodwill and intangibles - - - D 5,945 5,945
General and Administrative 74,077 55,615 1,000 - 130,692
Total other operating expense 434,198 135,957 1,000 16,212 587,367
LOSS FROM OPERATIONS (106,624) 25,794 (1,000) (16,212) (98,042)
OTHER INCOME (EXPENSE):
Other income 4,006 - - - 4,006
Interest expense (38,224) - - - (38,224)
Total other expense-net (34,218) - - - (34,218)
NET LOSS $ (140,842) $ 25,794 $ (1,000) $ (16,212) $ (132,260)
============ ============ ========= ============ ============
NET LOSS PER SHARE
Basic and diluted $ (0.03) $ (0.02)
============ ============
Weighted average number of
shares - basic and diluted 4,912,061 5,912,061
============ ============
70
F-3
COMPETITIVE COMPANIES AND HUNTINGTON PARTNERS
AND COMPETITIVE COMPANIES HOLDINGS, INC.
COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(Unaudited)
Huntington
Competitive Telecommunications Competitive Companies
Companies, Inc.Partners, L.P.Holding, Inc.AdjustmentsTotals
REVENUES $ 1,555,799 $ 708,088 $ - b $ (315,000) $ 1,948,887
COSTS OF REVENUES 1,094,392 554,904 - b (315,000) 1,334,296
GROSS PROFIT 461,407 153,184 - - 614,591
OTHER OPERATING EXPENSES:
Stock based compensation expense 60,000 - - - 60,000
Depreciation 102,407 100,357 - 8,779 211,543
Employee compensation 228,427 - - - 228,427
Occupancy 27,501 - - - 27,501
Professional fees 95,444 - - - 95,444
Provision for bad debts 40,183 6,082 - - 46,265
Amortization of goodwill and intangibles - - - 9,245 9,245
General and Administrative 41,991 120,545 - - 162,536
Total other operating expenses 595,953 226,984 - 18,024 840,961
LOSS FROM OPERATIONS (134,546) (73,800) - (18,024) (226,370)
OTHER INCOME (EXPENSE):
Other income - - - - -
Interest expense 50,206 - - - 50,206
Total other expense-net 50,206 - - - 50,206
NET LOSS $ (184,752) $ (73,800) $ - $ (18,024) $ (276,576)
============ ============= =========== =========== ============
NET LOSS PER SHARE
Basic and diluted $ (0.04) $ (0.05)
============ ============
Weighted average number of
shares - basic and diluted 4,912,061 5,912,061
============ ============
71
F-4
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma combined condensed statements of
operations present the historical results of operations of the Competitive
Companies and Huntington Partners for the nine months ended September 30, 2001
and for the year ended December 31, 2000 with pro forma adjustments as if the
transaction had taken place on January 1, 2000. The unaudited pro forma combined
condensed statement of operations for the year ended December 31, 2000, is
presented using the combined historical results for the year then ended. The
unaudited pro forma combined condensed statement of operations for the nine
month period ended September 30, 2001, is presented using the combined
historical results for the nine months ended September 30, 2001. The unaudited
pro forma combined condensed balance sheet presents the historical balance
sheets of as of September 30, 2001, with pro forma adjustments as if the
transaction had been consummated as of September 30, 2001 in a transaction
accounted for as a purchase in accordance with generally accepted accounting
principles. Certain reclassifications have been made to the historical financial
Statements to conform to the pro forma combined condensed financial statement
presentation.
2. PRO FORMA ADJUSTMENTS
The following adjustments give pro forma effect to the transaction:
(a) To eliminate inter-company transactions.
(b) To record purchase price consideration of 1 million shares ($1 million).
Accounts receivable $ 51,493
Affiliate receivable 189,058
Property and equipment 554,415
Acquired contracts 231,866
Liabilities assumed (26,832)
$1,000,000
================
(c) To record depreciation of the property and equipment over an estimated life
of approximately 13.5 years. Such depreciation expense is subject to
possible adjustment resulting from the completion of valuation analysis and
final post-closing adjustments.
(d) To record amortization of the contracts acquired over an estimated life of
approximately 9.75 years. Such amortization expense is subject to possible
adjustment resulting from the completion of valuation analysis and final
post-closing adjustments.
72
F-5
COMPETITIVE COMPANIES, INC.
AND SUBSIDIARY
Consolidated Financial Statements as of
and for the three and nine months ended
September 30, 2001 and 2000
(Unaudited)
TABLE OF CONTENTS
________________________________________________________________________________
Page
Balance Sheets F-7
Statements of Operations F-8
Statements of Stockholders' Equity (Deficit) F-9
Statements of Cash Flows F-10
Notes to Financial Statements F-11
________________________________________________________________________________
73
F-6
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
_________________________________________________________________________________________________
September 30,
2001 December 31,
ASSETS (Unaudited) 2000
CURRENT ASSETS:
Cash and cash equivalents $ 8,060 $ 230,298
Receivables:
Accounts, net of allowance for doubtful accounts
of $86,200 and $66,019 respectively 172,919 173,579
Unbilled 21,981 21,659
Prepaid expenses and other current assets 4,202 4,202
Total current assets 207,162 429,738
PROPERTY AND EQUIPMENT - NET 707,677 561,609
OTHER ASSETS 49,346 66,346
TOTAL $ 964,185 $ 1,057,693
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 70,678 $ 79,403
Due to affiliate 189,058 61,334
Current maturities of long-term debt 65,319 65,319
Current maturities of capital lease obligations 25,386 83,129
Accrued and other liabilities 62,384 18,233
Total current liabilities 412,825 307,418
LONG-TERM DEBT (net of current maturities) 246,549 290,425
CAPITAL LEASE OBLIGATIONS (net of current maturities) - 14,197
Total liabilities 659,374 612,040
STOCKHOLDERS' EQUITY:
Class A convertible preferred stock, $0.001 par value;
4,000,000 shares authorized, issued and outstanding
with a liquidation value of $40,000 4,000 4,000
Class A common stock, $0.001 par value, 46,000,000
shares authorized, 4,912,061 shares issued and
outstanding 4,912 4,912
Additional paid-in capital $ 16,702,161 $ 16,702,161
Deficit (16,265,262) (16,265,420)
Total stockholders' equity 304,811 445,653
TOTAL $ 964,185 $ 1,057,693
============= =============
_________________________________________________________________________________________________
See notes to consolidated financial statements.
74
F-7
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
_______________________________________________________________________________________________________________________________
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
REVENUES $ 434,754 $386,754 $1,361,252 $1,180,634
COSTS OF REVENUES 335,902 227,671 1,033,678 753,245
GROSS PROFIT 98,841 159,083 327,574 427,389
OTHER OPERATING EXPENSES:
Occupancy and equipment 38,190 57,491 109,950 101,710
Employee compensation 60,183 53,262 170,681 151,391
Stock based compensation - 60,000 - 60,000
Provision for bad debts 23,384 (5,773) 41,887 32,455
Professional fees 3,584 17,636 37,603 67,504
General and administrative 28,036 13,317 74,077 73,591
Total other operating expenses 153,377 195,933 434,198 486,651
LOSS FROM OPERATIONS (54,536) (36,850) (106,624) (59,262)
OTHER INCOME (EXPENSE):
Other income 187 8,074 4,006 9,361
Interest expense (10,909) (10,142) (38,224) (46,593)
Total other expense-net (10,722) (2,068) (34,218) (37,232)
NET LOSS $ (65,258) $ (38,918) $ (140,842) $ (96,494)
=========== ========== =========== ==========
NET LOSS PER SHARE:
Basic and diluted $ (0.01) $ (0.01) $ (0.03) $ (0.02)
=========== ========== =========== ==========
Weighted average number of shares - basic
and diluted 4,912,061 4,900,000 4,912,061 4,875,000
=========== ========== =========== ==========
_______________________________________________________________________________________________________________________________
See notes to consolidated financial statements.
75
F-8
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
_______________________________________________________________________________________________________________________________
Class A Class A Additional
Preferred Stock Common Stock Paid-in Accumulated
SharesAmountSharesAmountCapitalDeficitTotal
Balances at December 31, 2000 4,000,000 $4,000 4,912,061 $4,912 $16,702,161 $(16,265,420) $445,653
Net loss for the nine months
ended September 30, 2001 - - - - - (140,842)(140,842)
Balances at September 30,
2001 4,000,000 $4,000 4,912,061 $ 4,912 $16,702,161 $(16,406,262) $304,811
========= ====== ========= ======= =========== ============= =========
_______________________________________________________________________________________________________________________________
See notes to consolidated financial statements.
76
F-9
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
_______________________________________________________________________________________________________________________________
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (65,258) $ (38,918) $ (140,842) $ (96,494)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 30,919 25,286 88,495 80,174
Provision for bad debts, net of write-offs 23,384 (26,115) 41,887 (23,405)
Non-cash compensation - 60,000 - 60,000
Loss on disposal 847 - 847 -
- -
Changes in assets and liabilities, net:
(Increase) decrease in receivables (13,526) (9,405) (41,549) 16,150
Decrease in prepaid expenses - 6,375 - 6,375
(Increase) decrease in other assets - - 17,000 (17,339)
(Decrease) increase in accounts payable 2,512 5,929 (8,725) (74,787)
(Decrease) increase in accrued and other 1,493 12,318 44,151 22,738
liabilities
Increase in due to affiliate 40,989 35,171 127,724 35,171
NET CASH PROVIDED BY OPERATING ACTIVITIES
21,360 70,641 128,988 8,583
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchases of property and equipment - (1,755) (253,876) (12,558)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net - - - 57,500
Repayment on notes (6,843) (6,983) (43,876) (78,423)
Repayment on capital lease obligations (17,233) (37,000) (53,474) (64,218)
Stockholder advances - (48,717) - (35,766)
NET CASH USED IN FINANCING ACTIVITIES (24,076) (92,700) (97,350) (120,907)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(2,716) (23,814) (222,238) (124,882)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
10,776 299,604 230,298 400,672
CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 8,060 $ 275,790 $ 8,060 $ 275,790
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Interest paid $ 10,909 $ 10,142 $ 38,224 $ 46,593
========== ========== ========== ==========
(con't. on page 7)
77
F-10
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(Unaudited)
___________________________________________________________________________________________________________________________________________
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Write off capital lease liability (18,466) - (18,466) -
Disposal of leased vehicle 42,762 - 42,762 -
Accumulated depreciation on disposal of leased vehicle (23,449) - (23,449) -
See notes to consolidated financial statements.
___________________________________________________________________________________________________________________________________________
78
F-11
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
________________________________________________________________________________
NOTE A - BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Competitive Companies, Inc. (the "Parent") was incorporated under the laws of
the state of Nevada in March 1998. In 1998, the Company acquired all of the
assets and assumed all of the liabilities of Competitive Communications, Inc.
("CCI"), which was incorporated under the laws of the state of California in
February 1996. CCI is the successor to Western Telephone & Television, which was
founded in 1985.
CCI and its Parent (collectively, the "Company") provide telephone, cable
television, long distance/interexchange, and public telephone service to
customers who live in multi-tenant residential buildings. The Company's
operations are located in Riverside, California and approximately 80% of its
customers are California residents.
In addition to the above, in January 2000, the Parent formed CCI Residential
Services, Inc. This entity, which is a wholly owned subsidiary of the Parent,
intends to offer and expand on the residential services currently being provided
by CCI, while CCI will focus on developing revenue streams from other services.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission ("SEC"). Accordingly, the financial
statements do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 2001 are not
necessarily indicative of the results for the year ended December 31, 2001. The
accompanying condensed consolidated financial statements and notes thereto
should be read in conjunction with the Company's audited financial statements as
of December 31, 2000 and 1999.
Use of Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements. The reported amounts of revenues and expenses during
the reporting period may be affected by the estimates and assumptions management
is required to make. Actual results could differ significantly from those
estimates.
79
F-12
Revenue Recognition
Revenues are recognized in the month in which the service is provided. Amounts
that are not billed by the end of year are classified as unbilled in the
accompanying balance sheet.
Property and Equipment
Property and equipment are stated at cost. Major additions are capitalized,
while minor additions and maintenance and repairs, which do not extend the
useful life of an asset, are expensed as incurred. Depreciation and amortization
are computed using the straight-line method over the assets' estimated useful
lives of five to ten years.
NOTE B - RELATED PARTY TRANSACTIONS
The Company provides management and administrative services to Huntington
Telecommunications Partners, L.P. ("HTP"), a California limited partnership, in
which the Company has a 5% limited partnership interest. As consideration for
such services, the Company receives a monthly fee of 3% of HTP's revenues. These
fees approximated $52,500 for the nine months ended September 30, 2001.
NOTE C - COMMITMENTS AND CONTINGENCIES
Proposed Common Stock Registration
The Company has entered into an agreement to merge with Competitive Companies
Holding, Inc. "CCH"). Pursuant to terms of the merger, the Company's
stockholders would receive an equal number of shares in CCH, and the stockholder
of CCH will not retain any of the Company's outstanding stock after the merger.
CCH is an acquisition company with no operations or assets.
The Company intends to file a registration statement with the Securities and
Exchange Commission for the registration of all the Company's outstanding shares
after giving effect to this merger.
Merger with HTP
In February 2000, the Company and CCH agreed to merge with HTP. The merger will
close in late 2001. As discussed in Note C, the Company provides management and
administrative services to HTP, as well as telephone and cable service.
________________________________________________________________________________
80
F-13
HUNTINGTON TELECOMMUNICATIONS
PARTNERS, L.P.
Financial Statements as of
and for the three and nine months ended
September 30, 2001 and 2000
(Unaudited)
TABLE OF CONTENTS
________________________________________________________________________________
Page
Balance Sheets F-15
Statements of Operations F-16
Statement of Partners' Capital (Deficit) F-17
Statement of Cash Flows F-18
Notes to Financial Statements F-19
________________________________________________________________________________
81
F-14
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
BALANCE SHEETS
____________________________________________________________________________________
September 30,
2001 December 31,
(Unaudited) 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,784 $ 38,321
Accounts receivable, net of allowance for
doubtful accounts of $62,815 and $65,700,
respectively 51,493 68,937
Due from affiliate 189,058 61,334
Total current assets 256,335 168,592
TELECOMMUNICATIONS EQUIPMENT AND COMPUTERS
(net of accumulated depreciation and
amortization of $1,073,496
and $993,154, respectively) - 80,342
TOTAL $ 256,335 $ 248,934
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES-
Accounts payable $ 26,832 $ 45,225
PARTNERS' CAPITAL 229,503 203,709
TOTAL $ 256,335 $ 248,934
========== ==========
____________________________________________________________________________________
See notes to financial statements.
82
F-15
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
______________________________________________________________________________________________________________
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
REVENUES$ 147,458$ 200,595$ 477,478$ 549,857
OPERATING EXPENSES:
Phone and cable services 75,046 146,847 273,622 420,124
Administration fees - related party 18,228 6,579 52,524 47,237
Depreciation and amortization 26,646 24,503 80,342 73,509
Commissions 9,300 11,127 28,875 35,554
Management fees - related party 4,337 5,102 13,230 15,538
Provision for bad debts 740 1,700 3,091 5,700
Other - 8,667 - 50,363
134,297 204,525 451,684 648,025
NET INCOME (LOSS) $ 13,161 $ (3,930) $ 25,794 $ (98,168)
========== ========== ========= ==========
______________________________________________________________________________________________________________
See notes to financial statements.
83
F-16
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
_____________________________________________________________________________________
General PartnerLimited PartnersTotal
BALANCES, DECEMBER 31, 2000 $ (208,448) $ 412,157 $ 203,709
Net income 6,449 19,345 25,794
BALANCES, SEPTEMBER 30, 2001 (201,999) 431,502 229,503
=========== ============ =========
_____________________________________________________________________________________
See notes to financial statements.
84
F-17
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
________________________________________________________________________________________________________________________________
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September 30,
30, 2001 30, 2000 30, 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,161 $ (3,930) $ 25,794 $ (98,168)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 26,646 24,503 80,342 73,509
Provision for bad debts 740 1,700 3,091 5,700
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable (4,676) 744 14,353 11,244
Increase (decrease) in accounts payable (3,561) 112 (18,393) 10,172
Increase in due from affiliate (40,989) (35,171) (127,724) (35,171)
NET CASH USED IN OPERATING ACTIVITIES (8,679) (12,042) (22,537) (32,714)
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of equipment - - - (2,336)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(8,679) (12,042) (22,537) (35,050)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
24,463 60,236 38,321 83,244
CASH AND CASH EQUIVALENTS, END OF THE PERIOD
$ 15,784 $ 48,194 $ 15,784 $ 48,194
========== =========== ========== ===========
________________________________________________________________________________________________________________________________
See notes to financial statements.
85
F-18
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
________________________________________________________________________________
NOTE A - FORMATION AND NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Huntington Telecommunications Partners, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the state of California on February 11,
1994. The Partnership, which provides telephone and cable television hookups for
four apartment complexes located in the cities of Fremont, Hayward, Fair Oaks
and San Jose, California, owns wiring, telephone switching equipment, and
satellite reception equipment located within each apartment complex. Pursuant to
applicable federal and state law, tenants have the right to use a telephone
service provider other than the Partnership. Tenants do not have a right to
utilize another cable television provider other than the Partnership.
The Partnership's operating and capital structure are governed by a Limited
Partnership Agreement (the "Agreement") between KBL Investment Company, L.P.
("KBL" or the "General Partner") and various limited partners (the "Limited
Partners"), who have the made capital contributions, and have partnership
interests, as follows:
Partnership Capital
Interest Contributions
The General Partner 25.0% -
The Limited Partners 75.0% $1,250,000
Pursuant to terms of the Agreement, operating and capital losses are allocated
among the General and Limited Partners (collectively the "Partners") in
accordance with their respective partnership interests. Operating income and
capital gains are to be allocated to the Partners as follows: (1) in proportion
to their partnership interests until such allocations exceed prior losses; (2)
1% to the General Partner, and 99% to Limited Partners until they have received
a cumulative non-compounded 10% preferred return on their net investor capital
and (3) in proportion to their respective partnership interests. The preferred
return will be accounted for as a reclassification of capital between the
General and Limited Partners accounts if and when the General Partner has
available basis. The cumulative preferred cash return not paid and or
transferred between the Partners' capital accounts approximated $615,000 at
December 31, 2000.
Cash generated from operations is distributable to the Partners in the following
priority: (1) 1% to the General Partner, and 99% to Limited Partners until they
have received a cumulative non-compounded 10% preferred return on their net
investor capital and (2) in
86
F-19
proportion to their respective partnership interests. The Agreement contains
different distribution priorities if distributions result from a
"Non-Terminating Capital Transaction" (as defined), or arise from the original
incurrence or refinancing of any indebtedness.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the
Company have bee prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission ("SEC"). Accordingly, the financial
statements do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 2001 are not
necessarily indicative of the results for the year ended December 31, 2001. The
accompanying condensed consolidated financial statements and noted thereto
should be read in conjunction with the Company's audited financial statements as
of December 31, 2000.
Revenue Recognition
Revenues are recognized in the month in which the service is provided.
Use of Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements. The reported amounts of revenues and expenses during
the reporting period may be affected by the estimates and assumptions management
is required to make. Actual results could differ significantly from those
estimates.
Telecommunications Equipment and Computers
Telecommunications equipment and computers are recorded at cost. Depreciation
and amortization are computed using the double declining method over the assets'
estimated useful lives of seven years. Major repairs or replacements are
capitalized, whereas maintenance, repairs and minor replacements are charged to
operations as incurred.
Income Taxes
No provision or benefit for income taxes is included in the accompanying
financial statements since taxable income or loss passes through to, and is
reportable by, the Partners.
87
F-20
NOTE B - RELATED PARTY TRANSACTIONS
KBL provides management services to the Partnership. As consideration for such
services, KBL receives a monthly fee of 3% of the Partnership's revenues. The
total amount expensed, and paid, under this arrangement during the nine months
ended September 30, 2001 approximated $13,000. In addition to such fees, KBL is
reimbursed for direct costs incurred on behalf of the Partnership; no such costs
were incurred by, and/or reimbursed to KBL by the Partnership during the nine
months ended September 30, 2001.
As discussed in Note B, COCO provides all of the Partnership's long distance
services. In turn, COCO purchases all of such services from Qwest
Communications. Total long distance services purchased from COCO approximated
$74,000 during the nine months ended September 30, 2001; such amount is included
in phone and cable services in the accompanying statement of operations.
In addition, COCO provides billing, collection and certain other administrative
services to the Partnership. As consideration for such services, COCO received
approximately $52,500 for the nine months ended September 30, 2001.
An affiliate of the general partner provides space for the Partnership at no
charge. No value has been ascribed to such occupancy expenses in the
accompanying statement of operations, as the amounts were not considered
significant.
NOTE C - COMMITMENTS AND CONTINGENCIES
In February 2000, the Partnership, Competitive Companies Holding, Inc. ("CCH")
and COCO agreed to merge. The merger is anticipated to close in 2001. CCH is an
acquisition Company, with no operations or assets.
________________________________________________________________________________
88
F-21
COMPETITIVE COMPANIES, INC.
AND SUBSIDIARY
TABLE OF CONTENTS
________________________________________________________________________________
Page
Independent Auditors' Report F-23
Consolidated Financial Statements:
Balance Sheet as of December 31, 2000 F-24
Statements of Operations for the years ended
December 31, 2000 and 1999 F-25
Statements of Stockholders' Equity for the years
ended December 31, 2000 and 1999 F-26
Statements of Cash Flows for the years ended
December 31, 2000 and 1999 F-27
Notes to Financial Statements F-28
________________________________________________________________________________
89
F-22
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Competitive Companies, Inc.:
We have audited the accompanying consolidated balance sheet of Competitive
Companies, Inc. and subsidiaries (the "Company") as of December 31, 2000, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 2000 and 1999. 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 audits.
We conducted our audits in accordance with accepted auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2000, and the results of its operations and cash flows for the
years ended December 31, 2000 and 1999 in conformity with accounting principles
generally accepted in the United States of America.
KINGERY, CROUSE & HOHL, P.A.
April 2, 2001
Tampa, FL
90
F-23
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 230,298
Receivables:
Accounts, net of allowance for doubtful
accounts of $66,019 173,579
Unbilled 21,659
Prepaid expenses and other current assets 4,202
Total current assets 429,738
PROPERTY AND EQUIPMENT - NET 561,609
OTHER ASSETS 66,346
TOTAL $ 1,057,693
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 79,403
Due to affiliate 61,334
Current maturities of long-term debt 65,319
Current maturities of capital lease obligations 83,129
Accrued and other liabilities 18,233
Total current liabilities 307,418
LONG-TERM DEBT (net of current maturities) 290,425
CAPITAL LEASE OBLIGATIONS (net of current maturities) 14,197
Total liabilities 612,040
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A convertible preferred stock, $0.001 par value;
4,000,000 shares authorized, issued and outstanding
with a liquidation value of $40,000 4,000
Class A common stock, $0.001 par value, 46,000,000 shares
authorized; 4,912,061 shares issued and outstanding 4,912
Additional paid-in capital 16,702,161
Deficit(16,265,420)
Total stockholders' equity 445,653
TOTAL $ 1,057,693
============
________________________________________________________________________________
See notes to consolidated financial statements.
91
F-24
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
___________________________________________________________________________________
2000 1999
REVENUES $ 1,555,799 $ 1,452,489
COSTS OF REVENUES 1,094,392 1,095,455
GROSS PROFIT 461,407 357,034
OTHER OPERATING EXPENSES:
Stock based compensation expense 60,000 15,443,277
Depreciation 102,407 88,781
Employee compensation and benefits 228,427 145,974
Occupancy 27,501 28,803
Professional fees 95,444 66,501
Provision for bad debt 40,183 23,282
General and administrative 41,991 209,964
Total other operating expenses 595,953 16,006,582
LOSS FROM OPERATIONS (134,546) (15,649,548)
OTHER EXPENSE - Interest expense (50,206) (77,343)
NET LOSS $ (184,752) $(15,726,891)
============ =============
NET LOSS PER SHARE:
Basic and diluted $ (0.04) $ ( 3.82)
============ =============
Weighted average number of
shares - basic and diluted 4,118,000 4,912,061
============ =============
___________________________________________________________________________________
See notes to consolidated financial statements.
92
F-25
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
__________________________________________________________________________________________________________________________________
Class A Class A Additional
Common Stock Preferred Stock Paid- in Accumulated Subscription
SharesAmountSharesAmountCapital(Deficit)ReceivableTotal
Balances, January 1, 1999 3,384,700 $ 3,385 1,000,000 $ 1,000 $ 34,030 $ (353,777) $ - $ (315,362)
Sale of common stock 855,000 855 854,145 (57,500) 797,500
Sale of common stock at
discount for services 383,852 384 383,468 383,852
Issuance of common stock
for services 119,425 119 119,306 119,425
Issuance of common stock
for conversion of debt 109,084 109 108,975 109,084
Issuance of options for
Services 245,000 245,000
Issuance of Class A
Convertible Preferred
Stock 3,000,000 3,000 14,997,000 15,000,000
Stock issuance costs (99,703) (99,703)
Net loss (15,726,891) (15,726,891)
Balances, December 31, 1999 4,852,061 4,852 4,000,000 4,000 16,642,221 (16,080,668) (57,500) 512,905
Issuance of common stock
for services 60,000 60 59,940 60,000
Collection of receivable 57,500 57,500
Net Loss (184,752) (184,752)
Balances, December 31, 2000 4,912,061 $ 4,912 4,000,000 $ 4,000 $ 16,702,161 $(16,265,420) $ 0 $ 445,653
========= ======= ========= ======= ============ ============= ========= =============
__________________________________________________________________________________________________________________________________
See notes to consolidated financial statements.
93
F-26
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
___________________________________________________________________________________________________
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(184,752) $(15,726,891)
Adjustment to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation 102,407 88,781
Net change in allowance for bad debts (20,550) 23,282
Non-cash compensation 60,000 15,443,277
Non-cash interest expense - 9,084
Changes in assets and liabilities, net:
Decrease (increase) in receivables 25,066 (57,114)
Decrease in prepaid expenses 6,375 1,876
Increase in other assets (20,261) (7,079)
Decrease in accounts payable (30,314) (102,349)
Increase in due to affiliate 61,334
Increase (decrease) in accrued and other liabilities 10,512 (19,028)
Decrease in due to bank - (13,675)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 9,817 (359,836)
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchases of property and equipment (24,237) (45,927)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 57,500 1,102,500
Cash paid for stock issuance costs - (99,703)
Repayments of long-term debt (75,796) (60,573)
Repayments of capital lease obligations (101,892) (101,941)
Repayments of stockholder advances (35,766) (33,848)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (155,954) 806,435
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (170,374) 400,672
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 400,672 -
CASH AND CASH EQUIVALENTS, END OF YEAR $ 230,298 $ 400,672
========== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Interest paid $ 50,206 $ 68,259
========== =============
___________________________________________________________________________________________________
See notes to consolidated financial statements.
94
F-27
COMPETITIVE COMPANIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
________________________________________________________________________________
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
Competitive Companies, Inc. (the "Parent") was incorporated under the laws of
the state of Nevada in March 1998. In 1998, the Company acquired all of the
assets and assumed all of the liabilities of Competitive Communications, Inc.
("CCI"), which was incorporated under the laws of the state of California in
February 1996. CCI is the successor to Western Telephone & Television, which was
founded in 1985.
As consideration for the acquisition of CCI, the Parent issued 3,302,700 shares
of its Class A common stock and 1,000,000 shares of its Class A convertible
preferred stock to management and ownership of CCI. Because the management of
CCI and the Parent were effectively the same, the combination has been accounted
for in accordance with an interpretation of Accounting Principles Board Opinion
No. 16, entitled "Transfers and Exchanges Between Companies Under Common
Control." This interpretation requires the assets and liabilities so transferred
to be accounted for at historical cost in a manner similar to that used in
pooling of interests accounting. Accordingly, the accompanying consolidated
financial statements reflect the combination as if it had been completed on
January 1, 1998.
CCI and its Parent (collectively, the "Company") provide telephone, cable
television, long distance/interexchange, and public telephone service to
customers who live in multi-tenant residential buildings. The Company's
operations are located in Riverside, California and approximately 80% of its
customers are California residents.
In addition to the above, in January 2000, the Parent formed CCI Residential
Services, Inc. ("CCIR"). This entity, which is a wholly owned subsidiary of the
Parent, intends to offer and expand on the residential services currently being
provided by CCI, while CCI will focus on developing revenue streams from other
services.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company's financial statements are prepared using the accrual method of
accounting.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Parent, CCI and CCIR. Significant inter-company balances and transactions have
been eliminated in consolidation.
Revenue Recognition
Revenues are recognized in the month in which the service is provided. Amounts
that are not billed by the end of year are classified as unbilled in the
accompanying balance sheet.
95
F-28
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements. The
reported amounts of revenues and expenses during the reporting period may be
affected by the estimates and assumptions management is required to make. Actual
results could differ significantly from those estimates.
Financial Instruments
The Company believes the book value of their cash and cash equivalents,
receivables, accounts payable and accrued and other liabilities approximates
their fair values due to their short-term nature. In addition, management
believes the book value of their notes payable, long-term debt and capital lease
obligations approximates their fair values as the current interest rates on such
items approximate rates at which similar types of lending and/or borrowing
arrangements could be currently negotiated by the Company.
Long-Lived Assets
The Company periodically reviews its long-lived assets for indications of
impairment. If the value of an asset is considered impaired, an impairment loss
would be recognized. At December 31, 2000, management believes all of its
long-term assets are recoverable.
Property and Equipment
Property and equipment are stated at cost. Major additions are capitalized,
while minor additions and maintenance and repairs which do not extend the useful
life of an asset are expensed as incurred. Depreciation and amortization are
computed using the straight-line method over the assets' estimated useful lives
of five to ten years.
Income Taxes
Income taxes are accounted for under the liability method. Under the liability
method, deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory rates applicable to future
years to differences between the tax bases of assets and liabilities and their
financial statement carrying amounts. Also, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that included the
enactment date. Temporary differences between financial and taxable reporting
arise primarily from certain stock based compensation (stock based compensation
arising from the Class A Preferred Stock is considered to be a permanent
difference) which is included in the determination of net loss, but is not
reported for tax return purposes until the exercise and or sale of such
securities.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
and receivables. With respect to cash and cash equivalents, at December 31,
2000, the Company maintains all of its cash and cash equivalents in deposit
96
F-29
accounts with three high quality financial institutions, which deposit accounts
at times may exceed federally insured limits. The Company has not experienced
any losses in such accounts.
With respect to accounts and unbilled receivables, the Company performs ongoing
credit evaluations of its customers and has certain collection measures in-place
to limit the potential for significant losses. Substantially all of the
receivables included in the accompanying consolidated balance sheet were
recovered subsequent to December 31, 2000.
The Company purchases a significant portion of its local and long distance
telephone line capacity, as well as its cable television capacity from three
vendors. Management performs ongoing negotiations with other vendors and
believes that given the competitive nature of the industry it could obtain
similar agreements with other vendors.
A significant portion of the Company's revenues are derived from agreements
which give the Company the right to sell telephone and cable television service
to the tenants of various apartment complexes. The agreements, which expire
between 2003 and 2005, require the Company to pay a commission up to 11% of
telephone and cable television revenue to the applicable apartment complex
owner.
Advertising
Advertising costs are expensed as incurred.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 established reporting and disclosure requirements for
comprehensive income and its components within the financial statements. The
Company's comprehensive income components during the years ended December 31,
1999 and 2000 was not significant.
Loss Per Common Share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards Board Statement No. 128 "Earnings per Share"
("SFAS No. 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the periods. The
weighted average number of common shares outstanding during the years ended
December 31, 2000 and 1999 approximated 4,118,000 and 3,313,000, respectively.
Diluted net loss per share is computed by dividing the net loss for the period
by the number of common and common equivalent shares outstanding during the
period. Common stock equivalents existing at December 31, 2000 and 1999 are not
included in the per share calculations because they are anti-dilutive.
The following table reflects the total number of common shares which were issued
(in the case of Convertible Debt - see Note E) or would be issued upon
conversion of the following securities:
97
F-30
Cumulative # of Cumulative #
Shares as of of Shares as of
December 31, 2000December 31, 1999
Convertible Class A Preferred Stock 20,000,000 20,000,000
Stock Options 4,470,000 4,420,000
Stock-Based Compensation
The Company has adopted SFAS No 123, "Accounting for Stock-Based Compensation"
which requires companies to recognize as expense the fair value of all
stock-based awards on the date of grant, or continue to apply the provisions of
Accounting Principles Board Opinion No. 25 and provide pro-forma net income
(loss) earnings per share disclosure for employee stock option grants and all
other stock-based compensation as if the fair-value-based method defined in SFAS
123 had been applied. The Company has elected to apply the provisions of SFAS
123.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
NOTE C - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1999, non-cash investing and financing
activities were as follows:
o The Company acquired property and equipment of approximately $207,500
through the issuance of a note payable.
o 100,000 shares of Class A common stock were issued as consideration for
conversion of certain long-term debt having a principal balance of
$100,000.
NOTE D - PROPERTY AND EQUIPMENT-NET
Property and equipment consists of the following at December 31, 2000:
98
F-31
Amount
Telecommunications equipment and computers $ 775,473
Vehicles 69,762
Furniture, fixtures and improvements 22,258
867,493
Less accumulated depreciation and amortization 305,884
Property and equipment-net $ 561,609
==========
NOTE E - STOCKHOLDERS' EQUITY
In addition to the issuance of common and preferred shares issued in connection
with the acquisition of CCI, (see Note A), in 1998 the Company issued 82,000
shares of its common stock at a price of $1.00 per share pursuant to a private
placement of securities.
During the year ended December 31, 2000, the Company issued 60,000 shares of its
common stock in exchange for services provided to the Company. Because the fair
value of the stock at the time was considered to be $1.00 per share, $60,000 has
been recorded as stock-based compensation expense in the accompanying
consolidated statement of operations.
During the year ended December 31, 1999, common and preferred shares were issued
as follows:
Class A Common Stock
o 855,000 shares were sold for $1.00 per share pursuant to a private
placement of securities.
o 383,852 shares were sold for $305,000 (an average of approximately $0.80
per share) pursuant to a private placement of securities. Because the fair
value of the stock at such time was considered to be $1.00 per share, the
discount of $0.20 per share, or $78,852, was recorded as stock-based
compensation expense in the accompanying consolidated statement of
operations.
o 119,425 shares were issued in exchange for services provided to the
Company. Because the fair value of the stock at the time was considered to
be $1.00 per share, $119,425 has been recorded as stock-based compensation
expense in the accompanying consolidated statement of operations.
o 100,000 shares were issued as consideration for conversion of certain
long-term debt having a principal balance of $100,000. In addition, the
Company issued 9,084 shares to an investor as consideration for interest
expense. In connection with the conversion of such debt, the Company has
agreed to register its shares through a filing with the Securities and
Exchange Commission and to issue additional shares to such holders if the
initial opening price is below $3.00.
Class A Convertible Preferred Stock
3,000,000 shares of Class A Convertible Preferred Stock were issued to various
founding stockholders and management in December 1999. Upon the occurrence of
certain events, these shares are convertible into 15,000,000 shares of common
stock; accordingly, $15,000,000 of stock based compensation has been recorded as
99
F-32
of December 31, 1999. Conversion may occur at any time, in whole or in part up
to the percentage associated with the achievement of certain future events for a
period commencing on the date such event was achieved and ending on December 31,
2010.
The conversion rate is subject to proportional adjustment in the event of a
stock split, stock dividend or similar recapitalization event effecting such
shares. Holders of the preferred shares are not entitled to preferential
dividend rights, redemption or voting rights, except as may be required by law.
Incentive and Non-Statutory Stock Option Plan
The Board of Directors has reserved 7,500,000 shares of its common stock for
issuance under its Incentive and Non-Statutory Stock Option Plan (the "Plan").
Generally, incentive options are granted at an exercise price equal to the fair
value of the Company's common stock (as determined by the Board of Directors) at
the date of grant. In accordance with the provisions of SFAS 123, 500,000
options issued in 1999 to certain consultants for services rendered have
resulted in the Company recording $245,000 of stock-based compensation in the
accompanying 1999 consolidated statement of operations.
Incentive options require two-years of continued employment before exercise, and
have 20% vesting schedules thereafter, in which full vesting occurs immediately
prior to the expiration of five years following the date the incentive option is
granted. As such, approximately 1,750,000 of the options listed below were
vested and/or exercisable at December 31, 2000.
Options Outstanding
Number of SharesPrice Per Share
Options outstanding at December 31, 1998 3,870,000 $ 0.001
Options granted during 1999 200,000 0.001
Options granted during 1999 300,000 0.85
Options granted during 1999 50,000 1.00
Options granted during 2000 50,000 1.00
Options outstanding at December 31, 2000 4,470,000 $ 0.001 to 1.00
========= ===============
Each of the options expires on the earlier of the date specified in the option
agreement, or the tenth anniversary of the date of grant. Any incentive option
not subject to this provision is designated as being a non-statutory option.
Whenever an outstanding option is terminated (other than by exercise), the
shares of common stock relating to such option are to be restored to the Plan
and be available for the grant of other options under the Plan.
NOTE F- LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2000:
100
F-33
Note payable to Frontier Communications Services, Inc., bearing interest at 10%
with monthly principal and interest payments of $3,500 through March 15, 2003.
The note is secured by the telecommunications equipment purchased with the
proceeds of the note. $ 70,740
Note payable to Frontier Communications Services, Inc., bearing interest at 10%
with monthly principal and interest payments of $3,000 through June 25, 2001.
The note is secured by the telecommunications equipment purchased with the
proceeds of the note. 21,274
Unsecured note payable to stockholder, bearing interest at 8.0% and requiring
monthly principal and interest installments of $682.78 through February 23,
2011. 56,280
Note payable to GST Universal, Inc. requiring interest payments only of
$1,728.75 (at 10%) through May 10, 2004 at which time all principal and unpaid
interest is due in full. The note is secured by the telecommunications equipment
purchased with the proceeds of the note. 207,450
355,744
Less current maturities 65,319
Long-term debt $ 290,425
==========
Scheduled maturities of long-term debt as of December 31, 2000 are as follows:
Years Ending
December 31,Amounts
2001 $ 65,319
2002 37,940
2003 7,756
2004 205,367
2005 5,233
Thereafter 34,129
Total $ 355,744
=========
NOTE G- OTHER RELATED PARTY TRANSACTIONS
The Company periodically borrows funds from various stockholders. At December
31, 2000, there were no advances outstanding from stockholders. Such advances
are unsecured, non-interest bearing and due on demand.
The Company provides billing, collection and certain other administrative
services, as well as certain telephone and cable services, to Huntington
Telecommunications Partners, L.P. ("HTP"), a California limited partnership in
which the Company has a 5% limited partnership interest. As consideration for
101
F-34
such services, the Company received approximately $78,000 for the year ended
December 31, 2000. Additionally, the Company sold approximately $235,500 in long
distance services to HTP during the year ended December 31, 2000.
From the period August 7, 2000 through December 31, 2000, the Company collected
revenues and expenses on behalf of HTP resulting in a net payable to HTP of
$61,334.
NOTE H- INCOME TAXES
During the years ended December 31, 2000 and 1999, the Company recognized losses
for both financial and tax reporting purposes. Accordingly, no provision for
income taxes has been included in the accompanying consolidated statements of
operations. The significant components of the Company's deferred income tax
asset as of December 31, 2000, assuming an effective income tax rate of 39%, are
approximately as follows:
Stock-based compensation $ 173,000
Net operating loss carryforwards 292,500
465,500
Valuation allowance (465,500)
Deferred income tax asset - net $ 0
==========
The Company established a valuation allowance to fully reserve the net deferred
income tax asset as of December 31, 2000 as the realization of the asset did not
meet the required asset recognition standard established by SFAS 109. As a
result thereof, no benefit for income taxes has been recorded in the
accompanying consolidated statement of operations.
At December 31, 2000, the Company had net operating loss carryforwards of
approximately $750,000 for income tax purposes. These carryforwards expire at
various times through the year ended December 31, 2020.
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company leases its operating facility under a non-cancelable operating
lease. Future minimum lease payments required are approximately as follows:
Years Ending
December 31,Amounts
2001 $ 26,300
2002 20,300
Total $ 46,600
=========
Total rent expense for 2000 and 1999 approximated $27,500 and $18,300,
respectively.
The Company is also obligated under various capital leases. Future minimum lease
payments required under such leases are as follows:
102
F-35
Years Ending
December 31, Amounts
2001 $ 96,833
2002 15,722
Total minimum lease payments 112,555
Less amount representing interest 15,229
Present value of future minimum lease payments 97,326
Less current maturities 83,129
Capital lease obligations - net of current maturities $ 14,197
=========
Employment Agreements
The Company has entered into five-year employment agreements with its President
and Secretary which require initial annual base salary of approximately $77,000
and $68,000 respectively, and unless earlier terminated thereto, are subject to
automatic extension for an additional period of two years. The officers' annual
base salaries will be increased to $130,000 and $115,000, respectively if the
Company is able to raise $1,000,000 of investment proceeds.
In addition to their annual base salary, both of the executives are entitled to
amounts under an executive bonus plan in any fiscal year in which earnings
before taxes and charitable contributions ("PT-PC") of the Corporation is
$1,000,000 or more. Under the plan, 6% of the PT-PC is available for executive
officers and an additional 6% for non-executive officers to be paid as cash
bonuses no less often than annually. Through December 31, 2000, no amounts have
been awarded under this plan.
Litigation
The Company was involved in certain arbitration with Personal Communications
Spectrum V; an entity in which it has a 10% ownership interest (the "Claimant").
The parties reached a settlement agreement in January 2001, whereby in exchange
for full title to the Systems, the Company paid $250,000 cash. Because
management believes that such consideration approximates the fair market value
of the Systems no effect has been given to this proposed settlement transaction
in the accompanying consolidated financial statements.
NOTE J- PROPOSED COMMON STOCK REGISTRATION
The Company has entered into an agreement to merge with Third Enterprise Service
Group, Inc. ("TESG"). Pursuant to terms of the merger, the Company's
stockholders would receive an equal number of shares in TESG, and the
stockholder of TESG would retain less than 5% of the Company's outstanding stock
after the merger. TESG is an acquisition company with no operations or assets.
In December 1999, a registration statement was filed with the Securities and
Exchange Commission for the registration of all the Company's outstanding shares
after giving effect to this merger. An amendment is expected to be filed during
2001.
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F-36
NOTE K- MERGER WITH HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
("HTP")
In February 2000, the Company and TESG agreed to merge with HTP. The merger
agreement was signed August 7, 2000, but will not be completed until after the
registration statement becomes effective. As discussed in Note G, the Company
provides management and administrative services to HTP, as well as telephone and
cable service.
________________________________________________________________________________
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F-37
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
TABLE OF CONTENTS
________________________________________________________________________________
Pages
Independent Auditors' Report F-39
Consolidated Financial Statements:
Balance Sheet as of December 31, 2000 F-40
Statements of Operations for the years ended
December 31, 2000 and 1999 F-41
Statements of Partners' Capital for the years
ended December 31, 2000 and 1999 F-42
Statements of Cash Flows for the years ended
December 31, 2000 and 1999 F-43
Notes to Financial Statements F-44
________________________________________________________________________________
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F-38
INDEPENDENT AUDITORS' REPORT
To the Partners of Huntington Telecommunications Partners, L.P.:
We have audited the accompanying balance sheet of Huntington Telecommunications
Partners, L.P. (the "Partnership"), as of December 31, 2000, and the related
statements of operations, partners' capital, and cash flows for the years ended
2000 and 1999. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 2000, and the results of its operations and its cash flows for the years
ended 2000 and 1999, in conformity with accounting principles generally accepted
in the United States of America.
Tampa, Florida
April 5, 2000
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HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
BALANCE SHEET AS OF DECEMBER 31, 2000
________________________________________________________________________________
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 38,321
Accounts receivable, net of allowance
for doubtful accounts of $65,700 68,937
Due from affiliate 61,334
Total current assets 168,592
TELECOMMUNICATIONS EQUIPMENT AND COMPUTERS
(net of accumulated depreciation and
amortization of $993,154) 80,342
TOTAL $ 248,934
===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES-
Accounts payable $ 45,225
PARTNERS' CAPITAL 203,709
TOTAL $ 248,934
===========
________________________________________________________________________________
See notes to financial statements.
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F-40
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
________________________________________________________________________________
20001999
REVENUES$ 708,088$ 715,063
OPERATING EXPENSES:
Phone and cable services 485,657 447,273
Administration fees - related party 78,284 107,854
Depreciation 100,357 99,907
Commissions 48,760 46,327
Management fees - related party 20,487 21,616
Provision for bad debts 6,082 14,520
Other 42,261 17,746
781,888 755,243
NET LOSS $ (73,800) $ (40,180)
=========== ===========
________________________________________________________________________________
See notes to financial statements.
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F-41
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
_______________________________________________________________________________________
General PartnerLimited PartnersTotal
BALANCES, DECEMBER 31, 1998 $ (179,953) $ 522,642 $ 342,689
Net loss (10,045) (30,135) (40,180)
Distributions - (25,000) (25,000)
BALANCES, DECEMBER 31, 1999 (189,998) 467,507 277,509
Net loss (18,450) (55,350) (73,800)
BALANCES, DECEMBER 31, 2000 $ (208,448) $ 412,157 $ 203,709
============= ============== ===========
________________________________________________________________________________________
See notes to financial statements.
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HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
______________________________________________________________________________________________
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (73,800) $ (40,180)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 100,357 99,907
Provision for bad debts 6,082 14,520
Changes in current assets and liabilities:
Increase in accounts receivable (4,094) (5,562)
Increase in due from affiliate (61,334) -
(Decrease) increase in accounts payable (9,798) 10,502
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (42,587) 79,187
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchases of property and equipment (2,336) -
CASH FLOWS FROM FINANCING ACTIVITIES-
Distributions to partners - (25,000)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (44,923) 54,187
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 83,244 29,057
CASH AND CASH EQUIVALENTS, END OF YEAR $ 38,321 $ 83,244
============ ============
______________________________________________________________________________________________
See notes to financial statements.
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HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
________________________________________________________________________________
NOTE A - FORMATION AND NATURE OF OPERATIONS
Huntington Telecommunications Partners, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the state of California on February 11,
1994. The Partnership, which provides telephone and cable television hookups for
four apartment complexes located in the cities of Fremont, Hayward, Fair Oaks
and San Jose, California, owns wiring, telephone switching equipment, and
satellite reception equipment located within each apartment complex. Pursuant to
applicable federal and state law, tenants have the right to use a telephone
service provider other than the Partnership. Tenants do not have a right to
utilize another cable television provider other than the Partnership.
The Partnership's operating and capital structure are governed by a Limited
Partnership Agreement (the "Agreement") between KBL Investment Company, L.P.
("KBL" or the "General Partner") and various limited partners (the "Limited
Partners"), who have the made capital contributions, and have partnership
interests, as follows:
Partnership Capital
Interest Contributions
The General Partner 25.0% -
The Limited Partners 75.0% $1,250,000
Pursuant to terms of the Agreement, operating and capital losses are allocated
among the General and Limited Partners (collectively the "Partners") in
accordance with their respective partnership interests. Operating income and
capital gains are to be allocated to the Partners as follows: (1) in proportion
to their partnership interests until such allocations exceed prior losses; (2)
1% to the General Partner, and 99% to Limited Partners until they have received
a cumulative non-compounded 10% preferred return on their net investor capital
and (3) in proportion to their respective partnership interests. The preferred
return will be accounted for as a reclassification of capital between the
General and Limited Partners accounts if and when the General Partner has
available basis. The cumulative preferred cash return not paid and or
transferred between the Partners' capital accounts approximated $740,000 at
December 31, 2000.
Cash generated from operations is distributable to the Partners in the following
priority: (1) 1% to the General Partner, and 99% to Limited Partners until they
have received a cumulative non-compounded 10% preferred return on their net
investor capital and (2) in
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proportion to their respective partnership interests. The Agreement contains
different distribution priorities if distributions result from a
"Non-Terminating Capital Transaction" (as defined), or arise from the original
incurrence or refinancing of any indebtedness.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership's financial statements are prepared using the accrual method of
accounting.
Revenue Recognition
Revenues are recognized in the month in which the service is provided.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements. The
reported amounts of revenues and expenses during the reporting period may be
affected by the estimates and assumptions management is required to make. Actual
results could differ significantly from those estimates.
Financial Instruments
The Partnership believes the book value of their cash and cash equivalents,
accounts receivable and accounts payable approximates their fair values due to
their short-term nature.
Telecommunications Equipment and Computers
Telecommunications equipment and computers are recorded at cost. Depreciation
and amortization are computed using the double declining method over the assets'
estimated useful lives of seven years. Major repairs or replacements are
capitalized, whereas maintenance, repairs and minor replacements are charged to
operations as incurred.
Long-Lived Assets
The Partnership periodically reviews its long-lived assets for indications of
impairment. If the value of an asset is considered impaired, an impairment loss
would be recognized.
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At December 31, 2000, management believes all of the Partnership's long-lived
assets are recoverable.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Partnership considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents.
Income Taxes
No provision or benefit for income taxes is included in the accompanying
financial statements since taxable income or loss passes through to, and is
reportable by, the Partners.
Concentrations of Credit Risk
Financial instruments that potentially subject the Partnership to significant
concentrations of credit risk consist principally of receivables, which
effectively arise from residents of four apartment complexes located in Northern
California. The Partnership performs ongoing credit evaluations of its customers
and has certain measures in place to limit the potential for significant losses.
Substantially all of the net receivables included in the accompanying balance
sheet were recovered subsequent to December 31, 2000.
The Partnership purchases all of its local telephone line capacity from Pacific
Bell, all of its long distance line capacity from Competitive Companies, Inc.
("COCO"), a 20% partner in KBL (see Note C) and all of its cable television
capacity from Netlink International.
NOTE C - RELATED PARTY TRANSACTIONS
KBL provides management services to the Partnership. As consideration for such
services, KBL receives a monthly fee of 3% of the Partnership's revenues. The
total amount expensed, and paid, under this arrangement during the year ended
December 31, 2000 approximated $20,500. In addition to such fees, KBL is
reimbursed for direct costs incurred on behalf of the Partnership; no such costs
were incurred by, and/or reimbursed to KBL by the Partnership during the year
ended December 31, 2000.
As discussed in Note B, COCO provides all of the Partnership's long distance
services. In turn, COCO purchases all of such services from Qwest
Communications. Total long distance services purchased from COCO approximated
$235,000 during the year ended December 31, 2000; such amount is included in
phone and cable services in the accompanying statement of operations.
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In addition, COCO provides billing, collection and certain other administrative
services, to the Partnership. As consideration for such services, COCO
received approximately $78,000 for the year ended December 31, 2000.
From the period August 7, 2000 through December 31, 2000, the COCO collected
revenues and expenses on behalf of Partnership resulting in a net payable to
COCO of $48,852.
An affiliate of the general partner provides space for the Partnership at no
charge. No value has been ascribed to such occupancy expenses in the
accompanying statement of operations, as the amounts were not considered
significant.
NOTE D - COMMITMENTS
The Partnership has agreements with four apartment complexes giving it the right
to sell telephone and cable television service to the tenants of the apartment
complexes. Each agreement requires that the Partnership pay a commission,
currently between 8% and 10% of telephone revenue and 10% of cable television
revenue, to the apartment complex owner. The agreements expire between 2003 and
2005.
NOTE E - MERGER AGREEMENT
In February 2000, the Partnership, Third Enterprise Service Group, Inc. ("TESG")
and COCO agreed to merge. The merger agreement was signed August 7, 2000, but
will not be completed until after the registration statement becomes effective.
TESG is an acquisition Company, with no operations or assets.
________________________________________________________________________________
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ITEM 23. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
115
PRELIMINARY PROSPECTUS
COMPETITIVE COMPANIES, INC.
SUBJECT TO COMPLETION, DATED JANUARY 11, 2002
This offering is comprised solely of shares being offered by our selling shareholders.
Our selling shareholders are offering:
2,559,361 shares of our common stock, $.001 par value per share
1,495,436 shares of Class B preferred stock, $.001 par value
1,000,000 shares of Class C preferred stock, $.001 par value
Our common stock is not now qualified for quotation on the Over-the-Counter
Bulletin Board or listed on any national securities exchange or the NASDAQ stock
market.
The selling shareholders may offer their shares at any price.
Dealer Prospectus Delivery Obligation
Until _________ (90 days from the date of this prospectus) all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
116
PART II
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Articles of Incorporation and By-laws, subject to the provisions of Nevada
law, contain provisions which allow the corporation to indemnify any person
under certain circumstances.
Nevada law provides the following:
NRS 78.7502 Discretionary and mandatory indemnification of officers, directors,
employees and agents: General provisions.
1. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2, or in defense of any claim, issue
or matter therein, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense.
(Added to NRS by 1997, 694)
NRS 78.751 Authorization required for discretionary indemnification;
advancement of expenses; limitation on indemnification and advancement of
expenses.
1. Any discretionary indemnification under NRS 78.7502 unless ordered by a
court or advanced pursuant to subsection 2, may be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
117
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel in a
written opinion; or
(d) If a quorum consisting of directors who were not parties to the action, suit
or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
2. The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
3. The indemnification and advancement of expenses authorized in or ordered
by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking indemnification
or advancement of expenses may be entitled under the articles of incorporation
or any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, for either an action in his official capacity or an action in another
capacity while holding his office, except that indemnification, unless ordered
by a court pursuant to NRS 78.7502 or for the advancement of expenses made
pursuant to subsection 2, may not be made to or on behalf of any director or
officer if a final adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and was material
to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
(Added to NRS by 1969, 118; A 1987, 83; 1993, 976; 1997, 706)
NRS 78.752 Insurance and other financial arrangements against liability of
directors, officers, employees and agents.
1. A corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses incurred by him in his
capacity as a director, officer, employee or agent, or arising out of his status
as such, whether or not the corporation has the authority to indemnify him
against such liability and expenses.
2. The other financial arrangements made by the corporation pursuant to
subsection 1 may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting a security
interest or other lien on any assets of the corporation.
(d) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection may provide protection
for a person adjudged by a court of competent jurisdiction, after exhaustion of
all appeals therefrom, to be liable for intentional misconduct, fraud or a
knowing violation of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
3. Any insurance or other financial arrangement made on behalf of a person
pursuant to this section may be provided by the corporation or any other person
approved by the board of directors, even if all or part of the other person's
stock or other securities is owned by the corporation.
4. In the absence of fraud:
118
(a) The decision of the board of directors as to the propriety of the terms
and conditions of any insurance or other financial arrangement made pursuant to
this section and the choice of the person to provide the insurance or other
financial arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director approving it to personal liability
for his action, even if a director approving the insurance or
other financial arrangement is a beneficiary of the insurance
or other financial arrangement.
5. A corporation or its subsidiary which provides self-insurance for itself
or for another affiliated corporation pursuant to this section is not subject to
the provisions of Title 57 of NRS.
(Added to NRS by 1987, 80)
Our Articles and By-Laws also provide for indemnification to the fullest extent
permitted under Nevada law.
With regard to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of the Corporation in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by us is against
public policy as expressed in the Securities Act of 1933, as amended, and will
be governed by the final adjudication of such case.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemization of all expenses, without
consideration to future contingencies, incurred or expected to be incurred by
our Corporation in connection with the issuance and distribution of the
securities being offered by this prospectus. Items marked with an asterisk (*)
represent estimated expenses. We have agreed to pay all the costs and expenses
of this offering. Selling shareholders will pay no offering expenses.
ITEM AMOUNT
SEC Registration Fee $ 2,500
Legal Fees and Expenses $17,500
Accounting Fees and Expenses* $10,000
Miscellaneous* $20,000
Total* $50,000
* Estimated Figure
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the asset acquisition from Huntington Partners, we issued
1,000,000 shares of Common Stock and 1,000,000 shares of Class C Preferred
Stock.
In connection with the merger with Competitive Companies, we issued 5,912,061
shares of common stock, 4,000,000 shares of Class A preferred stock, and
1,495,436 shares of Class B preferred stock.
119
These shares were issued in reliance upon Section 4(2) of the 1933 Act in view
of the following:
o None of these issuances involved underwriters, underwriting discounts or commissions.
o Restrictive legends are placed on all certificates issued.
o The distribution did not involve general solicitation or advertising.
o No cash consideration was involved
o Except for Huntington Partners, all shareholders receiving stock were already
shareholders of Competitive Companies
o The distributions were made only to accredited investors or investors who were
believed to be sophisticated enough to evaluate the risks of the investment,
particularly in view of the fact that no cash consideration was involved.
ITEM 27. EXHIBITS
2.1 Plan and agreement of reorganization
3.1 Articles of Competitive Companies, as amended
3.11 By-laws of Competitive Companies
4.1 Rights and preferences of Preferred Stock
5.1 Legal Opinion
10.01 Partnership Agreement - D Greens
10.02 Partnership Agreement - A Gardens
10.03 Partnership Agreement - C.Hills
10.04* Partnership Agreement - Rollingwood
10.05a Partnership Agreement - Trussville
10.5b Supply, Services and Management Agreement Trussville
10.06a Acquisition agreement - GST
10.6b Acquistion Agreement-GST
10.6c Acquistion Agreement-GST
10.07 Employment Agreement - L. Halstead
10.08 OPEN
10.09 Employment Agreement - DK
10.10 Agreement with LCI Quest
10.11 Agreement with Inet
10.12 Sample Option Agreement - employees
10.13 Sample Option Agreement - consultants
10.14 Sample Subscription Agreement - Common Stock
10.15 Lease Agreement - Office
10.16 Competitive Local Exchange Carriers License Approval Letter - MS
10.17 Competitive Local Exchange Carriers License Approval Letter - CA
23.1 Consent of Accountants - KCH
23.2 Consent of Accountants - KCH
23.5 Consent of Counsel (provided in 5.1)
* To be provided by amendment
All other Exhibits called for by Rule 601 of Regulation SB-2 or SK are not applicable
to this filing.
120
ITEM 28. UNDERTAKINGS
Information pertaining to our common stock is contained in our Articles of
Incorporation and By-Laws. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to:
1. File, during any period in which we offer or sells securities, a
post-effective amendment to this registration statement to:
i.Include any prospectus required by section 10(a)(3) of the Securities Act;
ii.Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and Notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation From the low or high end of
the estimated maximum offering range may be reflected in the form of prospects
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement. iii.Include any additional
or changed material information on the plan of distribution.
2. For determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
121
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on our behalf by the undersigned,
thereunto duly authorized, in Riverside California on January 11, 2002.
Competitive Companies, Inc.
Title Name Date Signature
Principal Executive Officer David Kline II 01-11-02 /s/ David Kline II
Principal Accounting Officer Larry Halstead 01-11-02 /s/ Larry Halstead
Principal Financial Officer Larry Halstead 01-11-02 /s/ Larry Halstead
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE NAME TITLE DATE
/s/ David Kline II David Kline II Director 01-11-02
/s/ Michael Godfree Michael Godfree Director 01-11-02
/s/ Larry Halstead Larry Halstead Director 01-11-02
/s/ Jerald Woods Jerald Woods Director 01-11-02
/s/ David Hewitt David Hewitt Director 01-11-02
122
AGREEMENT AND PLAN OF REORGANIZATION
by and among
HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.,
a California limited partnership,
COMPETITIVE COMPANIES HOLDINGS, INC.,
a Nevada corporation,
and
COMPETITIVE COMPANIES, INC.,
a Nevada corporation.
Dated as of December 19, 2001
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 19, 2001, by and
among Huntington Telecommunications Partners, L.P., a California limited
partnership ("HTP"), Competitive Companies Holdings, Inc., a Nevada corporation
("CCH"), and Competitive Companies, Inc., a Nevada corporation ("CCI").
RECITALS
A. HTP owns all of the assets (the "Assets") that are used in the operation
of, and in connection with, certain telephone and cable television systems
listed on Exhibit A (individually a "System" and collectively the "Systems")
with such changes, deletions or additions thereto as may occur from the date
hereof to the Closing in the ordinary course of business and consistent with the
terms and conditions of this Agreement, including, without limitation, the
following: (i) the agreements listed on Exhibit A; (ii) the assets of HTP used
to operate the Systems including its telephone switching and voice mail
equipment and cable television equipment (where specified in Exhibit A); (iii)
all cable (including without limitation aerial cable and underground cable),
conduit and all spare parts and other items used in the agreements listed on
Exhibit A; (iv) business records pertaining to the subscribers of each System
("Customers"); and (v) all leases, easements and licenses to use real property
and leases of personal property disclosed and attached as part of Exhibit A. The
definition of "Assets" excludes all other assets, including, without limitation,
any goodwill, intellectual property or software, owned or licensed by HTP.
B. HTP and the Board of Directors of CCH and CCI have approved, and deem
it advisable and in the best interests of their respective partners, companies and
stockholders, to consummate the reorganization (the "Reorganization") provided
for herein, pursuant to which (i) CCH will acquire all of the common stock of
CCI through the merger of CCH Acquisition, Inc., a Nevada corporation ("Merger
Sub")] with and into CCI with CCI surviving the Merger; (ii) CCH will acquire
all of HTP's Assets in exchange for the issuance of shares of common stock of
CCH to HTP; and (iii) upon the effectiveness of the merger, the shares of common
stock or preferred stock of CCI will automatically convert into the same number
of shares of common stock or preferred stock of CCH.
C. The constituent entities to the Merger are CCI and the Merger Sub. The
address of CCI is set forth in Section 11.4 and its governing law is the Nevada
Revised Statutes. The address of the Merger Sub is the same as CCI and its
governing law is the Nevada Revised Statutes.
D. For federal income tax purposes, it is intended that the transfer of the
Assets by HTP pursuant to the Reorganization will qualify as an exchange under
the provisions of Section 351 of the Code (as defined below) and the Merger (as
defined below) will qualify as a "reorganization" within the meaning of Section
368(a) of the Code.
1
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such definitions to be equally applicable to
both the singular and plural forms of the terms defined):
"Additional Shares" has the meaning specified in Section 2.2(b)(i).
"Adjusted Price" has the meaning specified in Section 2.2(b)(ii).
"Adjustment Period" means the five business day period immediately
following the Closing; provided however, that if trades have not been executed
on at least three of those five days, the Adjustment Period shall be extended
until the CCH Common Stock shall have been traded on at least three days, and
the average closing bid price for those three trading days shall be the Opening
Price.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
under the Exchange Act.
"Agreement" means this Agreement and Plan of Reorganization, including all
schedules and exhibits hereto, as it may be further amended from time to time as
herein provided.
"Appraiser" has the meaning specified in Section 9.2(e).
"Articles of Merger" has the meaning specified in Section 2.3(b).
"Asset Purchase Agreement" has the meaning specified in Section 3.2.
"Assets" has the meaning specified in the Recitals.
"Bylaws" means a corporation's bylaws, code of regulations or equivalent
document.
"CCH" has the meaning specified in the Introduction.
"CCH Common Stock" has the meaning specified in Section 2.4(b)(i).
"CCH Preferred Stock" has the meaning specified in Section 2.4(b)(ii).
"CCI" has the meaning specified in the Introduction.
"CCI Certificate" has the meaning specified in Section 2.5(a).
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"CCI Common Stock" has the meaning specified in Section 2.4(b)(i).
"CCI Option" has the meaning specified in Section 2.4(b)(iii).
"CCI Preferred Stock" has the meaning specified in Section 2.4(b)(ii).
"Charter" means a company's certificate of formation, operating agreement,
partnership agreement, articles of association, articles of incorporation,
certificate of incorporation, or equivalent organizational documents.
"Class B Preferred Stock" has the meaning specified in Section 2.4(c).
"Class C Preferred Stock" has the meaning specified in Section 2.2(b)(ii).
"Closing" means the closing of the transactions contemplated by this Agreement
as specified in Section 3.1.
"Closing Date" has the meaning specified in Section 3.1.
"Code" means the United States Internal Revenue Code of 1986, as amended,
and any successor statute thereto, and the rules and regulations of the IRS
thereunder.
"Contribution" has the meaning specified in Section 2.2.
"Conversion Ratio" has the meaning specified in Section 2.2(b)(ii).
"Customers" has the meaning specified in the Recitals.
"Disclosure Schedule" means the Disclosure Schedule dated as of the date of
this Agreement, as amended in accordance with this Agreement, as delivered to
HTP by CCI and forming a part of this Agreement.
"Effective Time" has the meaning specified in Section 2.1.
"Encumbrance" means any interest (including any security interest), pledge,
mortgage, lien, charge, adverse claim or other right of third Persons.
"Environmental Laws" means all laws, regulations, ordinances, codes,
policies, Governmental Orders and consent decrees currently in effect, and any
judicial and administrative interpretations thereof, of Governmental
Authorities, or any common law doctrines, in effect from time to time relating
to pollution or protection of the environment and natural resources, including
those relating to emissions, discharges, Releases or threatened Releases of
Hazardous Material into the environment (including ambient air, surface water,
groundwater or land), or otherwise relating to the manufacture, processing,
distribution, use, possession, treatment, storage, disposal, transport or
handling of Hazardous Material.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
3
"Financial Statements" has the meaning specified in Section 5.8.
"Form SB-2" has the meaning specified in Section 5.11.
"GAAP" means U.S. generally accepted accounting principles, unless expressly
described otherwise.
"Governmental Authority" means any international, national, Federal, state,
municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"Hazardous Material" means any substance, pollutant, material or waste
which is regulated or shall become regulated under any applicable Environmental
Law, including any such materials regulated as hazardous or toxic substances or
material, and including without limitation any crude oil or fraction thereof and
petroleum products.
"HTP" has the meaning specified in the Introduction.
"Indemnitee" has the meaning specified in Section 9.1.
"Initial Purchase Price" has the meaning specified in Section 2.2(a).
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all debts, liabilities and obligations of any
nature whatsoever, whether accrued or fixed, absolute or contingent or mature or
unmatured.
"Losses" has the meaning specified in Section 9.2.
"Material Adverse Effect" means any event with respect to, changes in, or
effects on, a Person which, individually or in the aggregate, is reasonably
likely to be adverse to the business, results of operations or financial
condition of such Person in a manner that is material to such Person.
"Merger" has the meaning specified in Section 2.3(c).
"Merger Sub" has the meaning specified in the Recitals.
"Opening Price" has the meaning specified in Section 2.2(b)(i).
"Person" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"Purchase Price" has the meaning specified in Section 2.2(b)(iii).
"Property Owner" has the meaning specified in Section 4.7.
4
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including the abandonment or discarding of barrels, containers
and other closed receptacles containing any Hazardous Material).
"Reorganization" has the meaning specified in the Recitals.
"Rights Holders" has the meaning specified in Section 2.4(c).
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" has the meaning specified in Section 2.2(b)(iii).
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, parking, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including Taxes under Code Sec. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated Tax, or other Tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not, including such item for
which Liability arises as a transferee, successor-in-interest or by contract, or
as a result of being a member of an affiliated or combined group.
"Tax Return" means any return, declaration, report, claim for refund,
information return or statement relating to Taxes, including any schedules or
attachments thereto, and including any amendment thereof.
"Taxing Authority" means any Governmental Authority responsible for the imposition
or collection of any Tax.
"Third Enterprise" has the meaning specified in Section 3.2.
ARTICLE 2
REORGANIZATION
2.1 Effective Time. The term "Effective Time" shall mean the time and date
which is the date and time of the filing of the certificate of merger relating
to the Merger with the Secretary of State of the State of Nevada (or such other
date and time as may be specified in such certificate as may be permitted by
law) or such other time and date as HTP, CCH and CCI may agree upon.
2.2 HTP's Contribution. Upon the terms and subject to the conditions herein
set forth, simultaneously with the Effective Time, HTP shall contribute,
transfer, convey, assign and deliver to CCH, and CCH shall accept and acquire
from HTP, all of HTP's rights, title and interest to the Assets (the
"Contribution"). In consideration of the Contribution:
5
(a) HTP shall initially receive 1,000,000 shares of CCH Common Stock at the
Closing (the "Initial Purchase Price").
(b) The Initial Purchase Price will be increased, if at all, as provided in
this Section.
(i) If the average of the closing bid price for the CCH Common Stock
for the Adjustment Period (the "Opening Price") is less than $3.00 per share, HTP
will be entitled to receive additional shares of CCH Common Stock (the "Additional
Shares") at the end of the Adjustment Period so that the total number of shares
of CCH Common Stock received by HTP on account of the Reorganization, including
the CCH Common Stock delivered on account of the Initial Purchase Price, when valued
at the Opening Price shall have an aggregate nominal value of $3,000,000. If the
Opening Price is $3.00 or more per share, no additional shares of CCH Common Stock
shall be issued. For purposes of determining the Opening Price, purchases of CCH
Common Stock by CCH or its Affiliates or Persons controlled by CCH or its Affiliates
shall be disregarded. In addition, sales of CCH Common Stock by HTP or its Affiliates
or partners or Persons controlled by HTP or its Affiliates or partners shall be
disregarded.
(ii) The Additional Shares shall be reflected in 1,000,000 shares
of CCH Preferred Stock designated as Class C Convertible Preferred Stock ("Class
C Preferred Stock") to be issued to HTP at the time of the Contribution, which
shares will have the right to convert into shares of CCH Common Stock
automatically and for no additional consideration at the time the Additional
Shares are required to be issued as set forth herein. The number of shares of
CCH Common Stock to which HTP shall be entitled upon conversion of the Class C
Preferred Stock shall be the product obtained by multiplying the Conversion
Ratio by the 1,000,000 shares of Class C Preferred Stock held by HTP. The
"Conversion Ratio" shall be one minus the Adjusted Price divided by the Adjusted
Price. The "Adjusted Price" shall be determined by dividing the Opening Price by
$3.00. For example, assuming an Opening Price of $2.00, and no other adjustments
under the formula, the conversion would occur as follows:
1 - 2/3 = 1/3;
1/3 divided by 2/3 = .5;
.5 x 1,000,000 = 500,000.
Accordingly, 500,000 shares of CCH Common Stock would be issued to HTP upon
conversion of the Class C Preferred Stock. If at any time after the date of this
Agreement, CCH effects a subdivision of its outstanding CCH Common Stock or
Class C Preferred Stock, the Conversion Ratio as determined above will be
proportionately adjusted. HTP, as a holder of Class C Preferred Stock, will not
be entitled to preferential dividend rights, redemption or voting rights. After
conversion of the Class C Preferred Stock into shares of CCH Common Stock, HTP
will have rights identical to the other holders of CCH Common Stock.
6
(iii) The Initial Purchase Price, as adjusted to include the
Additional Shares, if at all, in accordance with this Section 2.2, shall be referred
to as the "Purchase Price" and the CCH Common Stock representing the Purchase Price
shall be referred to as the "Shares." Except as contemplated by this Agreement
or the Articles of Merger, CCH shall not authorize or implement any
recapitalization, including, without limitation, any stock split or reverse
stock split, or take any other action that would impair the rights of HTP under
this Section. Except as set forth in this Agreement, no representation or
warranty is made that a market for the CCH Common Stock will exist either upon
Closing or thereafter, and HTP assumes the risk that no such market for the CCH
Common Stock is guaranteed.
(iv) For so long as at least 50,000 shares of Class C Preferred
Stock remain outstanding, in addition to any other vote or consent required in the
articles or bylaws of CCH, the vote of the holders of 75% of the shares of Class
C Preferred Stock shall be necessary to effect any amendment, alteration or
repeal of any of the provisions of the articles or bylaws that alters or changes
the voting powers, preferences or other special rights or privileges,
qualifications, limitations or restrictions of the Class C Preferred Stock.
2.3 Merger.
(a) Organization of Merger Sub. Immediately prior to the Closing Date, CCH
shall form the Merger Sub as a corporation under the laws of the State of Nevada
and as a wholly owned subsidiary of CCH. Merger Sub shall be organized for the
sole purpose of effectuating the Merger as contemplated herein. The Charter and
Bylaws of Merger Sub shall be substantially in the forms set forth in Exhibit B.
The authorized capital stock of Merger Sub shall consist of 100 shares of common
stock, par value $0.001 per share, all of which shall be issued to CCH at a
price of $1.00 per share.
(b) Actions of Directors and Officers. Immediately prior to the Closing
Date, CCH shall (i) elect the directors of CCH as the directors of Merger Sub,
(ii) cause the directors of Merger Sub to elect the officers of CCH as the
officers of Merger Sub, (iii) ratify and approve this Agreement and the Articles
of Merger substantially in the form of Exhibit C (the "Articles of Merger"),
(iv) execute the Articles of Merger, and (v) cause the directors and officers of
Merger Sub to take such steps as may be necessary or appropriate to complete the
organization of the Merger Sub and to approve and execute the Articles of
Merger.
(c) Merger. Upon the terms and subject to the conditions herein set forth
and in the Articles of Merger, Merger Sub shall be merged with and into CCI (the
"Merger") in accordance with the applicable provisions of the laws of the State
of Nevada. CCI shall be the surviving corporation in the Merger and shall
continue its corporate existence under the laws of the State of Nevada. As a
result of the Merger, CCI shall become a wholly owned subsidiary of CCH. The
effects and consequences of the Merger shall be as set forth in the Articles of
Merger.
2.4 Effect of Merger on Securities of CCH, CCI and Merger Sub.
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(a) Merger Sub Stock. At the Effective Time of the Merger, each share of
the common stock of Merger Sub outstanding immediately prior to the Effective
Time shall be converted into and shall become one share of common stock of the
surviving corporation of the Merger.
(b) Conversion of CCI Stock. At the Effective Time:
(i) each share of common stock, par value $0.001 per share, of CCI
("CCI Common Stock") issued and outstanding at the Effective Time shall be converted
into one share of common stock, par value $0.001 per share, of CCH ("CCH Common
Stock"); and
(ii) each share of preferred stock, par value $0.001 per share,
of CCI ("CCI Preferred Stock") designated as Class A Convertible Preferred Stock
issued and outstanding at the Effective Time shall be converted into one share of
preferred stock, par value $0.001 per share, of CCH ("CCH Preferred Stock") with
the same rights and preferences as the CCI Preferred Stock.
Upon such conversion, all such shares of CCI Common Stock and CCI Preferred
Stock shall be cancelled and cease to exist, and each certificate theretofore
representing any such shares shall, without any action on the part of the holder
thereof, be deemed to represent an equivalent number of shares of CCH Common
Stock or CCH Preferred Stock, as the case may be.
(iii) At the Effective Time, each share of CCI Common Stock or
CCI Preferred Stock which is held in the treasury of CCI immediately prior to the
Effective Time shall, by virtue of the Merger, cease to be outstanding and shall
be cancelled and retired without payment of any consideration therefor.
(iv) At the Effective Time, each outstanding option to purchase
shares of CCI Common Stock issued pursuant to any stock option plan adopted by CCI
or otherwise issued by CCI (each, a "CCI Option") shall be assumed by CCH in such
manner that it is converted into an option to purchase shares of CCH Common
Stock, with each such CCI Option to otherwise be exercisable upon the same terms
and conditions as then are applicable to such CCI Option, including the number
of shares and exercise price provided thereby. At the Effective Time, CCH shall
assume all rights and obligations of CCI under such plan as in effect at the
Effective Time and shall continue such plan in accordance with its terms.
(c) At the Effective Time, in exchange for rights granted to certain
holders of CCH Common Stock ("Rights Holders") in connection with their purchase
of securities in transactions exempt from registration under federal securities
laws, CCH shall issue to the Rights Holders shares of CCH Preferred Stock
designated as Class B Convertible Preferred Stock ("Class B Preferred Stock")
determined by multiplying the Conversion Ratio set forth in Section 2.2(b)(ii)
by the number of shares of CCH Common Stock held by the Rights Holders at the
Effective Time; provided, however, that the average of the opening bid/asked
price for the CCH Common Stock on the first business day during which the CCH
8
Common Stock is qualified for quotation on the over the counter bulletin board
shall used in place of the Opening Price in determining the Adjusted Price. The
following example illustrates this conversion process:.
Assuming an opening bid/asked price of $2.00, and no other adjustments
under the formula, the conversion would occur as follows:
1 - 2/3 = 1/3;
1/3 divided by 2/3 = .5;
.5 x each share of CCH Common Stock then held by a Rights Holder
shall be issued on conversion.
At the Effective Time, any other rights of the Rights Holders to acquire shares
of CCI Common Stock shall be null and void.
(d) CCH Stock held by CCI. At the Effective Time of the Merger, (i) any
shares of CCH Common Stock or CCH Preferred Stock issued to CCI, and (ii) the
one share of CCH Common Stock issued to Larry Halstead, shall be redeemed by CCH
and cease to be outstanding.
2.5 Mechanics of the Merger.
(a) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on CCH Common Stock or CCH
Preferred Stock shall be paid with respect to any shares of CCI Common Stock or
CCI Preferred Stock, as the case may be, until a certificate representing such
shares of CCI Common Stock or CCI Preferred Stock (a "CCI Certificate") is
surrendered for exchange as provided herein. Subject to the effect of applicable
laws, following surrender of any such CCI Certificate, there shall be paid to
the holder of the CCH Common Stock or CCH Preferred Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such whole shares of CCH Common Stock or CCH
Preferred Stock and not paid, less the amount of any withholding Taxes which may
be required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of CCH Common Stock or CCH Preferred Stock, less
the amount of any withholding Taxes which may be required thereon.
(b) At or after the Effective Time, there shall be no transfers on the
stock transfer books of CCI of the shares of CCI Common Stock or CCI Preferred
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates representing any such shares are presented to
the surviving corporation of the Merger or CCH, they shall be cancelled and
exchanged for certificates for the consideration, if any, deliverable in respect
thereof pursuant to this Agreement and the Articles of Merger in accordance with
the procedures set forth in this Article 2.
9
(c) None of CCI, CCH or any other Person shall be liable to any former
holder of shares of CCI Common Stock or CCI Preferred Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) In the event that any CCI Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such CCI Certificate to be lost, stolen or destroyed and, if required by CCH,
the posting by such person of a bond in such reasonable amount as CCH may direct
as indemnity against any claim that may be made against it with respect to such
CCI Certificate, CCH will issue in exchange for such lost, stolen or destroyed
CCI Certificate the unpaid dividends and distributions on shares of CCH Common
Stock or CCH Preferred Stock as provided in Section 2.5(a), deliverable in
respect thereof pursuant to this Agreement and the Articles of Merger.
ARTICLE 3
CLOSING
3.1 Closing. Subject to the fulfillment or waiver of the conditions
precedent set forth in Articles 7 and 8, the consummation of the transactions
contemplated by this Agreement and the Articles of Merger (the "Closing") shall
occur at the offices of Morgan, Lewis & Bockius LLP, Los Angeles, California, or
by an exchange of executed counterpart copies of this Agreement and the Articles
of Merger via telecopy or overnight courier, on December 19, 2001 and shall
become effective at 12:00 P.M., Pacific Standard Time on such date, or at such
other date, time or place as the parties may agree (the "Closing Date").
3.2 Termination of Prior Agreements. On August 7, 2000, HTP, CCI and Third
Enterprise Service Group, Inc. ("Third Enterprise") executed an Asset Purchase
Agreement (the "Asset Purchase Agreement") in which HTP intended to sell the
Assets Third Enterprise as part of a plan of reorganization of CCI. Several
conditions contained in the Asset Purchase Agreement were not satisfied and, as
a result, the transaction was never closed. The parties to this Agreement hereby
agree to terminate the Asset Purchase Agreement prior to the Closing and
acknowledge that all rights and obligations granted by the Asset Purchase
Agreement will be null and void.
3.3 HTP's Obligations at Closing. At the Closing, HTP shall deliver or
cause to be delivered to CCI and CCH:
(a) a bill of sale in the form attached hereto as Exhibit D;
(b) an assignment, in substantially the form of Exhibit E, assigning (i)
each of the agreements listed on Exhibit A, and (ii) Liability for personal
property Taxes;
(c) releases of financing statements and other recorded Encumbrances
terminating any Encumbrances against any of the Assets; and
10
(d) certificates of duly authorized officers of HTP, each dated the Closing
Date, certifying as to the matters requested by CCI pursuant to Article 7.
3.4 CCI's Obligations at Closing. At the Closing, CCI shall deliver or
cause to be delivered to HTP:
(a) certificates of duly authorized officers of CCI, each dated the Closing
Date, certifying as to the matters requested by HTP pursuant to Article 8; and
(b) such other documents and instruments as HTP may reasonably require to
effectuate or evidence the transactions contemplated by this Agreement.
3.5 CCH Obligations at Closing. At the Closing, CCH shall deliver or cause
to be delivered to HTP:
(a) certificates representing the CCH Common Stock in the respective
amounts determined in accordance with Section 2.2 and registered in the name of
HTP;
(b) a certificate to the effect that CCH (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has full power and authority to own its assets and properties and to
conduct its business as and where it is then being conducted and (ii) has full
power and authority to enter into this Agreement and the Articles of Mergers and
to consummate the transactions contemplated hereby;
(c) a certificate to the effect that the Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada;
(d) certificates of duly authorized officers of CCH, each dated the Closing
Date, certifying as to the matters requested by HTP pursuant to Article 8; and
(e) such other documents and instruments as HTP may reasonably require to
effectuate or evidence the transactions contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HTP
HTP represents and warrants to CCH and CCI as follows.
4.1 Organization, Good Standing, Power. HTP is a limited partnership duly
organized, validly existing and in good standing under the laws of the state of
California. HTP has all requisite partnership power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated by this Agreement.
4.2 Authorizations and Enforceability. This Agreement has been duly and
validly authorized, executed and delivered by HTP and constitutes the valid and
binding obligation of HTP, fully enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws and equitable principles related to or limiting
11
creditors' rights generally and by general principles of equity.
4.3 Restrictions; Burdensome Agreements. HTP is not a party to any material
contract, commitment or agreement, and neither HTP nor the Assets are subject to
or bound or affected by any charter, bylaw, partnership agreement or other
partnership restriction, or any material order, judgment, decree, law, statute,
ordinance, rule, regulation or other restriction of any kind or character, which
would prevent HTP from entering into this Agreement or from consummating the
transactions contemplated by this Agreement.
4.4 Consent and Approvals. As of the Closing Date, HTP will have obtained
all material consents or approvals of and waivers or revisions by, and will have
delivered all material notices to, any third party that are necessary in
connection with the execution and delivery by HTP of this Agreement and the
consummation of the transactions contemplated by this Agreement.
4.5 Title to Property.
(a) Tangible Personal Property. Except to the knowledge of CCH or CCI, to
the knowledge of HTP, HTP owns or has licenses or other rights adequate to use
all property necessary for the operation of the Assets.
(b) Title. Except to the knowledge of CCH or CCI, to the knowledge of HTP,
the HTP has good and marketable title to the Assets. Any Asset which requires
the consent of a third party for assignment to CCH is described as such on
Exhibit A. Except to the knowledge of CCH or CCI, to the knowledge of HTP, all
required consents have been obtained and have transmitted to CCH. Every other
Asset is fully assignable to CCH without the consent of any other Person, except
where the failure to obtain the consent would not have a Material Adverse Effect
on the Assets or HTP's ability to consummate the transactions contemplated by
this Agreement.
(c) Assets. Except to the knowledge of CCH or CCI, to the knowledge of HTP,
all Assets sold under this Agreement will be free and clear of all Encumbrances
except as set forth in on Exhibit A.
4.6 Condition of Assets. Except to the knowledge of CCH or CCI, to the
knowledge of HTP, the Assets were acquired and have been maintained in the
ordinary course of its business and to HTP's knowledge have been properly
maintained in good working condition, ordinary wear and tear excepted.
4.7 Lease and Access Agreements. Exhibit A includes a complete and accurate
list of all of the Lease and Access Agreements presently owned by HTP which
constitute part of the Assets. A complete copy of each such Lease and Access
Agreement (including amendments thereto) has been provided to CCH and CCI.
Except to the knowledge of CCH or CCI, each of the Lease and Access Agreements
is valid and binding, and is in full force and effect. Except to the knowledge
of CCH or CCI, neither HTP, nor to the knowledge of HTP, any owner of a property
12
served by a Lease and Access Agreement (a "Property Owner"), is in default under
any Lease or Access Agreement, except where such default would not have a
Material Adverse Effect on the Assets or HTP's ability to consummate the
transactions contemplated by this Agreement.
4.8 Investment Representations. HTP represents, warrants and covenants to
CCI and CCH as follows, realizing that it intends to rely on these
representations, which shall survive the issuance to HTP of the Shares pursuant
to this Agreement:
(a) HTP acknowledges that it has been given full and fair access to all
material information, including but not limited to all underlying documents in
connection with this transaction as well as such other information as it deems
necessary or appropriate as a prudent and knowledgeable entity evaluating the
purchase of the Shares. HTP acknowledges that CCI and CCH have made available to
it the opportunity to obtain additional information to evaluate the merits and
risks of its investment. HTP acknowledges that it has had the opportunity to ask
questions of, and receive satisfactory answers from, the officers of CCI and CCH
concerning the terms and conditions of the offering and the business of CCI and
CCH.
(b) HTP can bear the economic risk of losing its entire investment in the
Shares.
(c) HTP is acquiring the Shares for its own account, for investment only
and not with a view toward the resale, fractionalization, division or
distribution thereof and HTP has no present plans to enter into any contract,
undertaking, agreement or arrangement for any such resale, distribution,
division or fractionalization thereof.
(d) HTP UNDERSTANDS THAT THE SHARES ARE SPECULATIVE INVESTMENTS WHICH
INVOLVE A HIGH DEGREE OF RISK OR LOSS OF ITS ENTIRE INVESTMENT.
(e) HTP, acting alone or with its representatives, has sufficient knowledge
and expertise in the risks of investing in similar projects. HTP understands
that an investment in CCH is not suitable for any person who does not so
understand such risks.
(f) HTP fully understands all Tax aspects and risks associated with this
investment or has consulted with its own financial or Tax adviser who has
advised him thereof and that the HTP has no questions with respect thereto. Any
Tax effects which may be expected by CCI and CCH are not susceptible to accurate
prediction and depend upon the recognition of certain factual patterns and
matters which may be subject to various interpretations, including ones which
may substantially eliminate the Tax consequences sought by CCI and CCH.
Moreover, new developments in rulings of the Internal Revenue Service, court
decisions or legislative changes may have an adverse effect on one or more of
the Tax consequences sought by CCI and CCH. NO TAX OPINION IS BEING FURNISHED TO
HTP.
(g) All information which HTP has provided to CCI and CCH concerning its
financial position and knowledge of financial business matters is correct and
13
complete in all material respects as of the date of this Agreement, and if there
should be any material change in such information prior to acceptance of this
Agreement by CCI and CCH, HTP will immediately provide CCI and CCH with such
information.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CCI and CCH
Except as set forth in the Disclosure Schedule attached hereto, CCH and
CCI, as of the date of this Agreement and as of the Closing Date (including
after giving effect to the Merger), represent and warrant to HTP as follows:
5.1 Organization, Good Standing, Power. CCH and CCI are corporations duly
organized, validly existing and in good standing under the laws of Nevada. CCH
and CCI have all requisite corporate power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated by this
Agreement.
5.2 Authorizations and Enforceability. This Agreement has been duly and
validly authorized, executed and delivered by CCH and CCI and constitutes the
valid and binding obligations of CCH and CCI, fully enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
related to or limiting creditors' rights generally and by general principles of
equity.
5.3 Restrictions; Burdensome Agreements. Neither CCH nor CCI is a party to
any material contract, commitment or agreement, nor subject to or bound or
affected by any charter, bylaw, or other corporate restriction, or any material
order, judgment, decree, law, statute, ordinance, rule, regulation or other
restriction of any kind or character, which would prevent either CCH or CCI from
entering into this Agreement or prevent CCH or CCI from consummating the
transactions contemplated by this Agreement or the Articles of Merger.
5.4 Consent and Approvals. CCH and CCI have obtained all material consents
or approvals of, filings or registrations with or material notices to any third
party or public body or authority that may be necessary in connection with the
execution and delivery by CCH and CCI of this Agreement and the consummation of
the transactions contemplated by this Agreement and the Articles of Merger.
5.5 No Violation. The execution, delivery and performance of this Agreement
and all other agreements entered into in connection with the transactions
contemplated hereby by CCH and CCI does not and will not violate, conflict with,
result in a breach of or constitute a default under (or an event which with due
notice or lapse of time, or both, would constitute a material breach of or
default under), result in the creation of any lien, security interest or other
Encumbrance under or accelerate the obligations of CCH or CCI under:
(a) their respective charter documents;
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(b) any note, agreement, contract, license, instrument, lease or other
obligation to which CCH or CCI is a party or by which either is bound or to
which any property or assets of either are subject;
(c) any judgment, order, decree, ruling or injunction applicable to CCH or
CCI; or
(d) any statute, law, regulation or rule of any Governmental Authority
applicable to CCH or CCI.
5.6 CCH Shares. The CCH Common Stock and Class C Preferred Stock (and the
CCH Common Stock issuable upon the conversion of the Class C Preferred Stock)
issuable to HTP for the Purchase Price will, when issued at Closing, be duly
authorized, fully paid and nonassessable, and the CCH Common Stock issuable to
HTP upon conversion of the Class C Preferred Stock, if and when converted, will
be duly authorized, fully paid and nonassessable.
5.7 Capitalization. The authorized and outstanding capitalization of CCH
and CCI consists of the following:
(a) CCH:
(i) Seventy Million (70,000,000) shares of CCH Common Stock are
presently authorized. As of the date of this Agreement, there is One (1) share of
CCH Common Stock issued and outstanding.
(ii) Ten Million (10,000,000) shares of CCH Preferred Stock are
currently authorized. As of the date of this Agreement, there are no shares of CCH
Preferred Stock issued and outstanding.
(b) CCI:
(i) Forty-Six Million (46,000,000) shares of CCI Common Stock are
presently authorized. Excluding shares of CCI Common Stock issued or issuable upon
exercise of outstanding options or warrants or which may be converted from CCI
Preferred Stock after the date of this Agreement, as of the date of this
Agreement, there are Four Million Nine Hundred Twelve Thousand Sixty-One
(4,912,061) shares of CCI Common Stock issued and outstanding.
(ii) Four Million (4,000,000) shares of CCI Preferred Stock are
presently authorized, of which Four Million (4,000,000) shares are designated Class
A with maximum conversion to Twenty Million (20,000,000) shares of CCI Common Stock.
As of November 1, 2001, there are Four Million (4,000,000) shares of CCI Preferred
Stock issued and outstanding.
(iii) Except for (i) the conversion privileges of the CCI Preferred
Stock set forth in CCH's Charter; (ii) CCI's stock option plan and stock options,
of which there are options to purchase Five Million Forty Thousand (5,040,000)
shares of CCI Common Stock, as of the date of this Agreement, there are no
15
outstanding convertible securities, options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from CCI of any shares of its capital stock.
5.8 Financial Statements. CCI has previously furnished HTP with true and
complete copies of the balance sheets of CCI for fiscal years 1999 and 2000 and
the related consolidated statements of cash flows, changes in shareholder's
equity and changes in financial position for the periods then ended, accompanied
by the audit report of Kingery Crouse & Hohl P.A., independent certified public
accountants for fiscal years 1999 and 2000 (the "Financial Statements"). All of
the Financial Statements, including the related notes where applicable, are in
accordance with the books and records of CCI, present fairly the financial
position, cash flows, changes in shareholders' equity, and changes in financial
position of CCI as of the respective dates and for the respective periods
indicated, and have been prepared in accordance with GAAP, consistently applied.
5.9 Absence of Litigation; Compliance with Laws.
(a) There is no material action, suit, proceeding, claim or investigation
pending or, to the knowledge of CCH or CCI, threatened against, or directly or
indirectly involving, CCH, CCI, Third Enterprise or any assets, business or
operations of CCH, CCI, Third Enterprise or the transactions contemplated hereby
or by the Articles of Merger. There is no unsatisfied or outstanding order, stop
order, writ, rescission notices, judgment, injunction, decree or administrative
decree or mandate affecting CCH, CCI, Third Enterprise or their assets,
businesses or operations.
(b) CCH and CCI have complied with and are in material compliance with all
laws applicable to them or their properties, assets, operations and businesses,
and there does not exist any basis for any claim of default under or violation
of any such law, judgment, order or decree except for any such noncompliance or
such defaults or violations or such bases for any claims of such defaults or
violations, if any, that in the aggregate do not and will not materially and
adversely affect the property, operations or financial condition of CCH or CCI.
Neither CCH nor CCI has received any written opinion or memorandum from any
legal counsel to the effect that there is any Liability that is material and
adverse to CCH, CCI or Third Enterprise. Without limiting the foregoing, CCH and
CCI are in material compliance with (i) all applicable Environmental Laws,
including, without limitation, regulations establishing quality criteria and
standards for air, water, land and Hazardous Materials, (ii) all applicable laws
concerning the protection, health and safety of employees or workers, including
without limitation the Occupational Safety and Health Act of 1970, as amended,
and comparable workplace-safety laws of all other jurisdictions and all rules,
regulations and orders thereunder; and (iii) all applicable laws affecting labor
union activities, civil rights or employment, including without limitation, the
Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act
of 1967, as amended, the Equal Employment Opportunity Act of 1972, as amended,
the Employee Retirement Income Security Act of 1974, as amended, the Equal Pay
Act and the National Labor Relations Act, as amended.
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5.10 Government Licenses and Permits. CCH and CCI have all authorizations,
approvals, orders, licenses, certificates and permits of and from all
Governmental Authorities necessary to own or lease its properties and assets and
to conduct its business as currently conducted except to the extent the lack of
any such authorization, approval, order, license, certificate or permit does not
and will not materially and adversely affect the property, operating, or
financial condition of CCH or CCI.
5.11 SEC Reports. None of the information supplied or to be supplied by
either CCH or CCI for inclusion or incorporation by reference in the
Registration Statement on Form SB-2 to be filed with the SEC by CCH in
connection with the issuance of the shares of CCH Common Stock and Class C
Preferred Stock in connection with this Reorganization (the "Form SB-2") will,
from the time the Form SB-2 is filed with the SEC through the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
5.12 No Broker's or Finder's Fees. No agent, broker, investment banker,
Person or firm acting on behalf of CCH or CCI is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
indirectly in connection with any of the transactions contemplated in this or in
the Articles of Merger.
5.13 Taxes.
(a) CCH and CCI shall be jointly and severally responsible for (i)
all property Taxes attributable to any of the Assets since August 7, 2000, and (ii)
payment of any sales, use or other Taxes or charges or fees due on or with
respect to the sale or transfer of the Assets to CCH.
(b) Except as set forth in the Disclosure Schedule, (i) CCI and
CCH have timely filed or caused to be timely filed (or will timely file or cause
to be timely filed) with the appropriate Taxing Authorities all Tax Returns required
to be filed on or prior to the Closing Date (taking into account all extensions
of due dates) by or with respect to CCI, CCH and the Assets since August 7,
2000, and have timely paid or adequately provided for (or will timely pay or
adequately provide for) all Taxes owed by or with respect to CCI, CCH and the
Assets (whether or not shown on any Tax Return) for the period up to and
including the Closing Date, except where the failure to file such Tax Returns or
pay any such Taxes would not, or could not reasonably be expected to, in the
aggregate have a Material Adverse Effect on CCI, CCH or HTP, taken as whole. No
written claim has been made to CCI or CCH by any Taxing Authority in any
jurisdiction where CCI or CCH do not file Tax Returns asserting that they are
required to file a Tax Return.
(c) Except as set forth in the Disclosure Schedule, (i) there have been no
examinations or audits with respect to any Tax Return of, or which included,
CCI, CCH or the Assets, and (ii) no assessment, deficiency or adjustment for any
Taxes has been asserted in writing or, to the knowledge of CCI or CCH, is
17
proposed with respect to any Tax Return of, or which includes, CCI, CCH or the
Assets.
(d) The Financial Statements fully accrue all actual and contingent
Liabilities for Taxes with respect to all periods through the dates thereof in
accordance with GAAP. CCI and CCH will establish, in the ordinary course of
business and consistent with its past practices, reserves adequate for the
payment of all Taxes for the period from August 7, 2000 through the Closing
Date.
5.14 Accuracy of Information Furnished. No representation or warranty made
by CCI or CCH in this Article 5 and the related Disclosure Schedule contains any
untrue statement of material fact or omits to state, in light of the
circumstances under which it has been made, a material fact necessary to make
such representation or warranty not misleading; provided, however, that no
representation or warranty is made as to projections, forecasts or other forward
looking information furnished by CCI or CCH to HTP.
ARTICLE 6
COVENANTS OF THE PARTIES
6.1 CCI Stockholder Approval. Promptly after the execution of this
Agreement, CCI will seek to obtain approval from its stockholders of this
Agreement and the Reorganization and the Articles of Merger.
6.2 Operation of Business. During the period from the date of this
Agreement until the earlier of the termination of this Agreement or the Closing,
CCI covenants to HTP that it will maintain the Assets and operate its business
with respect to the Assets in the usual, regular and ordinary manner; and, to
the extent consistent with such operation, use its commercially reasonable
efforts to preserve present business relationships, including those with its
Customers and the Property Owners.
6.3 Transfer of CCI. Neither CCH nor CCI, nor any Affiliate of either, has
any plan or intention to cause any transfer or other disposition of all or any
portion of the assets of CCI following the Reorganization, other than in the
ordinary course of business, to any Person, including, without limitation,
through the liquidation of CCI or any merger or other transaction between CCI
and any Person.
6.4 Consents. Although not required by the Lease and Access Agreement, HTP
will assist CCI in giving all required notices to and will use reasonable efforts
to obtain required consents from each Property Owner that has not previously been
provided notice and who has not already consented.
6.5 Access to Properties and Records; Confidentiality. During the period
from the date of this Agreement to the earlier of the termination of this
Agreement or the Closing, HTP will make available to CCH all books, papers and
records relating to the Assets. HTP will not be required to provide access to or
disclose information where such access or disclosure would jeopardize the
attorney-client privilege of HTP or would contravene any law, rule, regulation,
order, judgment, decree or binding agreement entered into prior to the date
18
hereof. The parties will make appropriate substitute disclosure arrangements
under circumstances in which the restrictions of the preceding sentence apply.
CCH will keep confidential all such information and will not directly or
indirectly use such information for any competitive or other commercial purpose.
The obligation to keep such information confidential will continue indefinitely.
6.6 Confidentiality of Terms of Agreement. After the execution of this
Agreement, CCH, CCI and HTP will maintain the confidentiality of the terms of
this Agreement. No such party will, except to its advisors, disclose the terms
of the transactions contemplated by this Agreement to any Person or entity. The
foregoing does not preclude such parties from informing any other Person or
entity of the fact that the Systems, the Lease and Access Agreements and other
Assets relating to the Systems will be or had been transferred to CCH, so long
as such communication does not disclose any further details regarding the
transaction. Any press release to be disclosed to the public regarding any other
the terms of this Agreement shall be reviewed by and agreed upon by all parties
in writing prior to release. Notwithstanding the foregoing, all such information
required to be disclosed pursuant to any applicable law, including all
applicable federal securities laws, shall be disclosed. Notwithstanding the
foregoing, all disclosures required to be included in the Form SB-2 according to
the rules and regulations of the SEC shall be included.
6.7 Accounts Receivable Matters. On August 7, 2000, HTP transferred all of
its accounts receivables relating to the Assets to CCI pursuant to the Asset
Purchase Agreement. Since August 7, 2000, CCI has:
(a) been providing all billing for services to Customers; and
(b) retained all payments on Customer's accounts received by it.
HTP and CCI agree that CCI will retain such payments after the Closing Date and
that CCI will be liable for Taxes on such payments since August 7, 2000. CCI has
also been responsible for all related expenses from such date and will continue
to do so after the Closing Date.
6.8 Indemnification for Claims Relating to the Asset Purchase Agreement.
CCH and CCI will defend, indemnify and hold harmless HTP and any Person claiming
by or through them or any of their successors and assigns, including, without
limitation, each of the partners of HTP, from, against and in respect of any and
all Losses incurred by HTP in connection with the Asset Purchase Agreement or
the sale, transfer or disposition of the Assets by HTP.
6.9 Preparation of Form SB-2. CCH shall prepare and file with the SEC as
soon as practicable the Form SB-2 under the Securities Act, with respect to the
shares of CCH Common Stock and Class C Preferred Stock issued to HTP in this
Reorganization. CCH shall use its best efforts to have the Form SB-2 declared
effective under the Securities Act as promptly as practicable after such filing
and to keep the Form SB-2 effective as long as is necessary to consummate the
Reorganization. CCH shall, as promptly as practicable, provide copies of any
19
written or verbal comments received from the SEC with respect to the Form SB-2
to HTP. CCH shall use its best efforts to obtain, prior to the effective date of
the Form SB-2, all necessary state securities law or "blue sky" permits or
approvals required to carry out the transactions contemplated by this Agreement.
CCH agrees that any written information concerning HTP, the Merger or the
Reorganization set forth in the Form SB-2 and each amendment or supplement
thereto, at the time it is filed or becomes effective, will not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. CCH shall also take
any action (other than qualifying to do business in any jurisdiction in which it
is now not so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of the Shares in the
Reorganization.
6.10 Quotation of Common Stock. CCH shall use all reasonable efforts to
cause the Shares to be issued to HTP to be qualified for quotation on the
over-the-counter market, subject to official notice of issuance, after execution
of this Agreement.
6.11 1934 Act Registration Statement. CCH shall use all reasonable efforts
to cause a registration statement on Form 8-A under the Exchange Act to be filed
with the SEC, registering the Shares, with a request that the registration
statement be declared effective simultaneously with the Form SB-2.
6.12 SEC Filings. CCH covenants and agrees to comply in all material
respects with the reporting obligations imposed by the federal securities laws
on issuers with a class of securities registered pursuant to the Securities Act
and Exchange Act.
6.13 CCH Stock Option Plan. CCH and CCI, within a reasonable time after the
date of the Agreement, will adopt a stock option plan with terms and provisions
comparable to the CCI Stock Option Plan and to grant options thereunder to
certain employees of CCH and CCI.
6.14 Reservation of Conversion Shares. CCH and CCI agree to reserve an
appropriate number of shares of CCH Common Stock for issuance upon conversion of
the Class C Preferred Stock.
6.15 Registration of Shares. HTP shall have the right to rescind this
transaction if the following shall occur:
(a) within 210 days following the Closing Date, the SEC (i) has not
declared effective the Form SB-2 registering the CCH Common Stock to be received
by HTP as the Initial Purchase Price pursuant to the Reorganization; (ii) has
issued a stop order suspending the effectiveness of the Form SB-2 or any part
thereof; or (iii) has initiated or threatened to issue a stop order suspending
the effectiveness of the Form SB-2 or any part thereof;
(b) any request for additional information on the part of the SEC
shall not have been complied with to the reasonable satisfaction of HTP;
20
(c) CCH shall not have received all "blue sky" permits and authorizations
necessary to issue the Shares pursuant to this Agreement and the Articles of
Merger; or
(d) the Shares received by HTP on account of the Purchase Price
shall not be qualified for quotation on the over the counter bulletin board.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF HTP
The obligations of HTP to effect the transactions contemplated herein shall
be subject to the fulfillment, satisfaction or waiver, on or before the Closing
Date, of each of the following conditions:
7.1 Conditions to the Obligations of HTP under this Agreement.
(a) Each of the obligations and covenants of CCH and CCI required
to be performed or complied with at or prior to the Closing pursuant to the terms
of this Agreement are duly performed and complied with in all material respects.
(b) The representations and warranties of CCH and CCI contained
in this Agreement are true and correct in all material respects as of the date of
this Agreement, and will be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date, except as to any
representation or warranty that specifically relates to an earlier date.
7.2 Absence of Governmental Orders. No temporary or permanent order of a
Governmental Authority shall be in effect which prohibits or makes unlawful
consummation of the transactions contemplated hereby.
7.3 Officers' Certificates. CCI shall have furnished HTP with such
certificates of its officers certifying (i) as to compliance with the conditions
set forth in this Article 7 as may be reasonably requested by HTP; and (ii) that
the stockholders of CCI have approved this Agreement and the Reorganization,
including copies of any appropriate stockholder resolutions.
7.4 Termination of Asset Purchase Agreement. The Asset Purchase Agreement
entered into between HTP, CCI and Third Enterprise shall be terminated and all
rights and obligations resulting from the Asset Purchase Agreement shall be null
and void. CCI shall obtain the consent to terminate the Asset Purchase Agreement
from Third Enterprise prior to the Closing and shall provide such consent to
HTP.
7.5 Articles of Merger. CCH, CCI and Merger Sub shall have duly authorized
and executed the Articles of Merger and shall have delivered the same to HTP.
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ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF CCH and CCI
The obligations of CCH and CCI to effect the transactions contemplated
herein shall be subject to the fulfillment, satisfaction or waiver, on or before
the Closing Date, of each of the following conditions:
8.1 Conditions to the Obligations of CCH and CCI under this Agreement.
(a) Each of the obligations and covenants of HTP required to be
performed or complied with at or prior to the Closing Date pursuant to the terms
of this Agreement will have been duly performed and complied with in all material
respects.
(b) The representations and warranties of HTP contained in this
Agreement are true and correct in all material respects as of the date of this
Agreement, and will be true and correct in all material respects as of the Closing
as though made at and as of the Closing, except as to any representation or
warranty that specifically relates to an earlier date.
8.2 Board Representation. David Hewitt, the President of the General
Partner of HTP, shall have agreed to become and shall become a member of the
board of directors of CCH upon the Closing of the Merger.
8.3 Absence of Governmental Orders. No temporary or permanent Governmental
Order shall be in effect which prohibits or makes unlawful consummation of the
transactions contemplated hereby.
8.4 Officers' Certificates. HTP shall have furnished CCH and CCI with such
certificates of their officers certifying as to compliance with the conditions
set forth in this Article 8 as may be reasonably requested by CCH and CCI.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification. Each party hereto will defend, indemnify and hold
harmless the other party and any Person claiming by or through them or any of
their successors and assigns, including, without limitation, each of the
partners of HTP, (each an "Indemnitee") from, against and in respect of any and
all costs, losses, claims, Liabilities, fines, penalties, damages and expenses
(including, without limitation, court costs, reasonable fees and disbursements
of counsel with or without suit and on appeal) (collectively, "Losses") incurred
by the Indemnitee in connection with:
(a) any breach of (i) any of the representations and warranties of
the indemnifying party, or (ii) any covenant or agreement made by the indemnifying
party in this Agreement;
(b) if HTP is the Indemnitee, obligations specifically assumed by
CCH or CCI with respect to any Asset and which arise after the Closing Date;
22
(c) if CCH or CCI is the Indemnitee, any alleged or asserted debt,
obligation, Liability or commitment of HTP not expressly assumed by CCH or CCI
hereunder; and
(d) any action, suit, proceeding, compromise, settlement, assessment
or judgment arising out of or incident to any of the matters indemnified against in
this Article 9.
9.2 Limitations and Procedures.
(a) The indemnification rights and obligations set forth in this
Article 9 shall survive the Closing Date and shall expire on the later of (i) one
year after the Closing Date, or (ii) the satisfaction of the obligation in Section
2.2(b); provided, however, that with respect to claims notified in good faith to
the indemnifying party prior to the expiration of the indemnity rights, the
parties' obligations with respect to its indemnity rights and obligations shall
continue in effect until payment or other resolution of such claims.
(b) The parties hereto shall not have any Liability under this Article
9 for breach of any covenant or warranty, for misrepresentation, or otherwise,
unless any individual claim exceeds $50,000 or the aggregate amount of all
claims for which such party would, but for this Article 9, be liable, exceeds
$200,000 on a cumulative basis. If a party's aggregate Liability for such claims
exceeds the applicable minimum amount individually or on a cumulative basis,
then such party shall be liable for only such claims, or portions thereof which
exceed the minimum.
(c) In no event shall the aggregate Liability of either party for
indemnity to the other party hereto pursuant to this Article 9, or otherwise, exceed
$1.0 million.
(d) All claims for indemnity shall be net of any Tax deductions or
other Tax benefits derived from the state of facts giving rise to the indemnity claim
and net of any applicable insurance proceeds.
(e) HTP shall have the right to satisfy any indemnity claim asserted
against it in either cash or CCH Common Stock, valued at its fair market value.
For purposes of determining the fair market value of CCH Common Stock under this
Article 9, the following shall apply: (i) for purposes of any claim for
indemnity asserted against HTP within six months from the Closing Date, the fair
market value shall be deemed to be $3.00 per share; (ii) in all other cases, the
fair market value shall be deemed to be (x) if the CCH Common Stock is publicly
traded at the time an indemnity claim is asserted by CCH, the average daily
closing trading price for the 30-day period preceding the date the indemnity
claim is asserted, or (y) in all other cases, the amount agreed to in writing by
CCH and HTP, or if they are unable to so agree, the fair market value determined
by PricewaterhouseCoopers LLP, or such other accounting firm as may be mutually
agreed by CCH and HTP (the "Appraiser"). Any party may retain the Appraiser to
determine fair market value if the parties have been unable to agree after
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meeting and conferring in good faith. The parties shall cooperate in providing
financial information to the Appraiser for purposes of determining fair market
value. CCH and HTP shall split the cost of the Appraiser.
9.3 Indemnification and Covenant Not to Sue. Notwithstanding Sections 9.1
and 9.2, the parties hereto covenant and agree that the sole shareholder of CCH
existing immediately prior to Closing shall not be liable for any Liabilities
attributed to CCH, whether arising under this Agreement, the Articles of Merger
or the transactions contemplated hereby or thereby, and the parties hereto
further agree not to seek, demand, request or sue such shareholder in respect of
any Losses caused by or attributed to CCH.
ARTICLE 10
TERMINATION
10.1 Termination. Anything herein to the contrary notwithstanding, this
Agreement may be terminated at any time before the Closing, as follows, and in
no other manner:
(a) by mutual written consent of the parties.
(b) by CCH, without Liability to HTP, by notice to HTP at any time
prior to the Closing if material default shall be made by HTP in the observance or
in the due and timely performance of any of the terms hereof to be performed by HTP
that cannot be cured at or prior to the Closing;
(c) by HTP, without Liability to CCH or CCI, by notice to CCH or CCI
at any time prior to the Closing if material default shall be made by CCH or CCI in
the observance or in the due and timely performance of any of the terms hereof to be
performed by CCH or CCI that cannot be cured at or prior to the Closing; and
(d) by HTP or CCH if the Closing shall not have occurred by December
31, 2001 (which date may be extended by mutual written agreement of the parties)
unless such failure is due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants, agreements and conditions hereof
to be performed or observed by such party at or before the Closing Date.
10.2 Written Notice. In order to terminate this Agreement pursuant to
Section 10.1, the party so acting shall give written notice of such termination
to the other parties, specifying the grounds therefor.
10.3 Waiver. At any time prior to the Closing, HTP, on the one hand, and
CCH and CCI, on the other hand, may:
(a) extend the time for the performance of any of the obligations
or other acts of the other party hereto;
(b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; or
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(c) waive compliance with any of the agreement or conditions contained
herein.
ARTICLE 11
GENERAL PROVISIONS
11.1 Survival of Representations and Warranties. The representations,
warranties, covenants, indemnities and agreements stated in this Agreement, the
Exhibits or Schedules, any other written representation and in any ancillary
document with respect to any Asset will survive Closing for a period of one year
following the Closing Date. Notwithstanding the foregoing, CCH's obligations in
Section 2.2 shall survive Closing until the obligation is satisfied.
11.2 Severability. Any provisions of this Agreement which are invalid or
unenforceable will be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
provision hereof.
11.3 Further Assurances. Each party to this Agreement will take all
actions, subject to the terms and conditions of this Agreement, that are
necessary or desirable to carry out the purposes of this Agreement, including
actions after Closing.
11.4 Notices. All notices, requests, demands or other communications
hereunder must be in writing and must be given by delivery in person, by
registered or certified mail (postage prepaid and return receipt requested) to
the respective parties as follows, or such other address as is furnished in
writing by any party to the other party in accordance herewith, except that
notices of change of address is only effective upon receipt.:
(a) If to HTP, to:
Huntington Telecommunications Partners, L.P.
40 Vienna
Newport Beach, California 92660
Attn: David Hewitt
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue
Los Angeles, California 90071
Attn: Matthew Burns, Esq.
(b) If to CCH, to:
Competitive Companies Holdings, Inc.
3751 Merced Drive, Suite A
Riverside, California 92503
Attn: Larry Halstead
(c) If to CCI, to:
Competitive Companies, Inc.
3751 Merced Drive, Suite A
Riverside, California 92503
Attn: Larry Halstead
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11.5 Parties in Interest; Assignment. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by a party without the prior written
consent of the others, which shall not be unreasonably withheld.
11.6 Entire Agreement; Amendment. This Agreement (including the Exhibits
and Disclosure Schedules hereto) and the Articles of Merger constitute the
entire agreement and supersedes all prior agreements and understandings, oral
and written, between the parties hereto with respect to the subject matter
hereof and may not be amended, modified or terminated unless in a written
instrument executed by the party or parties sought to be bound.
11.7 Venue. Any dispute arising from this Agreement shall be brought solely
within the courts of Riverside County, State of California, unless the federal
jurisdiction applies, in which case such dispute shall be brought within the
federal courts of California.
11.8 Attorneys' Fees. If any legal action or other proceeding is brought to
enforce the terms of this Agreement (whether or not suit is brought and
including any appeal) the prevailing party or parties will be entitled to
reasonable attorneys' fees and other costs and expenses incurred in that action
or proceeding.
11.9 Governing Law. This Agreement, in all respects, including all matters
of construction, validity and performance, is governed by the internal laws of
the State of California.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts and by facsimile, all of which will be considered one and the same
agreement, and each of which will be deemed an original.
26
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above by their respective officers thereunto duly
authorized.
HTP: Huntington Telecommunications Partners, L.P.
By: KBL Investment Co.
Its: General Partner
By:/s/ David C. Hewitt
Name: David C. Hewitt
Title: President
CCH: Competitive Companies Holdings, Inc.
By:/s/ Larry Halstead
Name: Larry Halstead
Title: President
CCI:
By:/s/ Larry Halstead
Name: Larry Halstead
Title: Chief Financial Officer
27
Table of Contents
Page
ARTICLE 1 DEFINITIONS...............................................2
1.1 Certain Defined Terms.........................................2
ARTICLE 2 REORGANIZATION............................................5
2.1 Effective Time................................................5
2.2 HTP's Contribution............................................5
2.3 Merger........................................................7
2.4 Effect of Merger on Securities of CCH, CCI and Merger Sub.....7
2.5 Mechanics of the Merger.......................................9
ARTICLE 3 CLOSING...................................................10
3.1 Closing.......................................................10
3.2 Termination of Prior Agreements...............................10
3.3 HTP's Obligations at Closing..................................10
3.4 CCI's Obligations at Closing..................................11
3.5 CCH Obligations at Closing....................................11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF HTP.....................11
4.1 Organization, Good Standing, Power............................11
4.2 Authorizations and Enforceability.............................11
4.3 Restrictions; Burdensome Agreements...........................12
4.4 Consent and Approvals.........................................12
4.5 Title to Property.............................................12
4.6 Condition of Assets...........................................12
4.7 Lease and Access Agreements...................................12
4.8 Investment Representations....................................13
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF CCI and CCH.............14
5.1 Organization, Good Standing, Power............................14
5.2 Authorizations and Enforceability.............................14
5.3 Restrictions; Burdensome Agreements...........................14
5.4 Consent and Approvals.........................................14
5.5 No Violation..................................................14
i
Table of Contents
(continued)
Page
5.6 CCH Shares....................................................15
5.7 Capitalization................................................15
5.8 Financial Statements..........................................16
5.9 Absence of Litigation; Compliance with Laws...................16
5.10 Government Licenses and Permits...............................17
5.11 SEC Reports...................................................17
5.12 No Broker's or Finder's Fees..................................17
5.13 Taxes.........................................................17
5.14 Accuracy of Information Furnished.............................18
ARTICLE 6 COVENANTS OF THE PARTIES..................................18
6.1 CCI Stockholder Approval......................................18
6.2 Operation of Business.........................................18
6.3 Transfer of CCI...............................................18
6.4 Consents......................................................18
6.5 Access to Properties and Records; Confidentiality.............18
6.6 Confidentiality of Terms of Agreement.........................19
6.7 Accounts Receivable Matters...................................19
6.8 Indemnification for Claims Relating to the Asset Purchase
Agreement.....................................................19
6.9 Preparation of Form SB-2......................................19
6.10 Quotation of Common Stock.....................................20
6.11 1934 Act Registration Statement...............................20
6.12 SEC Filings...................................................20
6.13 CCH Stock Option Plan.........................................20
6.14 Reservation of Conversion Shares..............................20
6.15 Registration of Shares........................................20
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF HTP......................21
7.1 Conditions to the Obligations of HTP under this Agreement.....21
7.2 Absence of Governmental Orders................................21
7.3 Officers' Certificates........................................21
ii
Table of Contents
(continued)
Page
7.4 Termination of Asset Purchase Agreement.......................21
7.5 Articles of Merger............................................21
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF CCH and CCI..............22
8.1 Conditions to the Obligations of CCH and CCI under this
Agreement.....................................................22
8.2 Board Representation..........................................22
8.3 Absence of Governmental Orders................................22
8.4 Officers' Certificates........................................22
ARTICLE 9 INDEMNIFICATION...........................................22
9.1 Indemnification...............................................22
9.2 Limitations and Procedures....................................23
9.3 Indemnification and Covenant Not to Sue.......................24
ARTICLE 10 TERMINATION...............................................24
10.1 Termination...................................................24
10.2 Written Notice................................................24
10.3 Waiver........................................................24
ARTICLE 11 GENERAL PROVISIONS........................................25
11.1 Survival of Representations and Warranties....................25
11.2 Severability..................................................25
11.3 Further Assurances............................................25
11.4 Notices.......................................................25
11.5 Parties in Interest; Assignment...............................26
11.6 Entire Agreement; Amendment...................................26
11.7 Venue.........................................................26
11.8 Attorneys' Fees...............................................26
11.9 Governing Law.................................................26
11.10 Counterparts..................................................26
iii
EXHIBIT A
The agreements listed below, which includes all leases, easements and licenses
to use real property and leases of personal property:
Attached Attached
Property Number Lease & Access Agreement
NameOf UnitsAgreement NameDate
Durham Greens 316 Telephone and 11/20/1993
Television Lease and
Access Agreement
Almaden Gardens 298 Telephone and 11/20/1993
Television Lease and
Access Agreement
Clarendon Hills 285 Telecommunications 11/7/1994
Service and License
Agreement
Rollingwood 272 Telecommunications 9/29/1998
Commons Service and License
Agreement & Amendment
The assets of HTP used to operate the Systems including its telephone switching
and voice mail equipment and cable television equipment used in the agreements
listed above.
All cable (including without limitation aerial cable and underground cable),
conduit and all spare parts and other items used in the agreements listed above.
EXHIBIT B
The Articles and Bylaws of CCH ACQUISITION, Inc, a Nevada corporation, as attached.
iv
EXHIBIT C
PLAN AND AGREEMENT OF MERGER
AMONG
COMPETITIVE COMPANIES HOLDINGS, INC.
A Nevada Corporation
AND
CCH ACQUISITION, INC.
A Nevada Corporation
AND
COMPETITIVE COMPANIES, INC.
A Nevada Corporation
THIS PLAN AND AGREEMENT OF MERGER was made and entered into on this __th day of
December, 2001, by and among COMPETITIVE COMPANIES HOLDINGS, INC., a Nevada
Corporation, CCH ACQUISITION, INC., a Nevada Corporation, and COMPETITIVE
COMPANIES, INC., a Nevada Corporation, said Corporations hereinafter sometimes
referred to jointly as the Constituent Corporations.
W I T N E S S E T H :
WHEREAS, CCH ACQUISITION, INC., is a Corporation organized and existing
under the laws of the State of Nevada, its Certificate of Incorporation having
been filed in the Office of the Secretary of State of the State of Nevada in
December, 2001, and the registered office of CCH ACQUISITION, INC., a Nevada
corporation, being located at Corporate Creations Network, Inc., 8275 South
Eastern Avenue, Suite 200, Las Vegas, NV 89123.
WHEREAS, CCH ACQUISITION, INC., is a wholly-owned subsidiary of Competitive
Companies Holdings, Inc., a Corporation organized and existing under the laws of
the State of Nevada, its Certificate of Incorporation having been filed in the
Office of the Secretary of State of the State of Nevada in October, 2001, and
the registered office of COMPETITIVE COMPANIES HOLDINGS, INC., a Nevada
corporation, being located at Corporate Creations Network, Inc., 8275 South
Eastern Avenue, Suite 200, Las Vegas, NV 89123.
WHEREAS, the total number of shares of stock which CCH ACQUISITION, INC.
AND COMPETITIVE COMPANIES HOLDINGS, INC. have authority to issue is 80,000,000
$.001 Par Value shares, of which 100 shares of common stock and 1 share of
common stock, respectively, are now issued and outstanding, and
WHEREAS, COMPETITIVE COMPANIES, INC. is a corporation organized and
existing under the laws of the State of Nevada, its Articles of Incorporation
having been filed in the office of the Secretary of State of the State of Nevada
v
in March 1998 and a Articles of Incorporation having been issued by said
Secretary of State on that date; and
WHEREAS, the aggregate number of shares which COMPETITIVE COMPANIES, INC.
has authority to issue is as follows:
46,000,000 shares of common stock of which 4,912,061 shares are outstanding; and
4,000,000 shares of preferred stock in series A, of which 4,000,000 shares of
the Class A preferred stock are outstanding; and
WHEREAS, the Board of Directors of each of the Constituent Corporations
deems it advisable that COMPETITIVE COMPANIES, INC., a Nevada corporation, be
merged into CCH ACQUISITION, INC., a Nevada corporation, on the terms and
conditions hereinafter set forth in accordance with the applicable provisions of
the statutes of the State of Nevada and Nevada respectively, which permit such
merger;
NOW THEREFORE, in consideration of the promises and of the agreements,
covenants and provisions hereinafter contained, CCH ACQUISITION, INC. and
COMPETITIVE COMPANIES, INC., by their respective Board of Directors, have agreed
and do hereby agree, each with the other as follows:
ARTICLE I
COMPETITIVE COMPANIES, INC., a Nevada corporation, and CCH ACQUISITION,
INC., a Nevada corporation, shall be merged into a single corporation, in
accordance with applicable provisions of the laws of the State of Nevada and of
the State of Nevada, by COMPETITIVE COMPANIES, INC., a Nevada Corporation,
merging into CCH ACQUISITION, INC., a Nevada Corporation, which shall be the
surviving corporation.
ARTICLE II
Upon the merger becoming effective as provided in the applicable laws of
the State of Nevada, and of the State of Nevada,:
1. The two Constituent Corporations shall be a single corporation, which
shall be CCH ACQUISITION, INC., a Nevada corporation, as the Surviving
Corporation, and the separate existence of COMPETITIVE COMPANIES, INC., a Nevada
corporation, shall cease except to the extent provided by the laws of the State
of Nevada in the case of a corporation after its merger into another
corporation.
2. CCH ACQUISITION, INC., a Nevada corporation, shall thereupon and
thereafter possess all the rights, privileges, immunities and franchises, as
well as the public and the private nature of each of the Constituent
Corporations; all property, real, personal and mixed, all debts due on whatever
vi
account including subscriptions to shares, all other cases in action, and all
and every other interest of or belonging to or due to each of the Constituent
Corporations which shall be taken and deemed to be vested in the Surviving
Corporation without further act of deed; and the title to all real estate, or
any interest therein vested in either of the Constituent Corporations which
shall not revert or be in any way impaired by reason of this merger.
3. CCH ACQUISITION, INC., a Nevada corporation, shall thenceforth be
responsible and liable for all of the liabilities and obligations of each of the
Constituent Corporations; and any claim existing or action or proceeding pending
by or against either of the Constituent Corporations may be prosecuted to
judgment as if the merger had not taken place, or the Surviving Corporation may
be substituted in its place and neither of the rights of creditors nor any liens
upon the property of either of the Constituent Corporations shall be impaired by
the merger.
4. The Surviving Corporation hereby agrees that it may be served with
process in the State of Nevada in any proceeding for the enforcement of any
obligations of COMPETITIVE COMPANIES, INC., a Nevada Corporation, arising from
the merger, including the rights of any dissenting stockholders thereof, and
hereby irrevocably appoints the Secretary of State of Nevada as its agent to
accept service of process in any such suit or other proceedings and agrees that
service of any such process may be made by personally delivering to and leaving
with such Secretary of State of the State of Nevada duplicate copies of such
process; and hereby authorizes the Secretary of State of the State of Nevada to
send forthwith by registered mail one of the such duplicate copies of such
process addressed to the Surviving Corporation, unless said Surviving
Corporation shall hereafter designate in writing to such Secretary of State of
Nevada a different address for such process, in which case the duplicate copy of
such process shall be mailed to the last address so designated.
5. The aggregate amount of the net assets of the Constituent Corporations
which was available for the payment of dividends immediately prior to the merger
to the extent that the value thereof is not transferred to stated capital by the
issuance of shares or otherwise shall continue to be available for the payment
of dividends by the Surviving Corporation.
6. The Bylaws of CCH ACQUISITION, INC., a Nevada Corporation, as existing
and constituted immediately prior to the effective date of merger shall be and
constitute the bylaws of the Surviving corporation.
7. The Board of Directors, the members thereof, and the Officers of
COMPETITIVE COMPANIES, INC., a Nevada corporation, immediately prior to the
effective date of merger shall be and constitute the Board of Directors, the
members thereof, and the Officers of the Surviving Corporation.
vii
ARTICLE III
The Articles of Incorporation of CCH ACQUISITION, INC., a Nevada
corporation, shall not be amended in any respect by reason of this Agreement of
Merger and said Articles of Incorporation, as filed in the office of the
Secretary of State of the State of Nevada in December 2001, shall constitute the
Articles of Incorporation of the Surviving Corporation until amended in the
manner provided by law and is set forth in Exhibit A attached hereto and made a
part of this Plan and Agreement of Merger with the same force and effect as if
set forth in full herein. The Articles of Incorporation as set forth in said
Exhibit A and separate and apart from this Plan and Agreement of Merger may be
certified separately as the Articles of Incorporation of the Surviving
Corporation.
ARTICLE IV
The manner and basis of converting the shares of each of the Constituent
Corporations into shares of COMPETITIVE COMPANIES HOLDINGS, INC. is as follows:
1. After the effective date of the merger, each owner of an outstanding
certificate or certificates theretofore representing shares of common stock
COMPETITIVE COMPANIES, INC., a Nevada corporation, shall be entitled, upon
surrendering such certificate or certificates to the Surviving Corporation, to
receive in exchange therefor a certificate or certificates representing the same
number of shares of stock of COMPETITIVE COMPANIES HOLDINGS, INC. Until so
surrendered, each outstanding certificate which, prior to the effective date of
the merger, represented shares of shall be deemed, for all corporate purposes,
to represent the ownership of the stock of the Surviving Corporation on the
basis hereinbefore provided.
2. After the effective date of the merger, each owner of an outstanding
certificate or certificates theretofore representing shares of Class A preferred
stock COMPETITIVE COMPANIES, INC., a Nevada corporation, shall be entitled, upon
surrendering such certificate or certificates to the Surviving Corporation, to
receive in exchange therefore a certificate or certificates representing the
number of shares of stock of COMPETITIVE COMPANIES HOLDINGS, INC. in the same
class with the same rights and preferences. Until so surrendered, each
outstanding certificate which, prior to the effective date of the merger,
represented shares of COMPETITIVE COMPANIES, INC. shall be deemed, for all
corporate purposes, to represent the ownership of the stock of the Surviving
Corporation on the basis hereinbefore provided.
3. Upon the merger, the Surviving Corporation shall issues shares of Class
B Preferred Stock to the persons who have rights to receive additional shares of
Common Stock in COMPETITIVE COMPANIES HOLDINGS, INC., on the following terms and
conditions:
1 -
the fraction: [average of opening bid and ask price on the over the counter bulletin board/$3.00]
divided by
the fraction: [average of opening bid and ask price on the over the counter bulletin board/$3.00]
viii
For example, assume average opening bid/ask of $2.00. 1 - 2/3 = 1/3. 1/3divided
by 2/3 = .5 additional share of common stock issued upon conversion
and these rights in COMPETITIVE COMPANIES, INC., a Nevada corporation shall
thereafter be deemed null and void.
4. Upon the merger, COMPETITIVE COMPANIES HOLDINGS, INC.shall issues
options to holders of options in COMPETITIVE COMPANIES, INC., a Nevada
corporation, having the same terms and conditions as the options in COMPETITIVE
COMPANIES, INC., a Nevada corporation, as are issued and outstanding as of the
date of the merger, and the options in COMPETITIVE COMPANIES, INC., a Nevada
corporation shall thereafter be deemed null and void.
ARTICLE V
If at any time the Surviving Corporation shall consider or be advised that
any further assignment of assurance in law are necessary or desirable to vest in
the Surviving Corporation the title to any property or rights of COMPETITIVE
COMPANIES, INC., a Nevada corporation, the proper Officers and Directors of
COMPETITIVE COMPANIES, INC., a Nevada corporation, shall and will execute and
make all such proper assignments and assurances in law and do all things
necessary or proper to thus vest such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes of this Plan and Agreement
of Merger.
ARTICLE VI
This Plan and Agreement of Merger shall be submitted to the stockholders of
each of the Constituent Corporations as provided by law and shall take effect,
be deemed and be taken to be the Plan and Agreement of Merger of said
corporations upon the approval or adoption thereof by the stockholders of each
of the Constituent Corporations in accordance with the requirements of the laws
of the State of Nevada and upon the execution, filing and recording of such
documents and the doing of such acts and things as shall be required for
accomplishing the merger under the provisions of the applicable statutes of the
State of Nevada as heretofore amended and supplemented.
ix
ARTICLE VII
Anything herein or elsewhere to the contrary notwithstanding this Plan and
Agreement of Merger may be abandoned by either of the Constituent Corporations
by an appropriate resolution of its Board of Directors at any time prior to its
approval or adoption by the stockholders thereof or by the mutual consent of the
Constituent Corporations evidenced by appropriate resolution of their respective
Board of Directors at any time prior to the effective date of the Merger.
x
IN WITNESS WHEREOF, COMPETITIVE COMPANIES HOLDINGS, INC., A Nevada
corporation, CCH ACQUISITION, INC., a Nevada corporation, and COMPETITIVE
COMPANIES, INC., a Nevada Corporation, pursuant to the approval and authority
duly given by resolutions adopted by their respective Board of Directors have
caused this Plan and Agreement of Merger to be executed by the President and
Attested by the Secretary of each party hereto.
COMPETITIVE COMPANIES
HOLDINGS, INC. COMPETITIVE COMPANIES, INC.
A Nevada Corporation A Nevada Corporation
ATTEST: ATTEST:
By:____________________________ By:____________________________
PRESIDENT CHIEF FINANCIAL OFFICER
By:____________________________ By:____________________________
SECRETARY SECRETARY
CCH ACQUISITION, INC.
A Nevada Corporation
ATTEST:
By:____________________________
PRESIDENT
By:____________________________
SECRETARY
xi
EXHIBIT D
BILL OF SALE
Seller, for good and valuable consideration given pursuant to an Agreement and
Plan of Reorganization dated December 17, 2001 (the "Reorganization Agreement")
by and among Huntington Telecommunications Partners, L.P., a California limited
partnership ("HTP"), CCH ACQUISITION, Inc., a Nevada corporation ("CCH"), and
Competitive Companies, Inc., a Nevada corporation ("CCI"), the receipt and
sufficiency of which consideration is hereby acknowledged, does hereby sell,
assign, transfer and set over to CCH, in accordance with the Reorganization
Agreement, all of Seller's right, title and interest in and to the Assets (as
defined in the Reorganization Agreement) described on Exhibit A attached hereto.
Date: December 17, 2001
SELLER: Huntington Telecommunications Partners, LP
By:KBL Investment Co., General Partner
By:Huntington Partners, Inc., General Partner
By: _______________________
Name & Title:David C. Hewitt,
xii
EXHIBIT E
FORM OF ACKNOWLEDGMENT AND CONSENT
This Acknowledgment and Consent is executed by___________________________
("Owner"), who is the Owner of the multi-family residential complex known as
_______________________________________________ (the "Property"), located at
_______________________________________________, the legal description of which
is attached hereto as Exhibit A.
Huntington Telecommunications Partners, LP, a California limited partnership
("Operator"), is the provider of television and/or telephone service to the
Property under a Lease and Access Agreement dated ____________________ (the
"Agreement").
Competitive Companies, Inc., a Nevada corporation is the parent company of CCI
Residential Services, Inc., a California corporation ("CCIRS"). CCIRS has been
providing operations and management services to the Property for the Operator
through Competitive Communications, Inc. ("CCI") since service commencement. On
December 4, 2001, Operator and CCH ACQUISITION signed an agreement for CCH
ACQUISITION to acquire the Operator's interest in the Agreement and all assets
of Operator which are part of or related to the _______________________
system(s) on the Property, including all Operator's wiring, electronics devices,
hardware and other equipment.
In consideration of the acquisition, Operator has received an equity interest in
COMPETITIVE COMPANIES HOLDINGS, INC., a Nevada corporation, the parent of CCH
ACQUISITION.
Owner represents and warrants that as of the date hereof (a) the Agreement is in
full force and effect and there are no amendments, modifications or supplements
thereto, either oral or written; (b) Owner has not assigned, transferred or
hypothecated the Agreement or any interest therein, except as described herein;
and (c) to the knowledge of Owner, no default or event exists with respect to
the Agreement that, with notice or the passage of time or both, would result in
the termination of the Agreement. Owner irrevocably consents to the assignment
by Operator of its right, title and interest in the Agreement to CCH ACQUISITION
and CCIRS.
Date: ___________________________
PROPERTY OWNER:
_________________________________
By:____________________________________
Name & Title:___________________________
xiii
ARTICLES OF MERGER
OF
CCH ACQUISITION, INC.,
a Nevada corporation
AND
COMPETITIVE COMPANIES, INC.,
a Nevada corporation
To the Secretary of State
State of Nevada
Pursuant to the provisions of Chapter 92A, Nevada Revised Statutes, the
constituent domestic corporations herein named do hereby submit the following
Articles of Merger.
1. An Agreement and Plan of Reorganization (the "Plan of Reorganization")
has been adopted by the Board of Directors of CCH Acquisition, Inc., a Nevada
corporation, and by the Board of Directors of Competitive Companies, Inc., a
Nevada corporation, to, among other things, merge CCH Acquisition, Inc. with and
into Competitive Companies, Inc., with Competitive Companies, Inc. surviving the
merger. As a result of the merger, Competitive Companies, Inc. shall become a
wholly owned subsidiary of Competitive Companies Holdings, Inc. The complete
executed Plan of Reorganization is on file at the registered office of
Competitive Companies, Inc., which is 3751 Merced Drive, Suite A, Riverside,
California 92503.
2. The Plan of Reorganization was approved by the unanimous written consent
of the stockholders of CCH Acquisition, Inc. pursuant to the provisions of
Chapter 92A, Nevada Revised Statutes.
(i) The designation and the number of votes entitled to be cast by
each class entitled to vote on the said Plan of Reorganization are as follows:
(a) Designation of class: Common Stock
(b) Number of votes of class entitled to be cast: 100
(ii) The total number of undisputed votes cast for the merger herein
provided for by each class entitled to vote on the said Plan of Reorganization
is as follows:
(a) Designation of class: Common Stock
(b) Number of undisputed votes of class cast for Plan of Reorganization: 100
1
(iii) The said number of votes cast for the said Plan of Reorganization
was sufficient for the approval thereof by the said class.
3. The Plan of Reorganization was approved by the written consent of the
stockholders of Competitive Companies, Inc. pursuant to the provisions of Chapter
92A, Nevada Revised Statutes.
(i) The designation and the number of votes entitled to be cast by
each class entitled to vote on the said Plan of Reorganization are as follows:
(a) Designation of class: Common Stock
(b) Number of votes of class entitled to be cast: 4,912,061
(ii) The total number of votes cast for and against the merger herein
provided for by each class entitled to vote on the said Plan of Reorganization is
as follows:
(a) Designation of class: Common Stock
(b) Number of votes of class cast for Plan of Reorganization: 2,528,600
(c) Number of votes of class cast against Plan of Reorganization: not applicable.
(iii) The said number of votes cast for the said Plan of Reorganization
was sufficient for the approval thereof by the said class.
4. No amendments to the Articles of Incorporation of Competitive Companies,
Inc. are effected by the merger herein provided for.
2
Signed on December 21, 2001
Competitive Companies, Inc.
/s/ Larry Halstead Larry Halstead, Chief Financial Officer
/s/ Larry Halstead Larry Halstead, Secretary
CCH Acquisition, Inc.
/s/ Larry Halstead Larry Halstead, President
/s/ Larry Halstead Larry Halstead, Secretary
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION
OF
COMPETITIVE COMPANIES HOLDINGS, INC.,
a Nevada corporation
To the Secretary of State
State of Nevada
Pursuant to the provisions of Chapter 78, Nevada Revised Statutes, the
constituent domestic corporations herein named do hereby submit the following
Articles of Amendment to Articles of Incorporation.
1. An Amendment has been adopted by the Board of Directors of Competitive
Companies Holdings, Inc., a Nevada corporation, to change the corporations name
to: COMPETITIVE COMPANIES, INC.
2. The Amendment was approved by the unanimous written consent of the
stockholders of Competitive Companies Holdings, Inc. pursuant to the provisions
of Chapter 78, Nevada Revised Statutes.
(i) The designation and the number of votes entitled to be cast by
each class entitled to vote on the said Amendment are as follows:
(a) Designation of class: Common Stock
(b) Number of votes of class entitled to be cast: 1
(ii) The total number of undisputed votes cast for the merger herein
provided for by each class entitled to vote on the said Amendment is as follows:
(a) Designation of class: Common Stock
(b) Number of undisputed votes of class cast for Amendment: 1
(iii) The said number of votes cast for the said Amendment was
sufficient for the approval thereof by the said class.
1
Signed on December 27, 2001
Competitive Companies Holdings, Inc.
/s/ Larry Halstead Larry Halstead, President
/s/ Larry Halstead Larry Halstead, Secretary
Bylaws
of
COMPETITIVE COMPANIES, INC.
ARTICLE I. DIRECTORS
Section 1. Function. All corporate powers shall be exercised by or under the
authority of the Board of Directors. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. Directors must
be natural persons who are at least 18 years of age but need not be shareholders
of the Corporation. Residents of any state may be directors.
Section 2. Compensation. The shareholders shall have authority to fix the
compensation of directors. Unless specifically authorized by a resolution of the
shareholders, the directors shall serve in such capacity without compensation.
Section 3. Presumption of Assent. A director who is present at a meeting of
the Board of Directors or a committee of the Board of Directors at which action in
any corporate matter is taken shall be presumed to have assented to the action
taken unless he objects at the beginning of the meeting (or promptly upon
arriving) t the holding of the meeting or transacting the specified business at
the meeting, or if the director votes against the action taken or abstains from
voting because of an asserted conflict of interest.
Section 4. Number. The Corporation shall have at least the minimum number of
directors required by law. The number of directors may be increased or decreased
from time to time by the Board of Directors.
Section 5. Election and Term. At each annual meeting of shareholders, the
shareholders shall elect directors to hold office until the next annual meeting
or until their earlier resignation, removal from office or death. Directors
shall be elected by a plurality of the votes cast by the shares entitled to vote
in the election at a meeting at which a quorum is present.
Section 6. Vacancies. Any vacancy occurring in the Board of Directors, including
a vacancy created by an increase in the number of directors, may be filled by
the shareholders or by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall hold office only until the next election of
directors by the shareholders. If there are no remaining directors, the vacancy
shall be filled by the shareholders.
1
Section 7. Removal of Directors. At a meeting of shareholders, any director
or the entire Board of Directors may be removed, with or without cause, provided
the notice of the meeting states that one of the purposes of the meeting is the
removal of the director. A director may be removed only if the number of votes
cast to remove him exceeds the number of votes cast against removal.
Section 8. Quorum and Voting. A majority of the number of directors fixed by
these Bylaws shall constitute a quorum for the transaction of business. The act
of a majority of directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 9. Executive and Other Committees. The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate from among
its members one or more committees each of which must have at least two members.
Each committee shall have the authority set forth in the resolution designating
the committee.
Section 10. Place of Meeting. Regular and special meetings of the Board of
Directors shall be held at the principal place of business of the Corporation or
at another place designated by the person or persons giving notice or otherwise
calling the meeting.
Section 11. Time, Notice and Call of Meetings. Regular meetings of the Board
of Directors shall be held without notice at the time and on the date designated
by resolution of the Board of Directors. Written notice of the time, date and place
of special meetings of the Board of Directors shall be given to each director by
mail delivery at least two days before the meeting.
Notice of a meeting of the Board of Directors need not be given to a
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting constitutes a waiver of notice of that
meeting and waiver of all objections to the place of meeting, the time of
meeting, and the manner in which it has been called or convened, unless a
director objects to the transaction of business (promptly upon arrival at the
meeting) because the meeting is not lawfully called or convened. Neither the
business to be transacted at, not the purpose of, any regular or special meeting
if the Board of Directors must be specified in the notice or waiver of notice of
the meeting.
A majority of the directors present, whether or not a quorum exists, may
adjourn any meeting of the Board of Directors to another time and place. Notice
of an adjourned meeting shall be given to the directors who were not present at
the time of the adjournment and, unless the time and place of the adjourned
meeting are announced at the time of the adjournment, to the other directors.
Meetings of the Board of Directors may be called by the President or the
Chairman of the Board of Directors. Members of the Board of Directors and any
committee of the Board may participate in a meeting by telephone conference or
similar communications equipment if all persons participating
2
in the meeting can hear each other at the same time. Participation by these
means constitutes presence in person at a meeting.
Section 12. Action By Written Consent.Any action required or permitted to be
taken at a meeting of directors may be taken without a meeting if a consent in
writing setting forth the action to be taken and signed by all of the directors
is filed in the minutes of the proceedings of the Board. The action taken shall
be deemed effective when the last director signs the consent, unless the consent
specifies otherwise.
ARTICLE II. MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders of the
corporation for the election of officers and for such other business as may
properly come before the meeting shall be held at such time and place as
designated by the Board of Directors.
Section 2. Special Meeting. Special meetings of the shareholders shall be held
when directed by the President or when requested in writing by shareholders
holding at least 10% of the Corporation's stock having the right and entitled to
vote at such meeting. A meeting requested by shareholders shall be called by the
President for a date not less than 10 nor more than 60 days after the request is
made. Only business within the purposes described in the meeting notice may be
conducted at a special shareholders' meeting.
Section 3. Place. Meetings of the shareholders will be held at the principal
place of business of the Corporation or at such other place as is designated by
the Board of Directors.
Section 4. Notice. A written notice of each meeting of shareholders shall be
mailed to each shareholder having the right and entitled to vote at the meeting
at the address as it appears on the records of the Corporation. The meeting
notice shall be mailed not less than 10 nor more than 60 days before the date
set for the meeting. The record date for determining shareholders entitled to
vote at the meeting will be the close of business on the day before the notice
is sent. The notice shall state the time and place the meeting is to be held. A
notice of a special meeting shall also state the purposes of the meeting. A
notice of meeting shall be sufficient for that meeting and any adjournment of
it. If a shareholder transfers any shares after the notice is sent, it shall not
be necessary to notify the transferee. All shareholders may waive notice of a
meeting at any time.
Section 5. Shareholder Quorum. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. Any number of shareholders, even if less than a quorum, may
adjourn the meeting without further notice until a quorum is obtained.
3
Section 6. Shareholder Voting. If a quorum is present, the affirmative vote
of a majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders. Each outstanding share
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. An alphabetical list of all shareholders who are entitled to
notice of a shareholders' meeting along with their addresses and the number of
shares held by each shall be produced at a shareholders' meeting upon the
request of any shareholder.
Section 7. Proxies. A shareholder entitled to vote at any meeting of
shareholders or any adjournment thereof may vote in person or by proxy executed
in writing and signed by the shareholder or his attorney-in-fact. The
appointment of proxy will be effective when received by the Corporation's
officer or agent authorized to tabulate votes. No proxy shall be valid more than
11 months after the date of its execution unless a longer term is expressly
stated in the proxy.
Section 8. Validation. If shareholders who hold a majority of the voting stock
entitled to vote at a meeting are present at the meeting, and sign a written
consent to the meeting on the record, the acts of the meeting shall be valid,
even if the meeting was not legally valid and noticed.
Section 9. Conduct of Business By Written Consent. Any action of the
shareholders may be taken without a meeting if written consents, setting forth
the action taken, are signed by at least a majority of shares entitled to vote
and are delivered to the officer or agent of the Corporation having custody of
the Corporation's records within 60 days after the date that the earliest
written consent was delivered. Within 10 days after obtaining an authorization
of an action by written consent, notice shall be given to those shareholders who
have not consented in writing or who are not entitled to vote on the action. The
notice shall fairly summarize the material features of the authorized action. If
the action creates dissenters' rights, the notice shall contain a clear
statement of the right of dissenting shareholders to be paid the fair value of
their shares upon compliance with and as provided for by the state law governing
corporations.
ARTICLE III. OFFICERS
Section 1. Officers; Election; Resignation; Vacancies. The Corporation shall
have the officers and assistant officers that the Board of Directors appoint
from time to time. Except as otherwise provided in an employment agreement which
the Corporation has with an officer, each officer shall serve until a successor
is chosen by the directors at a regular or special meeting of the directors or
until removed. Officers and agents shall be chosen, serve for the terms, and
have the duties determined by the directors. A person may hold two or more
offices.
4
Any officer may resign at any time upon written notice to the Corporation.
The resignation shall be effective upon receipt, unless the notice specifies a
later date. If the resignation is effective at a later date and the Corporation
accepts the future effective date, the Board of Directors may fill the pending
vacancy before the effective date provided the successor officer does not take
office until the future effective date. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise may be filled for
the unexpired portion of the term by the Board of Directors at any regular or
special meeting.
Section 2. Powers and Duties of Officers. The officers of the Corporation
shall have such powers and duties in the management of the Corporation as may be
prescribed by the Board of Directors and, to the extent not so provided, as
generally pertain to their respective offices, subject to the control of the
Board of Directors.
Section 3. Removal of Officers. An officer or agent or member of a committee
elected or appointed by the Board of Directors may be removed by the Board with
or without cause whenever in its judgment the best interests of the Corporation
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment of an
officer, agent or member of a committee shall not of itself create contract
rights. Any officer, if appointed by another officer, may be removed by that
officer.
Section 4. Salaries. The Board of Directors may cause the Corporation to enter
into employment agreements with any officer of the Corporation. Unless provided
for in an employment agreement between the Corporation and an officer, all
officers of the Corporation serve in their capacities without compensation.
Section 5. Bank Accounts. The Corporation shall have accounts with financial
institutions as determined by the Board of Directors.
ARTICLE IV. DISTRIBUTIONS
The Board of Directors may, from time to time, declare distributions to its
shareholders in cash, property, or its own shares, unless the distribution would
cause (i) the Corporation to be unable to pay its debts as they become due in
the usual course of business, or (ii) the Corporation's assets to be less than
its liabilities plus the amount necessary, if the Corporation were dissolved at
the time of the distribution, to satisfy the preferential rights of shareholders
whose rights are superior to those receiving the distribution. The shareholders
and the Corporation may enter into an agreement requiring the distribution of
corporate profits, subject to the provisions of law.
5
ARTICLE V. CORPORATE RECORDS
Section 1. Corporate Records. The corporation shall maintain its records in
written form or in another form capable of conversion into written form within a
reasonable time. The Corporation shall keep as permanent records minutes of all
meetings of its shareholders and Board f Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors on behalf of the
Corporation. The Corporation shall maintain accurate accounting records and a
record of its names and addresses of all shareholders in alphabetical order by
class of shares showing the number and series of shares held by each.
The Corporation shall keep a copy of its articles or restated articles of
incorporation and all amendments to them currently in effect; these Bylaws or
restated Bylaws and all amendments currently in effect; resolutions adopted by
the Board of Directors creating one or more classes or series of shares and
fixing their relative rights, preferences, and limitations, if shares issued
pursuant to those resolutions are outstanding; the minutes of all shareholders'
meetings and records of all actions taken by shareholders without a meeting of
the past three years; written communications to all shareholders generally or
all shareholders of a class of series within the past three years; including the
financial statements furnished for the last three years; a list of names and
business street addresses of its current directors and officers; and its most
recent annual report delivered to the Department of State.
Section 2. Shareholders' Inspection Rights. A shareholder is entitled to
inspect and copy, during regular business hours at a reasonable location specified
by the Corporation, any books and records of the Corporation. The shareholder must
give the Corporation written notice of this demand at least five business days
before the date on which he wishes to inspect and copy the record(s). The demand
must be made in good faith and for a proper purpose. The shareholder must
describe with reasonable particularity the purpose and the records he desires to
inspect, and the records must be directly connected with this purpose. This
Section does not affect the right of shareholder to inspect and copy the
shareholders' list described in this Article if the shareholder is in litigation
with the Corporation. In such a case, the shareholder shall have the same rights
as any other litigant to compel the production of corporate records for
examination.
The Corporation may deny any demand for inspection if the demand was made
for an improper purpose, or if the demanding shareholder has within the two
years preceding his demand, sold or offered for sale any list of shareholders of
the Corporation or of any other corporation, had aided or abetted any person in
procuring any list of shareholders for that purpose, or has improperly used any
information secured through any prior examination of the records of this
Corporation or any other corporation.
6
Section 3. Financial Statements for Shareholders. Unless modified by resolution
of the shareholders within 120 days after the close of each fiscal year, the
Corporation shall furnish its shareholders with annual financial statements
which may be consolidated or combined statements of the Corporation and one or
more of its subsidiaries, as appropriate, that include a balance sheet as of the
end of the fiscal year, an income statement for that year, and a statement of
cash flows for that year. If financial statements are prepared for the
Corporation on the basis of generally accepted accounting principles, the annual
financial statements must also be prepared on that basis.
If the annual financial statements are reported upon by a public accountant,
his report must accompany them. If not, the statements must be accompanied by a
statement of the President or the person responsible for the Corporation's
accounting records stating his reasonable belief whether the statements were
prepared on the basis of generally accepted accounting principles and, if not,
describing the basis of preparation and describing any respects in which the
statements were not prepared on a basis of accounting consistent with the
statements prepared for the preceding year. The Corporation shall mail the
annual financial statements to each shareholder within 120 days after the close
of each fiscal year or within such additional time thereafter as is reasonably
necessary to enable the Corporation to prepare its financial statements.
Thereafter, on written request from a shareholder who was not mailed the
statements, the Corporation shall mail him the latest annual financial
statements.
Section 4. Other Reports to Shareholders. If the Corporation indemnifies or
advances expenses to any director, officer, employee or agent otherwise than by
court order or action by the shareholders or by an insurance carrier pursuant to
insurance maintained by the Corporation, the Corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next annual shareholders' meeting, or prior to the meeting if the
indemnification or advance occurs after the giving of the notice but prior to
the time the annual meeting is held. This rep[ort shall include a statement
specifying the persons paid, the amounts paid, and the nature and status at the
time of such payment of the litigation or threatened litigation.
If the Corporation issues or authorizes the issuance of shares for promises
to render services in the future, the Corporation shall report in writing to the
shareholders the number of shares authorized or issued, and the consideration
received by the corporation, with or before the notice of the next shareholder's
meeting.
ARTICLE VI. STOCK CERTIFICATES
Section 1. Issuance. The Board of Directors may authorize the issuance of some
or all of the shares of any or all of its classes or series without
certificates. Each certificate issued shall be signed by the President and the
Secretary (or the Treasurer). The rights an obligations of shareholders are
identical whether or not their shares are represented by certificates.
7
Section 2. Registered Shareholders. No certificate shall be issued for any
share until the share is fully paid. The Corporation shall be entitled to treat
the holder of record of shares as the holder in fact and, except as otherwise
provided by law, shall not be bound to recognize any equitable or other claim to
or interest in the shares.
Section 3. Transfer of Shares. Shares of the Corporation shall be transferred
on its books only after the surrender to the Corporation of the share certificates
duly endorsed by the holder of record or attorney-in-fact. If the surrendered
certificates are canceled, new certificates shall be issued to the person
entitled to them, and the transaction recorded on the books of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. If a shareholder claims
to have lost or destroyed a certificate of shares issued by the Corporation, a new
certificate shall be issued upon the delivery to the Corporation of an affidavit
of that fact by the person claiming the certificate of stock to be list, stolen
or destroyed, and, at the discretion of the Board of Directors, upon the deposit
of a bond or other indemnity as the Board reasonably requires.
ARTICLE VII. INDEMNIFICATION
Section 1. Right to Indemnification. The Corporation hereby indemnifies each
person (including the heirs, executors, administrators, or estate of such
person) who is or was a director or officer of the Corporation to the fullest
extent permitted or authorized by current or future legislation or judicial or
administrative decision against all fines, liabilities, costs and expenses,
including attorney's fees, arising out of his or her status as a director,
officer, agent, employee or representative. The foregoing right of
indemnification shall not be exclusive of other rights to which those seeking an
indemnification may be entitled. The Corporation may maintain insurance, at its
expense, to protect itself and all officers and directors against fines,
liabilities, costs and expenses, whether or not the Corporation would have the
legal power to indemnify them directly against such liability.
Section 2. Advances. Costs, charges and expenses (including attorney's fees)
incurred by a person referred to in Section 1 of this Article in defending a
civil or criminal proceeding shall be paid by the Corporation in advance of the
final disposition thereof upon receipt of an undertaking to repay all amounts
advanced if it is ultimately determined that the person is not entitled to be
indemnified by the Corporation as authorized by this Article, and upon
satisfaction of other conditions required by current or future legislation.
Section 3. Savings Clause. If this Article or any portion of it is invalidated
on any ground by a court of competent jurisdiction, the Corporation nevertheless
indemnifies each person described in Section 1 of this Article to the fullest
extent permitted by all portions of this Article that have not been invalidated
and to the fullest extent permitted by law.
8
ARTICLE VIII. AMENDMENT
These Bylaws may be altered, amended or repealed, and new Bylaws adopted,
by a majority vote of the directors or by a vote of the shareholders holding a
majority of the shares.
I certify that these are the Bylaws adopted by the Board of Directors of
the Corporation.
/s/ Larry Halstead
Secretary
Date:______________
SCHEDULE A
Class C convertible preferred shares
Competitive Companies Holdings, Inc., a Nevada corporation, shall issue
1,000,000 shares of Class C convertible preferred stock entitling persons owning
the Class C shares the following:
The stock shall convert into such number or fraction there of shares of common
stock based upon the following:
If the average of the closing bid price for the common stock for first five
business day period immediately following the closing of the reorganization
agreement during which the common stock is qualified for quotation on the
over the counter bulletin board is less than $3.00 per share, the number of
shares of common stock to be issued upon conversion of the Class C
preferred stock shall be the product obtained by multiplying the following
conversion ratio by the 1,000,000 shares of Class C preferred stock held by
the Holders of Class C Preferred Shares collectively. The conversion ratio
shall be one minus the adjusted price divided by the adjusted price. The
adjusted price shall be determined by dividing the closing bid price for
the common stock for first five business day period immediately following
the closing of the reorganization agreement during which the common stock
is qualified for quotation on the over the counter bulletin board by $3.00.
For purposes of determining the closing bid price for the common stock for
first five business day period immediately following the closing of the
reorganization agreement during which the common stock is qualified for
quotation on the over the counter bulletin board, purchases of our common
stock by us or our affiliates or persons controlled by us or our affiliates
shall be disregarded. In addition, if trades have not been executed on at
least three of those five days, the adjustment period shall be extended
until our common stock shall have been traded on at least three days, and
the average closing bid price for those three trading days shall be the
price used in the formula.
For example, assume average of first 5 days closing bid of $2.00, and no other
adjustments under the formula. The conversion would occur as follows:
o 1 - 2/3 = 1/3.
o 1/3 divided by 2/3 = .5.
o .5 x 1,000,000 = 500,000.
Accordingly, 500,000 shares of common stock would be issued to the Holders of
Class C Preferred Shares collectively upon conversion of the Class C preferred
stock.
1
For so long as at least 50,000 shares of Class C preferred stock remain
outstanding, in addition to any other vote or consent required in the articles
or by law, the vote of the holders of 75% of the shares of Class C preferred
stock shall be necessary to effect any amendment, alteration or repeal of any of
the provisions of articles or bylaws that alters or changes the voting powers,
preferences or other special rights or privileges, qualifications, limitations
or restrictions of the Class C preferred stock.
If at any time after the date of the issuance of Class C Preferred Stock
Competitive Companies Holdings, Inc., a Nevada corporation, shall effect a
subdivision of its outstanding common stock or preferred stock, the conversion
ratios as determined above will be proportionately adjusted. Holders of the all
classes of Class C preferred shares are not entitled to preferential dividend
rights, redemption or voting rights.
SCHEDULE B
Class A preferred stock
Competitive Companies Holdings, Inc., a Nevada corporation, shall issue
4,000,000 shares of Class A convertible preferred stock These 4,000,000 shares
are convertible into 20,000,000 shares of common stock. Conversion may occur at
any time, in whole or in part up to the number of shares set forth below with
the achievement of the following events for a period commencing on the date such
event was achieved and ending on December 31, 2010.
The conversion events are as follows:
Event Number of shares of common stock issued upon
conversion
Achieving 100% increase in the combined number of 10,000,000
owned apartment complex passings plus non-apartment
complex customers
Achieving 10,000 customers in the combined number of 5,000,000
owned apartment complex passings and non-apartment
complex customers
Achieving 20,000 customers in the combined number of 5,000,000
owned apartment complex passings and non-apartment
complex customers
o An apartment complex passing is an individual apartment under direct
contract with it for telephone, television or Internet service.
o A non-apartment complex customer is a non-apartment residential or business
customer that is counted once for each major service to which they
subscribe.
2
Conversion events are based on customer base existing as of December 9, 1999.
If at any time after the date of the issuance of Class A Preferred Stock
Competitive Companies Holdings, Inc., a Nevada corporation, shall effect a
subdivision of its outstanding common stock or preferred stock, the conversion
ratios as determined above will be proportionately adjusted. Holders of the all
classes of Class A preferred shares are not entitled to preferential dividend
rights, redemption or voting rights.
Class B convertible preferred shares
Competitive Companies Holdings, Inc., a Nevada corporation, shall issue
1,495,436 shares of Class B convertible preferred stock entitling persons owning
the Class B shares the following:
The stock shall convert into such number or fraction thereof shares of common
stock based upon the following:
1- the fraction: [average of opening bid and ask price on the over the counter bulletin board/$3.00]
divided by
the fraction: [average of opening bid and ask price on the over the counter bulletin board/$3.00]
For example, assume average opening bid/ask of $2.00. 1 - 2/3 = 1/3. 1/3 divided
by 2/3 = .5 additional share of common stock issued upon conversion.
If at any time after the date of the issuance of Class B Preferred Stock
Competitive Companies Holdings, Inc., a Nevada corporation, shall effect a
subdivision of its outstanding common stock or preferred stock, the conversion
ratios as determined above will be proportionately adjusted. Holders of the all
classes of Class B preferred shares are not entitled to preferential dividend
rights, redemption or voting rights.
3
WILLIAMS LAW GROUP, P.A.
2503 West Gardner Court
Tampa, FL 33611
December 27, 2001
Competitive Companies, Inc.
Riverside CA
RE: Registration Statement on Form SB-2
Gentlemen:
I have acted as your counsel in the preparation on a Registration Statement
on Form SB-2 (the "Registration Statement") filed by you with the Securities and
Exchange Commission covering shares of Common Stock and Class B and C Preferred
Stock of Competitive Companies Holdings, Inc. (the "Stock").
In so acting, I have examined and relied upon such records, documents and
other instruments as in our judgment are necessary or appropriate in order to
express the opinion hereinafter set forth and have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us
certified or photostatic copies.
Based on the foregoing, I am of the opinion that:
The Stock, when issued and delivered in the manner and/or the terms
described in the Registration Statement (after it is declared effective), will
duly and validly issued, fully paid and nonassessable;
I hereby consent to the reference to my name in the Registration Statement
under the caption "Legal Matters" and to the use of this opinion as an exhibit
to the Registration Statement. In giving this consent, I do not hereby admit
that I come within the category of a person whose consent is required under
Section7 of the Act, or the general rules and regulations thereunder.
Very truly yours,
/S/Michael T. Williams
Michael T. Williams
Exhibit # 10.01
Partnership Agreement - D Greens
TELEPHONE AND TELEVISION
ROOM LEASE AND ACCESS AGREEMENT
THIS TELEPHONE AND/OR TELEVISION ROOM LEASE AND ACCESS AGREEMENT, is
entered into this 20th day of November, 1993, by and between Morris - Crocker
Associates hereinafter called "Lessor" and WT&T Telecommunications Partners,
L.P. heinafter called "Lessee".
RECITALS
This Agreement is made with respect to the following facts and circumstances:
A. Lessor is the owner of a certain multi-family residential property commonly
known as: * * * Durham Greens Apartments * * * and more particularly described
on Exhibit "A" attached hereto. Such property is herein sometimes referred to as
the "Property" or "Project".
B. Lessee is engaged in the business of installing and operating private
telephone systems and/or private television systems within apartment complexes
similar to the Property.
C. Lessor and Lessee desire to enter into an agreement whereby Lessee will
install the telephone and/or television system(s) to be employed on the Property
and will operate such system(s), all in accordance with the provisions of the
Agreement. The telephone system to be installed shall herein sometimes be
referred to as the "Telephone System". The television system to be installed
shall herein sometimes be referred to as the "Television System".
In consideration of the mutual promises contained below and for other good and
valuable consideration, it is hereby agreed as follows:
ARTICLE 1
PREMISES; UTILITY AREAS
1.1 EQUIPMENT ROOMS. Lessor hereby leases to Lessee and Lessee hereby leases
from Lessor what is commonly known as the "Telephone and/or Television Equipment
Room" described in Exhibit "C" attached hereto and incorporated herein by this
reference, referred to herein as "the Equipment Rooms". The Equipment Room/(s)
are to be used for the purpose of installing, operating, servicing and repairing
the private telephone and/or television utilities, to be provided pursuant
1
to this Agreement (referred to herein as the "Telephone Equipment and/or the
Television Equipment").
1.2 TELEPHONE AND TELEVISION CABLE. In addition to the lease of the Equipment
Room/s, Lessor hereby grants to Lessee a non-exclusive easement and access to
the areas marked on Exhibit "D" (referred to herein as the Telephone and
Television Cable Areas") for the Placement and repair of wires, cable and
accessories necessary to Provide the telephone and/or television services as
described in this Agreement. Lessee shall have the right of free access to the
Telephone and Television Cable Areas to inspect, maintain, install, replace and
repair the wire, cable and other accessories associated with the Telephone
System and/or the Television System, and to the remainder of the Property for
the purpose of repair and maintenance of the wiring, cable and accessories
relating to the Telephone System and/or Television System, and for the purpose
of repairing and maintaining such systems. In addition, the Lessor also grants
to Lessee a license to enter and access to the property for the purpose of
collecting receipts for its services and otherwise dealing with subscribers to
the private Telephone & Television systems within the Property.
ARTICLE 2
TERM
2.1 TERM. This Agreement shall remain in full force and effect for a full term
of ten (10) years and shall commence as of the date of the issuance of the first
billing summary listing all subscribers to either the Private Telephone and/or
Television Utility, and it shall not be extended, terminated or cancelled except
as hereafter provided.
2.2 EXTENSION OF AGREEMENT. At the end of the term described immediately above
Lessor and Lessee may negotiate the extension of this Agreement. If new terms
are not agreed upon, then Lessee has thirty (30) days to match any legitimate
offer by another qualified 3rd party telephone and/or television service
provider.
ARTICLE 3
EXCLUSIVE CONTROL
3.1 EXCLUSIVE RIGHT. Lessee shall have the sole and exclusive control and
possession of the Equipment Room/s and the exclusive right to provide telephone
and/or television service to all residents within the boundaries of the
Property. If it is a requirement of law that the local Telephone Company also
serve the Property, this exclusivity provision shall not deny said local
Telephone Company the right to also serve residents of the Property. Lessor
shall not install or use, nor permit any tenant or other person, firm or
corporation to install or use any equipment similar to or intended for the same
use as the Telephone and/or Television Equipment (whether coin operated or not)
in the Equipment Room/s or elsewhere on the Property. During the term
2
of the Agreement, Lessee shall have the exclusive right to install equipment for
telephone and/or television purposes on or about the Property.
3.2 CONDITIONS OF EQUIPMENT ROOM/S. Lessee will provide with respect to the
Equipment Room/s, the insulation, utilities, lighting, air conditioning,
and venting as specified in Exhibit "C".
ARTICLE 4
RENT
4.1 RENT. Lessee shall pay to Lessor as rent for the Equipment Room/s and as
consideration for the other rights as granted to Lessee hereunder monthly
payments as scheduled on Exhibit "E" detailing a percentage of the gross
receipts of Lessee in connection with the Telephone System and/or the Television
System, which percentages vary in accordance with the number of subscribers
within the Project using the Telephone System and/or Television System. Monthly
payments shall be paid in arrears and are due fifteen (15) days following the
closing of each monthly billing cycle for the billing cycle just ended. Lessee
shall pay to Lessor a late charge of one and one-half percent (1.5%) of the
amount due for any monthly payment not received within five (5) business days
after the due date. Lessee shall provide to Lessor, along with the monthly
rental payment, a report showing the number of subscribers by unit) and gross
monthly receipts for both the Telephone System and/or the Television System.
4.2 AUDIT. Lessor shall have the right to audit Lessee's gross receipts no more
frequently than twice in any twelve(12) month period in order to verify the
amount of gross receipts. Lessee shall cooperate with Lessor in connection with
any audit of its receipts and shall make available to Lessor such information
and records as is reasonably requested by Lessor. If any audit shows that there
is a deficiency in the payment of rent, the deficiency shall become due and
payable fifteen (15) days following written demand from Lessor, accompanied by a
statement showing the amount due. The costs of any audit shall be paid by the
Lessor unless the audit discloses that Lessee shall have understated its gross
receipts by three percent (3%) or more, in which case Lessee shall pay all
Lessor's costs of the audit. Further, notwithstanding the above provisions of
this Paragraph 4.2 to the contrary, in the event any audit discloses that Lessee
shall have understated its gross receipts by three percent (3%) or more, Lessor
shall be entitled to audit Lessee's gross receipts as often as four (4) times in
the ensuing twelve (12) month period. If any two (2) audits during any twelve
(12) month period disclose that Lessee has understated its receipts by three
percent (3%) or more, Lessor may terminate this Agreement and Lessee shall
remain liable for the deficiency and cost of audit as herein provided. The
acceptance by Lessor of any monies paid to Lessor by Lessee as rent hereunder,
as shown on any statement furnished by Lessee, shall not be an admission
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of the accuracy of such statement or the sufficiency of the amount paid by
Lessee.
4.3 RECEIPTS. The term "gross receipts" as used herein shall refer to the gross
amount as received by Lessee in connection with or relating in any fashion to
the operation of the Telephone System and/or the Television System at the
Property. Such receipts shall include but not be limited to: (i) all monthly
fees as paid by tenants of the Project in connection with the Telephone System
and/or Television system; (ii) all "hook-up" charges or other like charges paid
by the tenants of the Project; (iii) all late charges or penalties of any kind
as paid by the tenants of the Project; and (iv) any and all other receipts of
any kind whatsoever received by the Lessee relating to or arising out of the
Telephone System and/or Television System at the Property. In the event that
Lessee is not involved in both the Telephone and/or the Television Systems
pursuant to this Agreement, then "gross receipts" thereafter shall refer only to
the System for which Lessee provides services.
4.4 TAXES. Lessee shall have the right to deduct from the gross receipts all
taxes and fees imposed on the Telephone System and/or Television System and on
the revenue generated by the Telephone System and/or the Television System that
are included in said receipts.
ARTICLE 5
TAXES
5.1 REAL PROPERTY TAXES. Lessor shall pay any and all property taxes associated
with the Equipment Room/s or otherwise associated with the Property. Lessee
shall have no responsibility for any such taxes.
5.2 PERSONAL PROPERTY. Lessee shall pay all taxes, assessments, license fees and
public charges levied, assessed or imposed on its business operation as well as
upon all trade fixtures, leasehold improvements and other personal property in
or about the Equipment Room/s and the Property. Lessee shall comply with the
provisions of any law, ordinance or rule of taxing authorities which require
Lessee to file a report of Lessee's property located on the Property. In the
unlikely event this personal property addition increases the Lessor's personal
property tax liability, Lessee shall bear the cost of this additional tax until
the matter can be resolved with the proper taxing authority.
ARTICLE 6
USE
6.1 PURPOSE. Lessee shall use the Equipment Room/s and the Telephone and
Television Cable Areas and shall employ its access to the Property solely in
connection with the purposes contemplated by this Agreement and for no other
purpose. During the term hereof,
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Lessee shall keep the Equipment Room/s clean and free of any objectionable
noises, orders or nuisances, and Lessee shall at all times comply with any and
all health and police regulations applicable to the Equipment Room/s. Lessee
shall not install any exterior lighting or make any exterior painting or install
any exterior loudspeakers or similar devices on the exterior of the Equipment
Room/s or elsewhere in the property, or make any changes on the exterior of the
Equipment Room/s without Lessor's prior written consent.
6.2 RESTRICTIONS. Lessee shall not do, nor permit anything to be done in or
about the Equipment Room/s which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Property, or injure or annoy them or
use or allow the Equipment Room/s to be used for any unlawful or objectionable
purpose, nor shall Lessee cause, maintain or permit any nuisance in, on or about
the Equipment Room/s. Lessee-shall not commit or suffer to be committed any
waste in or upon the Property. Lessee shall not use or be involved with anything
in or about the Property that will in any way violate any house rules, law,
statute, ordinance or governmental rule or regulation or requirement of duly
constituted public authorities now in force or which may hereafter be enacted.
Lessee agrees that it shall comply with all fire and security regulations that
may be issued from time to time by governmental authorities, and shall provide
Lessor with a name of a designated responsible employee to represent Lessee in
all matters pertaining to such fire or security regulations. Lessee shall have
the sole cost and expense to determine, whether it is in compliance with the
foregoing provisions of this Article 6, shall obtain all necessary governmental
approvals and permits, and shall promptly comply with all laws, statutes,
ordinances and governmental rules, regulations and requirements now in force or
which may hereafter be in force, and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, relating to or
affecting the condition, use or occupancy of the Equipment Room/s, provided
however Lessee shall not be responsible for any requirement due to structural
changes not relating to or affecting the condition, use or occupancy of the
Equipment Room/s.
ARTICLE 7
UTILITIES
7.1 AVAILABILITY. Lessor agrees that it will cause to be made available to
Lessee in connection with the Equipment Room/s the distribution of utilities
including electricity, air conditioning, venting and ventilation as described on
Exhibit "C" attached hereto. The cost of any and all utilities as provided to
the Premises shall be borne by Lessor.
7.2 TRASH. Lessee shall store all trash and garbage within the areas as
established by Lessor for such purposes within the Property.
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Lessee shall not allow refuse, garbage or trash to accumulate in or around the
Equipment Room/s.
7.3 LIMITED LIABILITY. Lessor shall not be liable to Lessee or any other person
for, and neither shall Lessee nor any other person be entitled to any abatement
or reduction of rent or damages, direct or indirect, because of any reduction or
suspension in the utility services if required by any governmental authority, or
Lessor's failure or inability to furnish any service or facility, which Lessor
has agreed to supply, when such failure is caused by accidents, strikes, acts of
God, governmental preemption's or any other cause similar or dissimilar beyond
the reasonable control of Lessor. Lessor shall not be liable under any
circumstances for any loss of or any injury to person, property or business,
however occurring, through or in connection or incidental to any failure
described above to furnish any service or facility, nor shall any such failure
be construed as eviction of Lessee in whole or in part.
ARTICLE 8
REPAIRS
8.1 REPAIR BY LESSEE. Lessee will provide janitorial and housekeeping services,
maintenance and repair for the Equipment Room/s, and will perform all future
improvements at its sole cost. Notwithstanding the sentence immediately above,
the obligation of Lessee to repair and maintain the Equipment Room/s shall be
limited to maintenance and repair of the interior of the Room/s and shall not
include the roof, exterior walls or structural aspects of the Room/s except in
the event that any such damage is caused by or results from the negligence of
Lessee or its agents or employees, in which event Lessee shall be obligated to
make such repairs. In addition, Lessee shall have no obligation to replace the
Equipment Room/s (exclusive of the Telephone and/or Television Equipment) in the
event of partial or complete destruction of the Equipment Rooms.
8.2 REPAIR BY LESSOR. Subject to reasonable wear and tear and Lessee's duties to
repair the Equipment Room/s as set forth in this Article, Lessor shall maintain
and repair the exterior walls, roof and the exterior portions of the Room/s.
Lessee shall, be responsible for the repair of any and all HVAC equipment
relating to the Equipment Room/s except in connection with any matters caused or
resulting from the negligence of Lessor or its employees or agents, in which
event Lessor shall be obligated to pay for such repairs.
8.3 REMOVAL UPON TERMINATION. Upon expiration or early termination of this
Agreement, Lessee shall have the right to remove the Telephone and/or Television
Equipment and fixtures as shall have been installed, furnished and supplied by
Lessee in said Equipment Room/s subject to the provisions of Paragraph 11.2
below, it being expressly understood and acknowledged by Lessor that title to
and the ownership of all such
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equipment and fixtures shall at all times be and remain in and with Lessee,
whether the same or any parts thereof be affixed to the realty or otherwise.
Lessee shall repair any damage caused by the removal of its equipment and
fixtures, including replacement of landscaping removed or damaged by Lessee.
Under no circumstances shall Lessee remove wire in the walls, jacks in buildings
or any underground wire or cable, which shall revert to Lessor upon expiration
or termination of this Agreement.
8.4 LIENS. Lessee shall keep the Property free from any liens arising out of
work performed, materials furnished or obligations incurred by, or on behalf of
or at the direction of Lessee, and shall protect, indemnify, hold harmless and
defend Lessor from any liens or encumbrances arising out of any work performed
by or on behalf of or at the direction of Lessee.
ARTICLE 9
DUTIES OF LESSEE
9.1 INSTALLATION. Lessee shall at its own cost install in the Equipment Room/s
the Telephone and/or Television Equipment, together with wire and accessories
necessary to provide Telephone and/or Television services for the Property. It
is acknowledged that Lessor has installed certain wiring and cable for the
Property. The Telephone and/or Television Equipment to be installed by Lessee
(together with the wiring and cable supplied by Lessor) shall be all that is
required to provide to the Project the Telephone and/or Television services as
contemplated by this Agreement and Lessee shall be obligated to provide and
install such equipment at its cost as is necessary or appropriate to provide
such Telephone and/or Television services.
9.2 MAINTENANCE. Lessee shall service and maintain in good working order all
Telephone and/or Television Equipment and all wiring, cable and accessories,
whether owned by Lessor or Lessee, constituting a portion of the Telephone
System and/or Television System at its sole cost and expense. Lessor shall have
no obligation of any kind whatsoever for maintenance and repair of any such
equipment or any portions of either the Telephone System and/or the Television
System. In no event shall Lessor have any responsibility for any of the costs of
such repair and maintenance. In the event of damage or destruction to any of the
Telephone and/or Television Equipment or any of the wiring, cable or accessories
employed in connection with the Telephone System and/or Television System
arising by reason of a casualty, Lessee shall be obligated at its sole cost to
replace and/or repair such damaged equipment or accessories; provided, only that
any such damage resulting from the gross negligence or intentional conduct of
Lessor or its employees or agents shall be the responsibility of Lessor. Lessee
shall be entitled to employ and shall employ any and all proceeds payable in
connection with insurance maintained pursuant to this Agreement available in
connection with the damage or
7
destruction of any of the Telephone and/or Television Equipment or accessories
as described above to offset the cost of repair and/or replacement of such
equipment and/or accessories. Lessor shall be obligated to employ the portion of
the insurance proceeds that covers the replacement of Lessor owned wire and
cable.
9.3 TENANT INSTALLATION. Lessee shall service and actively market both the
Telephone System and/or Television System to all tenants within the Project.
Lessee shall provide at its sole cost, all installation services required as to
each tenant within the Project and all accessories as required in connection
with the "hook-up" of each of the tenants within the Project. Lessee at its sole
cost shall respond to any and all reasonable inquiries or requirements of the
tenants within the Project relating to the Telephone System and/or Television
System and shall respond within twenty-four (24) hours of notification to all
service calls, excluding Saturdays and Sundays and National Holidays, in which
case response shall be made on the succeeding business day.
9.4 CHARGES. Lessee at its sole cost shall be responsible for billing all
subscribers within the Project for Telephone and/or Television services
provided, and for collecting all monies due in connection with such services.
Lessor shall have no responsibility of any kind whatsoever for the obligations
of any subscriber in connection with either the Telephone System and/or the
Television System.
9.5 INSURANCE. Lessee shall maintain at its cost, liability insurance covering
injury to persons or damage to property arising out of its operation on the
Property. Lessor shall be named as an additional insured in connection with all
such insurance. A listing of minimum insurance requirements is contained in
Exhibit F and incorporated herein by this reference.
9.6 HOUSE PHONES. At no cost to Lessor, Lessee shall install and activate as an
accommodation to Lessor, service for a reasonable amount of telephones and/or
for a reasonable amount of television outlets. Such telephone and/or television
services shall be located in common areas within the Project and in areas
employed by Lessor and/or its property manager in connection with management of
the Project as more particularly described on Schedule "D-1 " attached hereto.
The areas in which such services are to be installed shall be as designated by
Lessor. In connection with any such services, Lessor shall not be obligated to
pay the basic monthly fees in connection with either the telephone or television
service so installed. Lessor shall be obligated to pay for any extraordinary
television service such as pay per-view as used by Lessor and shall further be
obligated to pay the standard usage cost for the telephone services employed by
Lessor.
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ARTICLE 10
ENTRY BY LESSOR
10.1 ACCESS. Lessee hereby grants Lessor such licenses or easements in and over
the Equipment Room/s or any portion thereof or the Cable Areas as shall be
reasonably required for the installation or maintenance of mains, conduits,
pipes or other facilities to serve the Property or any part thereof, provided
that Lessor' shall pay for any alteration required of the Equipment Room/s or
Cable Areas as the result of any such alterations. Lessee further covenants and
agrees that Lessor may enter the Equipment Room/s to make any necessary repairs
to the Equipment Room/s or Cable Areas or to perform any work which may be
necessary to comply with any laws, rules or regulations of any public authority,
or which Lessor may deem necessary to prevent waste or deterioration in
connection with the property Except in the case of emergency repairs, Lessor
shall give Lessee twenty-four (24) hours prior written notice of any intended
entry by Lessor into the Equipment Room/s for purposes of repairs or performance
of any work.
ARTICLE 11
VOLUNTARY TERMINATION
11.1 NOTICE OF TERMINATION. Within sixty (60) days following the commencement of
the six (6) month period starting with the twelfth (12th) month after acceptance
of the first subscriber for the Telephone System and/or Television System,
respectively and within sixty (60) days following the commencement of each six
(6) month period thereafter, Lessee shall have the options as set forth in this
Article 11. Lessee shall give Lessor written notice of the dates of acceptance
of the first subscriber for the Telephone System and/or the first subscriber for
the Television System. The computation of the above described time period shall
be made separately for the Telephone System and/or separately for the Television
System, based upon the date of acceptance of the first subscriber for each.
(a) Subject to the time periods as described immediately above in this
Paragraph, in the event that Lessee fails to maintain an average telephone
subscription level during the two (2) immediately preceding calendar months of
at least eighty (80%) percent penetration of the apartment units in the Project,
then Lessee shall be entitled to give Lessor written notice of its intent to
terminate its obligations pursuant to this Agreement to provide the Telephone
System for the Project. The effective date of the termination shall be as
provided in the notice but no earlier than one hundred eighty (180) days after
the date of receipt by Lessor of such written notice.
(b) Subject to the time periods as described immediately above in this
Paragraph, in the event that Lessee fails to maintain an average television
subscription level during the two (2) immediately preceding calendar months of
at least sixty (60%) percent penetration
9
of the apartment units in the Project, then Lessee shall be entitled to give
Lessor written notice of its intent to terminate its obligations pursuant to
this Agreement to provide the Television System for the Project. The effective
date of the termination shall be as provided in the notice but no earlier than
one hundred eighty (180) days after the date of receipt by Lessor of such
written notice.
11.2 REMOVAL OF EQUIPMENT. In the event that Lessee terminates either of its
services with respect to the Telephone System or its services with respect to
the Television system in accordance with Paragraph 11.1 immediately above,
Lessee shall have thirty (30) days to remove its equipment associated with the
terminated service, beginning with the effective date of that termination;
provided, however, that any equipment not so removed thirty (30) days after the
date of termination for that: service shall be deemed to be abandoned. Lessee
will repair any damages to the Premises caused by removal of its equipment.
11.3 LESSEE COOPERATION. In the event that Lessee terminates its obligations
with respect to either the Telephone System and/or Television System in
accordance with Paragraph 11.1 immediately above, Lessee shall, upon the request
of Lessor, during the ninety (90) days prior to the effective date of
termination, negotiate in good faith with the Lessor for the sale of the
Telephone Service and/or Television Service, as the case may be, relating to the
terminated service, which sale shall be made on a cash basis for a price equal
to the fair market value of the services being sold. Should Lessor and Lessee be
unable to agree upon a fair market value for the services, then Lessee shall be
entitled to remove the equipment in accordance with the provisions of Paragraph
11.2 immediately above. In the event of anysuch removal of equipment, Lessee
shall cooperate with Lessor in connection with Lessor's efforts to obtain a
third-party provider to furnish the services being terminated by Lessee. Such
cooperation shall include, but not be limited to, making space available prior
to the effective date of termination to the third-party provider within the
Premises so that the third-party provider can install equipment as required to
provide the services effective as of the date of termination, resulting in
continuos service for existing subscribers.
If the new service providers are the Public Utilities for those services, then
WT&T will quarantee continuos service for those subscribers in good standing.
ARTICLE 12
DEFAULT
12.1 DEFAULTS BY LESSEE. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Agreement:
10
(a) The vacating or abandonment of the Equipment Room/s by Lessee; or
(b)The failure of Lessee to make any payment of rent or any other payment
required tobe made by Lessee hereunder, as and when due, where such failure
shall continue for a period of five (5) days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit Pursuant to applicable unlawful Detainer statutes, such Notice to
Pay Rent or Quit shall not constitute the notice required by this subparagraph;
or
(c) The failure by Lessee to observe or perform any of the covenants, conditions
or provisions of this Agreement to be observed or performed by Lessee, other
than described in Paragraph (b) above, where such failure continues for a period
of thirty (30) days after written notice thereof from Lessor to Lessee, which
notice shall specify the specific nature of the failure, provided, however, that
if the nature of Lessee's default is such that more than thirty (30) days are
reasonably required for its cure, than Lessee shall not be deemed to be in
default if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion; or
(d) The occurrence of any two (2) audits during any twelve (12) month period
disclosing that Lessee has understated its receipts by three percent (3%) or
more as described in Paragraph 4.2 above; or
(e) Failure of Lessee to maintain the Telephone System and/or Television System
in good condition and repair comparable with similar services, where such
failure continues for a period of fifteen (15) days after written notice thereof
from Lessor to Lessee; or
(f) Failure of Lessee to provide state of the art telephone service and/or
television service to residents of the Project comparable with similar services,
or to make service calls upon request in a prompt fashion as provided herein,
where such failure continues for a period of five (5) days after written notice
thereof from Lessor to Lessee (provided that Lessee shall not be entitled to
such five (5) day "cure" period upon the second (2nd) occurrence of any such
failure within any thirty (30) day period), except for any failure which results
from failure of a tenant to timely pay its bills for telephone or television
services rendered, destruction of equipment without fault be Lessee (provided,
however that such destroyed equipment is to be promptly replaced and repaired by
Lessee at its cost), or other commercially acceptable cause reasonably beyond
the control of Lessee; or
(g) Failure of Lessee to provide telephone or television services at rates
equal, to or less than those charged by the applicable public utility, where
such failure continues for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; or
11
(h) An appointment of a receiver to take Possession of substantially all of
Lessee's assets or of the Premises, with such receivership remaining undissolved
for a period of sixty (60) days; or
(i) The attachment, execution or other judicial seizure if substantially all of
Lessee's assets or the Premises, with such attachment, execution or seizure
remaining undismissed for a period of sixty (60) days.
12.2 DEFAULTS BY LESSOR. The occurrence of any one or more of the following
events shall constitute a material default and a breach of this Agreement by
Lessor:
(a) Failure to perform any of the material obligations required of Lessor to be
performed, provided that such failure continues for a period of thirty (30) days
after written notice thereof from Lessee to Lessor, which notice shall specify
the specific nature of the failure, provided, however, that if the nature of
Lessor's default is such that more than thirty (30) days are reasonably required
for its cure, than Lessor shall not be deemed to be in default if Lessor
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion; or
(b) If bad debt exceeds five (5) percent during any consecutive three (3) month
period; normal bad debt being three (3) percent of gross receipts; or
(c) Failure of the Property ownership or management to present either the
Telephone System or the Television System in a positive manner to prospective
residents or prospective clients; or
(d) Failure to remove or correct any mechanical, electrical or any other type of
interference that was caused by any device installed by Lessor during the term
of this Agreement that would prevent or hinder Lessee in providing quality
telephone and/or television service to the property.
12.3 REMEDIES UPON DEFAULT BY LESSEE. In the event of a default by Lessee, the
following shall be applicable
(a) In addition to any and all other rights and remedies available to Lessor at
law or in equity, Lessor shall have the right to immediately terminate this
Agreement and all easements and other access rights and other rights of Lessee
hereunder by giving written notice to Lessee of such election by Lessor. If
Lessor shall elect to terminate this Agreement, then it may recover the amounts
from Lessee that are provided by applicable State law.
(b) In the event of a default by Lessee, Lessor shall also have the right, with
or without terminating this Agreement to re-enter the Equipment Room/s. If
Lessor does not elect to terminate this
12
Agreement, Lessor may either recover all rent as it becomes due or re-let the
Room/s, together with all access rights, upon such Provisions as Lessor in its
sole judgement may deem advisable, and Lessor shall have the right to make
repairs and alterations to the Room/s. if Lessor elects to re-let the Room/s,
then all rentals received by Lessor from such a re-letting shall be applied to
the payment of all costs and" expenses incurred by Lessor in connection with
such re-letting and to the payment of rent due and payable hereunder.
(c) Nothing contained in this Paragraph shall constitute a waiver of Lessor's
rights to recover damages by reason of Lessor's efforts to mitigate damages
caused by Lessee's default.
12.4 REMEDIES UPON DEFAULT BY LESSOR. In the event of a default by Lessor, the
following shall be applicable
(a) In addition to any and all other rights and remedies available to Lessee at
law or in equity, Lessee shall have the right to immediately terminate this
Agreement and all other rights hereunder by giving written notice to Lessor of
such election by Lessee. If Lessee shall elect to terminate the Agreement, then
it may recover the amounts from Lessor as are provided by applicable State law.
(b) In the event of a default by Lessor, Lessee shall also have the right, with
or without terminating this Agreement, to enter the Equipment Room/s.
(c) Nothing contained in this Paragraph 12.4 shall constitute a waiver of
Lessor's rights to recover damages by reason of Lessee's efforts to mitigate
damages caused by Lessor's default.
12.5 REMOVAL OF EQUIPMENT. In the event of a termination of this Agreement by
Lessor resulting from the default of Lessee, the following shall be
applicable:
(a) Lessee, at its cost, shall have thirty (30) days from the date of
termination in which to remove the Telephone Equipment and/or the Television
Equipment; provided, however, that in no event shall Lessee remove any wiring or
cabling installed in the Project. Notwithstanding the above, at the election of
Lessor and without waiving Lessor's election to terminate this Agreement, Lessor
shall be entitled to require Lessee to give Lessor ten (10) days prior written
notice of its intent to remove the Telephone Equipment and/or the Television
Equipment. During such ten (10) day term, Lessee shall cooperate with such
third-party providers as may be selected by Lessor so as to allow such
third-party providers to provide to the Project substitute telephone service
and/or substitute television service. Such cooperation shall include but not be
limited to cooperation in connection with the placement by third-party providers
of new equipment within the Equipment Room/s. In addition, to the extent that
Lessor elects to do so, Lessee shall negotiate in good faith following any
notice of termination given by Lessor, in order to
13
arrive at an agreement for purchase at fair -market value on a cash basis by
Lessor of the telephone service and/or television service. Failing any such
agreement for purchase of the services, Lessee shall continue to be entitled to
remove the equipment in accordance with the provisions hereof from the Property,
in accordance with Section 11.2 and 11.3.
12.6 REMOVAL OF EQUIPMENT. In the event of a termination of this Agreement
by Lessee resulting from the default of Lessor, the following shall be
applicable:
(a) Lessee, at its cost, shall have thirty (30) days from the date of
termination in which to remove the Telephone Equipment and/or the Television
Equipment; provided, however, that in no event shall Lessee remove any wiring or
cabling installed in the Project. Notwithstanding the above, at the election of
Lessee and without waiving Lessee's election to terminate this Agreement, Lessor
shall be entitled to require Lessee to give Lessor ten (10) days prior written
notice of its intent to remove the Telephone Equipment and/or Television
Equipment. During such ten (10) day term, Lessee shall cooperate with such
third-party providers as may be selected by Lessor so as to allow such
third-party providers to provide to the Project substitute telephone service
and/or substitute television service. Such cooperation shall include but not be
limited to cooperation in connection with the Placement by third-party providers
of new equipment within the Equipment Room/s. In addition, to the extent that
Lessee elects to do so, Lessor shall negotiate in good faith following any
notice of termination given by Lessee, in order to arrive at an agreement for
purchase at fair market value on a cash basis by Lessor of the Telephone service
and/or Television service. Failing any such agreement for purchase of the
services, Lessee shall continue to be entitled to remove such equipment in
accordance with the provisions hereof from the Property, in accordance with
Sections 11.2 and 11.3.
ARTICLE 13
DAMAGE OR DESTRUCTION
13.1 DESTRUCTION OF PREMISES DUE TO RISK COVERED BY INSURANCE. If during the
term of this Agreement, the Premises is totally or partially destroyed from a
risk covered by insurance in effect at the time, and there are sufficient
insurance proceeds to pay in full for the cost of restoration, Lessor shall
restore the Premises to substantially the same condition as they were
immediately prior to destruction, provided that Lessor's obligation shall be
limited to the Premises and shall not include either the Telephone Equipment
and/or the Television Equipment. Lessee, at its cost, shall be required to
restore the Telephone Equipment and/or Television Equipment. Any destruction of
the Premises shall not terminate this Agreement. If the existing laws do not
permit the Premises to be restored to
14
Substantially the same condition as they were in immediately before the
destruction, or if in the opinion of Lessor's architect he states the
restoration cannot be completed within one hundred eighty (180) days from the
date of damage or destruction, Lessor and/or Lessee may terminate this Agreement
by giving written notice thereof.
13.2 RENT. In the event of any partial destruction of the Project, the rent as
provided herein shall continue with no abatement, it being acknowledged that the
rent is based upon 6 percentage of Lessee's gross receipts only.
13.3 RESTORATION OF SERVICE. In the event of a partial destruction of the
Project, Lessee, at its cost, shall quickly restore either telephone and/or
television services to the Project. Such restoration of services shall include a
temporary restoration of services during the period in which any destruction of
the Premises is being restored by Lessor.
ARTICLE 14
MISCELLANEOUS
14.1 INDEMNITY. Lessee shall indemnify and hold Lessor harmless from and against
any loss, claim, damage, liability or expense (including attorney's fees) in
connection with Lessee's operations on the Property or Lessor entering into this
agreement; provided, however, that Lessee shall have no obligations to indemnify
Lessor with respect to any loss, claim, damage or expense arising in whole or
part by reason of the gross negligence or intentional acts of Lessor, its
employees, agents or representatives.
14.2 LESSOR WARRANTIES. Except as specifically set forth herein, Lessor makes no
representations or warranties of any kind whatsoever to Lessee in connection
with the subject matter as described in this agreement. Specifically, but not by
way of limitation, Lessor makes no representation or warranties as to the
suitability of the Property or Project for the purposes as intended by Lessee
pursuant to the provisions of this Agreement and makes no representations or
warranties as to the profitability or other success of the services to be
provided by Lessee hereunder.
14.3 MEMORANDUM OF AGREEMENT. Upon the request of either Lessee or Lessor, the
Parties agree to execute a memorandum of the Agreement in recordable form and
recorded in the Official County Records. This Agreement shall survive any sale,
assignment or other transfer of the Property and shall be construed in all
respects as a lease and not a license. Lessor shall use its best efforts to
obtain from any third party lender a nondisturbance agreement with respect to
this Agreement in a form reasonably satisfactory to both Lessor and Lessee.
15
14.4 AUTHORITY. The person(s) executing this Agreement expressly represent(s)
and warrant(s) that he (they) has (have) full Power and authority to do so
14.5 ASSIGNMENT. Lessee may not assign this Agreement without the written
consent of Lessor, which shall not be unreasonably withheld. Subject to this
provision, this Agreement shall be binding upon the parties hereto and their
respective heirs, successors and assigns, as the case may be. Notwithstanding
the above provisions, Lessee may assign this Agreement to an affiliated entity
without the consent of Lessor. For purposes hereof, an "affiliated entity" shall
be an entity in which Lessee holds an interest of the equity ownership or has
the control of the Property's Telephone and Television System's management.
14.6 OTHER AGREEMENT. The parties hereby represent that to the best of their
knowledge and belief the entering into and performance of this Agreement will
not create a breach or default in any agreement to which they are a party.
Lessor has informed Lessee of the agreement between Lessor and TCI - Freemont
Cable T.V., referred to herein as the TCI agreement, a copy is attached herein
as Exhibit "G" and incorporated into this Agreement by this reference. Lessee
has represented to Lessor that entering into this Agreement will not cause
Lessor to be in violation of the TCI agreement and will indemnify Lessor, as
referenced in 14.1 above regarding this matter.
14.7 ATTORNEY'S FEES. In the event it becomes necessary for Lessee or Lessor to
enforce the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses.
14.8 CONDEMNATION. If title to all of the Project should be taken for any public
or quasi-puplic use under any statute, or by right of eminent domain, or by
private purchase in lieu of eminent domain, or if title to so much of the
Property is so taken that a reasonable amount of reconstruction of the Property
will not result in the premises being a practical improvement reasonably
suitable for Lessee continued occupancy for the purposes for which the Property
are leased, then, either event this Agreement shall terminate on the date that
possession of the Property or part of the Property is taken. All compensation
awarded or paid upon a total or partial taking of the fee title to theProperty
shall belong to Lessor, whether such compensation be awarded or paid as
compensation for diminution in value of the Agreement or of the fee, and Lessee
shall have no interest whatsoever in any such compensation excepting that Lessee
shall be entitled to any compensation awarded or paid to Lessee for depreciation
to and cost of removal of stock and fixtures installed in the Property by
Lessee.
14.9 SEVERABILITY. The provisions of this Agreement shall be severable, and the
invalidity or unenforceability of any provision shall not affect- the remaining
provisions. This Agreement shall be governed by the law of the state wherein the
Property is located. The
16
provisions of the Exhibits attached hereto 'and the attached Schedule are hereby
incorporated in this Agreement by this reference.
14.10 NOTICE . Any notice, request, demand, Payment, instruction, communication
or other document required or permitted to be given hereunder or pursuant hereto
to any party shall be in writing and shall be delivered personally or sent by
registered or certified mail, postage prepaid, return receipt requested,
telegraphed, delivered or sent by telex, telecopy, cable or overnight commercial
courier to the addressees and addresses as provided on the signature page of
this agreement, page eighteen (18).
Notice shall be deemed to have been delivered, given and received on the date of
(a) delivery to the address of the person to receive such notice if delivered
personally or by overnight commercial courier, or (ii) if mailed, four (4)
business days after the date of posting by the United States post office, or
(iii) if given by telegraph or cable, when delivered by the telegraph company
with charges prepaid, or (iv) if given by telex, facsimile or telecopy, when
sent. The addresses for notice may be changed by giving written notice, as
provided herein if no written notice of change has been sent or received, shall
be deemed to continue in effect for all Purposes hereunder.
14.11 DESCRIPTIVE HEADINGS. The descriptive headings used and inserted in this
Agreement are for convenience only and shall not be deemed to affect the meaning
or construction of any provision of this Agreement.
14.12 TIME. Time is of the essence of this Agreement and each and every
provision hereof.
14.13 WAIVER. No covenant, term or condition or breach thereof shall be deemed
waived except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term or condition shall
not be deemed to be a waiver of any other covenant, term or condition.
14.14 HOLDING OVER PERIOD. Should Lessee, with the consent of Lessor, agree to
hold over after the expiration or earlier termination of the term of this
Agreement, such holding over shall be on a month-to-month tenancy, subject to
all terms and conditions of this Agreement. Not to exceed six (6) months.
14.15 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefore, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, shall excuse the performance by such
party for a
17
period equal to any such prevention, delay or stoppage, except for the
obligations imposed with regard to rent to be paid by Lessee Pursuant to this
Agreement.
14.16 NO PARTNERSHIP. It is agreed nothing contained in this Agreement shall be
deemed or construed as creating a Partnership or joint venture between Lessor
and Lessee, or between Lessor and any other party, or cause Lessor to be
responsible in any way for the debt or obligations of Lessee or any other party.
14.17 FINANCING. Lessor may, from time to time, obtain financing in connection
with the Project or refinance the Project by means of a mortgage or loan or
loans from one or several lenders; before said loans are approved and closed,
such lender/s companies may wish to approve this Agreement, and in order to
receive such approval, this Agreement may have to be amended or modified.
Provided that the term hereof is not altered and Lessee's obligations to pay are
not increased and the provisions of this Agreement are not unreasonably changed
thereby, Lessee agrees that it shall consent and execute any such proper
amendment or modification of this Agreement that may be requested by said
lender/s. At the request of any said lender/s Lessee hereby agrees to
subordinate this Agreement to any mortgage, deed of trust or other security
agreement requested by any such lender/s.
14.18 OTHER USES. Should Lessee employ any of the facilities, wiring, equipment
or other items installed or employed in connection with either the Telephone
System and/or the Television System at the Property that generates additional
income from the Property or from the residents, past or present of the Property,
then Lessor shall be entitled to the scheduled percent of the receipts derived
by Lessee from any such use.
14.19 ENTIRE AGREEMENT. This Agreement along with any Exhibits and attachments
hereto constitutes the entire agreement between Lessor and Lessee relative to
the Premises and the matters set forth herein, and this Agreement and Exhibits
and attachments hereto may be altered, amended or revoked only by an instrument
in writing signed by both Lessor and Lessee. It is understood that there are no
oral agreements or representations between the parties hereto affecting this
Agreement, and this Agreement supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements or representations and
understandings, if any, between the parties hereto with respect to the subject
matter as set forth herein.
14.20 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
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14.21 STATE LAW. This Agreement shall be governed by and be construed according
to the laws of the State of California.
This Agreement covers both Telephone and Television Utilities
LESSOR: LESSEE:
WT&T Telecommunications Partners, LP
A California Limited Partnership
David V. Kline - Partner
Date: Date:
LIST OF EXHIBITS
EXHIBIT A PROJECT DESCRIPTION
EXHIBIT B COMMENCEMENT DATE OF LEASE
EXHIBIT C EQUIPMENT ROOM DESCRIPTION "PREMISES
EXHIBIT D AS BUILT CABLE PLAN "UTILITY AREAS
SCHEDULE D1 HOUSE PHONES & T.V. OUTLET LOCATIONS
EXHIBIT E RENT SCHEDULE
EXHIBIT F INSURANCE REQUIREMENTS
EXHIBIT G TCI AGREEMENT
EXHIBIT A
DESCRIPTION OF PROJECT
DURHAM GREENS APARTMENTS
4355 Grimmer Blvd.
Fremont, Ca. 94538
EXHIBIT B
ARTICLE 2.1
COMMENCEMENT DATE OF LEASE
With reference to Paragraph 2.1 of the Agreement, the undersigned agree that the
term of the Agreement commenced as of ____________________________, 1993.
LESSOR: LESSEE:
EXHIBIT C
DESCRIPTION OF EQUIPMENT ROOM - ROOMS
TO BE ADDED AT BUILT OUT OF ROOM/S
EXHIBIT D
DESCRIPTION OF UTILITY AREAS
'AS BUILT CABLE PLAN"
TO BE ADDED AT CUT OVER OF SYSTEMS
SCHEDULE D-1
HOUSE PHONES & T.V. OUTLET LOCATIONS
HOUSE PHONES T.V. OUTLETS
FOUR (4) LAUNDRY ROOMS WEIGHT ROOM
TWO (2) POOLS LOUNGE AREA
SPA VEHICLE AREA FUTURE)
TWO (2) TENNIS COURTS
AEROBIC ROOM
WEIGHT ROOM
LOUNGE AREA
VEHICLE GATE (FUTURE)
Exhibit # 10.02
Partnership Agreement - A Gardens
TELEPHONE AND TELEVISION
ROOM LEASE AND ACCESS AGREEMENT
THIS TELEPHONE AND/OR TELEVISION ROOM LEASE AND ACCESS AGREEMENT, is
entered into this 20th day of November, 1993, by and between Morris - Revocable
Trust hereinafter called "Lessor" and WT&T Telecommunications Partners, L.P.
heinafter called "Lessee".
RECITALS
This Agreement is made with respect to the following facts and
circumstances:
A. Lessor is the owner of a certain multi-family residential property
commonly known as: * * 1776 and Almaden Garden Apartments * * and more
particularly described on Exhibit "A" attached hereto. Such property is herein
sometimes referred to as the "Property" or "Project".
B. Lessee is engaged in the business of installing and operating private
telephone systems and/or private television systems within apartment complexes
similar to the Property.
C. Lessor and Lessee desire to enter into an agreement whereby Lessee will
install the telephone and/or television system(s) to be employed on the Property
and will operate such system(s), all in accordance with the provisions of the
Agreement. The telephone system to be installed shall herein sometimes be
referred to as the "Telephone System". The television system to be installed
shall herein sometimes be referred to as the "Television System".
In consideration of the mutual promises contained below and for other good and
valuable consideration, it is hereby agreed as follows:
ARTICLE 1
PREMISES; UTILITY AREAS
1.1 EQUIPMENT ROOMS Lessor hereby leases to Lessee and Lessee hereby
leases from Lessor what is commonly known as the "Telephone and/or Television Equipment
Room" described in Exhibit "C" attached hereto and incorporated herein by this
reference ' referred to herein as "the Equipment Rooms". The Equipment Room/(s)
are to be used for the purpose of installing, operating, servicing and repairing
the private telephone and/or television utilities, to be provided pursuant
1
to this Agreement (referred to herein as the "Telephone Equipment and/or the
Television Equipment").
1.2 TELEPHONE AND TELEVISION CABLE. In addition to the lease of the Equipment
Room/s Lessor hereby grants to Lessee a non-exclusive easement and access to the
areas marked on Exhibit "D" (referred to herein as the Telephone and Television
Cable Areas") for the placement and repair of wires, cable and accessories
necessary to provide the telephone and/or television services as described in
this Agreement. Lessee shall have the right of free access to the Telephone and
Television Cable Areas to inspect, maintain, install, replace and repair the
wire, cable and other accessories associated with the Telephone System and/or
the Television System, and to the remainder of the Property for the purpose of
repair and maintenance of the wiring, cable and accessories relating to the
Telephone System and/or Television System, and for the purpose of repairing and
maintaining such systems. In addition, the Lessor also grants to Lessee a
license to enter and access to the property for the purpose of collecting
receipts for its services and otherwise dealing with subscribers to the private
Telephone & Television systems within the Property.
ARTICLE 2
TERM
2.1 TERM. This Agreement shall remain in full force and effect for a full term
of ten (10) years and shall commence as of the date of the issuance of the first
billing summary listing all subscribers to either the Private Telephone and/or
Television Utility, and it shall not be extended, terminated or cancelled except
as hereafter provided.
2.2 EXTENSION OF AGREEMENT. At the end of the term described immediately above
Lessor and Lessee may negotiate the extension of this Agreement. If new terms
are not agreed upon, then Lessee has thirty (30) days to match any legitimate
offer by another qualified 3rd party telephone and/or television service
provider.
ARTICLE 3
EXCLUSIVE CONTROL
3.1 EXCLUSIVE RIGHT. Lessee shall have the sole and exclusive control and
possession of the Equipment Room/s and the exclusive right to provide telephone
and/or television service to all residents within the boundaries of the
Property. If it is a requirement of law that the local Telephone Company also
serve the Property, this exclusivity provision shall not deny said local
Telephone Company the right to also serve residents of the Property. Lessor
shall not install or use, nor permit any tenant or other person, firm or
corporation to install or use any equipment similar to or intended for the same
use as the Telephone and/or Television Equipment (whether coin operated or not)
in the Equipment Room/s or elsewhere on the Property. During the term
2
of the Agreement, Lessee shall have the exclusive right to install equipment for
telephone and/or television purposes on or about the Property.
3.2 CONDITIONS OF EQUIPMENT ROOM/S. Lessee will provide with respect to the
Equipment Room/s, the insulation, utilities, lighting, air conditioning, and
venting as specified in Exhibit "C".
ARTICLE 4
RENT
4.1 RENT. Lessee shall pay to Lessor as rent for the Equipment Room/s and as
consideration for the other rights as granted to Lessee hereunder monthly
payments as scheduled on Exhibit "E" detailing a percentage of the gross
receipts of Lessee in connection with the Telephone System and/or the Television
System, which percentages vary in accordance with the number of subscribers
within the Project using the Telephone System and/or Television System. Monthly
payments shall be paid in arrears and are due fifteen (15) days following the
closing of each monthly billing cycle for the billing cycle just ended. Lessee
shall pay to Lessor a late charge of one and one-half percent (1.5%) of the
amount due for any monthly payment not received within five (5) business days
after the due date. Lessee shall provide to Lessor, along with the monthly
rental payment, a report showing the number of subscribers by unit) and gross
monthly receipts for both the Telephone System and/or the Television System.
4.2 AUDIT. Lessor shall have the right to audit Lessee's gross receipts no more
frequently than twice in any twelve (12) month period in order to verify the
amount of gross receipts. Lessee shall cooperate with Lessor in connection with
any audit of its receipts and shall make available to Lessor such information
and records as is reasonably requested by Lessor. If any audit shows that there
is a deficiency in the payment of rent, the deficiency shall become due and
payable fifteen (15) days following written demand from Lessor, accompanied by a
statement showing the amount due. The costs of any audit shall be paid by the
Lessor unless the audit discloses that Lessee shall have understated its gross
receipts by three percent (3%) or more, in which case Lessee shall pay all
Lessor's costs of the audit. Further, notwithstanding the above provisions of
this Paragraph 4.2 to the contrary, in the event any audit discloses that Lessee
shall have understated its gross receipts by three percent (3%) or more, Lessor
shall be entitled to audit Lessee's gross receipts as often as four (4) times in
the ensuing twelve (12) month period. If any two (2) audits during any twelve
(12) month period disclose that Lessee has understated its receipts by three
percent (3%) or more, Lessor may terminate this Agreement and Lessee shall
remain liable for the deficiency and cost of audit as herein provided. The
acceptance by Lessor of any monies paid to Lessor by Lessee as rent hereunder,
as shown on any statement furnished by Lessee, shall not be an admission
3
of the accuracy of such statement or the sufficiency of the amount paid by
Lessee.
4.3 RECEIPTS. The term "gross receipts' as used herein shall refer to the gross
amount as received by Lessee in connection with or relating in any fashion to
the operation of the Telephone System and/or the Television System at the
Property. Such receipts shall include but not be limited to: (i) all monthly
fees as paid by tenants of the Project in connection with the Telephone System
and/or Television System; (ii) all "hook-up" charges or other like charges paid
by the tenants of the Project; (iii) all late charges or penalties of any kind
as paid by the tenants of the Project; and (iv) any and all other receipts of
any kind whatsoever received by the Lessee relating to or arising out of the
Telephone System and/or Television System at the Property. In the event that
Lessee is not involved in both the Telephone and/or the Television Systems
pursuant to this Agreement, then "gross receipts" thereafter shall refer only to
the System for which Lessee provides services.
4.4 TAXES. Lessee shall have the right to deduct from the gross receipts all
taxes and fees imposed on the Telephone System and/or Television System and on
the revenue generated by the Telephone System and/or the Television System that
are included in said receipts.
ARTICLE 5
TAXES
5.1 REAL PROPERTY TAXES. Lessor shall pay any and all property taxes associate
with the Equipment Room/s or otherwise associated with the Property. Lessee
shall have no responsibility for any such taxes.
5.2 PERSONAL PROPERTY. Lessee shall pay all taxes, assessments, license fees and
public charges levied, assessed or imposed on its business operation as well as
upon all trade fixtures, leasehold improvements and other personal property in
or about the Equipment Room/s and the Property. Lessee shall comply with the
provisions of any law, ordinance or rule of taxing authorities which require
Lessee to file a report of Lessee's property located on the Property. In the
unlikely event this personal property addition increases the Lessor's personal
property tax liability, Lessee shall bear the cost of this additional tax until
the matter can be resolved with the proper taxing authority.
ARTICLE 6
USE
6.1 PURPOSE. Lessee shall use the Equipment Room/s and the Telephone and
Television Cable Areas and shall employ its access to the Property solely in
connection with the purposes contemplated by this Agreement and for no other
purpose. During the term hereof,
4
Lessee shall keep the Equipment Room/s clean and free of any objectionable
noises, orders or nuisances, and Lessee shall at all times comply with any and
all health and police regulations applicable to the Equipment Room/s. Lessee
shall not install any exterior lighting or make any exterior painting or install
any exterior loudspeakers or similar devices on the exterior of the Equipment
Room/s or elsewhere in the property, or make any changes on the exterior of the
Equipment Room/s without Lessor's prior written consent.
6.2 RESTRICTIONS. Lessee shall not do, nor permit anything to be done in or
about the Equipment Room/s which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Property, or injure or annoy them or
use or allow the Equipment Room/s to be used for any unlawful or objectionable
purpose, nor shall Lessee cause, maintain or permit any nuisance in, on or about
the Equipment Room/s. Lessee shall not commit or suffer to be committed any
waste in or upon the Property. Lessee shall not use or be involved with anything
in or about the Property that will in any way violate any house rules, law,
statute, ordinance or governmental rule or regulation or requirement of duly
constituted public authorities now in force or which may hereafter be enacted.
Lessee agrees that it shall comply with all fire and security regulations that
may be issued from time to time by governmental authorities, and shall provide
Lessor with a name of a designated responsible employee to represent Lessee in
all matters pertaining to such fire or security regulations. Lessee shall have
the sole cost and expense to determine whether it is in compliance with the -
foregoing provisions of this Article 6, shall obtain all necessary governmental
approvals and permits, and shall promptly comply with all laws, statutes,
ordinances and governmental rules, regulations and requirements now in force or
which may hereafter be in force, and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, relating to or
affecting the condition, use or occupancy of the Equipment Room/s, provided
however Lessee shall not be responsible for any requirement due to structural
changes not relating to or affecting the condition, use or occupancy of the
Equipment Room/s.
ARTICLE 7
UTILITIES
7.1 AVAILABILITY. Lessor agrees that it will cause to be made available to
Lessee in connection with the Equipment Room/s the distribution of utilities
including electricity, air conditioning, venting and ventilation as described on
Exhibit "C" attached hereto. The cost of any and all utilities as provided to
the Premises shall be borne by Lessor.
7.2 TRASH. Lessee shall store all trash and garbage within the areas as
established by Lessor for such purposes within the Property.
5
Lessee shall not allow refuse, garbage or trash to accumulate in or around the
Equipment Room/s.
7.3 LIMITED LIABILITY. Lessor shall not be liable to Lessee or any other person
for, and neither shall Lessee nor any other person be entitled to any abatement
or reduction of rent or damages, direct or indirect, because of any reduction or
suspension in the utility services if required by any governmental authority, or
Lessor's failure or inability to furnish any service or facility, which Lessor
has agreed to supply, when such failure is caused by accidents, strikes, acts of
God, governmental preemption's or any other cause similar or dissimilar beyond
the reasonable control of Lessor. Lessor shall not be liable under any
circumstances for any loss of or any injury to person, property or business,
however occurring, through or in connection or incidental to any failure
described above to furnish any service or facility, nor shall any such failure
be construed as eviction of Lessee in whole or in part.
ARTICLE 8
REPAIRS
8.1 REPAIR BY LESSEE. Lessee will provide janitorial and housekeeping services,
maintenance and repair for the Equipment Room/s, and will perform all future
improvements at its sole cost. Notwithstanding the. Sentence immediately above,
the obligation of Lessee to repair and maintain the Equipment Room/s shall be
limited to maintenance and repair of the interior of the Room/s and shall not
include the roof, exterior walls or structural aspects of the Room/s except in
the event that any such damage is caused by or results from the negligence of
Lessee or its agents or employees, in which event Lessee shall be obligated to
make such repairs. In addition, Lessee shall have no obligation to replace the
Equipment Room/s (exclusive of the Telephone and/or Television Equipment) in the
event of partial or complete destruction of the Equipment Rooms.
8.2 REPAIR BY LESSOR. Subject to reasonable wear and tear and Lessee's duties to
repair the Equipment Room/s as set forth in this Article, Lessor shall maintain
and repair the exterior walls, roof and the exterior portions of the Room/s.
Lessee shall, be responsible for the repair of any and all HVAC equipment
relating to the Equipment Room/s except in connection with any matters caused or
resulting from the negligence of Lessor or its employees or agents, in which
event Lessor shall be obligated to pay for such repairs.
8.3 REMOVAL UPON TERMINATION. Upon expiration or early termination of this
Agreement, Lessee shall have the right to remove the Telephone and/or Television
Equipment and fixtures as shall have been installed, furnished and supplied by
Lessee in said Equipment Room/s subject to the provisions of Paragraph 11.2
below, it being expressly understood and acknowledged by Lessor that title to
and the ownership of all such
6
equipment and fixtures shall at all times be and remain in and with Lessee,
whether the same or any parts thereof be affixed to the realty or otherwise.
Lessee shall repair any damage caused by the removal of its equipment and
fixtures, including replacement of landscaping removed or damaged by Lessee.
Under no circumstances shall Lessee remove wire in the walls, jacks in buildings
or any underground wire or cable, which shall revert to Lessor upon expiration
or termination of this Agreement.
8.4 LIENS. Lessee shall keep the Property free from any liens arising out of
work performed, materials furnished or obligations incurred by, or on behalf of
or at the direction of Lessee, and shall protect, indemnify, hold harmless and
defend Lessor from any liens or encumbrances arising out of any work performed
by or on behalf of or at the direction of Lessee.
ARTICLE 9
DUTIES OF LESSEE
9.1 INSTALLATION. Lessee shall at its own cost install in the Equipment Room/s
the Telephone and/or Television Equipment, together with wire and accessories
necessary to provide Telephone and/or Television services for the Property. It
is acknowledged that Lessor has installed certain wiring and cable for the
Property. The Telephone and/or Television Equipment to be installed by Lessee
(together with the wiring and cable supplied by Lessor) shall be all that is
required to provide to the Project the Telephone and/or Television services as
contemplated by this Agreement and Lessee shall be obligated to provide and
install such equipment at its cost as is necessary or appropriate to provide
such Telephone and/or Television services.
9.2 MAINTENANCE. Lessee shall service and maintain in good working order all
Telephone and/or Television Equipment and all wiring, cable and accessories,
whether owned by Lessor or Lessee, constituting a portion of the Telephone
System and/or Television system at its sole cost and expense. Lessor shall have
no obligation of any kind whatsoever for maintenance and repair of any such
equipment or any portions of either the Telephone System and/or the Television
System. In no event shall Lessor have any responsibility for any of the costs of
such repair and maintenance. In the event of damage or destruction to any of the
Telephone and/or Television Equipment or any of the wiring, cable or accessories
employed in connection with the Telephone System and/or Television System
arising by reason of a casualty, Lessee shall be obligated at its sole cost to
replace and/or repair such damaged equipment or accessories; provided, only that
any such damage resulting from the gross negligence or intentional conduct of
Lessor or its employees or agents shall be the responsibility of Lessor. Lessee
shall be entitled to employ and shall employ any and all proceeds payable in
connection with insurance maintained pursuant to this Agreement available in
connection with the damage or
7
destruction of any of the Telephone and/or Television Equipment or accessories
as described above to offset the cost of repair and/or replacement of such
equipment and/or accessories. Lessor shall be obligated to employ the portion of
the insurance proceeds that covers the replacement of Lessor owned wire and
cable.
9.3 TENANT INSTALLATION. Lessee shall service and actively market both the
Telephone System and/or Television System to all tenants within the Project.
Lessee shall provide at its sole cost, all installation services required as to
each tenant within the Project and all accessories as required in connection
with the "hook-up" of each of the tenants within the Project. Lessee at its sole
cost shall respond to any and all reasonable inquiries or requirements of the
tenants within the Project relating to the Telephone System and/or Television
System and shall respond within twenty-four (24) hours of notification to all
service calls, excluding Saturdays and Sundays and National Holidays, in which
case response shall be made on the succeeding business day.
9.4 CHARGES. Lessee at its sole cost shall be responsible for billing all
subscribers within the Project for Telephone and/or Television services
provided, and for collecting all monies due in connection with such services.
Lessor shall have no responsibility of any kind whatsoever- for the obligations
of any subscriber in connection with either the Telephone System and/or the
Television System.
9.5 INSURANCE. Lessee shall maintain at its cost, liability insurance covering
injury to persons or damage to property arising out of its operation on the
Property. Lessor shall be named as an additional insured in connection with all
such insurance. A listing of minimum insurance requirements is contained in
Exhibit F and incorporated herein by this reference.
9.6 HOUSE PHONES. At no cost to Lessor, Lessee shall install and activate as an
accommodation to Lessor, service for a reasonable amount of telephones and/or
for a- reasonable amount of television outlets. Such telephone and/or television
services shall be located in common areas within the Project and in areas
employed by Lessor and/or its property manager in connection with management of
the Project as more particularly described on Schedule "D-1" attached hereto.
The areas in which such services are to be installed shall be as designated by
Lessor. In connection with any such services, Lessor shall not be obligated to
pay the basic monthly fees in connection with either the telephone or television
service so installed. Lessor shall be obligated to pay for any extraordinary
television service such as pay per-view as used by Lessor and shall further be
obligated to pay the standard usage cost for the telephone services employed by
Lessor.
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ARTICLE 10
ENTRY BY LESSOR
10.1 ACCESS. Lessee hereby grants Lessor such licenses or easements in and over
the Equipment Room/s or any portion thereof or the Cable Areas as shall be
reasonably required for the installation or maintenance of mains, conduits,
pipes or other facilities to serve the Property or any part thereof, provided
that Lessor shall pay for any alteration required of the Equipment Room/s or
Cable Areas as the result of any such alterations. Lessee further covenants and
agrees that Lessor may enter the Equipment Room/s to make any necessary repairs
to the Equipment Room/s or Cable Areas or to perform any work which may be
necessary to comply with any laws, rules or regulations of any public authority,
or which Lessor may deem necessary to prevent waste or deterioration in
connection with the property Except in the case of emergency repairs, Lessor
shall give Lessee twenty-four (24) hours prior written notice of any intended
entry by Lessor into the Equipment Room/s for purposes of repairs or performance
of any work.
ARTICLE 11
VOLUNTARY TERMINATION
11.1 NOTICE OF TERMINATION. Within sixty (60) days following the commencement of
the six (6) month period starting with the twelfth (12th) month after acceptance
of the first subscriber for the Telephone System and/or Television System,
respectively and within sixty (60) days following the commencement of each six
(6) month period thereafter, Lessee shall have the options as set forth in this
Article 11. Lessee shall give Lessor written notice of the dates of acceptance
of the first subscriber for the Telephone System and/or the first subscriber for
the Television System. The computation of the above described time period shall
be made separately for the Telephone System and/or separately for the Television
System, based upon the date of acceptance of the first subscriber for each.
(a) Subject to the time periods as described immediately above in this
Paragraph, in the event that Lessee fails to maintain an average telephone
subscription level during the two (2) immediately preceding calendar months of
at least eighty (80%) percent penetration of the apartment units in the Project,
then Lessee shall be entitled to give Lessor written notice of its intent to
terminate its obligations pursuant to this Agreement to provide the Telephone
System for the Project. The effective date of the termination shall be as
provided in the notice but no earlier than one hundred eighty (180) days after
the date of receipt by Lessor of such written notice.
(b) Subject to the time periods as described immediately above in this
Paragraph, in the event that Lessee fails to maintain an average television
subscription level during the two (2) immediately preceding calendar months of
at least sixty (60%) percent penetration
9
of the apartment units in the Project, then Lessee shall be entitled to give
Lessor written notice of its intent to terminate its obligations pursuant to
this Agreement to provide the Television System for the Project. The effective
date of the termination shall be as provided in the notice but no earlier than
one hundred eighty (180) days after the date of receipt by Lessor of such
written notice.
11.2 REMOVAL OF EQUIPMENT. In the event that Lessee terminates either of its
services with respect to the Telephone System or its services with respect to
the Television system in accordance with Paragraph 11.1 immediately above,
Lessee shall have thirty (30) days to remove its equipment associated with the
terminated service, beginning with the effective date of that termination;
provided, however, that any equipment not so removed thirty (30) days after the
date of termination for that service shall be deemed to be abandoned. Lessee
will repair any damages to the Premises caused by removal of its equipment.
11.3 LESSEE COOPERATION. In the event that Lessee terminates its obligations
with respect to either the Telephone System and/or Television System in
accordance with Paragraph 11.1 immediately above, Lessee shall, upon the request
of Lessor, during the ninety (90) days prior to the effective date of
termination, negotiate in good faith with the Lessor for the sale of the
Telephone Service and/or Television Service, as the case may be, relating to the
terminated service, which sale shall be made on a cash basis for a price equal
to the fair market value of the services being sold. Should Lessor and Lessee be
unable to agree upon a fair market value for the services, then Lessee shall be
entitled to remove the equipment in accordance with the provisions of Paragraph
11.2 immediately above. In the event of any such removal of equipment, Lessee
shall cooperate with Lessor in connection with Lessor's efforts to obtain a
third-party provider to furnish the services being terminated by Lessee. Such
cooperation shall include, but not be limited to, making space available prior
to the effective date of termination to the third-party provider within the
Premises so that the third-party provider can install equipment as required to
provide the services effective as of the date of termination, resulting in
continuos service for existing subscribers. If the new service providers are the
Public Utilities for those services, then WT&T will quarantee continuos service
for those subscribers in good standing.
ARTICLE 12
DEFAULT
12.1 DEFAULTS BY LESSEE. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Agreement:
10
(a) The vacating or abandonment of the Equipment Room/s by Lessee; or
(b) The failure of Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of five (5) days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes, such Notice to
Pay Rent or Quit shall not constitute the notice required by this subparagraph;
or
(C) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Agreement to be observed or performed by Lessee,
other than described in Paragraph (b) above, where such failure continues for a period
of thirty (30) days after written notice thereof from Lessor to Lessee, which
notice shall specify the specific nature of the failure, provided, however, that
if the nature of Lessee's default is such that more than thirty (30) days are
reasonably required for its cure, than Lessee shall not be deemed to be in
default if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion; or
(d) The occurrence of any two (2) audits during any twelve (12) month
period disclosing that Lessee has understated its receipts by three percent (3%) or
more as described in Paragraph 4.2 above; or
(e) Failure of Lessee to maintain the Telephone System and/or Television
System in good condition and repair comparable with similar services, where such
failure continues for a period of fifteen (15) days after written notice thereof
from Lessor to Lessee; or
(f) Failure of Lessee to provide state of the art telephone service
and/or television service to residents of the Project comparable with similar services,
or to make service calls upon request in a prompt fashion as provided herein,
where such failure continues for a period of five (5) days after written notice
thereof from Lessor to Lessee (provided that Lessee shall not be entitled to
such five (5) day "cure" period upon the second (2nd) occurrence of any such
failure within any thirty (30) day period), except for any failure which results
from failure of a tenant to timely pay its bills for telephone or television
services rendered, destruction of equipment without fault be Lessee (provided,
however . that such destroyed equipment is to be promptly replaced and repaired
by Lessee at its cost), or other commercially acceptable cause reasonably beyond
the control of Lessee; or
(g) Failure of Lessee to provide telephone or television services at
rates equal to or less than those charged by the applicable public utility, where
such failure continues for a period of thirty (30) days after written notice thereof
from Lessor to Lessee; or
11
(h) An appointment of a receiver to take possession of substantially
all of Lessee's assets or of the Premises, with such receivership remaining undissolved
for a period of sixty (60) days; or
(i) The attachment, execution or other judicial seizure if substantially
all of Lessee's assets or the Premises, with such attachment, execution or seizure
remaining undismissed for a period of sixty (60) days.
12.2 DEFAULTS BY LESSOR. The occurrence of any one or more of the followin
events shall constitute a material default and a breach of this Agreement by
Lessor:
(a) Failure to perform any of the material obligations required of Lessor
to be performed, provided that such failure continues for a period of thirty (30) days
after written notice thereof from Lessee to Lessor, which notice shall specify
the specific nature of the failure, provided, however, that if the nature of
Lessor's default is such that more than thirty (30) days are reasonably required
for its cure, than Lessor shall not be deemed to be in default if Lessor
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion; or
(b) If bad debt exceeds five (5) percent during any consecutive three
(3) month period; normal bad debt being three (3) percent of gross receipts; or
(c) Failure of the Property ownership or management to present either the
Telephone System or the Television System in a positive manner to prospective
residents or prospective clients; or
(d) Failure to remove or correct any mechanical, electrical or any other
type of interference that was caused by any device installed by Lessor during the term
of this Agreement that would prevent or hinder Lessee in providing quality
telephone and/or television service to the property.
12.3 REMEDIES UPON DEFAULT BY LESSEE. In the event of a default by Lessee, the
following shall be applicable:
(a) In addition to any and all other rights and remedies available to
Lessor at law or in equity, Lessor shall have the right to immediately terminate this
Agreement and all easements and other access rights and other rights of Lessee
hereunder by giving written notice to Lessee of such election by Lessor. If
Lessor shall elect to terminate this Agreement, then it may recover the amounts
from Lessee that are provided by applicable State law.
(b) In the event of a default by Lessee, Lessor shall also have the right,
with or without terminating this Agreement to re-enter the Equipment Room/s. if
Lessor does not elect to terminate this
12
Agreement, Lessor may either recover all rent as it becomes due or re-let the
Room/s, together with all access rights, upon such Provisions as Lessor in its
sole judgement may deem advisable, and Lessor shall have the right to make
repairs and alterations to the Room/s. if Lessor elects to re-let the Room/s,
then all rentals received by Lessor from such a re-letting shall be applied to
the payment of all costs and expenses incurred by Lessor in connection with such
re-letting and to the payment of rent due and payable hereunder.
(c) Nothing contained in this Paragraph shall constitute a waiver of
Lessor's rights to recover damages by reason of Lessor's efforts to mitigate damages
caused by Lessee's default.
12.4 REMEDIES UPON DEFAULT BY LESSOR. In the event of a default by
Lessor, the following shall be applicable:
(a) In addition to any and all other rights and remedies available to
Lessee at law or in equity, Lessee shall have the right to immediately terminate this
Agreement and all other rights hereunder by giving written notice to Lessor of
such election by Lessee. If Lessee shall elect to terminate the Agreement, then
it may recover the amounts from Lessor as are provided by applicable State law.
(b) In the event of a default by Lessor, Lessee shall also have the right,
with or without terminating this Agreement, to enter the Equipment Room/s.
(c) Nothing contained in this Paragraph 12.4 shall constitute a waiver of
Lessor's rights to recover damages by reason of Lessee's efforts to mitigate
damages caused by Lessor's default.
12.5 REMOVAL OF EQUIPMENT. In the event of a termination of this Agreement
by Lessor resulting from the default of Lessee, the following shall be
applicable:
(a) Lessee, at its cost, shall have thirty (30) days from the date of
termination in which to remove the Telephone Equipment and/or the Television
Equipment; provided, however, that in no event shall Lessee remove any wiring or
cabling installed in the Project. Notwithstanding the above, at the election of
Lessor and without waiving Lessor's election to terminate this Agreement, Lessor
shall be entitled to require Lessee to give Lessor ten (10) days prior written
notice of its intent to remove the Telephone Equipment and/or the Television
Equipment. During such ten (10) day term, Lessee shall cooperate with such
third-party providers as may be selected by Lessor so as to allow such
third-party providers to provide to the Project substitute telephone service
and/or substitute television service. Such cooperation shall include but not be
limited to cooperation in connection with the placement by third-party providers
of new equipment within the Equipment Room/s. In addition, to the extent that
Lessor elects to do so, Lessee shall negotiate in good faith following any
notice of termination given by Lessor, in order to
13
arrive at an agreement for purchase at fair market value on a cash basis by
Lessor of the telephone service and/or television service. Failing any such
agreement for purchase of the services, Lessee shall continue to be entitled to
remove the equipment in accordance with the provisions hereof from the Property,
in accordance with Section 11.2 and 11.3.
12.6 REMOVAL OF EQUIPMENT. In the event of a termination of this Agreement
by Lessee resulting from the default of Lessor, the following shall be
applicable:
(a) Lessee, at its cost, shall have thirty (30) days from the date of
termination in which to remove the Telephone Equipment and/or the Television
Equipment; provided, however, that in no event shall Lessee remove any wiring or
cabling installed in the Project. Notwithstanding the above, at the election of
Lessee and without waiving Lessee's election to terminate this Agreement, Lessor
shall be entitled to require Lessee to give Lessor ten (10) days prior written
notice of its intent to remove the Telephone Equipment and/or Television
Equipment. During such ten (10) day term, Lessee shall cooperate with such
third-party providers as may be selected by Lessor so as to allow such
third-party providers to provide to the Project substitute telephone service
and/or substitute television service. Such cooperation shall include but not be
limited to cooperation in connection with the placement by third-party providers
of new equipment within the Equipment Room/s. In addition, to the extent that
Lessee elects to do so, Lessor shall negotiate in good faith following any
notice of termination given by Lessee, in order to arrive at an agreement for
purchase at fair market value on a cash basis by Lessor of the Telephone service
and/or Television service. Failing any such agreement for purchase of the
services, Lessee shall continue to be entitled to remove such equipment in
accordance with the provisions hereof from the Property, in accordance with
Sections 11.2 and 11.3.
ARTICLE 13
DAMAGE OR DESTRUCTION
13.1 DESTRUCTION OF PREMISES DUE TO RISK COVERED BY INSURANCE. If during the
term of this Agreement, the Premises is totally or partially destroyed from a
risk covered by insurance in effect at the time, and there are sufficient
insurance proceeds to pay in full for the cost of restoration, Lessor shall
restore the Premises to substantially the same condition as they were
immediately prior to destruction, provided that Lessor's obligation shall be
limited to the Premises and shall not include either the Telephone Equipment
and/or the Television Equipment. Lessee, at its cost, shall be required to
restore the Telephone Equipment and/or Television Equipment. Any destruction of
the Premises shall not terminate this Agreement. If the existing laws do not
permit the Premises to be restored to
14
substantially the same condition as they were in immediately before the
destruction, or if in the opinion of Lessor's architect he states the
restoration cannot be completed within one hundred eighty (180) days from the
date of damage or destruction, Lessor and/or Lessee may terminate this Agreement
by giving written notice thereof.
13.2 RENT. In the event of any partial destruction of the Project, the rent as
provided herein shall continue with no abatement, it being acknowledged that the
rent is based upon a percentage of Lessee's gross receipts only.
13.3 RESTORATION OF SERVICE. In the event of a partical destruction of the
Project, Lessee, at its cost, shall quickly restore either telephone and/or
television services to the Project. Such restoration of services shall include a
temporary restoration of services during the period in which any destruction of
the Premises is being restored by Lessor.
ARTICLE 14
MISCELLANEOUS
14.1 INDEMNITY. Lessee shall indemnify and hold Lessor harmless from and against
any loss, claim, damage, liability or expense (including attorney's fees) in
connection with Lessee's operations on the Property or Lessor entering into this
agreement; provided, however, that Lessee shall have no obligations to indemnify
Lessor with respect to any loss, claim, damage or expense arising in whole or
part by reason of the gross negligence or intentional acts of Lessor, employees,
agents or representatives.
14.2 LESSOR WARRANTIES. Except as specifically set forth herein, Lessor makes no
representations or warranties of any kind whatsoever to Lessee in connection
with the subject matter as described in this agreement. specifically, but not by
way of limitation, Lessor makes no representation or warranties as to the
suitability of the Property or Project for the purposes as intended by Lessee
pursuant to the provisions of this Agreement and makes no representations or
warranties as to the profitability or other success of the services to be
provided by Lessee hereunder.
14.3 MEMORANDUM OF AGREEMENT. Upon the request of either Lessee or Lessor, the
parties agree to execute a memorandum of the Agreement in recordable form and
recorded in the Official County Records. This Agreement shall survive any sale,
assignment or other transfer of the Property and shall be construed in all
respects as a lease and not a license. Lessor shall use its best efforts to
obtain from any third party lender a nondisturbance agreement with respect to
this Agreement in a form reasonably satisfactory to both Lessor and Lessee.
15
14.4 AUTHORITY. The person(s) executing this Agreement expressly represent(s)
and warrant(s) that he (they) has (have) full Power and authority to do so.
14.5 ASSIGNMENT. Lessee may not assign this Agreement without the written
consent of Lessor, which shall not be unreasonably withheld. Subject to this
provision, this Agreement shall be binding upon the parties hereto and their
respective heirs, successors and assigns, as the case may be. Notwithstanding
the above provisions, Lessee may assign this Agreement to an affiliated entity
without the consent of Lessor. For purposes hereof, an "affiliated entity" shall
be an entity in which Lessee holds an interest of the equity ownership or has
the control of the Property's Telephone and Television System's management.
14.6 OTHER AGREEMENT. The parties hereby represent that to the best of their
knowledge and belief the entering into and performance of this Agreement will
not create a breach or default in any agreement to which they are a party.
Lessor has informed Lessee of the agreement between Lessor and TCI - Freemont
Cable T.V., referred to herein as the TCI agreement, a copy is attached herein
as Exhibit " G " and incorporated into this Agreement by this reference. Lessee
has represented to Lessor that entering into this Agreement will not cause
Lessor to be in violation of the TCI agreement and will indemnity Lessor, as
referenced in 14.1 above regarding this matter.
14.7 ATTORNEY'S FEES. In the event it becomes necessary for Lessee or Lessor to
enforce the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses.
14.8 CONDEMNATION. If title to all of the Project should be taken for any public
or quasi-puplic use under any statute, or by right of eminent domain, or by
private purchase in lieu of eminent domain, or if title to so, much of the
Property is so taken that a reasonable amount of reconstruction of the Property
will not result in the premises being a practical improvement reasonably
suitable for Lessee continued occupancy for the purposes for which the Property
are leased, then, in either event this, Agreement shall terminate on the date
that possession of the Property or part of the Property is taken. All
compensation awarded or paid upon a total or partial taking of the fee title to
the Property shall belong to Lessor, whether such compensation be awarded or
paid as compensation for diminution in value of the Agreement or of the fee, and
Lessee shall have no interest whatsoever in any such compensation excepting that
Lessee shall be entitled to any compensation awarded or paid to Lessee for
depreciation to and cost of removal of stock and fixtures installed in the
Property by Lessee.
14.9 SEVERABILITY. The provisions of this Agreement shall be severable, and
the invalidity or unenforceability of any provision shall not affect the
remaining provisions. This Agreement shall be governed by the law of the
state wherein the Property is located. The
16
provisions of the Exhibits attached hereto and the attached Schedule are hereby
incorporated in this Agreement by this reference.
14.10 NOTICE. Any notice, request, demand, payment, instruction, communication
or other document required or permitted to be given hereunder or pursuant hereto
to any party shall be in writing and shall be delivered personally or sent by
registered or certified mail postage prepaid, return receipt requested,
telegraphed, delivered or sent by telex, telecopy, cable or overnight commercial
courier to the addressees and addresses as provided on the signature page of
this agreement, page eighteen (18).
Notice shall be deemed to have been delivered, given and received on the date of
(i) delivery to the address of the person to receive such notice if delivered
personally or by overnight commercial courier, or (ii) if mailed, four (4)
business days after the date of posting by the United States post office, or
(iii) if given by telegraph or cable, when delivered by the telegraph company
with charges prepaid, or (iv) if given by telex, facsimile or telecopy, when
sent. The addresses for notice may be changed by giving written notice, as
provided herein if no written notice of change has been sent or received, shall
be deemed to continue in effect for all purposes hereunder.
14.11 DESCRIPTIVE HEADINGS. The descriptive headings used and inserted in
this Agreement are for convenience only and shall not be deemed to affect the
meaning or construction of any provision of this Agreement.
14.12 TIME. Time is of the essence of this Agreement and each and
every provision hereof.
14.13 WAIVER. No covenant, term or condition or breach thereof shall be deemed
waived except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term or condition shall
not be deemed to be a waiver of any other covenant, term or condition.
14.14 HOLDING OVER PERIOD. Should Lessee, with the consent of Lessor, agree to
hold over after the expiration or earlier termination of the term of this
Agreement, such holding over shall be on a month-to-month tenancy, subject to
all terms and conditions of this Agreement. Not to exceed six (6) months.
14.15 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefore, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, shall excuse the performance by such
party for a
17
period equal to any such prevention, delay or stoppage, except for the
obligations imposed with regard to rent to be paid by Lessee pursuant to this
Agreement.
14.16 NO PARTNERSHIP. It is agreed nothing contained in this Agreement shall be
deemed or construed as creating a Partnership or joint venture between Lessor
and Lessee, or between Lessor and any other party, or cause Lessor to be
responsible in any way for the debt or obligations of Lessee or any other party.
14.17 FINANCING. Lessor may, from time to time, obtain financing in connection
with the Project or refinance the Project by means of a mortgage or loan or
loans from one or several lenders; before said loans are approved and closed,
such lender/s companies may wish to approve this Agreement, and in order to
receive such approval, this Agreement may have to be amended or modified.
Provided that the term hereof is not altered and Lessee's obligations to pay are
not increased and the provisions of this Agreement are not unreasonably changed
thereby, Lessee agrees that it shall consent and execute any such proper
amendment or modification of this Agreement that may be requested by said
lender/s. At the request of any said lender/s Lessee hereby agrees to
subordinate this Agreement to any mortgage, deed of trust or other security
agreement requested by any such lender/s.
14.18 OTHER USES. Should Lessee employ any of the facilities, wiring, equipment
or other items installed or employed in connection with either the Telephone
System and/or the Television System at the Property that generates additional
income from the Property or from the residents, past or present of the Property,
then Lessor shall be entilitied to the scheduled percent of the receipts derived
by Lessee from any such use.
14.19 ENTIRE AGREEMENT. This Agreement along with any Exhibits and attachments
hereto constitutes the entire agreement between Lessor and Lessee relative to
the Premises and the matters set forth herein, and this Agreement and Exhibits
and attachments hereto may be altered, amended or revoked only by an instrument
in writing signed by both Lessor and Lessee. It is understood that there are no
oral agreements or representations between the parties hereto affecting this
Agreement, and this Agreement supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements or representations and
understandings, if any, between the parties hereto with respect to the subject
matter as set forth herein.
14.20 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
18
14.21 STATE LAW. This Agreement shall be governed by and be construed accordin
to the laws of the State of California.
This Agreement covers both Telephone and Television Utilities.
LESSOR: LESSEE:
WT&T Telecommunications Partners, LP
A California Limited Partnership
David V. Kline - Partner
Date: Date:
LIST OF EXHIBITS
EXHIBIT A PROJECT DESCRIPTION
EXHIBIT B COMMENCEMENT DATE OF LEASE
EXHIBIT C EQUIPMENT ROOM DESCRIPTION "PREMISES"
EXHIBIT D AS BUILT CABLE PLAN "UTILITY AREAS"
SCHEDULE Dl HOUSE PHONES & T.V. OUTLET LOCATIONS
EXHIBIT E RENT SCHEDULE
EXHIBIT F INSURANCE REQUIREMENTS
EXHIBIT A
DESCRIPTION OF PROJECT
1776 APARTMENTS
1776 Almaden Rd.
San Jose, Ca. 9S125
and
Almaden Garden Apartments
1930 Almaden Rd.
San Jose, Ca. 95125
EXHIBIT B
ARTICLE 2.1
COMMENCEMENT DATE OF LEASE
With reference to Paragraph 2.1 of the Agreement, the undersigned agree that the
term of the Agreement commenced as of __________________________, 1993.
LESSOR: LESSEE:
EXHIBIT C
DESCRIPTION OF EQUIPMENT ROOM - ROOMS
TO BE ADDED AT BUILT OUT OF ROOM/S
EXHIBIT D
DESCRIPTION OF UTILITY AREAS
'AS BUILT CABLE PLAN"
TO BE ADDED AT CUT OVER OF SYSTEMS
SCHEDULE D-1
HOUSE PHONES & T.V- OUTLET LOCATIONS
TO BE ADDED PRIOR TO CUT OVER OF SYSTEMS
EXHIBIT E
RENT SCHEDULE - 1776 & 1930 APARTMENTS 298 UNITS
The rent to be paid by Lessee pursuant to Paragraph 4.1 of the Agreement shall
commence as to -each of the Telephone System and the Television System at such
time as services are being provided with respect -to the Telephone System or the
Television System, as the case may be, to a minimum of sixty percent (60%) of
the apartments within the Project as more particularly described below. The
(60%) test is to apply separately to the Telephone System and the Television
System, so that rent with respect to one system may commence in a different
month than the other, or if one system is installed with out the other. If after
the commencement of rent with respect to one or both of the Systems, the service
level falls below the minimum of (60%) rent shall thereupon cease with respect
to such System until the month in which the minimum service level is again
satisfied. For purposes of determining when service is being provided to a given
apartment, "hook-up" of the service to such apartment shall be considered as
proof of the commencement of service. The rent as described herein is based upon
a percentage of the gross receipts with respect to the Telephone and the
Television Systems. During any months in which rent is not being paid with
respect to the Television System and/or the Television System because the
minimum service level has not been achieved, Lessee shall continue to be
obligated to provide the monthly reports to Lessor as described in Paragraph 4.1
of the Agreement. The percentage of the gross receipts paid in rent shall vary
in accordance with the number of apartment units being serviced as described
below.
The percentage 'of monthly receipts to be paid by Lessee to Lessor is described
as follows:
Number of units Percentage of Monthly Receipts
being serviced Telephone System and/or Television System
0-178 0% 0%
179-208 5% 7%
209-238 6% 8%
239-268 7% 9%
269-298 8% 10%
DURHAM GREEN'S EMPLOYEES THAT LIVE ON THE PROPERTY AND RECEIVE FREE SERVICES
FROM WT&T AND THREE (3) MODEL APARTMENTS WILL BE CONSIDERED AS UNITS BEING
SERVED.
EXHIBIT F
INSURANCE REQUIREMENTS
Lessee is required to comply at its cost with the following minimum insurance
requirements:
1. Lessee at its expense shall maintain the hereinafter described insurance
coverage with insurance carriers licensed and approved to do business in the
State of California (unless Lessor otherwise approves in writing) with a general
policyholder's rating of not less than A, and financial rating of not less than
X, in the most current Best's Insurance Report. In no event will the insurance
be terminated or otherwise allowed to lapse prior to the termination or
expiration of the Agreement. Lessee may provide the insurance described in this
Exhibit through a policy or policies covering other liabilities of Lessee,
provided, however, that any such policy or policies shall: W allocate to the
Project the full amount of insurance required hereunder, and (ii) contain,
permit or otherwise unconditionally authorize the waiver of subrogation as
described in Paragraph 8 below.
2. As evidence of specified insurance coverage, Lessor shall, in lieu of
actual policies, accept certificates issued by the applicable insurance carrier
acceptable to Lessor showing such policies in force for the specified period.
Such evidence shall be delivered to Lessor promptly upon the execution of the
Agreement and prior to the commencement of any activity of Lessee in connection
with the Project. Each policy and certificate shall be subject to approval of
Lessor and shall provide that such policies shall not be subject to material
alteration or cancellation without thirty (30) days prior written notice to
Lessor, which notice shall be delivered by certified mail, return receipt
requested. Should any policy expire or be cancelled prior to termination or
expiration of the Agreement, and should Lessee fail to immediately procure other
insurance as specified, Lessor shall have the right, but not the obligation, to
procure such other insurance and charge Lessee therefor, in which event Lessee
shall, immediately upon written demand from Lessor, pay to Lessor as additional
rent pursuant to the Agreement the sum as advanced by Lessor with respect to the
insurance coverage.
3. Nothing contained in this Amendment or in the Agreement shall be
construed to limit the extent of Lessee's responsibility for payment of damages
resulting from its operations pursuant to the Agreement, nor shall anything
contained herein be deemed to place any responsibility on Lessor for insuring
that the insurance required hereunder be sufficient for the operation of Lessee
pursuant to the Agreement.
4. Lessee shall maintain full workman's compensation insurance including
employer's liability at a minimum limit of Five Hundred Thousand Dollars
($500,000), or current limit carried, whichever is greater, for all persons whom
it employs in carrying out the work pursuant to the Agreement, including waiver
of subrogation by the insurance carrier with respect to Lessor as specified in
Paragraph 8 of this Exhibit. Such insurance shall be in strict accordance with
the requirements of the most current and applicable state worker's compensation
insurance laws in effect from time to time.
5. Lessee shall maintain during the term of this Agreement general public
liability insurance, with coverage limits not less than One Million Dollars
($1,000,000) for bodily injury or death to any one person, injury and/or death
to any number of persons in any one incident, and for property damage in any one
occurrence, in the aggregate insuring against any and all liability of the
insured with respect to the Premises or arising out of the Agreement. All such
insurance shall name Lessor and its designees as additional insureds. All such
insurance shall specifically insure for performance by Lessee of the indemnity
provision set forth in Paragraph 9 below as to liability for injury to or death
of persons an' d damage to property. Such insurance shall have a lender's
protective liability endorsement attached thereto.
6. Lessee shall maintain insurance covering all of the items to be
installed by Lessee in the Premises or the Project pursuant to the Agreement and
any alterations, additions or improvements including but not limited to any and
all equipment to be installed by Lessee pursuant to the Agreement in amount not
less than any full replacement value thereof from time to time during the term
of this Agreement providing protection against any peril included with the
classification of fire and extended coverage together with insurance against
sprinkler damage, vandalism and malicious mischief and water damage (from roof
leakage, ground water or otherwise). Lessee agrees to carry such insurance, it
being expressly understood and agreed that none of the items to be insured by
Lessee hereunder shall be insured by Lessor. Nor shall Lessor be required to
reinstall, reconstruct or repair any of such items. Any policy proceeds shall be
used for the repair or replacement of the property damaged or destroyed. All
such insurance shall name Lessor -and its designees as additional insureds.
7. Lessee shall maintain owned, hired and non-owned automobile liability
insurance covering all use of all automobiles, trucks and other motor vehicles
utilized by Lessee in connection with the Premises or Project of a combined
single limit for bodily injury and property damage of $500,000 or current limit
carried, which ever is greater. All such insurance shall name Lessor and its
designees as additional insureds.
8. Lessee hereby waives any rights it may have against Lessor in connection
with any of the damage or injury occasioned to Lessee, the Premises or the
Project arising from any risks actually covered by insurance in effect at the
time to the extent of the available proceeds. Lessee on behalf of its insurance
companies providing insurance hereunder, waive any right of subrogation that it
may have against Lessor to the extent of available proceeds. Lessor as specified
herein shall be included as an additional insured under the coverage as required
pursuant to this Exhibit. It is agreed that the insurance to be provided by
Lessee hereunder is primary and any other insurance maintained by Lessor is
noncontributing with the insurance to be maintained by Lessee hereunder with
respect to claims or liability arising out of or resulting from the acts or
omissions of a named insured or others performed on behalf of the named insured.
9. Lessee hereby agrees to indemnify and hold Lessor harmless, against
any and all damage, loss, liability and expense including without limitation actual
attorney's fees and legal costs incurred directly by reason of loss or damage to
the Premises, Project, Property or any portion thereof or any claim, suit or
judgment brought by or on behalf of any person for damage, loss or expenses due
to, but not limited to, bodily injury or property damage sustained by person or
persons which arise out of, or are occasioned by or are in any way attributable
to the negligence or willful misconduct of Lessee or its employees or otherwise
attributable to Lessee's negligence in selecting or supervising any of its
agents involved in performance pursuant to the Agreement, except to the
extent-that any such damage or loss, costs or expenses are caused by the sole
gross negligence or willful misconduct of Lessor.
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Exhibit # 10.03
Partnership Agreement - C Hills
TELECOMMUNICATIONS SERVICE
AND LICENSE AGREEMENT
HUNTINGTON TELECOMMUNICATIONS PARTNERS L.P.
And
STEPHEN L. DIAMOND and SUZZANNE DIAMOND
Relating to
CLARENDON HILLS APARTMENTS
TABLE OF CONTENTS
1. INTERPRETATION ...................................... 1
2. SERVICES TO BE PROVIDED ............................. 2
3. LICENSES OVER PROPERTY .............................. 2
4. USE ................................................. 3
5. TERM ................................................ 3
6. FEES PAID TO OWNER .................................. 3
7. INSTALLATION OF SERVICES ............................ 4
8. MARKETING THE SERVICES .............................. 5
9. TAXES ............................................... 5
10. UTILITIES .......................................... 5
11. REPAIRS ............................................ 6
12. VOLUNTARY TERMINATION .............................. 6
13. DEFAULT ............................................ 7
14. DAMAGE, DESTRUCTION AND INSURANCE .................. 8
15. MISCELLANEOUS ...................................... 9
TELECOMMUNICATIONS SERVICE
AND LICENSE AGREEMENT
THIS AGREEMENT, (the "Agreement") is entered into as of Nov. 7th, 1994, by
and betweenSTEPHEN P. DIAMOND and SUZZANNE DIAMOND, tenants in common (collectively
referred to as "Owner"), andHUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P. ("Huntington"),
with reference to the following facts:
RECITALS
A. Owner is the owner of the multi-family residential property
described on Exhibit "A" attached to this Agreement and incorporated herein
by this reference (the "Property").
B. Lessee is engaged in the business of installing and operating private
telephone systems and/or private television systems within apartment complexes
similar to the Property.
C. Owner and Huntington desire to enter into an agreement whereby
Huntington will install the telephone and/or television system(s) to be employed
on the Property and will operate such system(s), all in accordance with the
provisions of the Agreement.
In consideration of the mutual promises contained below and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Owner and Huntington agree as follows:
ARTICLE I
INTERPRETATION
1.1 Defined Terms. Unless otherwise defined in this Agreement, the
following terms shall have the meanings set forth in this Article 1:
"Services" means any particular Telecommunications Services to be
provided under this Agreement.
"System" means collectively the Equipment from time to time located
in the Equipment Room, and the cable, wire and other fixtures and appurtenances from
time to time located in the Cable Areas.
"Telecommunications Services" means the Basic Television Services,
the Basic Telephone Services and such Additional Telephone Services and Additional
Television Services as Huntington may at its sole discretion and from time to
time determine to provide. Services in each category are divided into "Basic
Services", meaning those services within such category which are required to be
offered by Huntington, and "Additional Services", meaning those services within
such category which Huntington may but is not required to offer.
"Telephone Services" means the Basic Telephone Services to be provided
pursuant to the terms of this Agreement and any Additional Telephone Services.
"Telephone System" means the portion of the System to be utilized to
provide the Telephone Services pursuant to the terms of this Agreement.
"Television Services" means the Basic Television Services to be provided
pursuant to the terms of this Agreement -and any Additional Television Services.
The expression "Additional Television Services" shall include, without
limitation, expanded basic service, premium channels and pay-per-view.
"Television System" means the portion of the System to be utilized to
provide the Television Services pursuant to the terms of this Agreement.
"Wiring and Cable" means any wire or cable and any associated accessories
currently or hereafter installed (whether by or at the expense of Owner or
Huntington) on the Property which is or is capable of being used for the
purposes of the Telephone System and/or the Television System.
1.2 Incorporation by Reference. The provisions of the Exhibits attached
hereto and the attached Schedule are hereby incorporated in this Agreement by
this reference.
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ARTICLE 2
SERVICES TO BE PROVIDED
2.1 GENERALLY. Huntington shall make the Telecommunication Services
available to all residents of the Property during the Term subject to the terms
and conditions of this Agreement.
2.2 CONDITIONS REGARDING SERVICES. Huntington's obligations to provide any
Services are subject to the following conditions:
(a) Owner's full performance of Owner's obligations under this Agreement;
(b) The availability of the Services at commercially reasonable rates,
meaning rates that are at least 30% less on average than the prevailing standard
residential retail rates for telephone services charged by the local exchange
carrier or cable television services charged by the local franchised cable
company that would serve the Property.
2.3 REPRESENTATION AND WARRANTY. Huntington represents and warrants
to Owner that the price and quality of Services and the standards of operation,
repair and maintenance provided to tenants under this Agreement shall be comparable
to the quality of services offered by the largest local exchange carrier and long
distance carrier (in the case of Telephone Services) and the largest local cable
operator (in the case of Television Services).EXCEPT AS EXPRESSLY STATED IN
THIS AGREEMENT, HUNTINGTON MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING THE
SYSTEM OR THE PROVISION OF TELECOMMUNICATIONS SERVICES, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
ARTICLE 3
LICENSES OVER PROPERTY
3.1 EQUIPMENT ROOM. Owner grants to Huntington the sole and exclusive
right and license (the "Equipment Room License") to use, occupy and possess the areas
of the Property diagramed on Exhibit "C" attached hereto and incorporated herein
by this reference (referred to as the "Equipment Room", regardless of the number
of rooms actually diagramed or whether or not the area is, in fact, enclosed).
The Equipment Room is to be used for the purpose of installing, operating,
servicing, repairing and removing the equipment and related fixtures and
installations utilized in connection with the performance of Huntington's
obligations under this Agreement (the "Equipment").
3.2 CABLING LICENSE. Owner grants to Huntington an exclusive license (the
"Cable License") to use and occupy the portion of the Property marked on Exhibit
"13" (the "Cable Areas") for the placement and repair of Wiring and Cable in
connection with the performance of Huntington's obligations under this
Agreement. Huntington shall have the right of free access to the Telephone and
Television Cable Areas to inspect, maintain, install, replace and repair the
Wiring and Cable and to the remainder of the Property for the purpose of repair
and maintenance of the Wiring and Cable and for the purpose of repairing and
maintaining such systems.
3.3 OPERATIONAL LICENSE. Owner grants to Huntington a license (the
"Operations License") to access all portions of the Property for the purpose of
collecting receipts for its services and otherwise dealing with subscribers to
the* Services.
3.4 LICENSES IRREVOCABLE DURING TERM. The Equipment Room License, the
Cabling License and. the Operational License are coupled with an interest and
are irrevocable until such time as Huntington has no further rights or
obligations under this Agreement.
3.5 PERMISSIVE ENTRY BY OWNER. Owner may access the Equipment Room or the
Cable Areas as may be reasonably required for the purposes of (a) installing and
maintaining mains, conduits, pipes or other facilities that serve the Property
or any part thereof, (b) making any necessary repairs to the structure of the
Property, whether or not the affected portion of the structure involves the
Equipment Room or Cable Areas, and (c) performing any work which may be
necessary to comply with any laws, rules or regulations of any public authority,
or which Owner may deem necessary to prevent waste or deterioration in
connection with the Property. Owner shall be solely liable for, and shall pay
for, any alternations required to be made to the Equipment Room or Cable Areas
as the result of the exercise of any of the rights described in this Section
3.5. Except in the case of an emergency, Owner shall give Huntington twenty-four
(24) hours prior written notice of any intended entry by Owner into the
Equipment Room or the Cable Areas.
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ARTICLE 4
USE
4.1 PURPOSE. Huntington shall use the Equipment Room and the Cable Areas
and shall employ its access to the Property solely in connection with the
purposes contemplated by this Agreement and for no other purpose. During the
term hereof, Huntington shall keep the Equipment Room clean and free of any
unreasonable noises, odors and nuisances. Huntington agrees that it shall comply
with all fire, health, police and security regulations that may be issued from
time to time by governmental authorities, and shall provide Owner with the name
of a designated responsible employee to represent Huntington in all matters
pertaining to such fire, health, police and security regulations. Huntington
shall not install any exterior lighting or make any exterior painting or install
any exterior loudspeakers or similar devices (other than devices which are a
component of the Equipment) on the exterior of any enclosed Equipment Room or
elsewhere in the Property, or make any changes to the exterior or boundary of
the Equipment Room without Owner's prior written consent.
4.2 RESTRICTIONS. Huntington shall not do, nor permit anything to be done
in or about the Equipment Room which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Property, or allow the Equipment
Room to be used for any unlawful or objectionable purpose, nor shall Huntington
cause, maintain or permit any nuisance in, on or about the Equipment Room.
Huntington shall not perform any act in or about the Property that will in any
way violate any law, statute, ordinance or governmental rule or regulation or
requirement of duly constituted public authorities now in force or which may
hereafter be enacted. Huntington shall obtain all necessary governmental
approvals and permits, and shall promptly comply with all laws, statutes,
ordinances and governmental rules, regulations and requirements now in force or
which may hereafter be in force, and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, relating to or
affecting he condition, use or occupancy of the Equipment Room, provided however
that Huntington shall not be responsible for any requirement due to structural
changes nor to those relating to or affecting the condition, use or occupancy of
the Equipment Room.
ARTICLE 5
TERM
5.1 TERM. This Agreement shall remain in full force and effect for
a full term of ten (10) years (the "Term") and shall commence as of the date of the
issuance of the first billing summary listing all subscribers to either the
Telephone System or the Television System and it shall not be extended,
terminated or canceled except as hereafter provided.
5.2 EXTENSION OF AGREEMENT. At the end of the Term described immediately
above Owner shall have two options to extend the term of this Agreement for a
period five (5) years each. Each option shall be deemed exercised unless
Huntington otherwise notifies the other in writing at least 120 days prior to
the end of the term. - If an option is not exercised, Owner and Huntington may
negotiate the extension of the Term of this Agreement. If new terms are not
agreed upon, then Huntington has thirty (30) days to match any legitimate offer
by another qualified- third party telephone and/or television service provider.
ARTICLE 6
FEES PAID TO OWNER
6.1 FEES. Huntington shall pay to Owner as consideration for the rights
as granted to Huntington under this Agreement monthly payments and other
consideration as scheduled on Exhibit "E" detailing a percentage of the gross
receipts of Huntington in connection with the Services, which percentages vary
in accordance with the number of subscribers within the Property using the
Services (the "Owner's Fees"). Monthly payments shall be paid in arrears and are
due fifteen (15) days following the closing of each monthly billing cycle for
the billing cycle just ended. Huntington shall pay to Owner a late charge of one
percent (1%) of the amount due for any monthly payment not received by Owner
within five (5) business days after the due date. Huntington shall provide to
Owner, along with the monthly Owner's Fees payment, a report showing the number
of subscribers (by unit number) and gross monthly receipts for sales of the
Services.
6.2 AUDIT. Owner shall have the right to audit Huntington's gross receipts
no more frequently than twice in any twelve (12) month period in order to verify
the amount of gross receipts. Huntington shall cooperate with Owner in
connection with any audit of its receipts and shall make available to Owner for
inspection and copying at Owner's expense, during Huntington's usual business
hours, such information and records as are reasonably requested by Owner. If any
audit shows that there is a deficiency in the payment of Owner's Fees, the
deficiency shall become due and payable fifteen (15) days following written
demand from
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Owner, accompanied by a statement showing the amount due. The costs of any audit
shall be paid by the Owner unless the audit discloses that Huntington shall have
understated its gross receipts by three percent (3%) or more, in which case
Huntington shall reimburse Owner for the auditor's reasonable charges.
6.3 RECEIPTS. Subject to Section 6.4 the term "gross receipts" as used
in this Agreement shall refer to the gross amount as received by Huntington from
residents of the Property who are subscribers to the Services, including (i) all
monthly fees as paid by residents of the Property in connection with the
Services, and (ii) all "hook-up" charges or other like charges paid to
Huntington by the residents of the Property, and (iii) all late charges or
penalties of any kind as paid to Huntington by residents of the Property.
6.4 DEDUCTIONS FOR TAXES AND EXPENSES. Before computing the gross receipts
upon which Owner's fees are calculated pursuant to Section 6.1, Huntington shall
deduct from the gross receipts (a) all taxes and fees imposed on the Equipment,
the Services, and upon the revenue generated by the Services, and (b) all costs
of collection of gross receipts.
ARTICLE 7
INSTALLATION OF SERVICES
7.1 INSTALLATION. Huntington shall at its own cost install in the Equipment
Room and the Equipment, together with Wiring and Cable necessary to provide the
Services. Huntington shall be entitled to utilize any existing Wiring and Cable
on or about the Property in connection with the performance of its obligations
under this Agreement. Owner shall be responsible for obtaining rights over any
such Wiring and Cable not currently vested in Owner to the extent that
Huntington notifies Owner that it requires use of or access to such Wiring and
Cable.
7.2 MAINTENANCE. Huntington shall service and maintain all Equipment
and all Wiring and Cable at its sole cost and expense. Owner shall have no
obligation of any kind whatsoever for maintenance, repair or replacement of any
such equipment or any portions of the System. In the event of damage or
destruction to any of the Equipment or any of the Wiring and Cable arising by
reason of a casualty, Huntington shall be obligated at its sole cost to replace
and/or repair such damaged equipment or accessories; provided, only that any
such damage resulting from the gross negligence or intentional conduct of Owner
or Owner's employees or agents shall be the responsibility of Owner. Huntington
shall be entitled to employ any and all proceeds payable in connection with
insurance maintained pursuant to this Agreement available in connection with the
damage or destruction of any of the System or accessories as described above to
offset the cost of repair and/or replacement. Owner shall be obligated to employ
the first available- dollars of Owner's casualty insurance proceeds to cover the
replacement of Owner-owned Wiring and Cable.
7.3 TENANT INSTALLATION. Huntington shall actively market and provide
the Services to all tenants within the Property. Huntington shall provide all
installation services required as to each tenant within the Property and all
accessories as required in connection with the "hook-up" of each of the tenants
within the Property. Huntington shall respond to any and all reasonable
inquiries or requirements of the tenants within the Property relating to the
Telephone System and/or Television System and shall have in place operating
procedures and systems reasonably designed to respond to all service calls
within twenty-four (24) hours of notification or if the day following
notification is a Saturday, Sunday or national holiday, by the close of the next
business day.
7.4 CHARGES. Huntington shall be responsible for billing all subscribers
within the Property for the Services provided and for collecting all monies due
in connection with such services. Owner shall have no responsibility of any kind
whatsoever for the obligations of any subscriber in connection with the System.
7.5 HOUSE PHONES. At no cost to Owner, Huntington shall install and
activate as an accommodation to Owner telephone outlets (if Telephone Services
are to be provided under this Agreement) and television outlets (if Television
Services are to be provided under this Agreement) (the "Complimentary Outlets")
in each case up to the number specified in Exhibit "B". The Complimentary
Outlets shall be located in common areas of the Property and in areas utilized
by Owner and/or its property manager in connection with management of the
Property, exact locations to be determined by consultation between Huntington
and Owner. Owner shall not be obliged to pay the basic monthly fees in
connection with the Services provided to the Complimentary Outlets. Owner shall
be obligated to pay for any extraordinary television service such as pay purview
as used by Owner and shall further be obligated to pay fees based on the usage
of telephone services by Owner. Owner may not redirect, resell or collect any
fee with respect to any of the Services provided to the Complementary Outlets.
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ARTICLE 8
MARKETING THE SERVICES
8.1 EXCLUSIVE RIGHT. Huntington shall have the sole and exclusive right
to provide the Services, and telephone and television service of any kind, to all
residents within the boundaries of the Property. If it is a requirement of law
that the local Telephone Company also serve the Property, this exclusivity
provision shall not deny said local Telephone Company the right to also serve
residents of the Property. Owner shall not install or use, nor permit any tenant
or other person, firm or corporation to install or use in the Equipment Room or
elsewhere on the Property any equipment similar to or intended for the same use
as the Equipment (whether coin operated or not) including, without limitation,
satellite dishes, wireless antennae or other devices for permitting or enhancing
reception of telephone or television signals (other than antennae installed on a
television set). During the Term of the Agreement, Huntington shall have the
exclusive right to install equipment for purpose of providing Services on or
about the Property. Nothing in this Agreement will require Owner to violate any
existing lease or agreement with any tenant but Owner shall not extend a lease,
permit a tenant to hold over or grant any new lease except on terms consistent
with Huntington's rights hereunder. Nothing in this Agreement shall restrict
Owner or any tenant from owning or operating any cellular telephone.
8.2 OWNER'S OBLIGATIONS. The Owner shall:
(a) use reasonable efforts to promote the use of the Services to residents
and prospective residents as part of the amenities provided by Owner at the
Property. Huntington may use incentives and incentive programs at the Property
for the purpose of promoting the Services, provided that such incentive programs
are approved by the Owner.
(b) provide the use of Property personnel to perform procedures such
as connects and disconnects relating to the System;
(c) provide Huntington with a current list of residents, current move-ins
and move outs, and the entering into or termination of leases, that may be used
for marketing, connects and disconnects or for other purposes related to the
Services as determined by Huntington;
(d) cooperate with Huntington in obtaining permits, consents, licenses
and any other requirements which may be necessary for Huntington to install and
operate the System and furnish the Services; provided that Huntington shall pay
all reasonable costs of Owner associated therewith;
(e) provide access to the Property to Huntington and its employees and
agents to enable Huntington to perform the activities contemplated by or
necessary under this Agreement; and
(f) promptly provide to Huntington all information requested regarding
the Property or residents necessary to operate the System according to this
Agreement or to comply with governmental or public utility commission rules.
ARTICLE 9
TAXES
9.1 REAL PROPERTY TAXES. Owner shall pay any and all real property taxes
associated with the Equipment Room or otherwise associated with the Property.
Huntington shall have no responsibility for any such taxes.
9.2 PERSONAL PROPERTY. Huntington shall pay all taxes, assessments, license
fees and public charges levied, assessed or imposed on its business operation as
well as upon all trade fixtures, leasehold improvements and other personal
property in or about the Equipment Room other than Owner-owned Wiring and Cable.
ARTICLE 10
UTILITIES
10.1 AVAILABILITY. Owner agrees to cause utilities to be made available
to Huntington (including electricity, air conditioning and ventilation as described
on Exhibit "C" attached hereto) at the Equipment Room, and at such other
portions of the Property as Huntington may require. The cost of all utilities
shall be borne by Owner up to $100 per month, such allowance to be increased
proportionately to any increase in the per kilowatt charge prevailing at the
date of execution hereof for electricity supplied to the common areas of the
building within the Property in which the Equipment Room is located. Huntington
will provide, at its sole cost,
5
equipment for the insulation, lighting, air conditioning and ventilation for the
Equipment Room as specified in Exhibit "C".
10.2 TRASH. Huntington shall store all trash and garbage within the areas
as established by Owner for such purposes within the Property. Huntington shall
not allow refuse, garbage or trash to accumulate in or around the Equipment
Room. Owner shall be responsible for the costs of all trash removal associated
with operation of the System, provided that Huntington shall be responsible for
the costs of trash removal in connection with initial installation of a
Telephone System and/or a Television System.
10.3 LIMITED LIABILITY. Huntington shall not be liable to Owner for
any reduction or suspension in the Services if required by any governmental
authority, or Huntington's failure or inability to furnish any service or
facility which it has agreed to supply, when such failure is caused by
accidents, strikes, acts of God, governmental preemption's or any other cause
similar or dissimilar beyond the reasonable control of Huntington. Huntington
shall not be liable under any circumstances for any loss of or any injury to
person, property or business, however occurring, through or in connection or
incidental to any failure described above to furnish any service or facility.
ARTICLE 11
REPAIRS
11.1 REPAIRS BY HUNTINGTON. Huntington will provide janitorial and
housekeeping services, maintenance and repair for the Equipment Room, and will
perform all future improvements at its sole cost. Notwithstanding the
immediately preceding sentence, the obligation of Huntington to repair and
maintain the Equipment Room shall be limited to maintenance and repair of the
interior of the Equipment Room and shall not include the roof, floors, exterior
walls or structural aspects of the Equipment Room except in the event that any
such damage is caused by or results from the negligence of Huntington or its
agents or employees, in which event Huntington shall be obligated to make such
repairs. In addition, Huntington shall have no obligation to replace the
Equipment Room in the event of partial or complete destruction of the Equipment
Room.
11.2 REPAIR BY OWNER. Subject to reasonable wear and tear and Huntington's
duties to repair the Equipment Room as set forth in this Article 11, Owner shall
maintain and repair the exterior walls, floors, roof and the exterior portions
of the Equipment Room. Huntington shall be responsible for the repair of any and
all HVAC equipment relating to the Equipment Room except in connection with any
matters caused by or resulting from the negligence of Owner or Owner's employees
or agents, in which event Owner shall be obligated to pay for such repairs.
11.3 REMOVAL UPON TERMINATION. Upon expiration or termination of this
Agreement, Huntington shall have the right but not the obligation to remove the
Equipment and other fixtures that have been installed, furnished and supplied by
Huntington in the Equipment Room and Cable Areas subject to the provisions of
Section 12.2 below, it being expressly understood and acknowledged by Owner that
title to and the ownership of all such equipment and fixtures shall at all times
be and remain in and with Huntington, whether the same or any parts thereof be
affixed to the Property or otherwise. Huntington shall repair any damage caused
by the removal of its equipment and fixtures, including replacement of
landscaping removed or damaged by Huntington. Under no circumstances shall
Huntington remove wire in the walls, jacks in buildings or any underground wire
or cable, which shall become the sole property of the Owner upon expiration or
termination of this Agreement.
11.4. LIENS. Huntington and Owner shall each keep the Property free from
any liens arising out of work performed, materials furnished or obligations
incurred by, or on behalf of or at their respective direction and shall protect,
indemnify, hold harmless and defend each other from any hens or encumbrances
arising out of any work performed by or on behalf of or at their respective
direction.
ARTICLE 12
VOLUNTARY TERMINATION
12.1 NOTICE OF TERMINATION. Within sixty (60) days after the commencement
of the six (6) month period starting with the twelfth (12th) month after
acceptance of the first subscriber to the Telephone Services and the first
subscriber to the Television Services, respectively, and within sixty (60) days
after the commencement of each six (6) month period thereafter, each party shall
have the options as set forth in this Article 12. Huntington shall give Owner
written notice of the dates of acceptance of the first subscriber to the
Telephone Services and the first subscriber to the Television Services. The
computation of the above described
6
time periods shall be made separately for the Telephone Services and the
Television Services, based upon the date of acceptance of the first subscriber
for each.
(a) Subject to the time periods as described in this Section
12.1, in the event that Huntington fails to maintain an average telephone subscription
level of at least eighty (80%) percent penetration of the apartment units in the
Property during the two (2) calendar months immediately preceding the six (6)
month periods described above, then, during the sixty (60) day periods described
above, Huntington shall be entitled to give Owner written notice of its intent
to terminate its obligations pursuant to this Agreement to provide the Telephone
Services for the Property. Subject to the time periods as described in this
Section 12.1, in the event that Huntington fails to maintain an average
telephone subscription level of at least seventy (70%) percent penetration of
the apartment units in the Property during the two (2) calendar months
immediately preceding the six (6) month periods described above, then, during
the sixty (60) day periods described above, owner shall have the right to give
Huntington written notice terminating its right and obligation to provide the
Telephone Services. The effective date of the termination shall be as provided
in the notice but no earlier than one hundred eighty (180) days after the date
of receipt by Owner or Huntington, as the case may be, of such written notice.
(b) Subject to the time periods as described in this Section
12.1 in the event that Huntington fails to maintain an average television subscription
level of at least sixty (60%) percent penetration of the apartment units in the
Property during the two (2) calendar months immediately preceding the six (6)
month periods described above, then, during the sixty (60) day periods described
above, Huntington shall be entitled to give Owner written notice of its intent
to terminate its obligations pursuant to this Agreement to provide the
Television Services for the Property. Subject to the time periods as described
in this Section 12.1, in the event that Huntington fails to maintain an average
television subscription level of at least fifty (50%) percent penetration of the
apartment units in the Property during the two (2) calendar months immediately
preceding the six (6) month periods described above, then, during the sixty (60)
day periods described above, Owner shall be entitled to give written notice to
Huntington of Owner's intent to terminate Huntington's right and obligation
pursuant to this Agreement to provide the Television Services for the Property.
The effective date of the termination shall be as provided in the notice but no
earlier than one hundred eighty (180) days after the date of receipt by Owner of
such written notice.
12.2 REMOVAL OF EQUIPMENT. In the event that Huntington terminates either
the Telephone Services or the Television Services in accordance with Section
12.1, Huntington shall have sixty (60) days to remove its equipment associated
with the terminated service, beginning on the effective date of that
termination; provided, however, that any equipment not so removed sixty (60)
days after the effective date of termination for that Service shall be deemed to
be abandoned. Huntington will repair any damages to the Property caused by
removal of the Equipment, as provided in Section 11.3.
12.3 HUNTINGTON COOPERATION. In the event of any termination, Huntington
shall cooperate with Owner, at no expense to Huntington, in connection with
Owner's efforts to obtain a third-party provider to furnish the services being
terminated. Such cooperation shall include, but not be limited to, making space
available prior to the effective date of termination to the third-party provider
within the Premises so that the third-party provider can install equipment as
required to provide the services effective as of the date of termination,
resulting in continuous service for existing subscribers. If the new service
providers are the public utilities for those services, then Huntington will
guarantee continuous service for those subscribers in good standing.
ARTICLE 13
DEFAULT
13.1 DEFAULTS BY HUNTINGTON. The occurrence of any one or more of the
following events shall constitute a material default and breach of this
Agreement by Huntington:
(a) The failure of Huntington to make any payment of rent or
any other payment required to be made by Huntington hereunder, as and when due,
where such failure shall continue for a period of five (5) days after written notice
thereof from Owner to Huntington. In the event that Owner serves Huntington with
a Notice to Pay Rent or Quit pursuant to applicable unlawful detainer statutes,
such Notice to Pay Rent or Quit shall not constitute the notice required by this
subsection; or
(b) The failure by Huntington to observe or perform any of the
covenants, conditions or provisions of this Agreement to be observed or performed by
Huntington, other than described in Section 13.1(a)
7
above, where such failure shall continue for a period of thirty (30) days after
written notice thereof from Owner to Huntington, which notice shall specify the
specific nature of the failure, provided, however, that if the nature of the
Huntington's default is such that more than thirty (30) days are reasonably
required for its cure, then Huntington shall not be deemed to be in default if
Huntington commences such cure within said thirty (30) days period and
thereafter diligently prosecutes such cure to completion; or
(c) The occurrence of any two (2) audits during any twelve (12)
month period disclosing that Huntington has understated its receipts by twenty percent
(20%) or more as described in Section 6.2 above.
13.2 DEFAULTS BY OWNER. The occurrence of any one or more of the following
events shall constitute a material default and a breach of this Agreement by
Owner.
(a) Failure to perform any of the material obligations required
of Owner to be performed, provided that such failure continues for a period of thirty
(30) days after written notice thereof from Huntington to Owner, which notice shall
specify the specific nature of the failure, provided, however, that if the
nature of Owner's default is such that more than thirty (30) days are reasonably
required for its cure, than Owner shall not be deemed to be in default if Owner
commences such cure within said thirty (30) days period and thereafter
diligently prosecutes such cure to completion; or
(b) If accounts receivable generated by existing or former Services
subscribers that are either 120 days past due or uncollectible in the reasonable
opinion of Huntington exceeds (5) percent of gross receipts during any
consecutive three (3) month period (normal bad debt being three (3) percent of
gross receipts); or
(c) Failure of the Property ownership or management to present
either the Telephone Services or the Television Services in a positive manner to
existing or prospective residents; or
(d) Failure to remove or correct any mechanical, electrical or
any other type of interference that was caused by any device installed by Owner
during the term of this Agreement that would prevent or hinder Huntington in providing
quality Telephone Services and/or Television Services to the Property.
13.3 REMEDIES UPON DEFAULT BY HUNTINGTON. Subject to Section 13.5, in
the event of an uncured default by Huntington, and in addition to any and all other
rights and remedies available to Owner at law or in equity, Owner shall have the
right to immediately terminate this Agreement and all licenses and other rights
of Huntington under this Agreement by giving delivering written notice to
Huntington.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, HUNTINGTON SHALL NOT BE
LIABLE FOR ANY REASON TO OWNER, TO ANY RESIDENT, OR TO ANY OTHER PERSON FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS,
OF ANY NATURE WHATSOEVER, OR FOR THE NONDELIVERY OF SERVICES, OR THE CONDITION
OR REPAIR OF ANY TELEPHONE INSTRUMENT OR ANY PROPERTY TO WHICH THE SYSTEM IS
ATTACHED.
13.4 REMEDIES UPON DEFAULT BY OWNER. Subject to Section 11.3, in the event
of a default by Owner, and in addition to any and all other rights and remedies
available to Huntington at law or in equity, Huntington shall have the right to
immediately terminate this Agreement and all of Huntington's obligations
hereunder by giving written notice to Owner of such election by Huntington.
13.5 REMOVAL OF EQUIPMENT. In the event of a termination of this
Agreement by Owner resulting from the default of Huntington, the following shall be
applicable:
Huntington, at its cost, shall have thirty (30) days after the date of
termination in which to remove the Equipment from the Property, provided,
however, that in no event shall Huntington remove any Wiring and Cable.
Notwithstanding the above, at the election of Owner and without waiving Owner's
election to terminate this Agreement, Owner shall be entitled to require
Huntington to give Owner ten (10) days prior written notice of its intent to
remove the Equipment. During such ten (10) day period, Huntington shall
cooperate, at no cost to Huntington, with such third-party providers as Owner
may direct to provide to the Property substitute Telephone Services and/or
substitute Television Services. Such cooperation shall include but not be
limited to cooperation in connection with the placement by third-party providers
of new equipment within the Equipment Room.
ARTICLE 14
DAMAGE, DESTRUCTION AND INSURANCE
8
14.1 DESTRUCTION OF PREMISES DUE TO RISK COVERED BY INSURANCE. If during
the term of this Agreement, the Equipment Room and the Cable Areas are totally
or partially destroyed from a risk covered by insurance in effect at the time,
and there are sufficient insurance proceeds to pay in full for the cost of
restoration, Owner shall restore the Equipment Room and the Cable Areas to
substantially the same condition as they were immediately prior to destruction,
provided that Owner's obligation shall be limited to the Equipment Room and the
Cable Areas and shall not include the Equipment. Huntington, at its cost, shall
be required to restore the Equipment. At election of Huntington, any destruction
of the Equipment Room or the Cable Areas shall terminate this Agreement; any
such election shall be made by written notice delivered to Owner within sixty
(60) days after the occurrence of the casualty giving rise to the destruction or
damage. If the existing laws do not permit the Equipment Room and the Cable
Areas to be restored to substantially the same condition as they were in
immediately before the destruction, if there are insufficient insurance proceeds
in the reasonable opinion of Huntington to permit the Equipment Room and the
Cable Areas to be restored to substantially the same condition as they were in
immediately before the destruction, or if in the opinion of Owner's architect
the restoration cannot be completed within one hundred eighty (180) days from
the date of damage or destruction, Owner and/or Huntington may terminate this
Agreement by giving written notice thereof within sixty (60) days after the
occurrence of the casualty giving rise to the destruction or damage.
14.2 OWNER'S FEES. In the event of any partial destruction of the Property,
the Owner's Fees as provided for in this Agreement shall continue without
abatement, it being acknowledged that the rent is based upon a percentage of
Huntington's gross receipts only.
14.3 RESTORATION OF SERVICE. In the event of a partial destruction of
the Property, Huntington, at its cost, shall restore the Services to the Property
within a reasonable period following the casualty.
14.4 INSURANCE. Huntington shall carry and maintain liability insurance
covering personal injury and property damage that may be caused to persons, the
Property or its contents, by the System or Huntington's employees or agents.
Owner and Huntington each waive any right of recovery against each other for any
claims that may be brought for any loss that is covered by insurance upon or
relating to the Property or the System. Owner shall carry and maintain
comprehensive general liability insurance and property insurance for the
Property. Owner shall provide a certificate of such insurance to Huntington
within 10 days of request. A listing of minimum insurance requirements is
contained in Exhibit "G" attached hereto and incorporated herein by this
reference.
ARTICLE 15
MISCELLANEOUS
15.1 WARRANTIES. Owner warrants that Owner is the owner of the Property,
and that no other person claims or has any interest in the Property other
persons, referred to in this Section 15.1 as "Tenants and Others" who are (a)
tenants in possession under leases or rental agreements, and (b) all other
persons or entities claiming an interest or license in, or right or claim to,
the Property as would be revealed by an inspection of the Official Records of
the county in which the Property is located. Owner warrants that the Property is
structurally sound, and that to the best of Owner's knowledge the Equipment Room
is watertight. Owner further warrants that Owner will cooperate diligently in
identifying the rights of any third party to own, use or restrict or charge for
the use of the Wiring and Cable. Owner further represents that Owner has
disclosed prior to execution hereof the identity of any other person, except for
Tenants and Others, who Owner knows or believes has any right, title or interest
in and to the Wiring and Cable or to use or restrict or charge for the use the
Wiring and Cable. Owner makes no representations or warranties of any kind
whatsoever to Huntington as to the profitability or other success of the
services to be provided by Huntington hereunder.
15.2 MEMORANDUM OF AGREEMENT. Owner and Huntington shall, upon the written
request of the other, execute, acknowledge and record a memorandum of this
Agreement in the recorder's office of the county in which the Property is
located. Said memorandum shall contain a legal description of the Property,
shall affirmatively restate the grant of the irrevocable licenses set forth in
Article 3, and shall provide for indexing in the recorder's office of Owner's
name in the grantor index, and in Huntington's name in the grantee index. This
Agreement shall survive any sale, assignment or other transfer of the Property.
Upon termination of this Agreement for any reason, Huntington and Owner shall
upon the written request of Owner, execute a memorandum of termination of this
Agreement in recordable form and Huntington shall deliver such memorandum of
termination to Owner.
9
15.3 NONDISTURBANCE AGREEMENT. If the Property is subject to or en cumbered
by a lien, mortgage, deed of trust or other security interest (other than the
lien for property taxes), Owner shall, within 10 days after request by
Huntington, use best efforts to cause the lien holder, mortgagee, beneficiary or
secured party (as the case may be) to furnish to Huntington a written
nondisturbance agreement stating that upon the foreclosure of its lien,
mortgage, deed of trust or security interest (as the case may be) or upon its
acquisition of title to or possession of the Property, that it will recognize
Huntington's rights under this Agreement.
15.4 AUTHORITY. The persons executing this Agreement expressly represent
and warrant that each has full power and authority to do so, that this Agreement
is enforceable in accordance with its terms, that the execution and performance
of this Agreement do not violate either party's partnership agreement (to the
extent either party is a partnership) or articles of incorporation and bylaws
(to the extent either party is a corporation).
15.5 BINDING EFFECT. This Agreement shall be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
assigns, as the case may be.
15.6 OTHER AGREEMENT. The parties hereby represent that to the best of
their knowledge and belief the entering into and performance of this agreement
will not create a breach or default in any agreement to which they are a party,
provided that Huntington acknowledges that Owner is a party to an agreement with
Premier Communications Network, Inc. dated July 19, 1988. Huntington shall have
no obligation to provide Television Services unless Owner has previously
effectively terminated such agreement.
15.7 ATTORNEYS FEES. If any party to this Agreement shall bring any
action or proceeding for any relief against the other, declaratory or otherwise,
arising out of this Agreement, the losing party shall pay to the prevailing
party a reasonable sum for attorney fees and costs incurred in bringing or
defending such action or proceeding and/or enforcing any judgment granted
therein, all of which shall be deemed to have accrued upon the commencement of
such action or proceeding and shall be paid whether or not such action or
proceeding is prosecuted to final judgment. Any judgment or order entered in
such action or proceeding shall contain a specific provision providing for the
recovery of attorney fees and costs, separate from the judgment, incurred in
enforcing such judgment. The prevailing party shall be determined by the trier
of fact based upon an assessment of which party's major arguments or positions
taken in the proceedings could fairly be said to have prevailed over the other
party's major arguments or positions on major disputed issues. For the purposes
of this section, attorney fees shall include, without limitation, fees incurred
in the following- (1) post-judgment motions; (2) contempt proceedings; (3)
garnishment, levy, and debtor and third party examinations; (4) discovery, and
(5) bankruptcy litigation. This Section is intended to be expressly severable
from the other provisions of this Agreement, is intended to survive any judgment
and is not to be deemed merged into the judgment.
15.8 CONDEMNATION. If title to all of the Property should be taken for
any public or quasi-public use under any statute, or by right of eminent domain,
or by private purchase in lieu of eminent domain, or if title to so much of the
Property is so taken that a reasonable amount of reconstruction of the Property
will not result in the Equipment Room's and the Cable Area's being suitable for
Huntington's continued occupancy, then, in either event this Agreement shall
terminate on the date that possession of the Property or part of the Property is
taken. Without limiting any of Huntington's other rights and remedies available
at law or in equity, Huntington shall be entitled to any compensation awarded or
paid to Huntington for depreciation to and cost of removal of Equipment
installed in the Property by Huntington.
15.9 SEVERABILITY; GOVERNING LAW. The provisions of this Agreement shall
be severable, and the invalidity or unenforceability of any provision shall not
affect the remaining provisions. This Agreement shall be governed by the law of
the state wherein the Property is located.
15.10 NOTICES. Any notice, demand, approval, consent, or other
communication required or desired to be given under this Agreement in writing
shall be given in the manner set forth below, addressed to the party to be
served at the address set forth on the signature page of this Agreement, or at
such other address which that party may have given notice under the provisions
of this Section. Any notice, demand, approval, consent, or other communication
given by (a) mail shall be deemed to have been given when accepted or refused,
provided it was deposited in the United States mail, certified, postage prepaid
and return receipt requested; (b) overnight common carrier courier service shall
be deemed to be given on the business day (not including Saturday) immediately
following the date it was deposited with such common carrier; (c) delivery in
person or by messenger shall be deemed to have been given upon delivery in
person or by messenger; or (d) electronic facsimile shall be deemed to have been
given on the earlier of (i) the date and at the time as the sending party (or
such party's agent) shall have received from the receiving party (or such
party's agent) oral confirmation of the receipt of such transmission or (ii) one
hour after the completion of transmission of the entire
10
communication, provided that, in either case, the original of such transmission
is deposited for delivery to the addressee by one of the means set forth in
subsections (a) through (c) of this Section 15.10 on the same date as the
transmission by electronic facsimile.
15.11 DESCRIPTIVE HEADINGS. The descriptive headings used and inserted
in this Agreement are for convenience only and shall not be deemed to affect the
meaning or construction of any provision of this Agreement.
15.12 TIME. Time is of the essence of this Agreement and each and every
provision hereof.
15.13 WAIVER. No covenant, term or condition or breach thereof shall be
deemed waived except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term or condition shall
not be deemed to be a waiver of any other covenant, term or condition.
15.14 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefore, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, shall excuse the performance by such
party for a period equal to any such prevention, delay or stoppage, except for
the obligations imposed with regard to rent to be paid by Huntington pursuant to
this Agreement.
15.15 NO PARTNERSHIP. It is agreed nothing contained in this Agreement
shall be deemed or construed as creating a partnership or joint venture between
Owner and Huntington, or between Owner and any other party, or cause Owner to be
responsible in any way for the debt or obligations of Huntington or any other
party.
15.16 FINANCING. Owner may, from time to time, obtain financing in
connection with the Property or refinance the Property by means of a mortgage or
loan or loans from one or several lenders. Before said loans are approved and
closed, such lenders may wish to approve this Agreement, and in order to receive
such approval, this Agreement may have to be amended or modified. Provided that
the term hereof is not altered, Huntington's obligations to pay are not
increased and the provisions of this Agreement are not unreasonably changed
thereby, Huntington agrees that it shall consent to and execute such minor
amendments or modifications of this Agreement that may be requested in writing
by said lenders. At the request of any said lenders Huntington hereby agrees to
subordinate this Agreement to any mortgage, deed of trust or other security
agreement requested by any such lenders, provided Huntington receives a suitable
nondisturbance agreement meeting the terms of Section 153.
15.17 ENTIRE AGREEMENT. This Agreement along with any Exhibits and
attachments hereto constitutes the entire agreement between Owner and Huntington
relative to the Premises and the matters set forth herein, and this Agreement
and Exhibits and attachments hereto may be altered, amended or revoked only by
an instrument in writing signed by both Owner and Huntington. It is understood
that there are no oral agreements or representations between the parties hereto
affecting this Agreement, and this Agreement supersedes and cancels any and all
previous negotiations, arrangements, brochures, agreements or representations
and understandings, if any, between the parties hereto with respect to the
subject matter as set forth herein.
15.18 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
11
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first
above written.
Huntington: HUNTINGTON TELECOMMUNICATIONS PARTNERS, L.P.
By: KBL INVESTMENT COMPANY, L.P.,
a California limited partnership,
its General Partner
By: HUNTTINGTON PARTNERS, INC.,
a California corporation,
its Managing General Partner
By:______________________________________________
Its:_____________________________________________
Address: 40 Vienna
Newport Beach, California 92660
Facsimile: (714) 644-5010
Owner:
/s/Stephen Diamond, /s/ Suzanne Diamond
STEPHEN L DIAMOND
SUZZANNE DIAMOND
Address: 21070 Homestead Road, #210
Cupertino, California 95014
Facsimile: (408) 732-9578
12
Addendum to Contract
Per Article 12 Voluntary Termination, pace 6 & 7, paragraph l (b), as originally
written is now hereby null and void.
As a result this paragraph only will be rewritten as follows:
Subject to the time periods as described in Section 12.1, in the event that
Huntington fails to achieve a reasonably consistent growth percentage of
additional cable revenue above and beyond the already delivered 100% basic
coverage percentage as provided by the property Owner or if Huntington fails to
diligently pursue growth of its cable market share above and beyond basic
coverage then Owner shall be entitled to give written notice to Huntington of
Owner's intent to terminate Huntington's right and obligation pursuant of this
Agreement to provide the Television Services for the Property. The effective
date of the termination shall be as provided in the notice but no earlier than
one hundred eighty (180) days after the inception of services.
Clarendon Hills Huntington
/s/Stephen Diamond/s/David Kline
Stephen P. Diamond Huntington Representative
Owner
David Kline
Print Name
13
Addendum to Contract
Per Article 12 Voluntary Termination, pace 6 & 7, paragraph l (b), as originally
written is now hereby null and void.
As a result this paragraph only will be rewritten as follows:
Subject to the time periods as described in Section 12.1, in the event that
Huntington fails to achieve a reasonably consistent growth percentage of
additional cable revenue above and beyond the already delivered 100% basic
coverage percentage as provided by the property Owner or if Huntington fails to
diligently pursue growth of its cable market share above and beyond basic
coverage then Owner shall be entitled to give written notice to Huntington of
Owner's intent to terminate Huntington's right and obligation pursuant of this
Agreement to provide the Television Services for the Property. The effective
date of the termination shall be as provided in the notice but no earlier than
one hundred eighty (180) days after the inception of services.
Clarendon Hills Huntington
/s/Stephen Diamond/s/David C. Hewitt
Stephen P. Diamond Huntington Representative
Owner
David C. Hewitt
Print Name
14
EXHIBIT"A"
THE PROPERTY
Name: Clarendon Hills
Street Address: 700 Alquire Parkway
Hayward, California 94544
California
Legal Description:
A-1
EXHIBIT"B"
TELECOMMUNICATIONS SERVICES
"Basic Television Services':
[] Services comparable to those offered by the local franchised cable company.
[] _________ Complimentary Outlets, as provided in Section 7.5.
"Basic Telephone Services":
[] Local calling within the local service area of the local exchange carrier;
[] Long distance calling plans designed to save on long-distance charges based
upon the calling pattern of each resident. Huntington reserves the to use the
long distance carrier with which it can negotiate the most favorable long
distance rates;
[] Emergency 911 service;
[] House phones, a feature that provides residents with the ability to forward
personal calls to selected house phones; and
[] Call forwarding, a feature which allows calls to be forwarded to any other
phone within the same area code;
[] Private number, a feature that provides the customer with the ability to have
an unpublished phone number.
[] Complimentary Outlets, as provided in Section 7.5.
B-1
EXHIBIT"C"
DIAGRAM OF LOCATION OF EQUIPMENT ROOM
C-1
EXHIBIT"D"
DIAGRAM OF CABLE AREAS
D-1
EXHIBIT"E"
OWNER'S FEE COMPUTATION
The fees to be paid by Huntington pursuant to Section 6.1 of the Agreement
shall commence as to each of the Telephone System and the Television System at
such time as services are being provided with respect to the-Telephone System or
Television System as the case may be, to a minimum of sixty percent (60%) of the
apartments within the Project as more particularly described below. The sixty
percent (60%) test is to apply separately to the Telephone System and Television
System, so that fees with respect to the Telephone System may commence one
month, and fees with respect to the Television System may commence in a
different month. If after the commencement of fees with respect to one or both
of the Systems, the service level falls below the minimum of sixty percent
(60%), fees shall thereupon cease with respect to such System until the month in
which the item service level is again satisfied. For purposes of determining
when service is being provided to a given apartment, hook-up of the System to
such apartment shall be considered as proof of the commencement of service. The
fees as described herein are based upon a percentage of the gross receipts with
respect to the Telephone System and the Television System. The percentage of the
gross receipts paid in fees shall vary in accordance with the number of
apartment units being serviced as described below. In determining the level of
service with respect to either the Telephone Service or the Television Service
in any given month, the highest level of service in such calendar month shall be
determinative.
The percentage of monthly receipts to be paid by Huntington is described as
follows:
Percentage of Gross Monthly Receipts
No. Of Apartment
Units being serviced Telephone System Television System
0-171 0% 0%
172-199 5% 7%
200-228 6% 8%
229-256 7% 9%
257-284 8% 9%
285+ 9% 10%
In addition, Huntington shall pay an advance of $ 10,000 to Owner on
account of fees. The advance will be payable on execution of this Agreement. The
advance will be recoupable dollar for dollar against the first fees due
hereunder but shall not otherwise be refundable.
E-1
In exchange for Huntington delivering a package of 23 channels to be agreed
to by the parties and subject to adjustment from time to time (but in any event
not including premium or pay per view channels) to up to three outlets in every
apartment unit free of charge to the occupants, Owner will pay Huntington
$2,242.00 per month (subject to annual adjustment on each anniversary of the
first date of delivery of Television Service in accordance with the Consumer
Price Index, All Consumers, All Urban Areas published by the United States
Department of Labor, or any comparable successor index). Such payment shall be
offset against any amounts due by Huntington to Owner and the balance (if any)
due by Owner shall be paid in cash on presentation of a monthly statement. On
the basis of such payment or offset, all apartment units shall be treated as
receiving Television Services and the percentage of gross receipts shall be 10%
with respect to any additional receipts resulting from delivery of any
Additional Television Services.
E-2
EXHIBIT"F"
SCHEDULE OF EQUIPMENT ROOM IMPROVEMENTS TO BE MADE BY
HUNTINGTON
F-1
EXHIBIT"G"
INSURANCE REQUIREMENTS
1. HUNTINGTON INSURANCE COVERAGE. Huntington is required to comply at its
cost with the following minimum insurance requirements:
1.1 Worker's Compensation. Huntington shall maintain fall worker's
compensation insurance including employer's liability at a minimum limit of Five
Hundred Thousand Dollars ($500,000), or current limit carried, whichever is
greater, for all persons whom it employs in carrying out work pursuant to the
Agreement. Such insurance shall be in strict accordance with the requirements of
the most current and applicable state worker's compensation insurance laws in
effect from time to time.
1.2 Public Liability. Huntington shall maintain during the term
of this Agreement general public liability insurance, with coverage limits not less
than One Million Dollars ($1,000,000) for bodily injury or death to any one person,
injury and/or death to any number of persons in any one incident, and for
property damage in any one occurrence, in the aggregate insuring against any and
all liability of the insured with respect to the Property or arising out of the
Agreement. All such insurance shall name Owner and Owner's designees as
additional insured. All such insurance shall specifically insure for performance
by Huntington of the indemnity provision set forth in Paragraph 1.5 below as to
liability for injury to or death of persons and damage to property. Such
insurance shall have a lender's protective liability endorsement attached
thereto.
1.3 Property and Casualty. Huntington shall maintain insurance
covering all of the items of Wiring and Cable to be installed by Huntington in the
Property pursuant to the Agreement and any alterations, additions or improvements
in an amount not less than any full replacement value thereof from time to time during
the term of this Agreement providing protection against any peril included with
the classification of fire and extended coverage together with insurance against
sprinkler damage, vandalism and malicious mischief and water damage (from roof
leakage, ground water or otherwise). Owner is not required to insure such items.
Owner shall not be required to reinstall, reconstruct or repair any of such
items. Subject to the terms of any loan or security agreement to which
Huntington may be party, any policy proceeds shall be used for the repair or
replacement of the property damaged or destroyed unless Owner notifies
Huntington that all or a substantial portion of the Property has been destroyed
or damaged beyond repair and Owner does not intend to rebuild or replace the
Property. All such insurance shall name Owner and Owner's designees as
additional insured.
1.4 Automobiles. Huntington shall maintain owned, hired and
non-owned automobile liability insurance covering all use of all automobiles, trucks
and other motor vehicles utilized by Huntington in connection with the Property of a
combined single limit
G-1
for bodily injury and property damage of $500,000 or current limits carried,
which ever is greater. All such insurance shall name Owner and Owner's designees
as additional insured.
1.5 Indemnification. Huntington hereby agrees to indemnify and
hold Owner harmless, against any and all damage, loss, liability and expense including
without limitation actual attorneys' fees and legal costs incurred directly by
reason of loss or damage to the Property or any portion thereof or any 'claim,
suit or judgment brought by or on behalf of any person for damage, loss or
expenses due to, but not limited to, bodily injury or property damage sustained
by person or persons which arise out of, or are occasioned by or are in any way
attributable to the negligence or willful misconduct of Huntington or its
employees or otherwise attributable to Huntington's negligence in selecting or
supervising any of its agents involved in performance pursuant to the Agreement,
except to the extent that any such damage or loss, costs or expenses are caused
by the sole gross negligence or willful misconduct of Owner. Owner is required
to comply at Owner's cost with the following minimum insurance requirements.
2. OWNER INSURANCE COVERAGE. Owner is required to comply at Owner's
cost with the following minimum insurance requirements:
2.1 Worker's Compensation. Owner shall maintain full worker's
compensation insurance including employer's liability at a minimum limit of Five
Hundred Thousand Dollars ($500,000), or current limit carried, whichever is greater,
for all persons whom Owner employs who may at any time come into contact with the
Equipment, the Equipment Room or the Wiring and Cable. Such insurance shall be
in strict accordance with the requirements of the most current and applicable
state worker's compensation insurance laws in effect from time to time.
2.2 Public Liability. Owner shall maintain during the term
of this agreement general public liability insurance, with coverage limits not less
than One Million Dollars ($ 1,000,000) for bodily injury or death to any one person,
injury and/or death to any number of persons in any one incident, and for
property damage in any one occurrence, in the aggregate insuring against any and
all liability of the insured with respect to the Property or arising out of the
Agreement. All such insurance shall name Owner and Owner's designees as
additional insured. All such insurance shall specifically insure for performance
by Owner -of the indemnity provision set forth in Paragraph 2.5 below as to
liability for injury to or death of persons and damage to property. Such
insurance shall have a lender's protective liability endorsement attached
thereto.
2.3 Property and Casualty. Owner shall maintain insurance
covering all the Property pursuant to the Agreement and any alterations, additions or
improvements in an amount not less than any full replacement value thereof from
time to time during the term of this Agreement providing protection against any
peril included with the classification of fire and extended coverage together
with insurance against sprinkler damage, vandalism and malicious mischief and
water damage (from roof leakage, ground water or otherwise).
G-2
Owner shall not be required to reinstall, reconstruct or repair any of such
items. Subject to the terms of any loan or security agreement to which Owner may
be party, any policy proceeds shall be used for the repair or replacement of the
property damaged or destroyed unless Owner notifies Huntington that all or a
substantial portion of the Property has been destroyed or damaged beyond repair
and that Owner does not intend to rebuild or replace the Property. All such
insurance shall name Huntington and its designees as additional insured.
2.4 Automobiles. Owner shall maintain owned, hired and non-owned
automobile liability insurance covering all use of all automobiles, trucks and other
motor vehicles utilized by Owner in connection with the Property of a combined single
limit for bodily injury and property damage of $500,000 or current limits
carried, which ever is greater. All such insurance shall name Huntington and its
designees as additional insured.
2.5 Indemnification. Owner hereby agrees to indemnify and hold
Huntington harmless, against any and all damage, loss, liability and expense including
without limitation actual attorneys' fees and legal costs incurred directly by
reason of loss or damage to the Property or any portion thereof or any claim,
suit or judgment brought by or on behalf of any person for damage, loss or
expenses due to, but not limited to, bodily injury or property damage sustained
by person or persons which arise out of, or are occasioned by or are in any way
attributable to the negligence or willful misconduct of Owner or Owner's
employees or otherwise attributable to Owner's negligence in selecting or
supervising any of Owner's agents involved in performance pursuant to the
Agreement, except to the extent that any such damage or loss, costs or expenses
are caused by the sole gross negligence or willful misconduct of Huntington.
3. GENERAL PROVISIONS.
3.1 Insurance Company. All coverage's described herein shall be
underwritten by insurance carriers licensed and approved to do business in the
State of California (unless otherwise in any particular case approved in writing
by both parties) with a general policyholder's rating of not less than A, and
financial rating of not less than X, in the most current Best's Insurance
Report. In no event will the insurance be terminated or otherwise allowed to
lapse prior to the termination or expiration of the Agreement. Insurance
-described in this Exhibit may be provided through a policy or policies covering
other liabilities of the policy holder, provided, however, that any such policy
or policies shall allocate to the subject matter of this Agreement the full
amount of insurance required hereunder.
3.2 Evidence and Maintenance of Insurance. As evidence of
specified insurance coverage, certificates issued to one party by an applicable
insurance carrier acceptable to the other party showing such policies in force for
the specified period may be provided in lieu of actual policies. Such evidence shall
initially be delivered by each party to the other to prior to the commencement
of any activity of Huntington in connection with
G-3
the Property. Each policy and certificate issued to one party shall be
subject to approval of the other party and shall provide that such policies
shall not be subject to material alteration or cancellation without ten (10)
days prior written notice to such other party, which notice shall be delivered
by certified mail, return receipt requested. Should any policy expire or be
cancelled prior to termination or expiration of the Agreement, and should the
policy holder fail to immediately procure other insurance as specified, the
other party shall have the right but not the obligation, to procure such other
insurance and charge policy holder therefor, in which event the policy holder
shall, immediately upon written demand from the other party, pay to such other
party pursuant to the Agreement the sum as advanced with respect to the
insurance coverage.
Exhibit # 10.05a
Trussville
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (hereinafter "Agreement") is made and entered
into of the 31st day of December 1995, by and between PERSONAL COMMUNICATIONS
SEPCTRUM V, A Nevada limited partnership. ("Partnership") and WESTERN TELEPHONE
& TELEVISION, ("COMPANY").
WITNESSETH
WHEREAS, pursuant to a Telephone and Cable Television License Agreement
between the Company and Meadows of Trussville ("Owner") the Company holds the
right to purchase License Agreement issued by the Owner to construct and operate
a private telephone and cable television system within above mentioned property;
and
WHEREAS, Personal Communications Spectrum, Owner, upon the exercise of
its right to purchase "Telephone and Cable Television License Agreement", shall
have transferred to it, the contract rights with all of its assets, both tangible
and intangible, including but not limited to all subscriber information and
contracts, telephone and cable, (including any underground cable,) television
license agreements, hardware, software, transmitting and receiving equipment
existing at the time such right to purchase is exercised; and
WHEREAS, the Company has entered Into a Supply Agreement (the "Supply
Agreement") with Western Telephone & Television in which the WT&T shall supply
the Partnership with equipment, wiring, cabling and management services pursuant
to the management agreement and
WHEREAS, the Company desires to make Private Telephone and Cable
Television services available to the residents of the Property and Company is
willing to provide such services in accordance with the terms and conditions of
this Telephone and Cable License Agreement.
NOW, THEREFORE, in consideration for the foregoing and mutual promises
set forth below, the parties agree as follows.
1.Purchase Price. The Investor shall purchase the Rights for the
total sum of $459,733.00 payment to made on the following terms:
A. $140,000 to be paid upon execution of this agreement.
B. $210, 000 to be paid 4/15/96
C. $109,955 to be paid no later than 9/23/96
1
d. For system operation: including billing, maintenance,
marketing, subscriber services and other daily management responsibilities, the
Company will retain, pursuant to the Management Agreement, with the
Investor a 10% partnership Interest in residual partnership profits.
e. Cash flow available for distribution is divided as follows:
90% to the partnership
10% to the Management Company
f. Net proceeds from the sale or refinancing of the system
are divided 90% to the partnership and 10% to the Managing Company.
2.Representations and Warranties of Investor
Investor hereby represents and warrants the following:
a. The partnership acknowledges and understands that the
Company shall have no role in Partnership's raising of capital to finance the
purchase that is the subject of this Agreement or funding of the system or power
to approve or disapprove the method of financing;
b. Partnership acknowledges and understands that they shall
have no role in the day-to-day operation of the company.
3.Representations and Warranties of the Company
The Company hereby represents and warrants the following:
a. The Company, by this Purchase Agreement, is hereby
transferring its interest In the License Agreement to the partnership in
consideration of the promises and the mutual understandings herein contained.
B. The Company hereby represents that it will take
"Turnkey" responsibility for Initial system design and construction, including
selection and installation of all equipment and improvements necessary to
complete and maintain the system.
4.Assignment to Third Parties. The Company agrees that
partnership may freely assign or otherwise transfer all rights
afforded by this Purchase Agreement to any third party provided such
third party executes and agreement stating it is subject to all the
terms and conditions of this Purchase Agreement and that certain
Supply Agreement
2
5.Counterparts. This Purchase Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument, The execution
of this Purchase Agreement may be by actual or facsimile signature.
6.Arbitration. Any controversy, dispute or claim arising
out of or relating to this Purchase Agreement, or Its interpretation,
application, implementation, breach or enforcement which the parties are unable
to resolve by mutual agreement, shall be settled by submission by either party
of controversy, claim or dispute to binding arbitration in Las Vegas,
Nevada (unless the parties agree in writing to a different location),
before a single arbitrator in accordance with the rules of the American
Arbitration Association then in effect. In any such arbitration proceeding
the parties agree to provide all discover doomed necessary by the
arbitrator. The decision and award made by the arbitrator shall be final,
binding and conclusive on all parties hereto for all purposes, and Judgment
may be entered thereon in any court having jurisdiction thereof.
7.Benefits. This Purchase Agreement shall be binding upon
and inure to the benefit of the parties hereto and there legal representatives,
successors and assigns.
8.Notices and Addresses. All notices, offers, acceptance and
any other acts under this Purchase Agreement (except payment) shall be in
writing, and shall be sufficiently given if delivered to the addresses in
person, by Federal Express or similar receipted delivery, by facsimile
delivery or, if mailed, postage prepaid, by certified mail, return receipt
requested, as follows:
Purchaser: Personal Communications Spectrum
19000 MacArthur Blvd. Suite 500
Irvine, Ca 92715
Seller: Western Telephone & Television
11731 sterling Avenue, suite F
Riverside, CA 92603
or such other address as either of them, by notice to the other may
designate from time to time. The transmission confirmation receipt from
the sender's facsimile machine shall be Conclusive evidence of successful
facsimile delivery. Time shall be counted to, or from, as the case may be,
the delivery in person or by mailing.
9.Oral Evidence. This Purchase Agreement constitutes the
entire Purchase Agreement between the parties and supersedes all prior oral
and written agreements between the parties hereto with respect to the subject
matter hereof. Neither this Purchase Agreement nor any provision hereof may
be changed, waived, discharged or terminated orally, except by a statement
in writing signed by the party or
parties against which enforcement or the change, waiver, discharge or
termination is sought.
10.Additional Documents The parties hereto shall execute such
additional instruments as may be reasonably required by their counsel in
order to carry out the purpose and Intent of this Purchase Agreement and to
fulfill the obligations of the parties hereunder.
11.Section or Paragraph Headings Section headings herein have been
inserted for reference only and shall not be deemed to limit or otherwise
affect, in any matter, or be deemed to interpret in whole or in part of the
terms or provisions of this Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the date first above written.
WITNESSES:
WESTERN TELEPHONE & TELEVISION, SM.
____________________ By:/s/David Kline
Principal
____________________ PERSONAL COMMUNICATIONS SPECTRUM V
____________________ By:/s/Gerard Suite
Gerard Suite, Managing Partner
Exhibit # 10.05b
Trussville
SUPPLY, SERVICES AND MANAGEMENT AGREEMENT
THIS SUPPLY, SERVICE AND MANAGEMENT AGREEMENT (hereinafter -Agreement")
is made and entered into as of the - day of _1 996, by and between Personal
Communications Spectrum V (hereinafter referred to as 'PCS') and COMPETITIVE
COMMUNICATIONS INC., a California Corporation D.B.A. Western Telephone and
Television (herein after referred to as "CCI").
WITNESSETH
WHEREAS, PCS holds a Telephone, or a Telephone / Cable Television License
Agreement, dated September 13, 1995, (hereinafter "License Agreement") executed
between CCI and Daniel /Rime I L-L C_ ("Owner"), and assigned by CCI to PCS for
the due consideration specified in the Purchase Agreement dated December ILI
995, to construct and operate a private telephone or a private telephone / cable
television system (hereinafter "System") with the Telecommunication Systems
specified in the Purchase Agreement and
WHEREAS, CCI has experience in planning, constructing and operating
telecommunication systems; and
WHEREAS, Investor desires to retain CCI to plan, construct, develop and
manage the operation of the System in conformance with said License Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
understanding herein contained, Investor and CCI hereby agree as follows:
1. Appointment of CCI for Supply, Service and Management
a. Subject to PCS ultimate supervision and control, CCI and
its contractors shall provide the following supply, services and management to
Investor in connection with the System:
(1) Take "turnkey" responsibility, for initial System purchase
in accordance with the Purchase Agreement, design and construction, including
selection and installation of all equipment and improvements necessary to
complete and maintain the System for each function; selection and installation
of all equipment and improvements necessary to complete and maintain the System
for each function; selection, and acquisition, design specification; negotiation
of interconnection, specification and selection of the System equipment;
contract evaluation, selection, and supervision: and pre-operational system
testing.
(2) Perform day-to-day System operations support, including
routine and emergency maintenance, evaluation of the System and interface performance;
monitoring of and compliance with federal, state and local requirements; and
incremental System expansion.
1
(3) Perform routine System management functions, including
selection and training of personnel; bookkeeping and accounting; preparation of reports
for Investor and preparation of recommended budgets for Investor's consideration.
(4) Keep PCS informed of the status of the System
b. PCS shall provide direct supervision of CCI where necessary,
useful or required by law. Investor shall identify a single point of contact for
CCI, and shall respond to M's inquiries or requests for direction in a timely fashion.
PCS shall maintain ultimate control over the License and the System, and shall
execute such documents which it finds acceptable as are necessary for the
purpose of this Agreement. Without prior approval from PCS, CCI shall not take
any action which will give it a prohibited ownership or financial interest in,
or de facto or dejure control over, the System, the License or the Licensee.
C. CCI shall perform system marketing support, including
selection, training a. and evaluation of sales agents; design, preparation, and
implementation of marketing campaigns; execution of CCI's subscriber policies;
negotiation and execution of license agreements; routing subscriber support and
record-keeping; sales, leasing and other distribution of subscriber billing and
collection for subscribers.
d. Notwithstanding anything to the contrary contained in this
Section 1, without the prior written consent of PCS, CCI shall not be authorized on
behalf of PCS to:
(1) sell, lease, trade, exchange or otherwise dispose of
any material capital asset of PCS*
(2) execute, certify and/or deliver any filings to or for
the FCC without the expressed consent of PCS, or;
(3) incur any expenses or make any capital expenditures
which results in the aggregate actual expenses or capital expenditure line item
exceeding PCS's approved budgeted amount for such expenses or capital expenditure
item.
d. All actions taken by CCI under the provisions of this
Section 1, shall be taken. As agent of PCS and all obligations or expenses incurred
hereunder shall be for the System's account, on behalf and at the expense
of, Investor, whether such obligations or expenses are incurred with
respect to independent third parties or with respect to affiliates M. Any
payments to be made by CCI hereunder with respect to Investor shall be made
from such sums as are available in one or more of the System's accounts of
Investor or as otherwise provided for herein.
e. Upon The termination of this Agreement for any reason
other than the assignment of transfer of control of PCS to CCI or CCI's unauthorized
expenditure in accordance with Section I c, above, Investor will reimburse
CCI for all costs and expenses which CCI has incur-red on behalf of PCS,
License or System in excess of payments which PCS has made To CCI
2
pursuant to Section 2 hereof
2. Compensation for Services.
As compensation for its continuous, acceptable services under
this Agreement, PCS shall pay CCI the following: For system operation as
specified including: billing, maintenance, marketing, subscriber services
and other daily management responsibilities, the Company will receive the
fees specified in Exhibit "C" payable within ten (10) days of PCS's receipt
of CCI's invoice. Maintenance and billing fees specified therein are based
on the number of subscribers at the end of each monthly billing period.
3. Compensation for Management Services.
As compensation for its continuous acceptable management services
as defined in the license Agreement, PCS shall pay CCI the following:
a. Fees described in Exhibit "A".
b. For PCS's authorized costs directly incurred by CCI on behalf
of PCS or the Systems excluding capital expenditures and costs associated with
CO's responsibilities, the slim of all authorized costs incurred, payable
within ten (10) days of CO's presentation of invoice to Investor.
c. As farther consideration for its services hereunder, PCS
grants to CCI, subject to CCI's continuous, acceptable performance hereunder,
a right of first refusal to purchase all of PCS's offered interest in the System
or License or all of the offered direct or indirect ownership of PCS. CCI
shall have the exclusive right to match any bona fide written offer to PCS
from an unaffiliated third party to purchase the System or License or PCS
(all as set forth herein), which is received prior to actual licensing or
within five (5) years thereafter. Investor shall provide CCI with written
notice of such offer within ten (10) days of receipt thereof, together with
a copy of the offer and CCI's acceptance thereof Or agreement. At CCI's
sole discretion, CCI may exercise his right of first refusal to purchase
the offering within fifteen (15) days of receipt of written notice of such
offer. Failure to provide CCI of written offer within such period shall
release PCS from CCI's right of first refusal and allow Investor to proceed
and accept the previous offer.
4. Failure to Perform.
Failure of CCI to meet either or both: (1) its obligations
herein specified, and (ii) continuous acceptable management services as
defined in License Agreement, shall release PCS from this Agreement
and all future compensation from the date of said failure to perform
as delineated herein and Investor shall, in such case, have the sole
discretion of terminating this agreement for cause and securing supply
and management services from other sources without CCI's recourse.
3
5. Commencement and Duration.
Unless otherwise extended or modified by the parties hereto, this
Agreement terminates upon any of the following events:
a. if at the end of ten (10) years of commercial operation
of the System the License is not renewed;
b. the voluntary or uncured involuntary bankruptcy of either
party;
c. the written consent of the parties hereto;
d. in the case of willful misconduct, gross negligence or
failure to perform on the part of either Party hereto;
e. the License is not granted or is revoked as a result of
litigation;
f. CCI fails to exercise its Right of First Refusal
This Agreement may be reinstated at the option and mutual agreement of PCS and CCI.
6. Miscellaneous.
a. Liability. CCI shall not be able to PCS and/or to any partner
or shareholder thereof for any loss arising out of any action taken or not taken
and/or decision made by CCI in good faith, unless such action, inaction or
decision constituted willful misconduct or gross negligence on the pan of the
CCI. PCS agrees to indemnify and hold harmless CCI for any action taken or not
taken and/or decision made in good faith, which action, inaction, or decision
does not constitute willful misconduct or gross negligence on the part of CCI.
CCI agrees to procure and maintain, during the entire term of this Agreement, a
policy of commercial general liability insurance coverage in the amount of no
less than $ 1,000,000,00. CCI will include PCS and Owner as additional insured
to policy.
b. Non-Exclusive Agreement. CCI may perform similar or dissimilar
duties and responsibilities for others. If CCI provides such service to other
telecommunications applicants, or licensees, the various entities will not be
deemed to be a partnership, joint venture or common enterprise as a result of
their independent use of CCI.
c. Entire Agreement. This Agreement embodies the entire understanding
between the parties hereto with respect to the subject matters covered hereby
and supersedes any prior agreement or understanding between the parties with
respect to such matters.
d. Amendments and Waivers. This Agreement may not be amended nor
may an), rights hereunder be waived except by an instrument in writing, signed by
the party sought to
3
be charged with such amendment or waiver. The failure of a party to insist
upon adherence to any term of this Agreement on any occasion shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
adherence to that term or any other term of this Agreement
e. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of California, without giving effect to
the provisions, policies or principles thereof relating to choice or conflict of
laws.
f. Assignment of Rights. CCI may freely assign its rights under
this Agreement to any third party upon written notification to PCs. Except as
provided otherwise herein, this Agreement shall be binding upon and inure to the
benefit of the parties and their respective legal representatives, successors
and assigns.
g. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual signature only.
h. Arbitration. Any controversy, dispute or claim arising out of
or relating to this Agreement, or its 'Interpretation, application, implementation,
breach or enforcement which the parties hereto are unable-to resolve by mutual
agreement, shall be settled by submission by either party of controversy, claim
or dispute to binding arbitration in Riverside, California, (Unless the parties
agree in writing to a different location), before a single arbitrator in
accordance with the rules of the American Arbitration Association then in
effect. In any such arbitration proceeding, the parties agree to provide all
discover deemed necessary by the arbitrator. The decision and award made by the
arbitrator shall be final, binding and conclusive on all parties hereto for all
purposes, and judgment maybe entered thereon in any court having jurisdiction
thereof.
i. Notices and Addresses. All notice, offers, acceptance, and
any other acts under this Agreement (except payment) shall be in writing, and
shall be sufficiently given if delivered to the addresses in person, by FedEx
or similar receipted delivery, by facsimile delivery or, if mailed, postage prepaid,
be certified mail return receipt requested, as follows:
CCI: Competitive Communications Inc.
11731 Sterling Avenue, Suite F
Riverside, CA 92503
Fax Number: (909) 687-6103
Telephone: (909) 687-6100
PCs: Personal Communications Spectrum
19000 MacArthur Blvd Suite 500
Irvine, Ca 92715
or such other address as either of the parties hereto, by notice to the other
may designate from
.
5
time to time. The transmission confirmation receipt from the sender's facsimile
machine shall be conclusive evidence of successful facsimile delivery. Time
shall be counted to, or from, as the case may be, the delivery in person or by
mailing.
j. Oral Evidence. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior oral and written agreements
between said parties hereto with respect to the subject matter hereof Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver, discharge of
termination is sought.
k. Additional Documents. The parties hereto shall execute such additional
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
1. Section or Paragraph Headings. Section headings herein have been
inserted for reference only and shall not be deemed to limit or otherwise
affect, in any matter, or be deemed to interpret in whole or in part the terms
or provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESSES: COMPETITIVE COMMUNICATIONS INC.
By:/s/ David Kline
David Kline. Chief Executive Officer
Personal Communications Spectrum V
By:/s/ Gerard Suite
Gerard Suite, Managing Partner
6
EXHIBIT "A"
Management Fees
Telephone:
Install Residential Line (Remote) $17.50
Install Residential Lines (Wire) $45-$80
Telephone Billing (Per sub) $3.00
Install Features $3.00
Install Voice Mail/800 Service $5.00
Change Telephone Number $12-50
move Service $12.50
Install Resident to LEC $25-00
Customer Charged Service Call S35.00/hr
Customer Placed in Collections $10.00
Maintenance (Per sub) $2.00
Cable TV:
Install Service (Remote) $17.50
Install Premium Channels $5.00
Cable Billing (Per sub) $2.00
Change Customer Programming $ 7.50
Move Service $10.00
Custom Charged Service Can S35.00/hr
Customer Placed in. Collections $10.00
Maintenance (Per sub) $ .75
7
EXHIBIT "C"
Management Fees
Television
Description Management Fee Subscriber Price
Install Primary Residential line $17.5O $34.75
Convert Telephone Customer $17-60 n/c
Install Additional lines $60.00/80.00 S80.00/1 05.00
Telephone Only Billing $ 3.50 $14.35
Telephone w/TV Billing (add TV below) $3.00 $14.36
Install Features $3.00 $5.00
Install Voice Mail800 Service $5.00 $7.50
Custom Calling Restriction $20.00 $25.00
Change Telephone Number $12.50 $20-00
Move Apartments $12.50 $20-00
Reconnect after Disconnection $12-50 $20-00
Install Resident to LEC $25.00 $59.95
Service Call Phone $35.00/hour $50.00/hour
Customer Placed In Collections $10.00 N/C
Maintenance $ 2.00 N/C
Cable TV
Description Management Fee Subscriber Price
Install Television Customer - (Charged) $17.00 $39.95
Install Premium Television Customers $5.00 $7.50
Move Apartments $10.00 $20.00
Reconnect after Disconnect $10.00 $20.00
Television Service Call $35.00/hour $50.00/hour
Television only Swing $2.00 $10-95
Customer Placed In Collections $10.00 N/C
Maintenance $.75 N/C
8
Exhibit # 10.06a
Acquisition Agreement - GST
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement"), dated April 28, 1999, is
between GST UNIVERSAL Inc., a Delaware corporation ("Seller"), and COMPETITIVE
COMMUNICATIONS, INC., a California corporation ("Purchaser").
On the terms and subject to the conditions of this Agreement, Seller
intends to sell and Purchaser intends to purchase all the assets of Seller which
are part of the private telephone systems listed on Schedule 4.7 (individually a
"System" and collectively the "Systems") that are subject to the Lease and
Access Agreements, as defined below, and other assets as specified in this
Agreement. The assets of each System include one or more agreements, and any
amendments and modifications thereto, pursuant to which Seller has received from
the owner of the real property related to the System the right to own, install
and operate a private telephone system on the real property (each a "Telephone
Lease and Access Agreements").
The parties agree as follows:
1. TRANSFER OF ASSETS.
1.1 Sale of Assets. On the terms and subject to the
conditions of this Agreement, Seller will sell Seller's
right, title and interest in and to the "Assets", as defined
below, to Purchaser. All Assets sold under this Agreement
will be free and clear of all liens, claims and encumbrances
except as otherwise provided in this Agreement.
1.2 Description of Assets. The "Assets" are the assets
of Seller which comprise the Systems, comprised of the
Telephone Lease and Access Agreements, existing as of the
date this Agreement or acquired by Seller prior to Closing
in the ordinary course of business. Specifically, the Assets
consist of (1) the assets of Seller used to operate the
Systems including its telephone switching and voice mail
equipment, all cable (including without limitation aerial
cable and underground cable, conduit, and all spare parts
and other items used in the maintenance, repair and testing
of the Systems); (2) Seller's right, title and interest in
and to the Telephone Lease and Access Agreements listed on
Schedule 4.7; (3) business records pertaining to the
subscribers of each Systems ("Customers"); and (4) all
leases, easements and licenses to use real property and
leases of personal property disclosed on Schedule 1.2. The
Assets excludes all other items, including without
limitation, any goodwill, intellectual property or software.
1.3 Assignment and Assumption. Seller will assign to
Purchaser and Purchaser will assume (1) each of the
Telephone Lease and Access Agreements listed on Schedule
4.7, and (2) liability for personal property taxes as
apportioned pursuant to Section 3.5. Purchaser's assumption
of all obligations and liabilities described in this Section
1.3 will accrue following Closing (but not before). Except
as expressly provided in this Section 1.3, Purchaser assumes
no liabilities or debts of Seller of any nature whatsoever.
2. PURCHASE PRICE.
2.1 Purchase Price. The purchase price ("Purchase
Price") for the Assets is $450.00 per Active Customer, which
is defined as any Customer which receives a bill from GST as
of the date of execution of this Agreement. An Active
Customer shall not include a Customer billing at less than
$14.35 per month. The current number of Active Customers is
461. A Promissory Note in the amount of $207,450.00.
Attached hereto as Exhibit 2.1. shall be delivered to GST
upon execution of this Agreement, and shall be in the name
of Purchaser and GST Universal, Inc. (or other GST
subsidiary as specified by GST). The terms of the Promissory
Note shall include: (a) 10% percent interest per annum
commencing at Closing, (b) interest accrued and payable
monthly over a period of sixty months, (c) the first
interest payment shall be payable in accordance with the
Promissory Note, (d) principal shall be paid at the end of
the sixty month period.
1
3. CLOSING.
3.1 Closing. The closing of the transactions templated
by this Agreement (the "Closing") will take place at 10:00
a.m., local time on (I) April 28, 1999, or (ii) such earlier
date as Seller and Purchaser mutually agree in writing (the
"Closing Date"). The closing will take place at the offices
of seller or at such other places as mutually agreed by the
parties of this Agreement.
3.2 Deliveries by Seller. At Closing Seller will
execute (if applicable) and deliver (a) a Bill of Sale in
the form attached hereto as EXHIBIT 3.2 (a); (b) Telephone
Lease and Access Agreements as attached on EXHIBIT 3.2 (b);
(c) releases of financing curements and other recorded
encumbrances terminating all liens and encumbrances against,
and security interest in, any of the Assets; (d) a
certificate signed by Seller, certifying that the closing
conditions to be satisfied by Seller have been met as of
Closing; and (e) such other documents and instruments as
Purchaser may reasonably require to effectuate or evidence
the transfer of the Assets.
3.4 Possession. Purchaser will take possession of the
Assets as of the Closing Date.
3.5 Personal Property Taxes. All personal property
taxes attributable to any of the Assets will be apportioned
as of Closing.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller, as of the date of this
Agreement and as of the Closing Date, represents and warrants to Purchaser
as follows.
4.1 Organization. Good Standing Power. Etc. Seller is a
corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware. Seller has
all requisite corporate power and authority to execute,
deliver and perform this Agreement. Seller has all requisite
corporate power and authority to consummate the transactions
contemplated by this agreement.
4.2 Authorizations and Enforceability. This Agreement
has been duly and validly authorized, executed and delivered
by Seller and constitutes the valid and binding obligation
of Seller, fully enforceable in accordance with its terms.
4.3 Restrictions: Burdensome Agreements. Seller is not
a party to any contract commitment or agreement, and neither
Seller now the Assets are subject to or bound or affected by
any charter, bylaw, partnership agreement or other corporate
or partnership restriction, or any other order, judgement,
decree, law, statute, ordinance, rule, regulation or other
restriction of any kind or character which would prevent
Seller from entering into this Agreement or from
consummating the transactions contemplated by this
Agreement.
4.4 Contents and Approvals. As of Closing Seller will
have obtained all consents or approvals of and waivers or
revisions by and will have delivered all notices to any
third party that are necessary in connection with the
execution and delivery by Seller of this Agreement and
consummation of the transactions contemplated by this
Agreement.
4.5 Title to Property.
(a) Tangible Personal Property. Seller owns or has
licenses or other rights adequate to use all property
necessary for the operation of its business and the Assets.
(b) Title. Seller has good and marketable title to the
Asset. Any Asset which requires the consent of a third party
for assignment to Purchaser is described as such on SCHEDULE
4.5. Every other Asset is fully assignable to Purchaser
without the consent of any other.
2
4.6 Condition of Assets. The Assets were acquired and
have been maintained in the ordinary course of its business:
have been property maintained in accordance with industry
standards and are in good working condition.
4.7 Telephone Lease and Access Agreements. Stated on
SCHEDULE 4.7 is a complete and accurate list of all of the
Telephone Lease and Access Agreements presently owned by
Seller which constitute part of the Assets. A complete copy
of each such Telephone Lease and Access Agreement (including
amendments thereto) has been provided to Purchaser. Each of
the Telephone Lease and Access Agreements is valid and
binding is in full force and effect. Neither Seller nor any
owner of a property served by a Telephone Lease and Access
Agreement ( a "Property Owner") is in default under any
Telephone and Access Agreement.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser as of the date of
this Agreement and as of the Closing Date, represents and warrants to
Seller as follows
5.1 Organization. Good Standing Power. Etc. Purchaser
is a corporation duly organized, validly existing and in
good standing under the laws of the state of California.
Purchaser has all requisite corporate power and authority to
execute, deliver and perform this Agreement. Purchaser has
all requisite corporate power and authority to consummate
the transactions contemplated by this Agreement.
5.2 Authorizations and Enforceability. This Agreement
has been duly and validly authorized, executed and delivered
by Purchaser and constitutes the valid and binding
obligation of Purchaser, fully enforceable in accordance
with its terms.
5.3 Restrictions: Burdensome Agreements. Purchaser is
not a party to any contract commitment or agreement, and is
not subject to our bound or affected by any charter, bylaw,
or other corporate, or any other order, judgement, decree,
law, statute, ordinance, rule, regulation or other
restriction of any kind or character which would prevent
Purchaser from entering into this Agreement or from
consummating the transactions contemplated by this
Agreement.
5.4 Effect of Agreement, Consents, Etc. Purchaser has
obtained any and all consents or approvals of filings or
registrations with or notices to any third party or public
body or authority that may be necessary in connection with
the execution and delivery by Purchaser of this Agreement
and the consummation of the transactions contemplated by
this Agreement.
6. COVENANTS OF THE PARTIES.
6.1 Operation of Business. During the period from the
date of this Agreement and the earlier of the termination of
this Agreement or the Closing Date, Seller covenants to
Purchaser that it will operate its business with respect to
the Assets in the usual, regular and ordinary manner; and,
to the extent consistent with such operation use its
reasonable best efforts to preserve its present business
relationships including those with the Customers and the
Property Owners. Seller will not enter into any transaction
or take any action which would result in any of the
representations and warranties of Seller contained in this
Agreement not being true and correct at and as of (I) the
time immediately after such action or transaction was
undertaken or entered into with the same force and effects
as though made on such date, and (ii) the Closing Date, with
the same force and effect as though made on such a date.
6.2 Consents. Seller will give all notices, and use its
commercially reasonable best efforts to obtain all consents
necessary under all Telephone Lease and Access Agreements
and other material contracts and leases to assign such
telephone Lease and Access Agreements, material contracts
and leases to Purchaser.
6.3 Access to Properties and Records; Confidentiality.
3
(a) During the period from the date of this Agreement
to the earlier of the Closing Date or the termination Of
this Agreement, Seller will permit Purchaser reasonable
access to its Assets, and will disclose and make available
to Purchaser all books, papers and records relating to the
Assets. Seller will not be required to provide access to or
disclose information where such access or disclosure would
jeopardize the attorney-client privilege of Seller or would
contravene any law, rule, regulation, order, judgment,
decree or binding agreement entered into prior to the date
hereof. The parties will make appropriate substitute
disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
Notwithstanding the foregoing. Seller agrees to provide
Purchaser with reasonable access to reasonably requested
information regarding the Assets in Seller's files, for
three months following the Closing Date, to assist Purchaser
in the transition of the Assets to Purchaser.
(b) All information Furnished by Seller to Purchaser
with respect to any Asset pursuant to, or in the negotiation
in connection with, this Agreement will be treated as the
sole property of Seller until Closing and, if Closing does
not occur, Purchaser and its agents and advisers will return
to Seller all documents or other materials containing ,
reflecting or referring to such information, will keep
confidential all such information and will not directly or
indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information
confidential will continue indefinitely.
6.4 Confidentiality of Terms of Agreement. After the
execution of this Agreement, Purchaser and Seller will
maintain the confidentiality of the terms of this Agreement.
No such party will, except on a need-to-know basis, disclose
the terms of the transactions contemplated by this Agreement
to any person or entity. The foregoing does not preclude
such parties from informing any other person or entity of
the fact that the Systems, the Telephone Lease and Access
Agreements and other Assets relating to the Systems will be
or have been transferred to Purchaser, so long as such
communication does not disclose any further details
regarding the transaction. Any press release to be disclosed
to the public regarding the terms of this Agreement or which
otherwise includes the other party's name, shall be reviewed
by and agreed upon by both parties in writing prior to
release.
6.5 Accounts Receivable Matters. Seller will retain all
accounts receivable for services provided by Seller through
the date of Closing. Seller will render final customer
bills, with charges for services provided by Seller through
the date of Closing, no later than thirty (30) days
following the date of Closing. Purchaser will commence
billing for services to be provided by the Purchaser after
Closing. Following Closing, Purchaser agrees to return any
marketing materials to Seller which specify "GST" or any
other service marks or trademarks of Seller.
7. CLOSING CONDITIONS
7.1 Conditions to the Obligations of Purchaser Under
this Agreement. The obligations of Purchaser under this
Agreement with respect to the Assets are further subject to
the satisfaction, at or prior to the Closing Date, of the
following conditions, any one or more of which may be waived
by Purchaser.
(a) Each of the obligations and covenants of Seller
required to be performed or complied under or prior to the
Closing Date pursuant to the terms of this Agreement are
duly performed and compiled with in all material respects.
(b) The representations and warranties of Seller
contained in this Agreement are true and correct in all
material respects as of the date of this Agreement and will
be true and correct in all material respect as of the
Closing Date as though made at end as of the Closing Date,
except as to any representation or warranty that
specifically relates to an earlier date.
(c) Seller will have given all notices obtained all
consents and taken all other action necessary under all
Telephone Lease and Access Agreements and other material
contacts and leases to assign such Telephone Lease and
Access Agreements material, material contracts and lease to
Purchaser. Without limiting the foregoing, Seller will have
obtained an executed consent in
4
the form of Exhibit 7.1(C) with respect to the
Telephone Lease and Access agreements for the Promontory
Point and Promontory View apartment complexes.
7.1 Conditions to the Obligations of Seller Under This
Agreement. The obligations of Seller under this Agreement
with respect to the Assets are further subject to the
satisfaction, at or prior to the Closing Date, of the
following conditions, any one or more of which may be
wavered by Seller:
(a) Each of the obligations and covenants of Purchaser
required to be performed or complied with at or prior to the
Closing Date pursuant to the terms of this Agreement will
have been duly performed and complied with in all material
respects.
(b) The representatives and warranties of Purchaser
contained in this Agreement are true and correct in all
material respects as of the date of this Agreement, and will
be true and correct in all material respects as if the
Closing Date's though made at and as of the Closing Date,
except as to any representation or warranty which
specifically relates to an earlier date.
8. INDEMNIFICATION.
Each party hereto will defend indemnify and hold harmless the other party
and any person claiming by or through them or any of their successors and
assigns (each an "Indemnitee") from, against and in respects of any and all
costs, losses, claims, liabilities, fines, penalties, damages and expenses
(including, without limitation, court costs, reasonable fees and disbursements
of counsel with or without suit and on appeal) incurred by the Indemnitee in
connection with:
(a) any breach of (1) any of the representations and
warranties of the indemnifying party or (2) any covenant or
agreement made by the indemnifying party in this Agreement;
(b) with respect to a Seller Indemnitee, obligations
specifically incurred by Purchaser with respect to any Asset
and which arise after the Closing Date, and (2) with respect
to a Purchaser Indemnitee, any alleged or asserted debt,
obligation, liability or commitment of Seller not expressly
assumed by Purchaser hereunder: and
(c) any action , suit, proceeding, compromise,
settlement, assessment or judgment arising out of or
incident to any of the matters indemnified against in this
Section 8.
9. GENERAL.
9.1 Survival of Representations and Warranties. The
representations, warranties, covenants (as specified in this
Agreement), indemnities and agreements stated in this
Agreement, the Disclosure Schedules, any other written
representation and in any ancillary document with respect to
any Asset will survive Closing for a period of one year
following the Closing Date.
9.2 Severability. Any provisions of this Agreement
which are invalid or unenforceable will be ineffective to
the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable theremaining
provision hereof.
9.3 Further Assurances. Each party to this Agreement
will take all actions, subject to the terms and conditions
of this Agreement, that are necessary or desirable to carry
out the purposes of this Agreement, including actions after
Closing.
9.4 Notices. All notices, requests, claims, demands or
other communications hereunder must be in writing and must
be given by delivery in person, by registered or certified
mail (postage prepaid and return receipt requested) to the
respective parties as follows:
(a) If to Seller, to:
5
GST Universal, Inc.
Attn: Contracts Manager
4001 Main Street
Vancouver, WA 98663
(b)If to Purchaser, to:
Competitive Communications, Inc.
Attn: David Kline, CEO
11731 Sterling Avenue, Suite F
Riverside, California 92503
Or such other address as is furnished in writing by any party to the other
party in accordance herewith, except that notices of change of address is
only effective upon receipt.
9.5 Parties in Interest; Assignment. This Agreement
will be binding upon and will inure to the benefit of the
parities hereto and their respective successors and assigns.
Neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by either party
without the prior written consent of the other, which shall
not be unreasonably withheld. Nothing in this Agreement is
intended to confer, expressly or by implication, upon any
other person any rights or remedies under or by reason of
this Agreement
9.6 Entire Agreement; Amendment. This Agreement
(including the Exhibit and Disclosure Schedules hereto)
constitutes the entire agreement and supersedes all prior
agreements and understandings, oral and written, between the
parties hereto with respect to the subject matter hereof and
may not be amended, modified or terminated unless in a
written instrument executed by the party or parties sought
to be bound.
9.7 Venue. Any dispute arising from this Agreement
shall be brought solely within the courts of Clark County,
state of Washington, unless the federal jurisdiction
applies, in which such dispute shall be brought within the
federal courts of Washington, Western District.
9.8 Attorney's Fees. If any legal action or other proceeding is brought to
enforce the terms of this Agreement (whether or not suit is brought and
including any appeal) the prevailing party or parties will be entitled to
reasonable attorney's fees and other costs and expenses incurred in that
action or proceeding.
9.9 Governing Law. This Agreement, in all respects,
including all matters of construction, validly and
performance, is governed by the laws of the state of
Washington.
6
9.10 Counterparts. This Agreement may be executed in
one or more counterparts, all of which will be considered
one and the same agreement, and each of which will be deemed
an original
SELLER: GST UNIVERSAL, INC
BY:________________________________________
Joseph A. Basile, Jr., President and CEO
BY:________________________________________
Daniel Trampush, Chief Financial Officer
PURCHASER: COMPETITIVE COMMUNICATION, INC.
BY:/s/David Kline
David Kline, CEO
EXHIBITS: SCHEDULES:
Exhibit 2.1 Promissory Note Schedule 1.2 Lease, Easements and Licenses
Schedule 4.5 Third Party Consents
Exhibit 3.2(a) Bill of Sale Schedule 4.7 Telephone Lease and Access Agreements
Exhibit 3.2(b) Assignment and Assumption
Telephone Lease and Access Agreements
Exhibit 7.1(c) FORM OF CONSENT
7
Exhibit 2.1
PROMISSORY NOTE
$207,450.00 Date: April 28, 1999
For value received, the undersignedCOMPETITIVE COMMUNICATIONS, INC. ("the
Promisor") promises to pay to the order ofGST UNIVERSAL, INC. (the "Payee"), at
4001 Main Street, Vancouver, WA 98663 (or at such other place as the Payee may
designate in writing), the sum of $207,450.00 together with interest thereon
from April 28, 1999, on the unpaid principal at the rate of 10%.
Unpaid principal shall accrue interest at a rate of 10% annually until paid.
Promisor shall pay interest on the total principal amount in MONTHLY
installments for SIXTY MONTHS beginning on May 15, 1999, payable by the
fifteenth of each subsequent month thereafter.
All payments shall be applied to interest until April 28, 2004 (the "Due Date"),
when the principal shall be due and payable in full. Thereafter, unless the
principal is paid in full, Promisor shall be deemed in default of this Note, and
any unpaid principal shall accrue interest at a rate of 15% annually until paid.
Notwithstanding the Foregoing, Promisor may pay the principal in full prior to
the Due Date, with no further obligation to pay interest thereafter.
In the event Promisor fails to make any payment when due, is subject to
receivership, causes to be made a general assignment for the benefit of
creditors, or other wise causes Payee to become insecure, then the Payee shall
be entitled to accelerate all sums due and owing under this Note, and require
immediate payment if notification from Payee.
In the event Promisor defaults in any obligation under this Note, Promisor
promises to pay, in addition to all other sums due, costs of collection,
including reasonable attorneys' fees, whether or not legal action is commenced.
Legal action includes, without limitation, arbitration, trial and appeal, or any
bankruptcy in which Promisor is involved.
In addition, the Promisor shall be in default if there is a sale, transfer,
assignment, or any other disposition of any assets pledged as payment of this
Note.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
8
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment, protest,
and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
This Note shall be construed in accordance with the laws of the State of
Washington. Any dispute under this note shall be brought solely within the
courts of the Clark County, Washington, or if federal jurisdiction applies the
Western District of Washington.
Signed this 28th day of April, 1999.
Promisor
COMPETITIVE COMMUNICATIONS, INC.
By:/s/David Kline
CEO
9
Exhibit 3.2(a)
BILL OF SALE
("Seller"), for good and valuable consideration given pursuant to an Asset
Purchase Agreement dated April 28, 1999 (the "Purchase Agreement") between GST
Universal, Inc., and Competitive Communications, Inc. ("Purchaser"), the receipt
and sufficiency of which consideration is hereby acknowledged, does hereby sell,
assign, transfer and set over to Purchaser, in accordance with the Purchase
Agreement, all of Seller's right, title and interest in and to the Systems (as
defined in the Purchase Agreement) and related equipment installed at the
apartment complexes described on Schedule 4.7 attached hereto.
Date: April 28, 1999.
SELLER: GST UNIVERSAL, INC.
By: _________________________________________
Joseph A. Basile. Jr., President and COE
10
Exhibit 7.1(c)
CONSENT
This Consent is executed by John Sullivan ("Owner"), who is the Owner of
the multi-family residential complex known as (the "Property"), located at 3300
Promontory Way, San Ramon, CA, the legal description of which is attached hereto
as Exhibit A.
GST Telecom Inc., a Delaware corporation ("Operator"), is the provider of
telephone service to the Property under a Telephone Lease and Access Agreement
dated November 1, 1996.
Competitive Communications, Inc., a California corporation ("CCI") intends
to acquire Operator's interest in Agreement and all of the assets of Operator
which are part of or related to the telephone system on the Property, including
all Operator's wiring, electronic devices, hardware and other equipment.
Owner represents and warrants that as of the date hereof (a) the Agreement
is in full force and effect and there are no amendments, modifications or
supplements thereto, either oral or written; (b) Owner has not assigned,
transferred or hypothecated the Agreement or any interest therein, except as
described herein; and (c) no default or event exists with respect to the
Agreement that, with notice or the passage of time or both, would result in the
termination of the Agreement. Owner irrevocably consents to the assignment by
Operator of its rights, title and interest in the Agreement to CCI.
DATED 4/13/1999.
PROPERTY OWNER:
By:_________________________________
Title
11
Exhibit 7.1 (c)
CONSENT
This Consent is executed by BRE PROPERTIES, INC. ("Owner"), who is the
owner of the multi-family residential complex known as ("the Property"), located
as 1700 Promontory Terrace, San Ramon, CA 94583, the legal description of which
is attached hereto as Exhibit A.
GST Telecom Inc., a Delaware corporation ("Operator"), is the provider of
telephone service to the Property under a Telephone Lease and Access Agreement
dated November 1, 1996.
Competitive Communications, Inc., a California corporation ("CCI") intend
to acquire Operator's interest in the Agreement and all of the assets of the
Operator which are part of or related to the telephone system on the Property,
including all Operator's wiring, electronic devices, hardware and other
equipment.
Owner represents and warrants that as of the date hereof (a) the Agreement
is in full force and effect and there are no amendments, modifications or
supplements thereto, either oral or written; (b) Owner has not assigned,
transferred or hypothecated the Agreement or any interest therein, except as
described herein; and (c) no default or event exists with respect to the
Agreement that, with notice or the passage of time or both, would result in the
termination of the Agreement. Owner irrevocably consents to the assignment by
Operator of its right, tittle and interest in the Agreement to CCI.
DATED 4/8/1999.
PROPERTY OWNER:
By:________________________________________
12
ASSIGNMENT AGREEMENT
This Assignment Agreement (the "Agreement") is entered into and between GST
Universal, Inc., a Delaware corporation, and GST Telecom, Inc., a Delaware
corporation.
Whereas, the property owners of Promontory Way and Promontory Terrace have each
consented to the assignment of certain Telephone Lease and Access Agreements
(the "Consents") from GST Telecom Inc. to Competitive Communications, Inc.; and
Whereas, GST Telecom Inc. desires to assign said consents to GST Universal, Inc.
to complete a proposed transaction between GST Universal, Inc. and Competitive
Communications, Inc.
Therefore, the parties agree as follows:
1. GST Telecom Inc., hereby assigns all right, title and interest to that
certain Consent for Promontory Terrace dated April 8, 1999, to transfer the
Telephone Lease and Access Agreement dated November 1, 1996, to Competitive
Communications, Inc., a California corporation.
2. GST Telecom Inc., hereby assigns all right, title and interest to that
certain Consent for Promontory Way dated April 13, 1999, to transfer the
Telephone Lease and Access Agreement dated November 1, 1996, to Competitive
Communications, Inc., a California corporation.
AGREED TO BY THE PARTIED THIS 28th DAY OF APRIL, 1999.
GST TELECOM INC.
/s/ Joseph A. Basile
Joseph A. Basile, Jr., President and CEO
GST UNIVERSAL, INC.
/s/ Daniel Trampush
Daniel Trampush,. Chief Financial Officer
13
SCHEDULE 1.2
Leases, Easements and licenses to use real property an lease or personal property.
NONE
14
SCHEDULE 4.5
Third Party Consents
1. The Telephone Right of Entry Agreements with respect to the Promontory
Pointe Apartments and Promontory View Apartments require the consent of the
owners for assignment.
15
SCHEDULE 4.7
Telephone Lease and Access Agreements
Two telephone and Television Lease and Access Agreements, dated November 1, 1996.
Promontory Pointe Apartments - 400 units
Promontory View Apartments - 306 units
16
Exhibit # 10.06b
Acquisition Agreement - GST
TELEPHONE AND TELEVISION
LEASE AND ACCESS AGREEMENT
Description of Property: Promontory Point Apartments consisting of 400
apartment units, at the corner of Deerwood Road and Deerwood Place in
San Ramon, in the County of Contra Costa, State of California.
This Telephone and Television Lease and Access Agreement ("Agreement"),
is entered into as of this 1st day of November 1996 ("Effective Date"), by and
between Crow Canyon Developers, Ltd., a California limited partnership,
hereinafter called "Lessor," and GRI Telecommunications, Inc., a California
corporation, hereinafter called "Lessee."
RECITALS
This Agreement is made with respect to the following facts and circumstances:
A. Lessor is the owner and developer of a certain multi-family residential
apartment complex located in San Ramon, California commonly known as Promontory
Point Apartments consisting of 400 apartment units and more particularly
described on Exhibit "A" attached hereto. Such project is herein sometimes
referred to as the "Project."
B. The Lessor has developed the Project in conjunction with a related
and adjacent project consisting of 306 apartment units commonly known as Promontory-
View Apartments (the "Related Project").
C. Lessee is engaged in the business of installing and operating private
telephone systems and private television systems within apartment complexes
similar to the Project.
D. Lessor and Crow Canyon Communications, a California general partnership
("Communications"), entered into that certain Telephone And Television Room
Lease And Access Agreement dated August 8, 1992 ("Prior Agreement") pursuant to
which Communications installed portions of the telephone and television systems
employed at the Project. Communications (or Lessee as its successor-in-interest)
has operated the telephone and television systems at the Project pursuant to the
provisions of the Prior Agreement. In connection with the entry of Lessor and
Lessee into this Agreement, the Prior Agreement is being terminated. The
television system installed at the Project, including both that portion of the
system installed by Lessee (or its predecessor-in-interest) hereunder and that
portion of the system installed by Lessor is herein sometimes referred to as the
"Television System". The telephone system installed at the Project, including 'a
both that portion installed by Lessee and that portion installed by Lessor is
sometimes referred to as the "Telephone System".
E. In connection with the operation of the Television System and Telephone
System at the Project, Lessor desires to lease a certain portion of the Project
to Lessee and to grant Lessee certain other rights as set forth in this
Agreement and Lessee desires to lease the identified portion of the Project,
accept the other rights with respect to the Project as described herein and
otherwise perform the obligations of Lessee as set forth in this Agreement.
In consideration of the mutual promises contained below and for other
good and valuable consideration, it is hereby agreed as follows:
1
Article I
Premises; Utility Areas
1.1Premise. Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
the portion of the Project which is commonly known as the "Telephone and
Television Equipment Room" which is described on Exhibit "B" attached hereto and
incorporated herein by this reference. Such area is sometimes referred to herein
as the "Premises." The Premises is to be used for the purpose of installing,
operating, servicing and repairing the private telephone and television
utilities and equipment described on Exhibits "C" and "C-1" (referred to
collectively as the "Telephone and Television Equipment"). The equipment as
described on Exhibit "C" relating to the Television System shall sometimes be
referred to as the "Television Equipment" and the equipment described on Exhibit
"C-1" relating to the Telephone System shall sometimes be referred to as the
"Telephone Equipment".
In addition to the Telephone and Television Equipment installed in the
Premises, the Premises is to be used for the purpose of installing, operating,
servicing and repairing the private telephone and television utilities and
equipment as described on Exhibit C-2 (referred to collectively as the "Related
Project Telephone and Television Equipment") which equipment is being and will
be employed in connection with the Related Project.
1.2Utility Areas. In addition to the lease of the Premises, Lessor hereby
grants to Lessee nonexclusive access to the areas marked on Exhibit "D" (the
"Utility Areas") for the placement and repair of wires, cable and accessories
necessary to provide the telephone and television services as described in this
Agreement. Lessee shall have the right of free access to the Utility Areas to
inspect, maintain, install, replace and repair the wire, cable and other
accessories associated with the Telephone System and the Television System and
to the remainder of the Project for the purpose of repair and maintenance of the
wiring, cable and accessories relating to the Telephone System and the
Television System, and for the purpose of repairing and maintaining such
systems, and for the purpose of collecting receipts for its services and
otherwise dealing with tenants within the Project. The access of Lessee to the
apartment units in the Projects hall be restricted to normal business hours
after reasonable notice (except by appointment for after business hours) and
such other restrictions as are from time to time reasonably imposed by the
Lessor or its designated agents.
1.3Related Project. It is acknowledged that a portion of the equipment located
within the Premises relates to telephone services and television services which
are being provided or will be provided in connection with the Related Project
currently owned by Lessor consisting of a 306 unit apartment project ("Related
Project"). Lessee, and its successors-in-interest, shall be entitled to install
and maintain such equipment in the Premises and further entitled to service,
repair and otherwise deal with such equipment within the Premises for and on
behalf of the systems maintained in connection with the Related Project. Lessee
shall in addition have free access to the Utility Areas to inspect, maintain,
install, replace and repair the wire, cable and other accessories associated
with the television system and telephone system maintained in connection with
the Related Project and shall further have access to the remainder of the
Project for the purpose of repair and maintenance of the wiring, cable and
accessories relating to such systems in connection with the Related Project.
Article 2
Term
2.1Term. The term of this Agreement shall commence as of the Effective Date
and shall expire on December 31, 2005 and shall not be earlier terminated or
cancelled except as hereinafter provided.
2
Article 3
Exclusive Control
3.1Exclusive Right. Lessee shall have the sole and exclusive control and
possession of the Premises and the exclusive right to provide telephone and
television service to all residents within the boundaries of the Project. Lessor
shall not install or use, nor permit any tenant or other person, firm or
corporation to install or use any equipment similar to or intended for the same
use as the Telephone and Television Equipment (whether coin operated or not) in
the Premises or elsewhere on the Project. During the term of the Agreement,
Lessee shall have the exclusive right to install equipment for telephone and
television purposes on or about the Project. Notwithstanding any provisions to
the contrary contained in this Agreement, including without limitation the
provisions set forth in this paragraph 3.1, Lessor shall be entitled to make
available to Tenants of the Project alternate telephone and television services
to the extent required by applicable law. It is acknowledged that applicable law
currently requires that alternate telephone services be made available to
tenants of the Project.
3.2Condition of Premises. Lessee hereby accepts the Premises in the condition
existing as of the Effective Date subject to all applicable zoning, municipal,
county and state laws, ordinances or regulations governing the use of the
Premises.
Article 4
Rent
4.1Rent. Lessee shall pay to Lessor as tent for the Premises and as
consideration for the other rights as granted to Lessee hereunder monthly
payments as scheduled on Exhibit "E" of a percentage of the gross receipts of
Lessee from time to time in connection with both the Television System and the
Telephone System which percentages vary in accordance with the number of
apartment units within the Project using the Television System and/or Telephone
System. Monthly payments shall be paid in arrears and are due ten (10) days
following the closing of each monthly billing cycle which closing occurs at the
end of each calendar month. Lessee shall pay to Lessor a late charge of one and
one-half percent (1.5%) of the amount due for any monthly payment not received
within five (5) business days of the due date. Lessee shall provide to Lessor,
along with the monthly rental payment, a report showing the number of
subscribers and gross monthly receipts for both the Telephone System and
Television System.
4.2Audit. Lessor shall have the right to audit Lessee's gross receipts no
more frequently than twice in any twelve (12) month period in order to verify the
amount of gross receipts. Lessee shall cooperate with Lessor in connection with
any audit of its receipts and shall make available to Lessor such information
and records as are reasonably requested by Lessor. If any audit shows that there
is a deficiency in the payment of rent, the deficiency shall become due and
payable fifteen (15) days following written demand from Lessor, accompanied by a
statement showing the amount due. The costs of any audit shall be paid by Lessor
unless the audit discloses that Lessee shall have understated its gross receipts
by three percent (3%) or more, in which case Lessee shall pay all Lessor's costs
of the audit. Further, notwithstanding the above provisions of this Paragraph
4.2 to the contrary, in the event any audit discloses that Lessee shall have
understated its gross receipts by three percent (3 %) or more, Lessor shall be
entitled to audit Lessee's gross receipts as often as four (4) times in the
ensuing twelve (12) month period. If any two (2) audits during any twelve (12)
month period disclose that Lessee has understated its receipts by three percent
(3 %) or more, Lessor may terminate this Agreement and Lessee shall remain
liable for the deficiency and cost of audit as herein provided. The acceptance
by Lessor of any monies paid to Lessor by Lessee as rent hereunder, as shown on
any statement furnished by Lessee, shall not be an admission of the accuracy of
such statement or the sufficiency of the amount paid by Lessee.
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4.3Receipts. The term "gross receipts" as used herein shall refer to the gross
amount as received from time to time by Lessee in connection with or relating in
any fashion to the operation of the Telephone System and Television System at
the Project. Such receipts shall include but not be limited to: (i) all monthly
fees as paid by tenants of the Project in connection with the Telephone System
and the Television System; (ii) all "hook-up" charges or other like charges paid
by the tenants of the Project; (iii) all late charges or penalties of any kind
as paid by the tenants of the Project; and (iv) any and all other receipts or
charges of any kind whatsoever received by Lessee relating to or arising out of
the Telephone System and/or Television System at the Property. In the event that
Lessee is no longer providing services in connection with either the Telephone
System or Television System pursuant to this Agreement, then "gross receipts"
thereafter shall refer only to the system for which Lessee continues to provide
services.
4.4Taxes. Lessee shall have the right to deduct from the gross receipts all
taxes (except income or other like taxes upon Lessee's net income or profit) and
fees imposed on the Telephone System or Television System and on the revenue
generated by the Telephone System or Television System at the Project.
Article 5
Taxes
5.1Real Property Taxes. Lessor shall pay any and all real property taxes
associated with the Premises or otherwise associated with the Project. Lessee
shall have no responsibility for any such taxes.
5.2Personal Property. Lessee shall pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed on its
business operation as well as upon all trade fixtures, leasehold improvements
and other personal property in or about the Premises and the Project. Lessee
shall comply with the provisions -of any law, ordinance or rule of taxing
authorities which requires Lessee to file a report of Lessee's property located
at the Project.
Article 6
Use
6.1Purpose. Lessee shall use the Premises and shall employ its access to the
Project solely in connection with the purposes contemplated by this Agreement
and for no other purpose. During the term hereof, Lessee shall keep the Premises
clean and free of any objectionable noises, odors or nuisances, and Lessee shall
at all times comply with any and all health and police regulations applicable to
the Premises. Lessee shall not install any exterior lighting or make any
exterior painting or install any exterior radio or television antennae,
loudspeakers or similar devices on the exterior of the Premises or elsewhere in
the Project, or make any changes on the exterior of the Premises without
Lessor's prior written consent. It is acknowledged that as of the Effective Date
Lessee maintains certain satellite dishes located at the Project and that Lessor
has consented to the location and maintenance of such dishes.
6.2Restrictions. Lessee shall not do or permit anything to be done in or about
the Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Project, or injure or annoy them or use or
allow the Premises to be used for any unlawful or objectionable purpose, nor
shall Lessee cause, maintain or permit any nuisance in, on or about the Premises
or the Project. Lessee shall not commit or suffer to be committed any waste in
or upon the Premises or the Project. Lessee shall not use the Premises or permit
anything to be done in or about the Premises or Project that will in any way
violate any law, statute, ordinance or governmental rule or regulation or
requirement of duly constituted public authorities now in force or which may
hereafter be enacted. Lessee agrees that it shall comply with
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all fire and security regulations that may be issued from time to time by
governmental authorities and shall provide Lessor with a name of a designated
responsible employee to represent Lessee in all matters pertaining to such fire
or security regulations. Lessee shall at its sole cost and expense determine
from time to time, whether it is in compliance with the foregoing, shall obtain
all necessary governmental approvals and permits, and shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations and
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises, excluding structural changes not relating to or affecting the
condition, use or occupancy of the Premises.
6.3Hazardous Material. Lessee shall not cause or permit any hazardous material
to be brought upon, kept or used on or about the Premises or Project. If Lessee
breaches its obligations as stated in the preceding sentence and such breach
results in contamination of the Premises or Project or any portion of the
Project by hazardous material, then Lessee shall indemnify, defend and hold
Lessor harmless from all claims, judgments, damages, penalties, liabilities or
losses of any kind whatsoever (including without limitation attorneys' fees)
which arise during or after the term of this Agreement as the result of or in
connection with such contamination. The obligations of Lessee hereunder shall
survive the termination of this Agreement. As used herein, the term "hazardous
material" means ally hazardous or toxic substance, material or waste which is or
becomes regulated or defined as "hazardous" or "toxic" by any local governmental
authority, the State of California or the United States Government.
Article 7
Utilities
7.1Availability. Lessor agrees that it will cause to be made available to
Lessee in connection with the Premises the distribution of utilities including
electricity, air conditioning, venting and ventilation substantially as such
utilities exist with respect to the Premises as of the Effective Date. The cost
of any and all utilities as provided to the Premises shall be borne by Lessor,
provided that to the extent that electricity provided to the Premises is
separately metered; the cost of the electricity shall be borne by Lessee.
7.2Trash. Lessee shall store all trash and garbage within the areas as
established by Lessor for such purposes within the Project. Lessee shall not
allow refuse, garbage or trash to accumulate outside the Premises.
7.3Limited Liability. Lessor shall not be liable to Lessee or any other person
for, and neither shall Lessee nor any other person be entitled to any abatement
or reduction of rent or damages, direct or indirect, because of any reduction or
suspension in the utility services if required by any governmental authority, or
Lessor's failure or inability to furnish any service or facility, Lessor has
agreed to supply, when such failure is caused by accident, breakage, repairs,
alterations or improvements, strikes, acts of God, governmental preemption or
any other cause similar or dissimilar beyond the reasonable control of Lessor.
Lessor shall not be liable under any circumstances for any loss of or any injury
to person, property or business, however occurring, through or in connection
with or incidental to any failure described above to furnish any service or
facility, nor shall any such failure be construed as eviction of Lessee in whole
or in part.
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Article 8
Repairs
8.1Repair by Lessee. Lessee will at its cost provide janitorial and
housekeeping services, maintenance and repair for the Premises, and will perform
all future improvements at its sole cost. Notwithstanding the sentence
immediately above, the obligation of Lessee to repair and maintain the Premises
shall be limited to maintenance and repair of the interior of the Premises and
shall not include the roof, exterior walls or structural aspects of the Premises
except in the event that any such damage is caused by or results from the
negligence of Lessee or its agents or employees, in which event Lessee shall be
obligated to make such repairs. In addition, Lessee shall have no obligation to
replace the Premises (exclusive of the Telephone and Television Equipment) in
the event of partial or complete destruction of the Premises.
In addition to the above, Lessee shall at its cost maintain and repair
any and all HVAC equipment servicing the Premises, provided that such equipment
serves only the Premises and not other portions of the Project. To the extent of
any warranty on HVAC equipment serving only the Premises, Lessor shall cooperate
with Lessee to enforce the warranty obligations of the manufacturer and/or
installer.
8.2Repair by Lessor. Subject to reasonable wear and tear and Lessee's duties
to repair the Premises as set forth in this Article, Lessor shall maintain and
repair the exterior walls, roof and the exterior portions of the Premises.
Lessor shall in addition be responsible for the repair of any and all HVAC
equipment relating to the Premises except as otherwise provided in Paragraph 8.1
and except in connection with any matters caused or resulting from the
negligence of Lessee or its employees or agents, in which event Lessee shall be
obligated to make such repairs.
8.3Removal Upon Termination. Upon expiration or early termination of this
Agreement, Lessee shall have the right to remove the Telephone and/or Television
Equipment and fixtures as shall have been installed, furnished and supplied by
Lessee in said leased Premises subject to the provisions of Paragraph 13.4
below, it being expressly understood and acknowledged by Lessor that title to
and the ownership of all such equipment and fixtures shall at all times be and
remain in and with Lessee, whether the same or any parts thereof be affixed to
the realty or otherwise. Lessee shall repair any damage caused by the removal of
its equipment -and fixtures, including replacement of landscaping removed or
damaged by Lessee. Under no circumstances shall Lessee remove wire in the walls,
jacks in buildings or any underground wire or cable. In addition, under no
circumstances shall Lessee remove, by reason of termination of this Agreement,
any of the Related Project Telephone and Television Equipment or any of the
telephone lines or cabling employed in connection with the Related Project
Telephone and Television Equipment including, without limitation, the
approximately 600 pairs of telephone lines and one television cable running
through the Premises for the benefit of the Related Project.
8.4Liens. Lessee shall keep the Project and Premises and building in which the
Premises is located free from any liens arising out of work performed, materials
furnished or obligations incurred by Lessee, and shall protect, indemnify, hold
harmless and defend Lessor from any liens or encumbrances arising out of any
work performed by Lessee or at its direction.
Article 9
Duties of Lessee
9.1Installation. It is acknowledged- that Lessee (or its predecessor-in-interest),
pursuant to the Prior Agreement, has installed the Television Equipment and Telephone
Equipment described on Exhibits C and C-1 respectively together with wire and accessories
necessary to provide Telephone and Television services
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for the Project. It is acknowledged that Lessor has installed certain wiring and
cable at the Project in connection with the Telephone System and the Television
System.
9.2Maintenance. Lessee shall service and maintain in good working order all
Telephone and Television Equipment and all wiring, cable and accessories,
whether installed by Lessor or Lessee, constituting a portion of the Telephone
System and/or Television System at its sole cost and expense. Lessor shall have
no obligation of any kind whatsoever for maintenance and repair of any such
equipment or any portions of either the Telephone System or the Television
System. III no event shall Lessor have any responsibility for any of the costs
of such repair and maintenance. In the event of damage to any of the Telephone
and Television Equipment or any of the wiring, cable or accessories employed in
connection with the Telephone System or Television System arising by reason of a
casualty or damage or destruction, Lessee shall be obligated at its sole cost to
replace and/or repair such damaged equipment, wiring, cable or accessories;
provided, 'only that any such damage resulting from the negligence of Lessor or
its employees or agents shall be the responsibility of Lessor. Lessee shall be
entitled to employ and shall employ any and all proceeds payable in connection
with insurance maintained pursuant to this Agreement available in connection
with the damage or destruction of any of the Telephone and Television Equipment
or any of the wiring, cabling of accessories as described above to offset the
cost of repair and/or replacement of such equipment and/or accessories.
9.3Tenant Installation. Lessee shall service and actively market both the
Television System and the Telephone System to all tenants within the Project.
Lessee shall provide at its sole cost, all installation services required as to
each tenant within the Project and all accessories as required in connection
with the "hook-up" of each of the tenants within the Project. Lessee at its sole
cost shall respond to any and all reasonable inquiries or requirements of the
tenants within the Project relating to the Telephone System or Television System
and shall respond within twenty-four (24) hours of notification to all service
calls, excluding Sundays and national holidays, in which case response shall be
made on the immediately succeeding business day.
9.4Charges. Lessee at its sole cost shall be responsible for billing all
tenants within the Project for Telephone and Television services provided and
for collecting all monies due in connection with such services. Lessor shall
have no responsibility of any kind whatsoever for the obligations of any tenant
in connection with either the Telephone System or the Television System.
9.5Insurance. Lessee shall maintain at its cost liability insurance covering
injury to persons and damage to property (including without limitation damage to
the Telephone and Television Equipment) arising out of its operation on the
Project. Lessor shall be named as an additional insured in connection with all
such insurance. A listing of minimum insurance requirements is contained in
Exhibit "F" and incorporated herein by this reference.
9.6House Phones. At no cost to Lessor, Lessee shall install and "hook-up" as
an accommodation to Lessor service for a maximum of eight (8) "house" telephones
and for a maximum of two (2) common area television outlets. Such telephone and
television services shall be located in common are - as within the Project and
in areas employed by Lessor and/or its property manager in connection with
management of the Project. The specific locations in which such services are to
be installed shall be as designated by Lessor. In connection with any such
services, Lessor shall not be obligated to pay the basic monthly fees in
connection with either the telephone or television service so installed. Lessor
shall be obligated to pay for any extraordinary television service as used by
Lessor and shall further be obligated to pay the standard usage cost for the
telephone services employed by Lessor.
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9.7Best Efforts. Lessee shall use its best efforts in performing the
obligations of Lessee under this Agreement, as modified or amended from time to
time. Without limiting the generality of the foregoing, Lessee shall use its
best efforts to promptly discharge the service obligations specified in
Paragraph 9.3 above of this Agreement.
9.8Monthly Report. On or before the tenth day of each calendar month, Lessee
shall submit a written report to Lessor summarizing such information as may be
reasonably requested by Lessor for the prior month. The monthly report to be
submitted by Lessee shall include, but not by way of limitation, a summary of
any problem areas then existing in connection with the Telephone
System/Television System as well as a summary of the solutions achieved for the
problem areas summarized in connection with the previous months. In the event
that Lessor requires information other than that then customarily provided in
connection with such monthly report by Lessee, Lessor shall give written notice
of a request for additional information to Lessee on or before the last day of
the calendar month for which the information is being requested by Lessor.
9.9Bi-Annual Reports. In February of each year, Lessee shall deliver a
questionnaire to fifty percent (50%) of the residents of the Project and in
August of each year, Lessee shall deliver a questionnaire to the remaining
fifty- percent (50%) of the residents of the Project. Lessee shall obtain
Lessor's approval regarding the form of the questionnaire prior to distribution
of the questionnaire to the residents. Based upon the responses to such
questionnaires received by Lessee, on or before the tenth day of April and of
October of each year, Lessee shall submit a report to Lessor in connection with
the Project for the six (6) month period prior to the date of such report
setting forth such information as may be reasonably requested by Lessor from
time to time including without limitation the results of the questionnaires
returned by residents and a rate comparison between Lessee's rates and the rates
of AT&T and PacBell (or their respective successors) for two local locations,
two long distance locations and two international locations chosen at random by
Lessor. Lessor shall give written notice to Lessee of any information reasonably
required by Lessor in connection with the above-described BI-annual reports
which notice shall be given by Lessor to Lessee, if at all, on or before March
15 or September 15 of each year.
Article 10
Entry by Lessor
10.1Access. Lessee hereby grants Lessor such licenses and access in and over
the Premises or any portion thereof or the Utility Areas as shall be reasonably
required for the installation or maintenance of mains, conduits, pipes or other
facilities to serve the Project or any part thereof, provided that Lessor shall
pay for any alteration required of the Premises as the result of any such use of
the Premises. Lessee further covenants and agrees that Lessor may go upon the
Premises to make any necessary repairs to the Premises or perform any work upon
the Premises which may be necessary to comply with any laws, rules or
regulations of any public authority, or which Lessor may deem necessary to
prevent waste or deterioration in connection with the Premises. Except in the
case of emergency repairs, Lessor shall give Lessee twenty-four (24) hours prior
written notice of any intended entry by Lessor into the Premises for purposes of
repairs or performance of any work.
Article 11
Voluntary Termination
11.1Notice of Termination. Within sixty (60) days following the commencement
of each six (6) month period during the term of this Agreement commencing as to
both the Telephone System and the Television System with the six month period
commencing as of the Effective Date, Lessee shall have the options to
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terminate by giving written notice within such sixty (60) days to Lessor as
more' particularly provided below in this Paragraph 11.1. Notice to terminate
must be given by Lessee, if at all, within the applicable sixty (60) day period.
The computation of the above described time period shall be made separately for
the Telephone System and separately for the Television System.
(a) Subject to the sixty day time periods as described immediately
above in this Paragraph, in the event that Lessee fails to maintain an average
telephone subscription level during the two (2) immediately preceding calendar
months of an at least eighty percent (80%) penetration of the apartment units in
the Project, then Lessee shall be entitled to give Lessor written notice of its
intent to terminate its obligations pursuant to this Agreement to provide the
Telephone System for the Project. The effective date of the termination shall be
as provided in the notice but no earlier than one hundred eighty (180) days
after the date of receipt by Lessor of such written notice.
(b) Subject to the time periods as described immediately above in
this Paragraph, in the event that Lessee fails to maintain an average television
subscription level during the two (2) immediately preceding calendar months of
an at least sixty percent (60%) penetration of the apartment units in the
Project, then Lessee shall be entitled to give Lessor written notice of its
intent to terminate its obligations pursuant to this Agreement to provide the
Television System for the Project. The effective date of the termination shall
be as provided in the notice but no earlier than one hundred eighty (180) days
after the date of receipt by Lessor of such written notice.
11.2Removal of Equipment. In the event that Lessee terminates either of its
services with respect to the Telephone System or its services with respect to
the Television System in accordance with Paragraph 11.1 immediately above,
Lessee shall have thirty (30) -days to remove its equipment associated with the
terminated service, beginning with the effective date of the termination;
provided, however, that any equipment not so removed thirty (30) days after the
date of termination for the terminated service shall be deemed to be abandoned.
Lessee will repair any damages to the Premises caused by removal of its
equipment.
11.3Lessee Cooperation. In the event that Lessee terminates its obligations
with respect to either the Television System or Telephone System in accordance
with Paragraph 11.1 immediately above, Lessee shall upon the request of Lessor,
during the ninety (90) days prior to the effective date of termination,
negotiate in good faith with Lessor for the sale to Lessor or its designees of
the Telephone Equipment and/or Television Equipment as the case may be, relating
to the terminated service, which sale shall be made on a cash basis for a price
equal to the fair market value of the equipment being sold. Should Lessor and
Lessee be unable to agree upon a fair market value for the equipment, then
Lessee shall be entitled to remove such equipment in accordance with the
provisions of Paragraph 11.2 immediately above. In the event of any such removal
of equipment, Lessee shall cooperate with Lessor in connection with Lessor's
efforts to obtain a third-party provider to furnish the services being
terminated by Lessee. Such cooperation shall include but not be limited to
making space available prior to the effective date of termination to the
third-party provider within the Premises so that the third-party provider can
install equipment as required to provide the services effective as of the date
of termination.
11.4Non-Terminated Service. Pursuant to Paragraph 11.1 above, Lessee may
terminate one without the other of the services provided under this Agreement.
For example, if Lessee notifies Lessor of its intent to terminate the Television
System but not the Telephone System, then this Agreement shall remain in effect
only with respect to the Telephone System being provided by Lessee. Lessor and
Lessee also agree to execute an amendment to this Agreement that will provide a
new description of the Premises as shown on Exhibit "B" and the equipment
provided on Exhibits "C" and "C-1.
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11.5Lease Termination. In the event that Lessee elects to terminate its
obligations with respect to either the Telephone System or the Television System
as provided in subparagraph 11.1(a) and subparagraph 11. 1(b), respectively,
then in such event, Lessor shall be entitled to terminate this Agreement in its
entirety by giving written notice of such termination to Lessee within ninety
(90) days following receipt by Lessor of written notice of termination from
Lessee. Any such termination shall be effective thirty (30) days after the date
of receipt by Lessee of such written notice.
11.6Additional Termination Right. Notwithstanding any provision to the contrary
contained in this Agreement, upon the sale or exchange of the Project, Lessor
(or its successor in interest as more particularly described below) shall be
entitled to terminate this Agreement provided that the close of any such sale or
exchange occurs on or after January 1, 2003 by giving written notice
("Termination Notice") to Lessee. The effective date of any such termination
shall be the date set forth in the Termination Notice provided, however, that in
no event shall such date be less than sixty (60) days following the date on
which the Termination Notice is given. In the event of any such termination,
provided that Lessee is not otherwise in default pursuant to this Agreement,
prior to the effective date of such termination Lessor shall pay to Lessee in
cash a termination fee in the amount of $10,000.00. Pursuant to provisions of
this Paragraph 11.6, Lessor shall be entitled to terminate this Agreement with
respect to either the Telephone System or the Television System or both. In the
event of the termination of this Agreement only with respect to one (but not
both) of the Telephone System or the Television System then this Agreement shall
continue with respect to that system not terminated and following the effective
date of the termination the rent payable by Lessee as provided in Paragraph 4.1
shall be based upon the percentage of gross receipts as set forth on Exhibit E
in connection with the system not then terminated. In the event of the
termination of either the Telephone System or the Television System as described
in this Paragraph 11.6, but not both, the above described fee in the amount of
Ten Thousand Dollars ($10,000) shall be reduced as applicable such that the fee
payable in connection with the termination of the Telephone System shall be
Seven Thousand Five Hundred Dollars ($7,500) and the fee payable in connection
with the Television System shall be Two Thousand Five Hundred Dollars ($2,500).
In the event of any termination by Lessor of the Telephone System or the
Television System or both as provided in this Paragraph 11.6, the provisions of
Paragraphs 11.2 and 11.3 shall be applicable with respect to the equipment of
the terminated system and Lessee shall have thirty (30) days following the
effective date of termination to remove the applicable equipment as provided in
Paragraph 11.2 subject however to the provisions of Paragraph 11.3 pursuant to
which provisions Lessor and Lessee, during the sixty (60) day period prior to
the effective date of termination, shall negotiate in good faith with respect to
the purchase and sale of the Telephone Equipment and/or Television Equipment
relating to the terminated service(s). - The right to terminate as set forth in
this Paragraph 11.6, shall inure to the benefit of Lessor and shall, in
addition, inure to the benefit of successors in interest to Lessor pursuant to
this Agreement who hereafter purchase the Project from Lessor (or a successor in
interest to Lessor) provided that following such purchase this Agreement remains
in force and effect (and is therefore not terminated pursuant to the provisions
of the Paragraph 11.6).
Article 12
Default
12.1Defaults by Lessee. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Agreement by
Lessee:
(a) The vacating or abandonment of the Premises by Lessee; or
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(b) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes, such Notice to
Pay Rent or Quit shall not constitute the notice required by this subparagraph;
or
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Agreement to be observed or performed by
Lessee, other than as described in paragraph (b) above, where such failure
continues for a period of thirty (30) days after written notice thereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's default is
such that more than thirty (30) days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion; or
(d) The occurrence of any two (2) audits during any twelve (12) month
period disclosing that Lessee has understated its receipts by three percent (3
%) or more as described in Paragraph 4.2 above; or
(e) Failure of Lessee to maintain the Television System or Telephone System
in good condition and repair comparable with similar services, where such
failure continues for a period of fifteen (15) days after written notice thereof
from Lessor to Lessee; or
(f) Failure of Lessee to provide telephone service or television service
to residents of the Project comparable with similar services, or to make service
calls upon request in a prompt fashion as provided herein, where Such failure
continues for a period of five (5) days after written notice thereof from Lessor
to Lessee (provided that Lessee shall not be entitled to such five (5) day
"cure" period upon the second (2nd) to occur of any such failure within any
thirty (30) day period), except for any failure which results from the failure
of a tenant to timely pay its bills for telephone or television services
rendered, destruction of equipment without fault of Lessee (provided, however,
that such destroyed equipment is to be promptly replaced and repaired by Lessee
at its cost), or other commercially acceptable cause reasonably beyond the
control of Lessee; or
(g) Failure of Lessee to provide telephone or television services at rates
equal to or less than those charged by the applicable public utility or local
cable franchise, as the case may be, where such failure continues for a period
of thirty (30) days after written notice thereof from Lessor to Lessee; or
(h) The filing, of a voluntary petition of bankruptcy by Lessee or the
filing of an involuntary petition by Lessee's creditors, with such petition
remaining undischarged for a period of sixty (60) days; or
(i) A general assignment by Lessee for the benefit of creditors; or
(j) An appointment of a receiver to take possession of substantially all of
Lessee's assets or of the Premises, with such receivership remaining undissolved
for a period of sixty (60) days; or
(k) The attachment, execution or other judicial seizure of substantially
all of Lessee's assets or the Premises, with such attachment, execution or
seizure remaining undismissed for period of sixty (60) days.
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12.2Defaults by Lessor. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Agreement by
Lessor:
Failure to perform any of the material obligations required of Lessor
to be performed, provided that such failure continues for a period of thirty
(30) days after written notice thereof from Lessee to Lessor, which notice shall
specify the specific nature of the failure, and further provided, however, that
if the nature of Lessor's default is such that more than thirty (30) days is
required to cure such default, then Lessor shall not be in default if Lessor
commences to cure such default within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
12.3Remedies upon Default by Lessee. In the event of default by Lessee, the
following shall be applicable:
(a) In addition to any and all other rights and remedies available to
Lessor at law or in equity, Lessor shall have the right to immediately terminate
this Agreement and all access rights and other rights of the Lessee hereunder by
giving written notice to Lessee of such election by Lessor. If Lessor shall
elect to terminate this Agreement, then it may recover the amounts from Lessee
as are provided by applicable California law.
(b) In the event of a default by Lessee, Lessor shall also have the
right, with or without terminating this Agreement, to re-enter the Premises. If
Lessor does not elect to terminate this Agreement, Lessor may either recover all
rent as it becomes due or re-let the Premises, together with all access rights,
upon such provisions as Lessor in its sole judgment may deem advisable, and
Lessor shall have the right to make repairs to and alterations to the Premises.
If Lessor elects to re-let the Premises, then all rentals received by Lessor
from such a re-letting shall be applied to the payment of all costs and expenses
incurred by Lessor in connection with such re-letting and to the payment of rent
due and paid hereunder.
(c) Nothing contained in this Paragraph 13.3 shall constitute a waiver
of Lessor's rights to recover damages by reason of Lessor's efforts to mitigate
damages caused by Lessee's default.
12.4Removal of Equipment. In the event of a termination of this Agreement by
Lessor resulting from the default of Lessee, Lessee, at its cost, shall have
thirty (30) days from the date of termination in which to remove the Telephone
Equipment and the Television Equipment; provided, however, that in no event
shall Lessee remove any wiring, cabling or accessories installed in the Project.
Notwithstanding the above, at the election of Lessor and without waiving
Lessor's election to terminate this Agreement, Lessor shall be entitled to
require Lessee to give Lessor fifteen (15) days prior written notice of its
intent to remove the Television Equipment and/or the Telephone Equipment. During
such fifteen (15) day term, Lessee shall cooperate with such third-party
providers as may be selected by Lessor so as to allow such third-party providers
to provide to the Project substitute telephone service and/or substitute
television service. Such cooperation shall include but not be limited to
cooperation in connection with the placement by third-party providers of new
equipment within the Premises. In addition, to the extent that Lessor elects to
do so, Lessee shall negotiate in good faith following any notice of termination
given by Lessor, in order to arrive at an agreement for purchase at fair market
value on a cash basis by Lessor of the Telephone Equipment and/or the Television
Equipment. Failing any such agreement for purchase of the Equipment, Lessee
shall continue to be entitled to remove such equipment in accordance with the
provisions hereof from the Premises.
12
Article 13
Damage or Destruction
13.1Destruction of Premises Due to Risk Covered by Insurance. If during the
term of this Agreement the Premises are totally or partially destroyed from a
risk covered by insurance in effect at the time, and there are sufficient
insurance proceeds to pay in full for the cost of restoration, Lessor shall
restore the Premises to substantially the same condition as that which existed
immediately prior to destruction, provided that Lessor's obligation shall be
limited to the Premises and shall not include either the Television Equipment or
the Telephone Equipment. Lessee, at its cost, shall be required to restore the
Telephone Equipment and the Television Equipment. Any such destruction of the
Premises shall not terminate this Agreement. If the existing laws do not permit
the Premises to be restored to substantially the same condition as that which
existed immediately before the destruction, or if in the opinion of Lessor's
architect the restoration cannot be completed within one hundred eighty (180)
days from the date of damage or destruction, Lessor may terminate this Agreement
by giving written notice thereof to Lessee.
13.2Destruction of Premises Due to Risk Not Covered by Insurance. If during
the term of this Agreement the Premises are totally or partially destroyed from a
risk where the cost of reconstruction is not fully covered by insurance, then
Lessor shall have the election to terminate this Agreement or restore the
Premises in accordance with the provisions of Paragraph 13.1. If Lessor elects
to restore the Premises, this Agreement shall continue in effect and Lessee
shall have the obligation, at its cost, to restore the Television Equipment and
the Telephone Equipment.
13.3Rent. In the event of any partial destruction of the Premises, the rent as
provided herein shall continue with no abatement, it being acknowledged that the
rent is based upon a percentage of Lessee's gross receipts only.
13.4Restoration of Service. Provided only that the Project in its entirety has
not been substantially destroyed, Lessee at its cost shall quickly restore both
telephone and television services to the Project. Such restoration of services
shall include a temporary restoration of services during the period in which any
destruction of the Premises is being restored by Lessor.
Article 14
Miscellaneous
14.1Indemnity. Lessee shall indemnify and hold Lessor harmless from and against
any loss, claim, damage or expense (including attorney's fees) in connection
with Lessee's operations at the Project; provided, however, that Lessee shall
have no obligation to indemnify Lessor with respect to any loss, claim, damage
or expense arising in whole or in part by reason of the negligence of Lessor,
its employees, agents or representatives.
14.2Lessor Warranties. Except as specifically set forth herein, Lessor makes
no representations or warranties of any kind whatsoever to Lessee in connection
with the subject matter as described in this Agreement. Specifically, but not by
way of limitation, Lessor makes no representations or warranties as to the
suitability of the Project for the purposes as intended by Lessee pursuant to
the provisions of this Agreement and makes no representations or warranties as
to the profitability or other success of the services to be provided by Lessee
hereunder.
14.3Memorandum of Agreement. Upon the request of either Lessee or Lessor, the
parties agree to execute a memorandum of this Agreement in recordable form and
recorded in the Official Records of
13
Contra Costa County, California. Subject to the provisions of paragraph 11.6,
this Agreement shall survive any sale, assignment or other transfer of the
Project and shall be construed in all respects as a lease and not a license. "In
the event of a sale of the Project by Lessor, Lessor's obligations and
liabilities pursuant to this Agreement shall be limited to those obligations and
all liabilities accrued as of the completion of the sale and following
completion of the sale the purchasing party shall become the successor Lessor
pursuant to this Agreement and the current Lessor shall have no further
obligations or liabilities with respect to this Agreement. Lessor shall use its
best efforts to obtain from any third party lender a nondisturbance agreement
with respect to this Agreement in a form reasonably satisfactory to both Lessor
and Lessee.
14.4Authority. The person(s) executing this Agreement expressly represent(s)
and warrant(s) that he (they) has (have) full power and authority to do so.
14.5Assignment. Lessee may not assign this Agreement without the consent of
Lessor, which shall not be unreasonably withheld. Subject to this provision,
this Agreement shall be binding upon the parties hereto and their respective
heirs, successors and assigns, as the case may be. Notwithstanding the above
provisions, Lessee may assign this Agreement to an affiliated entity without the
consent of Lessor. For purposes hereof an "affiliated entity" shall be an entity
in which Lessee holds a majority in interest of the equity ownership as well as
management control.
Provided that Lessor has given its consent, which consent shall not be
unreasonably withheld, Lessee shall be entitled to separately assign its rights
with respect to this Agreement relating to the Television System and those
rights relating to the Telephone System. By way of example, Lessee shall be
entitled to assign the rights to the Telephone System to a third party and
retain the rights to the Television System. In the event of any such assignment
by Lessee, in connection with the consent to such assignment required of Lessor,
Lessee shall cause to be prepared appropriate documentation to reflect the
separate assignment of the Telephone System and/or Television System which
documentation shall be in a form reasonably acceptable to Lessor and shall
reflect the separate rights and obligations of the respective parties in
connection with the separate operation of the Telephone System and Television
System.
The consent of Lessee shall not be required in connection with any
assignment by Lessor of this Agreement or any one or more of the rights and
duties of Lessor pursuant to this Agreement. For example, but not by way of
limitation, Lessor may assign all of its rights and duties under this Agreement
with respect to a portion of the Project, while retaining all of its rights and
duties under this Agreement with respect to the balance of the Project.
14.6Other Agreement. The parties hereby covenant and guarantee that the
entering into and performance of this Agreement will not create a breach or
default in any agreement to which they are a party.
14.7Attorney's Fees. In the event it becomes necessary for Lessee or Lessor to
enforce the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses.
14.8Condemnation. In the event of condemnation of the Project or a portion of
the Project, or a sale or a transfer of the Project under threat of eminent
domain, Lessee shall be entitled to recovery from any proceeds available by
reason of such eminent domain or condemnation action an amount reasonably
calculated to reimburse Lessee for the loss of benefits of this Agreement (or
portion of this Agreement) and for the loss of the investment in the Telephone
Equipment or Television Equipment resulting from such condemnation, taking into
account the depreciated value of such equipment.
14
14.9Severability. The provisions of this Agreement shall be severable, and the
invalidity or unenforceability of any provision shall not affect the remaining
provisions.
14.10Exhibits. The provisions of the Exhibits attached hereto and the attached
Addendum are hereby incorporated in this Agreement by this reference.
14.11Notice. All notices, requests or demands to a party hereunder shall be in
writing and shall be given or served upon the other party by personal service,
by certified return receipt requested or registered mail, postage prepaid, or by
Federal Express or other nationally recognized commercial courier, charges
prepaid, addressed as set forth below. Any such notice, demand, request or other
communication shall be deemed to have been given upon the earlier of personal
delivery thereof, three (3) business days after having been mailed as provided
above, or one (1) business day after delivery through a commercial courier, as
the case may be. Notices may be given by facsimile and shall be effective upon
the transmission of such facsimile notice provided that the facsimile notice is
transmitted on a business day and a copy of the facsimile notice together with
evidence of its successful transmission indicating the date and time of
transmission is sent on the day of transmission by recognized overnight carrier
for delivery on the immediately succeeding business day. Each party shall be
entitled to modify its address by notice given in accordance with this Section.
If to Lessor: Crow Canyon Developers, Ltd.
c/o Kajima Development Corporation
901 Corporate Center Drive, Suite 201
Monterey Park, California 91754
Attn: Osamu Ebinuma
Fax No.: 213-262-9104
If to Lessee: GRI Telecommunications, Inc.
C/o Gentium Realty Investments, Inc.
One Daniel Burnham Court, Suite 205
San Francisco, California 94109
Attn: Bonnie Okamoto
Fax No.: 415-776-4084
14.12Descriptive Headings. The descriptive headings used and inserted in this
Agreement are for convenience only and shall not be deemed to affect the meaning
or construction of any provision of this Agreement.
14.13Time. Time is of the essence of this Agreement and each and every
provision hereof.
14.14California Law. This Agreement shall be governed by and be construed
according to the laws of the State of California.
14.15Waiver. No covenant, term or condition or breach thereof shall deemed
waived except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term or condition shall
not be deemed to be a waiver of any other covenant, term or condition.
Acceptance by Lessor of any performance by Lessee after the time the same shall
have become due shall not constitute a waiver by Lessor of the breach or default
of any covenant, term or condition unless otherwise expressly agreed to by
Lessor in writing.
15
14.16Holding Over Period. If Lessee or anyone claiming under Lessee shall,
without the written consent of Lessor, hold over after the expiration or earlier
termination of the term of this Agreement, such tenancy shall be on
month-to-month tenancy, which tenancy may be terminated as provided by law.
During such tenancy, tenant agrees to pay to Lessor the rent otherwise agreed to
be paid hereunder plus an additional amount equal to one hundred percent (100%)
thereof.
14.17Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, shall excuse the performance by such
party for a period equal to any such prevention, delay or stoppage, except the
obligations imposed with regard to rent to be paid by Lessee pursuant to this
Agreement.
14.18No Partnership. It is agreed nothing contained in this Agreement shall be
deemed or construed as creating a partnership or joint venture between Lessor
and Lessee, or between Lessor and any other party, or cause Lessor to be
responsible in any way for the debt or obligations for Lessee or any other
party.
14.19Financing. Lessor may, from time to time, obtain financing in connection
with the Project or refinance the Project by means of a mortgage or loan or
loans from one or several mortgage companies; before said loans are approved and
closed, such mortgage company or companies must approve this Agreement, and in
order to receive such approval, this Agreement may have to be amended or
modified. Provided that the term hereof is not altered and Lessee's obligations
to pay rent are not increased thereby, Lessee agrees that it shall consent and
immediately execute any such amendment or modification of this Agreement- that
may be requested by Lessor and said mortgage company or companies. In the event
Lessee so fails to consent to or execute any such amendment or modification,
Lessor, at its option, may cancel and terminate this Agreement on thirty (30)
days written notice to Lessee without further liability to Lessee hereunder.
14.20Profit Sharing. Given the very substantial investment being made by Lessor
byway of wiring and cable costs and other costs in connection with the operation
of both the Telephone System and the Television System, which investment in part
allows Lessee pursuant to provisions of this Agreement to participate in the
operation and benefits of both such Systems, should Lessee employ in any fashion
whatsoever any of the facilities, wiring, equipment or other items installed in
or employed in connection with either the Telephone System or the Television
System at the Project in connection with an apartment complex, office complex or
other project other than the Project (or the Related Project), then Lessor shall
be entitled to fifty percent (50%) of the profits derived by Lessee from ally
such use. Lessee shall be entitled to employ a portion of the Premises in
connection with the Related Project and in connection with such use Lessee shall
have no obligation to Lessor to share any profits derived in connection with the
Related Project. For purposes hereof, the term "profits" shall refer to as
provided in this Paragraph 14.20 the gross receipts as received by Lessee in
connection with any such use less the actual out-of-pocket costs incurred by
Lessee in connection with such use. In any event, Lessee shall not be entitled
to employ any portion of the Telephone System or the Television System in any
fashion whatsoever other than in connection with the Project and the Related
Project, except upon the prior written authorization of Lessor.
14.21Termination of Prior Agreement. As a condition of and simultaneously with
execution of this Agreement by Lessor and Lessee, Lessor and Lessee have agreed
to terminate the Prior Agreement.
16
14.22Related Project Telephone and Television Equipment. In connection with any
termination of this Agreement or termination of any portion of this Agreement by
reason of the default of Lessee or otherwise, Lessee may -continue to operate,
service, repair, and maintain the Related Project Telephone and Television
Equipment within the Premises pursuant to a separate and independent agreement
with the owner of the Related Project. It is acknowledged that the owner of the
Related Project holds certain rights in connection with the use of the Premises
and related facilities at the Project so as to allow for the operation of a
private telephone system and a private television system in the connection with
the Related Project regardless of whether or not this Agreement remains in
effect with respect to the Project.
14.23Entire Agreement. This Agreement along with any Exhibits and attachments
hereto constitutes the entire agreement between Lessor and Lessee relative to
the Premises and the matters set forth herein, and this Agreement and Exhibits
and attachments hereto may be altered, amended or revoked only by an instrument
in writing signed by both Lessor and Lessee. It is understood that there are no
oral agreements or representations between the parties hereto affecting this
Agreement, and this Agreement supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements or representations and
understandings, if any, between the parties hereto with respect to the subject
matter as set forth herein.
14.24Counterparts. This Agreement may be executed in any number of
counter-parts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
Lessor: Lessee:
CROW CANYON DEVELOPERS, LTD., GRI TELECOMMUNICATIONS, INC.,
a California limited partnership a California corporation
By: Kajima Development Corp.,
a Delaware corporation
By:_______________________________
Its:______________________________
By:_______________________________
Its:_______________________________
17
List of Exhibits
Exhibit A Project Description
Exhibit B Description of Equipment Room
Exhibit C Television Equipment
Exhibit C-1 Telephone Equipment
Exhibit C-2 Related Project Telephone and Television Equipment
Exhibit D Description of Utility Areas
Exhibit E Rent Schedule
Exhibit F Insurance Requirements
18
Exhibit A
Project Description Promontory Point Apartments
LEGAL DESCRIPTION
REAL PROPERTY in the City of San Ramon, County of Contra Costa, State of
California, described as follows:
PARCEL ONE:
Parcel 2 as shown on Map MS 901-89, filed March 2, 1992, Book 158 of Parcel
Maps. Page 3. Contra Costa County Records.
PARCEL TWO:
A right of way (not to be exclusive) as an appurtenance to Parcel One and any
subdivision or subdivisions thereof for Encroachment purposes over, under and
upon the land described as follows:
Beginning at the most northeasterly corner of Parcel 2 as shown upon that
certain Parcel Map 901-89 recorded in Book 158 of Parcel Maps, Page 3 Records of
said Contra Costa County;
Thence South 47 0 24' 17" West along the easterly line of said Parcel 1 a
distance of 10.00 feet: thence South 420 35' 43" East a distance of 5.00 feet;
thence North 470 24' 17" East a distance of 10.00 feet: thence North 420 35' 43"
West a distance of 5.00 feet to the point of beginning.
PARCEL THREE:
A right of-way (not to be exclusive) as an appurtenance to Parcel One and any
subdivision or subdivisions thereof, for Encroachment purposes over, under, and
upon the land described as follows:
Beginning at the most northeasterly corner of Parcel 2 as shown upon that
certain Parcel Map 901-89 recorded in Book 158 of Parcel Maps Page 3 Records of
said Contra Costa County;
Thence South 470 24' 17" West along the easterly line of said Parcel 2 a
distance of 270.00 feet to the true point of beginning; thence continuing South
470 24' 17" West along said easterly line a distance of 90.00 feet; thence South
420 35* 43" East a distance of 5.00', thence North 470 24' 17" East a distance
of 90.00 feet: thence North 42* 35' 43" West a distance of 5.00 feet to the
point of true beginning.
A.P.Nos.: 208-280-023, 028. 029 and 030
19
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20
Exhibit C
Television Equipment - Promontory Point Apartments
December 10, 1996
Inside Equipment Room
3 Custom Headend Racks
10 Processors
25 Modulators
20 Integrated Satellite Receiver/Descramblers
2 Satellite Receivers
3 Channel Combiners
2 Demodulators
Outside Equipment Room
1 12' Satellite Dish Antennas
1 10' Satellite Dish Antenna
4 Off Air Antennas
21
Exhibit C-1
Telephone Equipment 7 Promontory Point Apartments
December 10, 1996
The following are in side Equipment Room:
2 Cortelco SR1000 Cabinets
6 Universal Carriers
3 Power Supplies
59 Station Cards
2 T-1 Cards
2 CSU/DSU
1 Battery Back-up
1 WYSE 350 Monitor
1 Polling Unit (for billing)
1 Voice Mail System
1 Music-On-Hold System
22
Exhibit C-2
Related Project Telephone and Television Equpiment - Promotary Point Apartments
Television Equipment:
Outside Equipment Room but in the P. Point Premises
1 Microwave Dish Transmitter
Located in the Promotary View Premises
1 Microwave Dish Reciever
Telephone Equipment:
All inside Equipment Room located in promotory point
1 Cotelco SR1000
3 Universal Carriers
2 Power Supplies
42 Station Cards
1 T-1 Cards
1 CSU/DSU
1 Battery Backup
23
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24
Exhibit E
Rent Schedule- Promontory Point Apartments
The rent to be paid by Lessee pursuant to Paragraph 4.1 of the
Agreement shall be paid in accordance with the percentages set forth below based
on the level of service as set forth below. If the level of service falls below
the minimum of sixty percent (60%), rent shall thereupon cease with respect to
the Telephone System and/or Television System with respect to which the service
has fallen below the mininm until the month in which the minimum service level
is again satisfied. The service level is to be determined separately with
respect to the Telephone System and the Television System so that the minimum
level may not be met with respect to the Telephone System within a given month
and still be met with respect to the Television System. For purposes of
determining when "service" is being provided to a given apartment, "hook-up" of
the System to such apartment shall be considered as proof of the commencement of
service. The rent as described herein is based upon a percentage of the gross
receipts with respect to the Telephone System and the Television System. During
any months in which rent is not being paid with respect to the Telephone System
and/or the Television System because the minimum service level has not been
achieved, Lessee shall continue to be obligated to provide the monthly reports
to Lessor as described in Paragraph 4.1 of the Agreement. The percentage of the
gross receipts paid in rent shall vary in accordance with the number of
apartment units being serviced as described below. In determining the level of
service with respect to either the Telephone Service or the Television Service
in any given month, the highest level of service in such calendar month shall be
determinative.
The percentage of monthly receipts to be paid by Lessee is described as
follows:
[From 11/1/96 through and including 12/31/2002:
No. of apartment units Percentage of Gross Monthly Receipts
being serviced Telephone System Television System
0-239 0% 0%
240-279 5% 7%
280-319 6% 8%
320-359 7% 9%
360-400 8% 10%
(From 1/1/2003 through and including 12/31/2005:
No. of apartment units Percentage of Gross Monthly Receipts
being serviced Telephone System Television System
0-239 0% 0%
240-279 6% 8%
280-319 7% 9%
320-359 8% 10%
360-400 9% 11%
25
Exhibit F
Insurance Requirements - Promontory Point Apartments
Lessee is required to comply at its cost with the following minimum
insurance requirements:
1. Lessee at its expense shall maintain the hereinafter described
insurance coverage with insurance carriers licensed and approved to do business
in the State of California (unless Lessor otherwise approves in writing) with a
general policyholder's rating of not less than A, and financial rating of not
less than X, in the most current Best's Insurance Report. In no event will the
insurance be terminated or otherwise allow ed. to lapse prior to the termination
or expiration of the Agreement. Lessee may provide the insurance described in
this Exhibit through a policy or policies covering other liabilities of Lessee,
provided,. however, that any such policy or policies shall: (i) allocate to the
Project the full amount of insurance required hereunder, and (ii) contain,
permit or otherwise unconditionally authorize the waiver of subrogation as
described in Paragraph 8 below.
2. As evidence of specified insurance coverage, Lessor shall, in lieu
of actual policies, accept certificates issued by the applicable insurance
carrier acceptable to Lessor showing such policies in force for the specified
period. Such evidence shall be delivered to Lessor promptly upon the execution
of the Agreement and prior to the commencement of any activity of Lessee in
connection with the Project. Each policy and certificate shall be subject to
approval of Lessor and shall provide that such policies shall not be subject to
material alteration or cancellation without thirty (30) days prior written
notice to Lessor, which notice shall be delivered by certified mail, return
receipt requested. Should any policy expire or be cancelled prior to termination
or expiration of the Agreement, and should Lessee fail *10 immediately procure
other insurance as specified, Lessor shall have the right, but not the
obligation, to procure such other insurance and charge Lessee therefor, in'
which event Lessee shall immediately upon written demand from Lessor, pay to
Lessor as additional rent pursuant to the Agreement the sum as advanced by
Lessor with respect to the insurance coverage.
3. Nothing contained in this Amendment or in the Agreement shall be
construed to limit the extent of Lessee's responsibility for payment of damages
resulting from Us operations pursuant to the Agreement, nor shall anything
contained herein be deemed to place any responsibility on Lessor for insuring
that the insurance required hereunder be sufficient for the operation of Lessee
pursuant to the Agreement.
4. Lessee shall maintain full workman's compensation insurance
including employer's liability at a minimum limit of Five Hundred Thousand
Dollars ($500,000), or current limit carried, whichever is greater, for all
persons whom it employs in carrying out the work pursuant to the Agreement,
including waiver of subrogation by the insurance carrier with respect to Lessor
as specified in Paragraph 8 of this Exhibit. Such insurance shall be in strict
accordance with the requirements of the most current and applicable state
worker's compensation insurance laws in effect from time to time.
5. Lessee shall maintain during the term of this Agreement general
public liability insurance, with coverage, limits not less than One Million
Dollars ($1,000,000) for bodily injury or death to any one person, injury and/or
death to any number of persons in any one incident, and for property damage in
any 6ne, occurrence, in the aggregate insuring against any and all liability of
the insured with respect to the Premises or arising out of the Agreement. All
such insurance shall name Lessor and its designees as additional insureds. All
such insurance shall specifically insure for performance by Lessee of the
26
indemnity provision set forth in Paragraph 9 below as to liability for injury to
or death of persons and damage to property Such inursance shall have a lender's
protective liability endorsement attached thereto.
6. Lessee shall maintain insurance covering all of the items to be
installed by Lessee in the Premises or the Project (or the Related Project)
pursuant to the Agreement and any alterations, additions or improvements
including but not limited to any and all equipment to be installed by Lessee
pursuant to the Agreement in amount not less than any full replacement value
thereof from time to time during the term of this Agreement providing protection
against any peril included with the classification of fire and extended coverage
together with insurance against sprinkler damage, vandalism and malicious
mischief and water damage (from roof leakage, ground water or otherwise). Lessee
agrees to carry such insurance, it being expressly understood and agreed that
none of the items to be insured by Lessee hereunder shall be insured by Lessor.
Nor shall Lessor be required to reinstall, reconstruct or repair any of such
items. Any policy proceeds shall be used for the repair or replacement of the
property damaged or destroyed. All such insurance shall name Lessor and its
designees as additional insureds.
7. Lessee shall maintain owned, hired and non-owned automobile
liability insurance covering all use of all automobiles, trucks and other motor
vehicles utilized by Lessee in connection with the Premises or Project of a
Combined single limit for bodily injury and property damage of $500,000 or
current limit carried which ever is greater. All such insurance shall name
Lessor and its designees as additional insured
8. Lessee hereby waives any rights it may have against Lessor in
connection with any of the damage or injury occasioned to Lessee, the Premises
or the Project arising from any risks actually covered by insurance in effect at
the time to the extent of the available proceeds. Lessee on behalf of its
insurance companies providing insurance hereunder, waive any right of
subrogation that it may have against Lessor .to the extent of available
proceeds. Lessor as specified herein shall be included as an additional insured
under the coverage as required pursuant to this Exhibit. It is agreed that the
insurance to be provided by Lessee hereunder is primary and any other insurance
maintained by Lessor is non-contributing with the insurance to be maintained by
Lessee hereunder with respect to claims or liability arising out of or resulting
from the acts or omissions of a named insured or others performed on behalf of
the named insured.
9. Lessee hereby agrees to indemnify and hold Lessor harmless, against
any and all damage, loss, liability and expense including without limitation
actual attorney's fees and legal costs incurred directly by reason of loss or
damage to the Premises, Project, Property or any portion thereof or any claim,
suit or judgment brought by or on behalf of any person for damage, loss or
expenses due to, but not limited to, bodily injury or property damage sustained
by person or persons which arise out of, or are occasioned by or are in any way
attributable to the negligence or willful misconduct of Lessee or its employees
or otherwise attributable to Lessee's negligence in selecting or supervising any
of its agents involved in performance pursuant to the Agreement, except to the
extent that any such damage or loss, costs or expenses are caused by the sole
gross negligence or willful misconduct of Lessor.
27
Exhibit # 10.06c
Acquisition Agreement - GST
TELEPHONE AND TELEVISION
LEASE AND ACCESS AGREEMENT
Description of Project: Promontory View Apartments consisting of 306
apartment units, at the corner of Deerwood Road and Deerwood Place in
San Ramon, in the County of Contra Costa, State of California.
This Telephone and Television Lease and Access Agreement ("Agreement"),
is entered into as of this 1st day of November 1996 ("Effective Date"), by and
between Crow Canyon Developers, Ltd., a California limited partnership,
hereinafter called "Lessor," and GRI Telecommunications, Inc., a California
corporation, hereinafter called "Lessee."
RECITALS
This Agreement is made with respect to the following facts and circumstances:
A. Lessor is the owner and developer of a certain multi-family
residential apartment complex located in San Ramon, California commonly known as
Promontory View Apartments consisting of 306 apartment units and more
particularly described on Exhibit "A" attached hereto. Such project is herein
sometimes referred to as the "Project."
B. The Lessor has developed the Project in conjunction with a related
and adjacent project consisting of 400 apartment units commonly known as
Promontory Point Apartments (the "Related Project").
C. Lessee is engaged in the business of installing and operating
private telephone systems and private television systems within apartment
complexes similar to the Project.
D. Lessor and Crow Canyon Communications, a California general
partnership ("Communications"), entered into that certain Telephone And
Television Room Lease And Access Agreement dated August 8, 1992 ("Prior
Agreement") pursuant to which Communications installed portions of the telephone
and television systems employed at the Related Project. Lessee is an affiliate
of Communications. In connection with the entry of Lessor and Lessee into this
Agreement, the Prior Agreement is being terminated.
E. Lessee has participated in the installation of portions of the
telephone and television systems to the employed at the Project. The television
system installed at the Project, is herein sometimes referred to as the
"Television System". The telephone system installed at the Project is sometimes
referred to as the "Telephone System". A portion of the equipment employed in
connection with both the Television System and the Telephone System at the
Project is located in the Related Project and in particular is located in that
area of the Related Project commonly known as the "Telephone and Television
Equipment Room" which area is leased to Lessee pursuant to that certain
Telephone and Television Lease and Access Agreement by and between Lessor and
Lessee in connection with the Related Project dated November 1, 1996. ("Related
Project Agreement").
F. In connection with the operation of the Television System and
Telephone System at the Project, Lessor desires to lease a certain portion of
the Project to Lessee and to grant Lessee certain other rights as set forth in
this Agreement and Lessee desires to lease the identified portion of the
Project, accept the
1
other rights with respect to the Project as described herein and otherwise
perform the obligations of Lessee as set forth in this Agreement.
In consideration of the mutual promises contained below and for other
good and valuable consideration, it is hereby agreed as follows:
Article 1
Premises; Utility Areas
1.1Premises. Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor the portion of the Project which is described on Exhibit "B" attached
hereto and incorporated he-rein by this reference. Such area is sometimes
referred to herein as the "Premises." The Premises is to be used for the purpose
of installing, operating, servicing and repairing the private telephone and
television utilities and equipment described on Exhibits "C" and "C-1" (referred
to collectively as the "Telephone and Television Equipment"). The equipment as
described on Exhibit "C" relating to the Television System shall sometimes be
referred to as the "Television Equipment" and the equipment described on Exhibit
"C-1" relating to the Telephone System shall sometimes be referred to as the
"Telephone Equipment".
In addition to the Telephone and Television Equipment installed in the
Premises, certain equipment relating to the Television System and the Telephone
System at the Project is installed in an area of the Related Project commonly
known as the "Telephone and Television Equipment Room" ("Equipment Room"). The
equipment installed in the Equipment Room in connection with the Television
System servicing the Project is sometimes referred to as the "Off-site
Television Equipment". The equipment installed in the Equipment Room servicing
the Telephone System at the Project is sometimes referred to as the "Off-site
Telephone Equipment". Certain other additional equipment employed in connection
with the Television System and/or Telephone System at the Project is located on
the Related Project including without limitation certain television satellite
dishes.
1.2Utility Areas. In addition to the lease of the Premises, Lessor hereby
grants to Lessee nonexclusive access to the areas marked on Exhibit "D" (the
"Utility Areas") for the placement and repair of wires, cable and accessories
necessary to provide the telephone and television services as described in this
Agreement. Lessee shall have the right of free access to the Utility Areas to
inspect, maintain, install, replace and repair the wire, cable and other
accessories associated with the Telephone System and the Television System, and
to the remainder of the Project for the purpose of repair and maintenance of the
wiring, cable and accessories relating to the Telephone System and the
Television System, and for the purpose of collecting receipts for its services
and otherwise dealing with tenants within the Project. The access of Lessee to
the apartment units in the Project shall be restricted to normal business hours
after reasonable notice (except by appointment for after business hours) and
such other restrictions as are from time to time reasonably imposed by the
Lessor or its designated agents.
Article 2
Term
2.1Term. The term of this Agreement shall commence as of the Effective Date
and shall expire on December 31, 2005 and shall not be earlier terminated or
cancelled except as hereinafter provided. It is acknowledged that although the
term of this Agreement commences as of the Effective Date, delivery of The
Premises by Lessor to Lessee and the commencement of telephone service and
television service with respect to the Project as contemplated pursuant to the
provisions of this Agreement will not occur until completion of construction of
the Project. It is currently contemplated that completion of construction of
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the Project will occur on or about February 28, 1997. Lessor shall have no
responsibility or liability to Lessee in the event that completion of
construction of the Project is delayed for any reason whatsoever and the term of
this Agreement shall not be extended as a result of any delay in completion of
construction but in all events shall expire on December 31, 2005.
Article 3
Exclusive Control
3.1Exclusive Right. Lessee shall have the sole and exclusive control and
possession of the Premises and the exclusive right to provide telephone and
television service to all residents within the boundaries of the Project. Lessor
shall not install or use, nor permit any tenant or other person, firm or
corporation to install or use any equipment similar to or intended for the same
use as the Telephone and Television Equipment (whether coin. operated or not) in
the Premises or elsewhere on the Project. During the term of the Agreement,
Lessee shall have the exclusive right to install equipment for telephone and
television purposes on or about the Project. Notwithstanding any provisions to
the contrary contained in this Agreement, including without limitation the
provisions set forth in this paragraph 3.1, Lessor shall be entitled to make
available to tenants of the Project alternate telephone and television services
to the extent required by applicable law. It is acknowledged that applicable law
currently requires that alternate telephone services be made available to
tenants of the Project.
3.2Condition of Premises. Lessee has reviewed the condition of the Premises
existing as of the Effective Date and has further reviewed the plans with
respect to completion of construction of the Premises. Lessee hereby accepts the
Premises subject to completion in accordance with the applicable plans and
further subject to all applicable zoning, municipal, county and state laws,
ordinances or regulations governing the use of the Premises.
3.3Access Fee. Upon execution of this Agreement and as a condition precedent
to the effectiveness of this Agreement, Lessee shall pay to Lessor as a fee in
connection with the access and other rights provided in this Agreement for the
benefit of Lessee the sum of $100,000. This fee shall be unconditionally and
absolutely earned upon execution of this Agreement by Lessor and Lessee and
shall be unconditionally payable to Lessor The fee shall be paid in the
following installments: (i) $50,000 in immediately available funds to be paid on
January 15, 1997; (ii) the balance of $50,000 shall be payable in immediately
available funds within fourteen (14) days following written notice given by
Lessor to Lessee that the occupancy rate in connection with the Project has
achieved a minimum of 65%.
Article 4
Rent
4.1Rent. Lessee shall pay to Lessor as rent for the Premises and as
consideration for the other rights as granted to Lessee hereunder monthly
payments as scheduled on Exhibit "E" of a percentage of the gross receipts of
Lessee from time to time in connection with both the Television System and the
Telephone System which percentages vary in accordance with the number of
subscribers within the Project using the Television System and/or Telephone
System. Monthly payments shall be paid in arrears and are due ten (10) days
following the closing of each monthly billing cycle which closing occurs at the
end of each calendar month. Lessee shall pay to Lessor a late charge of one and
one-half percent (1.5%) of the amount due for any monthly payment not received
within five (5) business days of the due date. Lessee shall provide to Lessor,
along with the monthly rental payment, a report showing the number of
subscribers and gross monthly receipts for both the Telephone System and
Television System.
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4.2Audit. Lessor shall have the right to audit Lessee's gross receipts no
more frequently than twice in any twelve (12) month period in order to verify the
amount of gross receipts. Lessee shall cooperate with Lessor in connection with
any audit of its receipts and shall make available to Lessor such information
and records as are reasonably requested by Lessor. If any audit shows that there
is a deficiency in the payment of rent, the deficiency shall become due and
payable fifteen (15) days following written demand from Lessor, accompanied by a
statement showing the amount due. The costs of any audit shall be paid by Lessor
unless the audit discloses that Lessee shall have understated its gross receipts
by three percent (3%) or more, in which case Lessee shall pay all Lessor's costs
of the audit. Further, notwithstanding the above provisions of this paragraph
4.2 to the contrary, in the event any audit discloses that Lessee shall have
understated its gross receipts by three percent (3 %) or more, Lessor shall be
entitled to audit Lessee's gross receipts as often as four (4) times in the
ensuing twelve (12) month period. If any two (2) audits during any twelve (12)
month period disclose that Lessee has understated its receipts by three percent
(3%) or more, Lessor may terminate this Agreement and Lessee shall remain liable
for the deficiency and cost of audit as herein provided. The acceptance by
Lessor of any monies paid to Lessor by Lessee as rent hereunder, as shown on any
statement furnished by Lessee, shall not be an admission of the accuracy of such
statement or the sufficiency of the amount paid by Lessee.
4.3Receipts. The term "gross receipts" as used herein shall refer to the gross
amount as received from time to time by Lessee in connection with or relating in
any fashion to the operation of the Telephone System and Television System at
the Project. Such receipts shall include but not be limited to: (i) all monthly
fees as paid by tenants of the Project in connection with the Telephone System
and the Television System; (ii) all "hook-up" charges or other like charges paid
by the tenants of the Project; (iii) all late charges or penalties of any kind
as paid by the tenants of the Project; and (iv) any and all other receipts or
charges of any kind whatsoever received by Lessee relating to or arising out of
the Telephone System and/or Television System at the Project. In the event that
Lessee is no longer providing services in connection with either the Telephone
System or Television System pursuant to this Agreement, then "gross receipts"
thereafter shall refer only to the system for which Lessee continues to provide
services.
4.4Taxes. Lessee shall have the right to deduct from the gross receipts all
taxes (except income or other like taxes upon Lessee's net income or profit) and
fees imposed on the Telephone System or Television System and on the revenue
generated by the Telephone System or Television System at the Project.
Article 5
Taxes
5.1Real Property Taxes. Lessor shall pay any and all real property taxes
associated with the Premises or otherwise associated with the Project. Lessee
shall have no responsibility for any such taxes.
5.2Personal Property. Lessee shall pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed on its
business operation as well as upon all trade fixtures, leasehold improvements
and other personal property in or about the Premises and the Project. Lessee
shall comply with the provisions of any law, ordinance or rule of taxing
authorities which requires Lessee to file a report of Lessee's property located
at the Project.
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Article 6
Use
6.1Purpose. Lessee shall use the Premises and shall employ its access to the
Project solely in connection with the purposes contemplated by this Agreement
and for no other purpose. During the term hereof, Lessee shall keep the Premises
clean and free of any objectionable noises, odors or nuisances, and Lessee shall
at all times comply with any and all health and police regulations applicable to
the Premises. Lessee shall not install any exterior lighting or make any
exterior painting or install any exterior radio or television antennae,
loudspeakers or similar devices on the exterior of the Premises or elsewhere in
the Project, or make any changes on the exterior of the Premises without
Lessor's prior written consent.
6.2Restrictions. Lessee shall not do or permit anything to be done in or about
the Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Project, or injure or annoy them or use or
allow the Premises to be used for any unlawful or objectionable purpose, nor
shall Lessee cause, maintain or permit any nuisance in, on or about the Premises
or the Project. Lessee shall not commit or suffer to be committed any waste in
or upon the Premises or the Project. Lessee shall not use the Premises or permit
anything to be done in or about the Premises or Project that will in any way
violate any law, statute, ordinance or governmental rule or regulation or
requirement of duly constituted public authorities now in force or which may
hereafter be enacted. Lessee agrees that it shall comply with all fire and
security regulations that may be issued from time to time by governmental
authorities and shall provide Lessor with a name of a designated responsible
employee to represent Lessee in all matters pertaining to such fire or security
regulations. Lessee shall at its sole cost and expense determine from time to
time, whether it is in compliance with the foregoing, shall obtain all necessary
governmental approvals and permits, and shall promptly comply with all laws,
statutes, ordinances and governmental rules, regulations and requirements now in
force or which may hereafter be in force, and with the requirements of any board
of fire underwriters or other similar body now or hereafter constituted relating
to or affecting the condition, use or occupancy of the Premises, excluding
structural changes not relating to or affecting the condition, use or occupancy
of the Premises.
6.3Hazardous Material. Lessee shall not cause or permit any hazardous material
to be brought upon, kept or used on or about the Premises or Project. If Lessee
breaches its obligations as stated in the preceding sentence and such breach
results in contamination of the Premises or Project or any portion of the
Project by hazardous material, then Lessee shall indemnify, defend and hold
Lessor harmless from all claims, judgments, damages, penalties, liabilities or
losses of any kind whatsoever (including without limitation attorneys' fees)
which arise during or after the term of this Agreement as the result of or in
connection with such contamination. The obligations of Lessee hereunder shall
survive the termination of this Agreement. As used herein, the term "hazardous
material" means any hazardous or toxic substance, material or waste which is or
becomes regulated or defined as "hazardous" or "toxic" by any local governmental
authority, the State of California or the United States Government.
Article 7
Utilities
7.1Availability. Lessor agrees that it will cause to be made available to
Lessee in connection with the Premises the distribution of utilities including
electricity, air conditioning, venting and ventilation substantially as such
utilities exist with respect to the Premises as of the Effective Date. The cost
of any and all utilities as provided to the Premises shall be borne by Lessor,
provided that to the extent that electricity provided to the Premises is
separately metered; the cost of the electricity shall be borne by Lessee.
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7.2Trash. Lessee shall store all trash and garbage within the areas as
established by Lessor for such purposes within the Project. Lessee shall not
allow refuse, garbage or trash to accumulate outside the Premises.
7.3Limited Liability. Lessor shall not be liable to Lessee or any other person
for, and neither shall Lessee nor any other person be entitled to any abatement
or reduction of rent or damages, direct or indirect, because of any reduction or
suspension in the utility services if required by any governmental, authority,
or Lessor's failure or inability to furnish any service or facility, Lessor has
agreed to supply, when such failure is caused by accident, breakage, repairs,
alterations or improvements, strikes, acts of God, governmental preemption or
any other cause similar or dissimilar beyond the reasonable control of Lessor.
Lessor shall not be liable under any circumstances for any loss of or any injury
to person, property or business, however occurring, through or in connection
with or incidental to any failure described above to furnish any service or
facility, nor shall any such failure be construed as eviction of Lessee in whole
or in part.
Article 3
Repairs
8.1Repair by Lessee. Lessee will at its cost provide janitorial and
housekeeping services, maintenance and repair for the Premises, and will perform
all future improvements at its sole cost. Notwithstanding the sentence
immediately above, the obligation of Lessee to repair and maintain the Premises
shall be limited to maintenance and repair of the interior of the Premises and
shall not include the roof, exterior walls or structural aspects of the Premises
except in the event that any such damage is caused by or results from the
negligence of Lessee or its agents or employees, in which event Lessee shall be
obligated to make such repairs. In addition, Lessee shall have no obligation to
replace the Premises (exclusive of the Telephone and Television Equipment) in
the event of partial or complete destruction of the Premises.
In addition to the above, Lessee shall at its cost maintain and repair
any and all HVAC equipment servicing the Premises, provided that such equipment
serves only the Premises and not other portions of the Project. To the extent of
any warranty on HVAC equipment serving only the Premises, Lessor shall cooperate
with Lessee to enforce the warranty obligations of the manufacturer and/or
installer.
8.2Repair by Lessor. Subject to reasonable wear and tear and Lessee's duties
to repair the Premises as set forth in this Article, Lessor shall maintain and
repair the exterior walls, roof and the exterior portions of the Premises.
Lessor shall in addition be responsible for the repair of any and all HVAC
equipment relating to the Premises except as otherwise provided in paragraph 8.1
and except in connection with any matters caused or resulting from the
negligence of Lessee or its employees or agents, in which event Lessee shall be
obligated to make such repairs.
8.3Removal upon Termination. Upon expiration or early termination of this
Agreement, Lessee shall have the right to remove the Telephone and/or Television
Equipment and fixtures as shall have been installed, furnished and supplied by
Lessee in said leased Premises subject to the provisions of paragraph 12.4
below, it being expressly understood and acknowledged by Lessor that title to
and the ownership of all such equipment and fixtures shall at all times be and
remain in and with Lessee, whether the same or any parts thereof be affixed to
the realty or otherwise. Lessee shall repair any damage caused by the removal of
its equipment and fixtures, including replacement of landscaping removed or
damaged by Lessee. Under no circumstances shall Lessee remove wire in the walls,
jacks in buildings or any underground wire or cable. In addition, in no
circumstances shall Lessee remove any of the cabling, including without
limitation, approximately 600 pairs of telephone lines and one (1) television
cable
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running between the Equipment Room located in the Related Project and the
Premises which cabling is owned by Lessor. Further, upon the expiration or early
termination of this Agreement, Lessee shall be entitled to remove the Off-site
Television Equipment and the Off-site Telephone Equipment subject to the
provisions of paragraph 12.4 below and further subject to the provisions of this
paragraph 8.3 otherwise applicable to removal of Telephone and/or Television
Equipment located in the Premises.
8.4Liens. Lessee shall keep the Project and Premises and building in which the
Premises is located free from any liens arising out of work performed, materials
furnished or obligations incurred by Lessee, and shall protect, indemnify, hold
harmless and defend Lessor from any liens or encumbrances arising out of any
work performed by Lessee or at its direction.
Article 9
Duties of Lessee
9.1Installation. It is acknowledged that Lessee has participated in the
installation of the Television Equipment and Telephone Equipment described on
Exhibits "C" and "C-1 " respectively together with wire and accessories
necessary to provide Telephone and Television services for the Project. It is
acknowledged that Lessor has installed certain wiring and cable at the Project
in connection with the Telephone System and the Television System.
9.2Maintenance. Lessee shall service and maintain in good working order all
Telephone and Television Equipment (as well as the Off-site Telephone Equipment
and Off-site Television Equipment) and all wiring, cable and accessories,
whether installed by Lessor or Lessee, constituting a portion of the Telephone
System and/or Television System at its sole cost and expense. Lessor shall have
no obligation of any-kind whatsoever for maintenance and-repair of any such
equipment or any portions of either the Telephone System or the Television
System. In no event shall Lessor have any responsibility for any of the costs of
such repair and maintenance. In the event of damage to any of the Telephone and
Television Equipment (or the Off-site Telephone Equipment or Off-site Television
Equipment) or any of the wiring, cable or accessories employed in connection
with the Telephone System or Television System arising by reason of a casualty
or damage or destruction, Lessee shall be obligated at its sole cost to replace
and/or repair such damaged equipment, wiring, cable or accessories; provided,
only that any such damage resulting from the negligence of Lessor or its
employees or agents shall be the responsibility of Lessor. Lessee shall be
entitled to employ and shall employ any and all proceeds payable in connection
with insurance maintained pursuant to this Agreement available in connection
with the damage or destruction of any of the Telephone and Television Equipment
or any of the wiring, cabling or accessories as described above to offset the
cost of repair and/or replacement of such equipment and/or accessories.
9.3Tenant Installation. Lessee shall service and actively market both the
Television System and the Telephone System to all tenants within the Project.
Lessee shall provide at its sole cost, all installation services required as to
each tenant within the Project and all accessories as required in connection
with the "hook-up" of each of the tenants within the Project. Lessee at its sole
cost shall respond to any and all reasonable inquiries or requirements of the
tenants within the Project relating to the Telephone System or Television System
and shall respond within twenty-four (24) hours of notification to all service
calls, excluding Sundays and national holidays, in which case response shall be
made on the immediately succeeding business day.
9.4Charges. Lessee at its sole cost shall be responsible for billing all
tenants within the Project for Telephone and Television services provided and
for collecting all monies due in connection with such
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services. Lessor shall have no responsibility of any kind whatsoever for the
obligations of any tenant in connection with either the Telephone System or the
Television System.
9.5Insurance. Lessee shall maintain at its cost liability insurance covering
injury to persons and damage to property (including without limitation damage to
the Telephone and Television Equipment and to the Off-site Telephone Equipment
and Off-site Television Equipment) arising out of its operation on the Project.
Lessor shall be named as an additional insured in connection with all such
insurance. A listing of minimum insurance requirements is contained in Exhibit
"F" and incorporated herein by this reference.
9.6House Phones. At no cost to Lessor, Lessee shall install and "hook-up" as
an accommodation to Lessor service for seven (7) "house" telephones and for two (2)
common area television outlets in locations within the Project as selected by
Lessor. In connection with any such services, Lessor shall not be obligated to
pay the basic monthly fees in connection with either the telephone or television
service so installed. Lessor shall be obligated to pay for any extraordinary
television service as used by Lessor and shall further be obligated to pay the
standard usage cost for the telephone services employed by Lessor.
9.7Best Efforts. Lessee shall use its best efforts in performing the
obligations of Lessee under this Agreement, as modified or amended from time to
time. Without limiting the generality of the foregoing, Lessee shall use its
best efforts to promptly discharge the service obligations specified in
paragraph 9.3 above of this Agreement.
9.8Monthly Report. On or before the tenth day of each calendar month, Lessee
shall submit a written report to Lessor summarizing such information as may be
reasonably requested by Lessor for the prior month. The monthly report to be
submitted by Lessee shall include, but not by way of limitation, a summary of
any problem areas then existing in connection with the Telephone
System/Television System as well as a summary of the solutions achieved for the
problem areas summarized in connection with the previous months. In the event
that Lessor requires information other than that then customarily provided in
connection with such monthly report by Lessee, Lessor shall give written notice
of a request for additional information to Lessee on or before the last day of
the calendar month for which the information is being requested by Lessor.
9.9Bi-Annual Reports. In February of each year, Lessee shall deliver a
questionnaire to fifty percent (50%) of the residents of the Project and in
August of each year, Lessee shall deliver a questionnaire to the remaining fifty
percent (50%) of the residents of the Project. Lessee shall obtain Lessor's
approval regarding the form of the questionnaire prior to distribution of the
questionnaire to the residents. Based upon the responses to such questionnaires
received by Lessee, on or before the tenth day of April and of October of each
year, Lessee shall submit a report to Lessor in connection with the Project for
the six (6) month period prior to the date of such report setting forth such
information as may be reasonably requested by Lessor from time to time including
without limitation the results of the questionnaires returned by residents and a
rate comparison between Lessee's rates and the rates of AT&T and PacBell (or
their respective successors) for two local locations, two long distance
locations and two international locations chosen at random by Lessor. Lessor
shall give written notice to Lessee of any information reasonably required by
Lessor in connection with the above-described BI-annual reports which notice
shall be given by Lessor to Lessee, if at all, on or before March 15 or
September 15 of each year.
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Article 10
Entry by Lessor
10.1Access. Lessee hereby grants Lessor such licenses and access in and over
the Premises or any portion thereof or the Utility Areas as shall be reasonably
required for the installation or maintenance of mains, conduits, pipes or other
facilities to serve the Project or any part thereof, provided that Lessor shall
pay for any alteration required of the Premises as the result of any such use of
the Premises. Lessee further covenants and agrees that Lessor may go upon the
Premises to make any necessary repairs to the Premises or perform any work upon
the Premises which may be necessary to comply with any laws, rules or
regulations of any public authority, or which Lessor may deem necessary to
prevent waste or deterioration in connection with the Premises. Except in the
case of emergency repairs, Lessor shall give Lessee twenty-four (24) hours prior
written notice of any intended entry by Lessor into the Premises for purposes of
repairs or performance of any work.
Article 11
Voluntary Termination
11.1Notice of Termination. Within sixty (60) days following the commencement
of each six (6) month period during the term of this Agreement commencing as to
the Telephone System with the six month .period commencing with the calendar month
immediately following the first calendar month in which at least an eighty
percent (80%) penetration of the apartment units in the Project is first
achieved and with respect to the Television System with the six month period
commencing with the calendar month immediately following the calendar month in
which at least a sixty percent (60%) penetration of the apartment units in the
Project is first achieved, Lessee shall have the options to terminate by giving
written notice, within such sixty (60) days to Lessor as more particularly
provided below in this paragraph 11.1. Notice to terminate must be given by
Lessee, if at all, within the applicable sixty (60) day period. The computation
of the above described time period shall be made separately for the Telephone
System and separately for the Television System.
(a) Subject to the sixty-day time periods as described immediately
above in this paragraph, in the event that Lessee fails to maintain an average
telephone subscription level during the two (2) immediately preceding calendar
months of an at least eighty percent (80%) penetration of the apartment units in
the Project, then Lessee shall be entitled to give Lessor written notice of its
intent to terminate its obligations pursuant to this Agreement to provide the
Telephone System for the Project. The effective date of the termination shall be
as provided in the notice but no earlier than one hundred eighty (180) days
after the date of receipt by Lessor of such written notice.
(b) Subject to the time periods as described immediately above in this
paragraph, in the event that Lessee fails to maintain an average television
subscription level during the two (2) immediately preceding calendar months of
an at least sixty percent (60%) penetration of the apartment units in the
Project, then Lessee shall be entitled to give Lessor written notice of its
intent to terminate its obligations pursuant to this Agreement to provide the
Television System for the Project. The effective date of the termination shall
be as provided in the notice but no earlier than one hundred eighty (180) days
after the date of receipt by Lessor of such written notice.
11.2Removal of Equipment. In the event that Lessee terminates either of its
services with respect to 'he Telephone System or its services with respect to
the Television System in accordance with paragraph 11. 1 immediately above,
Lessee shall have thirty (30) days to remove its equipment associated with the
terminated service, beginning with the effective date of the termination;
provided, however, that any
9
equipment not so removed thirty (30) days after the date of termination for the
terminated service shall be deemed to be abandoned. Lessee will repair any
damages to the Premises caused by removal of its equipment. The equipment to be
removed in connection with the termination of the Telephone System or Television
System shall include the Off-site Telephone Equipment or Off-site Television
Equipment as the case may be.
11.3Lessee Cooperation. In the event that Lessee terminates its obligations
with respect to either the Television System or Telephone System in accordance
with paragraph 11. 1 immediately above, Lessee shall upon the request of Lessor,
during the ninety (90) days prior to the effective date of termination,
negotiate in good faith with Lessor for the sale to Lessor or its designees of
the Telephone Equipment and/or Television Equipment (as well as the Off-site
Telephone Equipment and/or the Off-site Television Equipment) as the case may
be, relating to the terminated service, which sale shall be made on a cash basis
for a price equal to the fair market value of the equipment being sold. Should
Lessor and Lessee be unable to agree upon a fair market value for the equipment,
then Lessee shall be entitled to remove such equipment in accordance with the
provisions of paragraph 11.2 immediately above. In the event of any such removal
of equipment, Lessee shall cooperate with Lessor in connection with Lessor's
efforts to obtain a third-party provider to furnish the services being
terminated by Lessee. Such cooperation shall include but not be limited to
making space available prior to the effective date of termination to the third
party provider within the Premises so that the third-party provider can install
equipment as required to provide the services effective as of the date of
termination.
11.4Non-Terminated Service. Pursuant to paragraph 11.1 above, Lessee may
terminate one without the other of the services provided under this Agreement.
For example, if Lessee notifies Lessor of its intent to terminate the Television
System but not the Telephone System, then this Agreement shall remain in effect
only with respect to the Telephone System being, provided by Lessee. To the
extent required in connection with the removal of equipment by reason of the
termination of the Television System or the Telephone a System, Lessor and
Lessee agree to execute an amendment to this Agreement that will provide a new
description of the Premises as shown on Exhibit "B."
11.5Lease Termination. In the event that Lessee elects to terminate its
obligations with respect to either the Telephone System or the Television System
as provided in subparagraph 11.1(a) and subparagraph 11.1(b), respectively, then
in such event, Lessor shall be entitled to terminate this Agreement in its
entirety by giving written notice of such termination to Lessee within ninety
(90) days following receipt by Lessor of written notice of termination from
Lessee. Any such termination shall be effective thirty (30) days after the date
of receipt by Lessee of such written notice.
11.6Additional Termination Right. Notwithstanding any provision to the contrary
contained in this Agreement, upon the sale or exchange of the Project, Lessor
(or its successor in interest as more particularly described below) shall be
entitled to terminate this Agreement by giving written notice ("Termination
Notice") to Lessee. The effective date of any such termination shall be the date
set forth in the Termination Notice provided, however, that in no event shall
such date be less than sixty (60) days following the date on which the
Termination Notice is given. In the event of any such termination, provided that
Lessee is not otherwise in default pursuant to this Agreement, upon the
effective date of such termination Lessor shall pay to Lessee in cash a
termination fee in the amount set forth on Exhibit "G" attached hereto. Pursuant
to provisions of this paragraph 11.6, Lessor shall be entitled to terminate this
Agreement with respect to either the Telephone System or the Television System
or both. In the event of the termination of this Agreement only with respect to
one (but not both) of the Telephone System or the Television System then this
Agreement shall continue with respect to that system not terminated and
following the effective date of the termination the rent payable by Lessee as
provided in paragraph 4.1
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shall be based upon the percentage of gross receipts as set forth on Exhibit "E"
in connection with the system not then terminated. In the event of the
termination of either the Telephone System or the Television System as described
in this paragraph 11.6, but not both, the above described fee as set forth on
Exhibit "G" shall be reduced as applicable such that the fee payable in
connection with the termination of the Telephone System shall be seventy-five
percent (75%) of the total fee and the fee payable in connection with the
Television System shall be twenty-five percent (25%) of the total applicable
fee. In the event of any termination by Lessor of the, Telephone System or the
Television System or both as provided in this paragraph 11.6, the provisions of
paragraphs 11.2 and 11.3 shall be applicable with respect to the equipment of
the terminated system and Lessee shall have thirty (30) days following the
effective date of termination to remove the applicable equipment as provided in
paragraph 11.2 subject however to the provisions of paragraph 11.3 pursuant to
which provisions Lessor and Lessee, during the sixty (60) day period prior to
the effective date of termination, shall negotiate in good faith with respect to
the purchase and sale of the Telephone Equipment and/or Television Equipment
relating to the terminated service(s). The right to terminate as set forth in
this paragraph 11.6, shall inure to the benefit of Lessor and shall, in
addition, inure to the benefit of successors-in-interest to Lessor pursuant to
this Agreement who hereafter purchase the Project from Lessor (or a
successor-in-interest to Lessor) provided that following such purchase this
Agreement remains in force and effect (and is therefore not terminated pursuant
to the provisions of the paragraph 11.6).
Article 12
Default
12.1Defaults by Lessee. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Agreement by
Lessee:
(a) The vacating or abandonment of the Premises by Lessee; or
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable unlawful Detainer statutes,
such Notice to Pay Rent or Quit shall not constitute the notice required by this
subparagraph; or
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Agreement to be observed or performed by
Lessee, other than as described in paragraph (b) above, where such failure
continues for a period of thirty (30) days after written notice thereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's default is
such that more than thirty (30) days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion; or
(d) The occurrence of any two (2) audits during any twelve (12) month
period disclosing that Lessee has understated its receipts by three percent (3%)
or more as described in paragraph 4.2 above; or
(e) Failure of Lessee to maintain the Television System or Telephone
System in good condition and repair comparable with similar services, where such
failure continues for a period of fifteen (15) days after written notice thereof
from Lessor to Lessee; or
11
(f) Failure of Lessee to provide telephone service or television
service to residents of the Project comparable with similar services, or to make
service calls upon request in a prompt fashion as provided herein, where such
failure continues for a period of five (5) days after written notice thereof
from Lessor to Lessee (provided that Lessee shall not be entitled to such five
(5) day "cure" period upon the second (2nd) to occur of any such failure within
any thirty (30) day period), except for any failure which results from the
failure of a tenant to timely pay its bills for telephone or television services
rendered, destruction of equipment without fault of Lessee (provided, however,
that such destroyed equipment is to be promptly replaced and repaired by Lessee
at its cost), or other commercially acceptable cause reasonably beyond the
control of Lessee; or
(g) Failure of Lessee to provide telephone or television services at
rates equal to or less than those charged by the applicable public utility or
local cable franchise, as the case may be, where such failure continues for a
period of thirty (30) days after written notice thereof from Lessor to Lessee;
or
(h) The filing of a voluntary petition of bankruptcy by Lessee or the
filing of an involuntary petition by Lessee's creditors, with such petition
remaining undischarged for a period of sixty (60) days; or
(i) A general assignment by Lessee for the benefit of creditors; or
(j) An appointment of a receiver to take possession of substantially
all of Lessee's assets or of the Premises, with such receivership remaining
undissolved for a period of sixty (60) days; or
(k) The attachment, execution or other judicial seizure of substantially
all of Lessee's assets or the Premises, with such attachment, execution or
seizure remaining undismissed for period of sixty (60) days.
12.2Defaults by Lessor. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Agreement by
Lessor:
Failure to perform any of the material obligations required of Lessor
to be performed, provided that such failure continues for a period of thirty
(30) days after written notice thereof from Lessee to Lessor, which notice shall
specify the specific nature of the failure, and further provided, however, that
if the nature of Lessor's default is such that more than thirty (30) days is
required to cure such default, then Lessor shall not be in default if Lessor
commences to cure such default within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
12.3Remedies upon Default by Lessee. In the event of default by Lessee, the
following shall be applicable:
(a) In addition to any and all other rights and remedies available to
Lessor at law or in equity, Lessor shall have the right to immediately terminate
this Agreement and all access rights and other rights of the Lessee hereunder by
giving written notice to Lessee of such election by Lessor. If Lessor shall
elect to terminate this Agreement, then it may recover the amounts from Lessee
as are provided by applicable California law.
(b) In the event of default by Lessee, Lessor shall also have the right,
with or without Terminating this Agreement, to re-enter the Premises. If Lessor
does not elect to terminate this Agreement, Lessor may either recover all rent
as it becomes due or re-let the Premises, together with all access rights, upon
such provisions as Lessor in its sole judgment may deem advisable, and Lessor
shall have the right
12
to make repairs to and alterations to the Premises. If Lessor elects to re-let
the Premises, then all rentals received by Lessor from such a re-letting shall
be applied to the payment of all costs and expenses incurred by Lessor in
connection with such re-letting and to the payment of rent due and paid
hereunder.
(c) Nothing contained in this paragraph 12.3 shall constitute a waiver of
Lessor's rights to recover damages by reason of Lessor's efforts to mitigate
damages caused by Lessee's default.
12.4Removal of Equipment. In the event of a termination of this Agreement by
Lessor resulting from the default of Lessee, Lessee, at its cost, shall have
thirty (30) days from the date of termination in which to remove the Telephone
Equipment and the Television Equipment (as well as the Off-site Telephone
Equipment and Off-site Television Equipment); provided, however, that in no
event shall Lessee remove any wiring, cabling or accessories installed in the
Project. Notwithstanding the above, at the election of Lessor and without
waiving Lessor's election to terminate this Agreement, Lessor shall be entitled
to require Lessee to give Lessor fifteen (15) days prior written notice of its
intent to remove the Television Equipment and/or the Telephone Equipment. During
such fifteen (15) day term, Lessee shall cooperate with such third-party
providers as may be selected by Lessor so as to allow such third-party providers
to provide to the Project substitute telephone service and/or substitute
television service. Such cooperation shall include but not be limited to
cooperation in connection with the placement by third-party providers of new
equipment within the Premises and the Equipment Room. In addition, to the extent
that Lessor elects to do so, Lessee shall negotiate in good faith following any
notice of termination given by Lessor, in order to arrive at an a agreement for
purchase at fair market value on a cash basis by Lessor of the Telephone
Equipment and/or the Television Equipment as well as the Off-site Telephone
Equipment and the Off-site Television Equipment. Failing any such agreement for
purchase of the equipment, Lessee shall continue to be entitled to remove such
equipment in accordance with the provisions hereof from the Premises.
Article 13
Damage or Destruction
13.1Destruction of Premises Due to Risk Covered by Insurance. If during the
term of this Agreement the Premises are totally or partially destroyed from a
risk covered by insurance in effect at the time, and there are sufficient
insurance proceeds to pay in full for the cost of restoration, Lessor shall
restore the Premises to substantially the same condition as that which existed
immediately prior to destruction, provided that Lessor's obligation shall be
limited to the Premises and shall not include either the Television Equipment,
or the Telephone Equipment (or the Off-site Telephone Equipment or the Off-site
Television Equipment). Lessee, at its cost, shall be required to restore the
Telephone Equipment and the Television Equipment (and the Off-site Telephone
Equipment and the Off-site Television Equipment). Any such destruction of the
Premises shall not terminate this Agreement. If the existing laws do not permit
the Premises to be restored to substantially the same condition as that which
existed immediately before the destruction, or if in the opinion of Lessor's
architect the restoration cannot be completed within one hundred eighty (180)
days from the date of damage or destruction, Lessor may terminate this Agreement
by giving written notice thereof to Lessee.
13.2Destruction of Premises Due to Risk Not Covered by Insurance. If during
the term of this Agreement the Premises are totally or partially destroyed from
a risk where the cost of reconstruction is not fully covered by insurance, then
Lessor shall have the election to terminate this Agreement or restore the
Premise's in accordance with the provisions of paragraph 13. 1. If Lessor elects
to restore the Premises, .his Agreement shall continue in effect and Lessee
shall have the obligation, at its cost, to restore the Television Equipment and
the Telephone Equipment.
13
13.3Rent. In the event of any partial destruction of the Premises, the rent as
provided herein shall continue with no abatement, it being acknowledged that the
rent is based upon a percentage of Lessee's gross receipts only.
13.4Restoration of Service. Provided only that the Project in its entirety has
not been substantially destroyed, Lessee at its cost shall quickly restore both
telephone and television services to the Project. Such restoration of services
shall include a temporary restoration of services during the period in which any
destruction of the Premises is being restored by Lessor.
Article 14
Miscellaneous
14.1Indemnity. Lessee shall indemnify and hold Lessor harmless from and against
any loss, claim, damage or expense (including attorney's fees) in connection
with Lessee's operations at the Project; provided, however, that Lessee shall
have no obligation to indemnify Lessor with respect to any loss, claim, damage
or expense arising in whole or in part by reason of the negligence of Lessor,
its employees, agents or representatives.
14.2Lessor Warranties. Except as specifically set forth herein, Lessor makes
no representations or warranties of any kind whatsoever to Lessee in connection,
with the subject matters as described in this Agreement. Specifically, but not
by way of limitation, Lessor makes no representations or warranties as to the
suitability of the Project for the purposes as intended by Lessee pursuant to
the provisions of this Agreement and makes no representations or warranties as
to the profitability or other success of the services to be provided by Lessee
hereunder.
14.3Memorandum of Agreement. Upon the request of either Lessee or Lessor, the
parties agree to execute 1 memorandum of this Agreement in recordable form and
recorded in the Official Records of Contra Costa County, California. Subject to
the provisions of paragraph 11.6, this Agreement shall survive any sale,
assignment or other transfer of the Project and shall be construed in all
respects as a lease and not a license. In the event of a sale of the Project by
Lessor, Lessor's obligations and liabilities pursuant to this Agreement shall be
limited to those obligations and all liabilities accrued as of the completion of
the sale and' following completion of the sale the purchasing party shall become
the successor Lessor pursuant to this Agreement and the current Lessor shall
have no further obligations or liabilities with respect to this Agreement.
Lessor shall use its best efforts to obtain from any third party lender a
nondisturbance agreement with respect to this Agreement in a form reasonably
satisfactory to both Lessor and Lessee.
14.4Authority. The person(s) executing this Agreement expressly represent(s)
and warrant(s) that he (they) has (have) full power and authority to do so.
14.5Assignment. Lessee may not assign this Agreement without the consent of
Lessor, which shall not be unreasonably withheld. Subject to this provision,
this Agreement shall be binding upon the parties hereto and their respective
heirs, successors and assigns, as the case may be. Notwithstanding the above
provisions, Lessee may assign this Agreement to an affiliated entity without the
consent of Lessor. For purposes hereof, an "affiliated entity" shall be an
entity in which Lessee holds a majority in interest of the equity ownership as
well as management control.
Provided that Lessor has given its consent which consent shall not be
unreasonably withheld, Lessee shall be entitled to separately assign its rights
with respect to this Agreement relating to the Television
14
System and those rights relating to the Telephone System. By way of example,
Lessee shall be entitled to assign the rights to the Telephone System to a third
party and retain the rights to the Television System. In the event of any such
assignment by Lessee, in connection with the consent to such assignment required
of Lessor, Lessee shall cause to be prepared appropriate documentation to
reflect the separate assignment of the Telephone System and/or Television System
which documentation shall be in a form reasonably acceptable to Lessor and shall
reflect the separate rights and obligations of the respective parties in
connection with the separate operation of the Telephone System and Television
System.
The consent of Lessee shall not be required in connection with any
assignment by Lessor of this Agreement or any one or more of the rights and
duties of Lessor pursuant to this Agreement. For example, but not by way of
limitation, Lessor may assign all of its rights and duties under this Agreement
with respect to a portion of the Project, while retaining all of its rights and
duties under this Agreement with respect to the balance of the Project.
14.6Other Agreement. The parties hereby covenant and guarantee that the
entering into and performance of this Agreement will not create a breach or
default in any agreement to which they are a party.
14.7Attorney's Fees. In the event it becomes necessary for Lessee or Lessor
to enforce the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses.
14.8Condemnation. In the event of condemnation of the Project or a portion of
the Project, or a sale or a transfer of the Project under threat of eminent
domain, Lessee shall be entitled to recovery from any proceeds available by
reason of such eminent domain or condemnation action an amount reasonably
calculated to reimburse Lessee for the loss of benefits of this Agreement (or
portion of this Agreement) and for the loss of the investment in the Telephone
Equipment or Television Equipment resulting from such condemnation, taking into
account the depreciated value of such equipment.
14.9Severabilitv. The provisions of this Agreement shall be severable, and the
invalidity or unenforceability of any provision shall not affect the remaining
provisions.
14.10Exhibits. The provisions of the Exhibits attached hereto and the attached
Addendum are hereby incorporated in this Agreement by this reference.
14.11Notice. All notices, requests or demands to a party hereunder shall be in
writing and shall be given or served upon the other party by personal service,
by certified return receipt requested or registered mail, postage prepaid, or by
Federal Express or other nationally recognized commercial courier, charges
prepaid, addressed as set forth below. Any such notice, demand, request or other
communication shall be deemed to have been given upon the earlier of personal
delivery thereof, three (3) business days after having been mailed as provided
above, or one (1) business day after delivery through a commercial courier, is
the case may be. Notices may be given by facsimile and shall be effective upon
the transmission of such facsimile notice provided that the facsimile notice is
transmitted on a business day and a copy of the facsimile notice together with
evidence of its successful transmission indicating the date and time of
transmission is sent on the day of transmission by recognized overnight carrier
for delivery on the immediately succeeding business day. Each party shall be
entitled to modify its address by notice given in accordance with this Section.
15
If to Lessor: Crow Canyon Developers, Ltd.
c/o Kajima Development Corporation
901 Corporate Center Drive, Suite 201
Monterey Park, California 91754
Attn: Osamu Ibinuma
Fax No.: 213-262-9104
If to Lessee: GRI Telecommunications, Inc.
c/o Gentiurn Realty Investments, Inc.
One Daniel Burnham Court, Suite 205
San Francisco, California 94109
Attn: Bonnie Okamoto
Fax No.: 415.776.4084
14.12Descriptive Heading. The descriptive headings used and inserted in this
Agreement are for convenience only and shall not be deemed to affect the meaning
or construction of any provision of this Agreement.
14.13Time. Time is of the essence of this Agreement and each and every provision
hereof.
14.14California Law. This Agreement shall be governed by and be construed
according to the laws of the State of California.
14.15Waiver. No covenant, term or condition or breach thereof shall deemed
waived except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term or condition shall
not be deemed to be a waiver of any other covenant, term or condition.
Acceptance by Lessor of any performance by Lessee after the time the same shall
have become due shall not constitute a waiver by Lessor of the breach or default
of any covenant, term or condition unless otherwise expressly agreed to by
Lessor in writing.
14.16Holding Over Period. If Lessee or anyone claiming under Lessee shall,
without the written consent of Lessor, hold over after the expiration or earlier
termination of the term of this Agreement, such tenancy shall be on
month-to-month tenancy, which tenancy may be terminated as provided by law.
During such tenancy, tenant agrees to pay to Lessor the rent otherwise agreed to
be paid hereunder plus an additional amount equal to one hundred percent (100%)
thereof.
14.17Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, shall excuse the performance by such
party for a period equal to any such prevention, delay or stoppage, except the
obligations imposed with regard to rent to be paid by Lessee pursuant to this
Agreement.
14.18No Partnership. It is agreed nothing contained in this Agreement shall be
deemed or construed as creating a partnership or joint venture between Lessor
and Lessee, or between Lessor and any other party, or cause Lessor to be
responsible in any way for the debt or obligations for Lessee or any other
party.
16
14.19Financing. Lessor may, from time to time, obtain financing in connection
with the Project or refinance the Project by means of a mortgage or loan or
loans from one or several mortgage companies; before said loans are approved and
closed, such mortgage company or companies must approve this Agreement, and in
order to receive such approval, this Agreement may have to be amended or
modified. Provided that the term hereof is not altered and Lessee's obligations
to pay rent are not increased thereby, Lessee agrees that it shall consent and
immediately execute any such amendment or modification of this Agreement that
may be requested by Lessor and said mortgage company or companies! In the event
Lessee so fails to consent to or execute any such amendment or modification,
Lessor, at its option, may cancel and terminate this Agreement on thirty (30)
days written notice to Lessee without further liability to Lessee hereunder.
14.20Profit Sharing. Given the very substantial investment being made by Lessor
byway of wiring and cable costs and other costs in connection with the
operation of both the Telephone System and the Television System, which
investment in part allows Lessee pursuant to provisions of this Agreement to
participate in the operation and benefits of both such systems, should Lessee
employ in any fashion whatsoever any of the facilities, wiring, equipment or
other items installed in or employed in connection with either the Telephone
System or the Television System at the Project in connection with an apartment
complex, office complex or other project other than the Project (or the Related
Project), then Lessor shall be entitled to fifty percent (50%) of the profits
derived by Lessee from any such use. For purposes hereof, the term "profits"
shall refer to as provided in this paragraph 14.20 the gross receipts as
received by Lessee in connection with any such use less the actual out-of-pocket
costs incurred by Lessee in connection with such use. In any event, Lessee shall
not be entitled to employ any* portion of the Telephone System or the Television
System in any fashion whatsoever other than in connection with the Project,
except upon the prior written authorization of Lessor.
14.21Termination of Prior Agreement. As a condition of and simultaneously with
execution of this Agreement by Lessor and Lessee, Lessor and Lessee have agreed
to terminate the Prior Agreement.
14.22Related Project Agreement. In accordance with the Related Project
Agreement, Lessee will have access to the Equipment Room in connection with the
Off-site Television Equipment and the Offsite Telephone Equipment. In the event
that Lessee's access to the Equipment Room by reason of the Related Project
Agreement is- terminated or partially terminated, then the Lessee shall continue
to have access to the portion of the Equipment Room relating to the Telephone
System and/or Television System maintained in connection with the Project
pursuant to certain rights retained by Lessor as the owner of the Project in
connection with the Related Project. In such event, the "Premises" for purposes
of this Agreement shall be interpreted to include the Equipment Room or that
portion of the Equipment Room located on the Related Project to which Lessee has
rights to maintain the Off-site Television Equipment and/or Telephone Equipment.
The obligations of Lessee with respect to all or such portion of the Equipment
Room shall be the same as the obligations of Lessee with respect to the Premises
pursuant to this Agreement. By way of example, but without limitation, Lessee
shall be required to repair all or the applicable portion of the Equipment Room
in the same fashion as Lessee is required to repair the premises as provided in
Article 8 of this Agreement.
14.23Entire Agreement. This Agreement along with any Exhibits and attachments
hereto constitutes the entire agreement between Lessor and Lessee relative to
the Premises and the matters set forth herein, and this Agreement and Exhibits
and attachments hereto may be altered, amended or revoked only by an instrument
in writing signed by both Lessor and Lessee. It is understood that there are no
oral agreements or representations between the parties hereto affecting this
Agreement, and this Agreement supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements or
17
representations and understandings, if any, between the parties hereto with
respect to the subject matter as set forth herein.
14.24Counterparts. This Agreement may be executed in any number of counter-parts,
each of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. This Agreement shall become effective
upon the execution of a counterpart hereof by each of the parties hereto.
Lessor: Lessee:
CROW CANYON DEVELOPERS, LTD.,
a California limited partnership GRI TELECOMMUNICATIONS, INC.,
a California corporation
By: Kajima Development Corp.,
a Delaware corporation
18
Exhibit A
Project Description - Promontory View Apartments
Legal Description
Real Property in the City of San Ramon, County of Contra Costa, State
of California, described as follows:
Parcel 1 as shown on Parcel Map MS 901-89, filed March 2, 1992, Book
158 of Parcel Maps, Page 3, Contra Costa County Records.
A.P.-No.: 208-240-050
19
Exhibit B
image
20
Exhibit C
Television Equipment - Promontory View Apartments
December 10, 1996
One (1) Microwave Dish (Receiver) On Site
One (1) Microwave Dish (Receiver) Off Site
21
Exhibit C-I
Telephone Equipment - Promontory View Apartments
December 10, 1996
None on Site
The following are "Off Site" Equipment:
1 Cortelco Cabinet
3 Universal Carriers
2 Power Supplies
42 Station Cards
1 T-I Card
1 CSU/DSU
1 Battery Back-up
22
Exhibit C-2
Related Project Television and Telephone Equipment
Television Equipment:
(Inside Equipment Room)
3 Custom Headend Racks
10 Processors
25 Modulators
20 Integrated Satellite Receiver/Descramblers
2 Satellite Receivers
3 Channel Combiners
2 Demodulators
(Outside Equipment Room)
2 12' Satellite Dish Antennas
1 10' Satellite Dish Antennas
4 Off Air Antennas
Telephone Equipment:
(All inside Equipment Room)
2 Cortelco SR1000 cabinets
6 universal carriers
3 Power Supplies
59 Station Cards
2 T-1 Cards
1 Battery Back-up
1 WYSE 350 Monitor
1 Polling Unit (for billing)
1 Voice Mail System
1 Music-On-Hold System
23
Exhibit D
Description of Utility Areas - Promontory View Apartments
24
image
25
image
26
Exhibit E
Rent Schedule Promontory View Apartments
The rent to be paid by Lessee pursuant to Paragraph 4.1 of the
Agreement shall commence as to each of the Telephone System and the Television
System at such time as services are being provided with respect to the Telephone
System or Television System, as the case may be, to a minimum number of
subscribers within the Project as more particularly described below. Such test
is to apply separately to the Telephone System and Television System, so that
rent with respect to the Telephone System may commence one month , and rent with
respect to the Television System may commence in a different month. If after the
commencement of rent with respect to one or both of the Systems, the service
level falls below the minimum level, rent shall thereupon cease with respect to
such System until the month in which the minimum service level is again
satisfied. For purposes of determining when "service" is being provided to a
given apartment, "hook-up" of the System to such apartment shall be considered
as proof of the commencement of service. The rent as described herein is based
upon a percentage of the gross receipts with respect to the Telephone System and
the Television System. During any months in which rent is not being paid with
respect to the Telephone System and/or the Television System because the minimum
service level has not been achieved, Lessee shall continue to be obligated to
provide the monthly reports to Lessor as described in Paragraph 14.1 of the
Agreement. The percentage of the gross receipts paid in rent shall vary in
accordance with the number of subscribers being serviced as described below. In
determining the level of service with respect to either the Telephone Service or
the Television Service in any given month, the highest level of service in such
calendar month shall be determinative.
The percentage of monthly receipts to be paid by Lessee is described as
follows:
From 11/1/96 through and including 12/31/2002:
Percentage of Gross Monthly Receipts
No. of subscribers
being serviced Telephone System Television System
0-183 0% 0%
184-213 5% 7%
214-243 6% 8%
244-274 7% 9%
275-306 8% 10%
307- 9% 11%
From 1/1/2003 through and including 12/31/2005:
No. of subscribers Percentage of Gross Monthly Receipts
being serviced Telephone System Television System
0-183 0% 0%
184-213 6% 8%
214-243 7% 9%
244-274 8% 10%
275-306 9% 11%
307- 10% 12%
27
Exhibit F
Insurance Requirements - Promontory View Apartments
Lessee is required to comply at its cost with the following minimum insurance
requirements:
1. Lessee at its expense shall maintain the hereinafter described insurance
cover-age with insurance carriers licensed and approved to do business in the
State of California (unless Lessor otherwise approves in -writing) with a
general policyholder's rating of not less than A, and financial rating of not
less than X, in the most current Best's Insurance Report. In no event will the
insurance be terminated or otherwise allowed- to lapse prior to the termination
or expiration of the Agreement. Lessee may provide the insurance described in
this Exhibit through a policy or policies covering other liabilities of Lessee
provided, however, that any such policy or policies shall: (i) allocate to the
Project the full amount of insurance required hereunder, and (ii) contain,
permit or otherwise unconditionally authorize the waiver of subrogation as
described in paragraph 8 below.
2. As evidence of specified insurance coverage, Lessor shall, in lieu of
actual policies, accept certificates issued by the applicable insurance carrier
acceptable to Lessor showing such policies in force for the specified period-
Such evidence shall be delivered to Lessor promptly upon the execution of the
Agreement and prior to the commencement of any activity of Lessee in connection
with the Project. Each policy and certificate shall be subject to approval of
Lessor and shall provide that such Policies shall not .PC subject to material
alteration or cancellation without thirty (30) days prior written notice to
Lessor, which notice shall be delivered by certified mail, return receipt
requested. Should any policy expire or be cancelled prior to termination or
expiration of the Agreement and should Lessee fail to immediately procure other
insurance as specified, Lessor shall have the right, but not the obligation, to
procure such her insurance and charge Lessee therefor, in which event Lessee
shall, immediately upon written demand from Lessor, pay to Lessor as additional
rent pursuant to the Agreement the sum as advanced by Lessor with respect to the
insurance coverage.
3. Nothing contained in this Amendment or in the Agreement shall be
construed to limit the extent of Lessee's responsibility for payment of damages
resulting from its operations pursuant to the Agreement nor shall anything
contained herein be deemed to place any responsibility an Lessor for ensuring
that the insurance required hereunder be sufficient for the operation of Lessee
pursuant to the Agreement.
4. Lessee shall maintain full workman's compensation insurance including
employer's liability at a minimum limit of Five Hundred Thousand Dollars
($500,000), or current limit carried, whichever greater, for all persons whom it
employs in carrying out the work pursuant to the Agreement, including waiver of
subrogation by the insurance carrier with respect to Lessor as specified in
paragraph 8 of this Exhibit. Such insurance shall be in strict accordance with
the requirements of the most current and applicable state worker's compensation
insurance laws in effect from time to time.
5. Lessee shall maintain during the term of this Agreement general public
liability insurance, with coverage limits not less than One Million Dollars
($1,000,000) for bodily injury or death to any one person, injury - and/or death
to any number of persons in any one incident, and for property damage in any one
occurrence in the aggregate insuring against any and all liability of the
insured with respect to the Premises or-arising out of the Agreement. All such
insurance shall name Lessor and its designees as additional insureds All such
insurance shall specifically insure for performance by Lessee of the
28
Exhibit G
Termination Fee* - Promontory View Apartments
The termination fee payable pursuant to Section 11.6 shall be determined as of
the effective date of termination in accordance with the following schedule:
From:
1/1997-12/1997 $200,000
1/1998-12/1998 $200,000
1/1999-12/1999 $160,000
1/2000-12/2000 $120,000
1/2001-12/2001 $80,000
1/2002-12/2002 $40,000
1/2003-12/2003 $10,000
1/2004-12/2004 $10,000
1/2005-12/2005 $10,000
29
Exhibit # 10.07
Employment Agreement - L. Halstead
COMPETITIVE COMMUNICATIONS INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective the 31st day of August 1997 between COMPETITIVE COMMUNICATIONS INC., a
California corporation, having its principal place of business at 11713 Sterling
Avenue, Suite F, Riverside, California (hereinafter "Employer"), and Larry
Halstead whose address is 9859 IH 10 West, #325, San Antonio, Texas 78230,
(hereinafter "Employee").
1.Term.
The Term of Employee's employment hereunder shall be for a five (5)
year period, unless terminated prior thereto in accordance with section 4
hereof, commencing on the date hereof (the "Initial Term"). This Agreement shall
automatically extend for an additional two (2) year term (the "Extension Term"),
provided that neither the Employer nor Employee has elected to terminate this
Agreement effective the end of the Initial Term by giving three (3) months'
prior written notice one to the other. The entire duration of Employee's
employment by Employer is herein called the "Employment Period".
2.Position and Duties.
2.1Position and Duties. Employee agrees to serve as Chief Financial
Officer and to perform the duties set forth in Appendix A attached hereto and
such other duties as the Chief Executive Officer/Chairman of the Board of the
Board of Directors of Employer shall from time to time direct.
2.2Faithful Performance. Employee agrees to serve Employer faithfully
and to the best of his ability, and to devote his attention and efforts to the
business and affairs of Employer. Employee confirms that he is under no
contractual commitments inconsistent with the obligations set forth in this
Agreement, and that while employed hereunder he will not render or perform
services for any other corporation, firm, entity or person inconsistent with
this Agreement without the prior written consent of Employer.
2.3Rules and Regulations. Employee shall at all times strictly adhere
to and obey all of the reasonable rules, regulations, corporate policies,
directions, and restrictions now in effect or as may be subsequently modified or
adopted by Employer governing the conduct of executive employees.
3.Compensation.
3.1Base Salary. For all services to be rendered by Employee under this
Agreement, Employer agrees to pay or cause to be paid to Employee:
(a) $68,000 per year ("Base Salary") prorated commencing on the receipt of
at least $250,000 in funding investment by Employer, and
(b) $115,000 per year ("Base Salary") prorated commencing on the receipt of
at least $1,000,000 in funding investment by Employer.
1
Base Salary shall be payable at the discretion of the Employer either
weekly at 1/52nd of Base or bi-monthly at 1/26th of Base in two equal monthly
payments due on the first and fifteenth day of each month. Nothing in this
provision shall operate to prevent increases in Employee's Base Salary from time
to time as determined by Employer's Board of Directors.
3.2Bonus. In addition to the Base Salary, Employee shall be entitled
to a bonus in any fiscal year in which the pre-tax and pre-contribution ("PTPC")
operating profit of Employer is $1,000,000 or more. The bonus shall be 1 equal
share of the Executive Bonus Pool ("ExBP"). The ExBP shall be equal to 6% of the
PTPC profit in any given fiscal year. The ExBP shall be paid at the same time as
the 6% PTPC Non-executive Employee Bonus Pool and within ten (10) days after the
Employer's accountants have completed the net pre-tax audit and has been
accepted by the Board of Directors.
3.3Additional Benefits. In addition to the Base Salary, Employee shall
be entitled during the Employment Period to receive such Additional Benefits as
may be provided for him or to which he may become entitled because his position,
tenure, salary, age, health or other qualifications make him eligible to
participate. For purposes hereof, "Additional Benefits" means (a) participation
in bonus and incentive compensation plans or pools, stock option, bonus, award
or purchase plans, retirement plans, and other employee benefit plans of
Employer, if any; (b) life, health, medical, dental, accident, and other
personal insurance coverage provided by Employer for employees or their
dependents; (c) directors' and officers' liability insurance coverage provided
by Employer and charter or bylaw provisions or contracts providing for
indemnification of corporate personnel or elimination or limitation of their
liabilities as such; (d) an Employer provided automobile per guidelines approved
by the Board of Directors, (e) use of Employer's property and facilities and
other perquisites of employment with Employer; (f) paid vacation, leave or
holidays; and (f) any and all other compensation, benefits and perquisites of
employment with Employer, if any, other than Base Salary.
3.4Expenses. Employer will pay or reimburse Employee for all
reasonable and necessary out-of-pocket expenses incurred by him in his
performance under this Agreement, subject to the presentation of appropriate
vouchers in accordance with applicable laws and Employer's expense reimbursement
policies and procedures in effect and applicable to management employees.
3.5Location and Relocation Expenses. Employer shall pay for all of
Employee's moving and personal expenses in connection with any Employer required
relocations which occurs after Employee is hired.
4.Termination.
4.1 Termination. The employment of Employee with Employer shall terminate
on the date of the occurrence of any of the following events:
(a) Expiration of the Employment Period hereof;
(b) The death of Employee;
(c) Fifteen (15) days after the date on which Employer shall have given
Employee written notice of the termination of Employee's employment by reason
of permanent physical or mental incapacity that prevents Employee from performing
the essential elements of Employee's position for a period of six consecutive
months or more as determined by a medical professional selected by Employer, in
its sole discretion, and by Employer acting in good faith;
2
(d) Upon five (5) days' written notice to Employee for "cause", which
shall include only the following: intentional misconduct or gross
negligence by Employee in the course of employment; the commission or
perpetration by Employee of any fraud against Employer or any other
party in connection with his employment hereunder; the commission by
Employee of such acts or dishonesty, fraud or misrepresentation or
other acts of moral turpitude as would prevent the effective
performance of his duties; knowingly causing or permitting Employer to
violate any law, which violation shall have a material effect on
Employer; or the failure to perform, breach, or violation by Employee
of any of Employee's material obligations under this Agreement which
continues after fifteen (15) days' written notice has been given to
Employee by Employer specifying the failure to perform, breach, or
violation;
(e) Upon at least sixty (60) days' advance written notice by Employee; or
(f) Upon at least sixty (60) days' advance written notice by Employer based
solely on concurrence of a minimum of 4/5th of the Board of Directors.
4.2Payments of Base Salary, Incentive Bonus, and Additional Benefits.
(a) Upon any termination, (1) Employee (or Employee's estate in the
case of death) shall immediately be paid all accrued Base Salary which
would otherwise be due and payable and accrued vacation pay, all to the
date of termination, (2) benefits accrued under Employer's Employee
benefit plans, if any, will be paid in accordance with such plans, and
(3) bonuses shall be paid at the end of the fiscal year if earned ,
with the amount prorated by the number of days during the fiscal year
Employee was employed. Upon termination, Employee shall not be entitled
to any other payments or benefits except upon the conditions and as set
forth in Section 4.2 (b) of this Agreement.
(b) In the event Employee's employment under this Agreement is
terminated pursuant to Section 4.1(c) or 4.1(f): Employer shall pay
Employee an amount equal the Employee's then Base Salary multiplied by
twenty-four (24) months.
(c) In the event of termination of Employee's employment pursuant to
Section 4.1(c) or 4.1(f), Employer agrees to continue to provide
Employee's medical insurance for a period of twenty four (24) months
following such termination.
4.3Effect of Termination. Notwithstanding any termination in this
Agreement, the covenants and Agreements contained in Sections 4.4, 5, 6, 7, and
8 shall be construed as independent of any other agreements between the parties
and shall survive the termination of the employment of the Employee. The
existence of any claim or cause of action of Employee against Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Employer of such covenants.
4.4Return of Employer's Property. If Employee is terminated either by
expiration of this Agreement, pursuant to Section 4.1, or otherwise, Employee
shall immediately deliver to Employer all originals and copies of notes,
memoranda, writings, lists, files, reports, customer lists, personnel files, and
information, correspondence, tapes, discs, cards, logs, machines, technical
data, credit cards, keys to the premises, or any other tangible product or
documents (individually and collectively known as "Company Proprietary Items")
which Employee produced, received or otherwise had access to while employed.
3
5.Confidentiality.
Employee during employment may have access to or become acquainted with
various confidential information and trade secrets, including, but not limited
to, formulas, technical data, patents, devices, secret inventions, personnel
information, customer lists, processes, and compilations of information,
records, reports, correspondence, tapes, discs, tangible property and
specifications (collectively and inclusively, "Confidential Information"), which
are owned by or licensed to Employer. Employee shall not disclose any of the
aforesaid Confidential Information, directly or indirectly, or use it in any way
either during the Employment Period or at any time thereafter, except as
required in the course of his Employment by Employer. All Confidential
Information of Employer, whether prepared by Employee or otherwise coming into
his possession, shall remain the exclusive property of Employer and shall not be
removed from the premises of Employer in any circumstances whatsoever without
the prior written consent of Employer.
6.Restrictive Covenant.
Non-Competition. Employee hereby agrees that during the term of
Employee's employment with Employer, Employee shall not engage, directly or
indirectly, or be interested (as director, officer employee, partner,
consultant, principal, shareholder, or otherwise) in any firm, corporation, or
other entity in the business of developing, producing, distributing, or selling
any product competitive with the products of Employer in any geographic area in
which Employer engages in such business without the express written consent of
Employer. Ownership by Employee of less than one percent (1%) of the outstanding
voting stock of any competing publicly held corporation shall not constitute a
violation of this Section 6.
7.Injunctive Relief.
Employee agrees that it would be difficult to compensate Employer fully
for damages suffered by Employer through any violation of the provisions of this
Agreement by the Employee including without limitation the provisions of
Sections 5 and 6 above, and Employee agrees that there is not adequate remedy at
law for such violation. Accordingly, Employee specifically agrees that Employer
shall be entitled to temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision shall not in any way
whatsoever diminish the right of Employer to claim and recover damages in
addition to injunctive relief.
8.Inventions.
8.1Inventions. Employee agrees to promptly disclose and assign to
Employer, exclusively, all of his rights and interest in any inventions,
discoveries, improvements, designs, practices, processes, formulae, techniques,
know-how and methods (hereinafter collectively referred to as " Inventions"),
that are in any way related to the services provided by Employee during the term
of his employment with Employer or to the services provided under this
Agreement, or to any other work or project of Employer that Employee may either
become aware of or be assigned to work on by Employer, which he, individually or
jointly, shall make, originate, conceive of or reduce to practice during the
term of his employment with Employer or the term of his relationship with
Employer under this Agreement whether made on or off of the premises of
Employer; and he shall, during and after the term of his employment and the term
4
of this Agreement, assist Employer to obtain, for its own benefit, patents on
such Inventions to remain the property of Employer whether or not patented.
8.2Trailer Period. Employee expressly agrees that any Inventions which
are disclosed or offered to third parties, published or implemented by Employee
or declared in a patent application filed by Employee or by any entity
associated with Employee within one (1) year following termination of Employee's
employment shall be deemed to be originated or made during Employee's employment
with Employer and subject to Section 8.1 hereof, unless Employee can prove by a
preponderance of the evidence to the contrary.
9.Miscellaneous.
9.1Choice of Laws, Jurisdiction, Venue. This Agreement is being
delivered in the State of California and shall be construed in accordance with
and governed by the laws of such state, without regard to principles of
conflicts of laws. Venue for all proceedings in any way relating to this
Agreement, including without limitation, proceedings conducted under Section 9.5
hereof, shall lie in Riverside County, California.
9.2Other Agreements. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have not made agreements, representations or warranties relating
to the subject matter of this Agreement which are not set forth herein. No
amendment or modification of this Agreement shall be deemed effective unless
made in writing signed by the parties hereto.
9.3Successors. This Agreement shall extend to and be binding upon
Employee, his legal representatives, heirs and distributees, and upon Employer,
its successors and assigns; provided, however, that Employee may not delegate
any of Employee's duties under this Agreement. For the purposes of this
Agreement, unless the context otherwise requires, references to Employer shall
include Employer's subsidiaries and affiliated persons.
9.4No Waiver. Forbearance or failure to pursue any legal remedy or
right upon default or breach hereof shall not constitute waiver of such right,
nor shall any such forbearance, failure or actual waiver imply or constitute
waiver of any subsequent default or breach. No term or condition of this
Agreement shall be deemed to have been waived, nor shall there be any estoppel
to enforce any provision of this Agreement, except by a statement in writing
signed by the party against whom enforcement of the waiver or estoppel is
sought.
9.5Arbitration. All disputes arising under or relating to this
Agreement or its breach other than actions for injunctive relief shall be
submitted to binding arbitration under the Commercial Arbitration Rules of the
American Arbitration Association. Any award of the arbitrator(s) shall be final
and binding on the parties hereto and judgment on such award may be entered in
any court of competent jurisdiction.
9.6Attorneys' Fees. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to reimbursement of reasonable
attorneys' fees and costs.
9.7Notices. Any notice with respect to this Agreement shall be deemed
to have been duly served on the party entitled to notice if that notice has been
served at the address provided in this Agreement or such other address as may be
5
provided from time to time and shall be deemed duly given or made if delivered
or deposited in the United States mail as first class mail, postage prepaid.
9.8Headings. Headings used in this Agreement are used for convenience
only and do not constitute substantive matters to be considered in constructing
the terms of this Agreement.
9.9Severability. In case any one or more of the provisions of this
Agreement shall, for any reason, be held invalid, illegal, or unenforceable in
any respect, any other provisions in this Agreement shall be construed as if
such invalid, illegal, or unenforceable provisions had never been contained
herein. Such provisions shall be given effect to the maximum extent permitted by
law.
9.10Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.11Amendments. This Agreement may not be altered, modified or amended
except pursuant to a written instrument executed by all parties hereto.
9.12Construction of Agreement. The parties hereto acknowledge and
agree that neither this Agreement nor any of the other documents executed in
connection herewith shall be construed more favorably in favor of one than the
other based upon which party drafted the same, it being acknowledged that all
parties hereto contributed substantially to the negotiation and preparation of
this Agreement and the documents executed in connection herewith.
9.13No Third Party Beneficiaries. Except as otherwise expressly set
forth in this Agreement, no person or entity not a party to this Agreement shall
have rights under this Agreement as a third party beneficiary or otherwise.
IN WITNESS WHEREOF, the parties hereby have duly executed this Agreement
effective as of the day and year above first written.
"EMPLOYEE" COMPETITIVE COMMUNICATIONS INC.
By:_______________________ By:_________________________
Larry Halstead David Kline
Chief Executive Officer
6
APPENDIX A
DUTIES OF CHIEF FINANCIAL OFFICER
Reporting to the Chairman and Chief Executive Officer, directs,
administers and coordinates the activities of personnel assigned to him in
accordance with policies, goals and objectives established by the Chairman and
Chief Executive Officer and the Board of Directors. Keeps and maintains, or
causes to be kept and maintained in accordance with generally accepted
accounting principles, adequate and correct accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, earnings (or
surplus) and shares. Deposits all moneys and other valuables in the name and to
the credit of the corporation with such depositories as may be designated by the
Board of Directors. Disburses the funds of the corporation as may be ordered by
the Board of Directors. Renders to the President and Directors, whenever they
request it, an account of all of the transactions and the financial conditions
of the corporation.
Assists the Chairman and Chief Executive Officer and President in the
development of corporate policies and goals that cover company operations,
personnel, financial performance and growth. May perform duties of the President
on his absence and of Chairman and Chief Executive Officer in his absence and
the absence of the President.
Directs the activities of personnel assigned to him to include: the Chief
Administrative Officer and Chief Marketing Officer. Guides and directs the
members of management in the promotion, and sale of the corporation's products
and services throughout the world.
Directs his portion of corporate operations to achieve budgeted profit
results and other financial criteria and preserve the capital funds invested in
the enterprise.
Serves as an equal voting member of the Board of Directors. Executes
bonds, mortgages and other contracts requiring a seal, 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. He shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or the By-Laws.
At the discretion of the Board of Directors, may also serves as
corporate Secretary. As Secretary he shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, at the time and place
of holding, whether regular or special, and if special, how authorized, the
notice thereof given, the names of those present at Shareholders' meetings and
the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the Shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the Shareholders and of the Board of Directors required by the
By-Laws or by law to be given, and he shall keep the seal of the corporation in
7
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the By-Laws.
8
Exhibit # 10.09
Employment Agreement - David Kline, Jr.
COMPETITIVE COMMUNICATIONS INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective the 8th day of April 1996 between COMPETITIVE COMMUNICATIONS INC., a
California corporation, having its principal place of business at 11713 Sterling
Avenue, Suite F, Riverside, California (hereinafter "Employer"), and David Kline
II whose address is 23820 Aetna, Woodland Hills, California 91367, (hereinafter
"Employee").
1.Term.
The Term of Employee's employment hereunder shall be for a five (5)
year period, unless terminated prior thereto in accordance with section 4
hereof, commencing on the date hereof (the "Initial Term"). This Agreement shall
automatically extend for an additional two (2) year term (the "Extension Term"),
provided that neither the Employer nor Employee has elected to terminate this
Agreement effective the end of the Initial Term by giving three (3) months'
prior written notice one to the other. The entire duration of Employee's
employment by Employer is herein called the "Employment Period".
2.Position and Duties.
2.1Position and Duties. Employee agrees to serve as President and
Chief Operating Officer and to perform the duties set forth in Appendix A
attached hereto and such other duties as the Chief Executive Officer/Chairman of
the Board of the Board of Directors of Employer shall from time to time direct.
2.2Faithful Performance. Employee agrees to serve Employer faithfully
and to the best of his ability, and to devote his attention and efforts to the
business and affairs of Employer. Employee confirms that he is under no
contractual commitments inconsistent with the obligations set forth in this
Agreement, and that while employed hereunder he will not render or perform
services for any other corporation, firm, entity or person inconsistent with
this Agreement without the prior written consent of Employer.
2.3Rules and Regulations. Employee shall at all times strictly adhere
to and obey all of the reasonable rules, regulations, corporate policies,
directions, and restrictions now in effect or as may be subsequently modified or
adopted by Employer governing the conduct of executive employees.
3.Compensation.
3.1Base Salary. For all services to be rendered by Employee under this
Agreement, Employer agrees to pay or cause to be paid to Employee:
(a) $76,600 per year ("Base Salary") prorated from date first written
above until the Employer receives at least $1,000,000 in funding investment.
During such period, all amounts not paid, shall be accrued and paid within
fourteen (14) days of receipt of such funding by Employer;
(b) $130,000 per year ("Base Salary") prorated commencing on the receipt
of at least $1,000,000 in funding investment by Employer.
1
Base Salary shall be payable at the discretion of the Employer either
weekly at 1/52nd of Base or bi-monthly at 1/26th of Base in two equal monthly
payments due on the first and fifteenth day of each month. Nothing in this
provision shall operate to prevent increases in Employee's Base Salary from time
to time as determined by Employer's Board of Directors.
3.2Bonus. In addition to the Base Salary, Employee shall be entitled
to a bonus in any fiscal year in which the pre-tax and pre-contribution ("PTPC")
operating profit of Employer is $1,000,000 or more. The bonus shall be 1 equal
share of the Executive Bonus Pool ("ExBP"). The ExBP shall be equal to 6% of the
PTPC profit in any given fiscal year. The ExBP shall be paid at the same time as
the 6% PTPC Non-executive Employee Bonus Pool and within ten (10) days after the
Employer's accountants have completed the net pre-tax audit and has been
accepted by the Board of Directors.
3.3Additional Benefits. In addition to the Base Salary, Employee shall
be entitled during the Employment Period to receive such Additional Benefits as
may be provided for him or to which he may become entitled because his position,
tenure, salary, age, health or other qualifications make him eligible to
participate. For purposes hereof, "Additional Benefits" means (a) participation
in bonus and incentive compensation plans or pools, stock option, bonus, award
or purchase plans, retirement plans, and other employee benefit plans of
Employer, if any; (b) life, health, medical, dental, accident, and other
personal insurance coverage provided by Employer for employees or their
dependents; (c) directors' and officers' liability insurance coverage provided
by Employer and charter or bylaw provisions or contracts providing for
indemnification of corporate personnel or elimination or limitation of their
liabilities as such; (d) an Employer provided automobile per guidelines approved
by the Board of Directors, (e) use of Employer's property and facilities and
other perquisites of employment with Employer; (f) paid vacation, leave or
holidays; and (f) any and all other compensation, benefits and perquisites of
employment with Employer, if any, other than Base Salary.
3.4Expenses. Employer will pay or reimburse Employee for all reasonable
and necessary out-of-pocket expenses incurred by him in his performance under this
Agreement, subject to the presentation of appropriate vouchers in accordance with
applicable laws and Employer's expense reimbursement policies and procedures in
effect and applicable to management employees.
3.5Location and Relocation Expenses. Employer shall pay for all of
Employee's moving and personal expenses in connection with any Employer required
relocations which occurs after Employee is hired.
4.Termination.
4.1Termination. The employment of Employee with Employer shall terminate
on the date of the occurrence of any of the following events:
(a) Expiration of the Employment Period hereof;
(b) The death of Employee;
(c) Fifteen (15) days after the date on which Employer shall have given
Employee written notice of the termination of Employee's employment by
reason of permanent physical or mental incapacity that prevents
Employee from performing the essential elements of Employee's position
for a period of six consecutive months or more as determined by a
2
medical professional selected by Employer, in its sole discretion, and
by Employer acting in good faith;
(d) Upon five (5) days' written notice to Employee for "cause", which
shall include only the following: intentional misconduct or gross
negligence by Employee in the course of employment; the commission or
perpetration by Employee of any fraud against Employer or any other
party in connection with his employment hereunder; the commission by
Employee of such acts or dishonesty, fraud or misrepresentation or
other acts of moral turpitude as would prevent the effective
performance of his duties; knowingly causing or permitting Employer to
violate any law, which violation shall have a material effect on
Employer; or the failure to perform, breach, or violation by Employee
of any of Employee's material obligations under this Agreement which
continues after fifteen (15) days' written notice has been given to
Employee by Employer specifying the failure to perform, breach, or
violation;
(e) Upon at least sixty (60) days' advance written notice by Employee; or
(f) Upon at least sixty (60) days' advance written notice by Employer based
solely on concurrence of a minimum of 4/5th of the Board of Directors.
4.2Payments of Base Salary, Incentive Bonus, and Additional Benefits.
(a) Upon any termination, (1) Employee (or Employee's estate in the
case of death) shall immediately be paid all accrued Base Salary which
would otherwise be due and payable and accrued vacation pay, all to the
date of termination, (2) benefits accrued under Employer's Employee
benefit plans, if any, will be paid in accordance with such plans, and
(3) bonuses shall be paid at the end of the fiscal year if earned ,
with the amount prorated by the number of days during the fiscal year
Employee was employed. Upon termination, Employee shall not be entitled
to any other payments or benefits except upon the conditions and as set
forth in Section 4.2 (b) of this Agreement.
(b) In the event Employee's employment under this Agreement is
terminated pursuant to Section 4.1(c) or 4.1(f): Employer shall pay
Employee an amount equal the Employee's then Base Salary multiplied by
twenty-four (24) months.
(c) In the event of termination of Employee's employment pursuant to
Section 4.1(c) or 4.1(f), Employer agrees to continue to provide
Employee's medical insurance for a period of twenty four (24) months
following such termination.
4.3Effect of Termination. Notwithstanding any termination in this
Agreement, the covenants and Agreements contained in Sections 4.4, 5, 6, 7, and
8 shall be construed as independent of any other agreements between the parties
and shall survive the termination of the employment of the Employee. The
existence of any claim or cause of action of Employee against Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Employer of such covenants.
4.4Return of Employer's Property. If Employee is terminated either by
expiration of this Agreement, pursuant to Section 4.1, or otherwise, Employee
shall immediately deliver to Employer all originals and copies of notes,
memoranda, writings, lists, files, reports, customer lists, personnel files, and
information, correspondence, tapes, discs, cards, logs, machines, technical
data, credit cards, keys to the premises, or any other tangible product or
documents (individually and collectively known as "Company Proprietary Items")
3
which Employee produced, received or otherwise had access to while employed.
5.Confidentiality.
Employee during employment may have access to or become acquainted with
various confidential information and trade secrets, including, but not limited
to, formulas, technical data, patents, devices, secret inventions, personnel
information, customer lists, processes, and compilations of information,
records, reports, correspondence, tapes, discs, tangible property and
specifications (collectively and inclusively, "Confidential Information"), which
are owned by or licensed to Employer. Employee shall not disclose any of the
aforesaid Confidential Information, directly or indirectly, or use it in any way
either during the Employment Period or at any time thereafter, except as
required in the course of his Employment by Employer. All Confidential
Information of Employer, whether prepared by Employee or otherwise coming into
his possession, shall remain the exclusive property of Employer and shall not be
removed from the premises of Employer in any circumstances whatsoever without
the prior written consent of Employer.
6.Restrictive Covenant.
Non-Competition. Employee hereby agrees that during the term of
Employee's employment with Employer, Employee shall not engage, directly or
indirectly, or be interested (as director, officer employee, partner,
consultant, principal, shareholder, or otherwise) in any firm, corporation, or
other entity in the business of developing, producing, distributing, or selling
any product competitive with the products of Employer in any geographic area in
which Employer engages in such business without the express written consent of
Employer. Ownership by Employee of less than one percent (1%) of the outstanding
voting stock of any competing publicly held corporation shall not constitute a
violation of this Section 6.
7.Injunctive Relief.
Employee agrees that it would be difficult to compensate Employer fully
for damages suffered by Employer through any violation of the provisions of this
Agreement by the Employee including without limitation the provisions of
Sections 5 and 6 above, and Employee agrees that there is not adequate remedy at
law for such violation. Accordingly, Employee specifically agrees that Employer
shall be entitled to temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision shall not in any way
whatsoever diminish the right of Employer to claim and recover damages in
addition to injunctive relief.
8.Inventions.
8.1Inventions. Employee agrees to promptly disclose and assign to
Employer, exclusively, all of his rights and interest in any inventions,
discoveries, improvements, designs, practices, processes, formulae, techniques,
know-how and methods (hereinafter collectively referred to as " Inventions"),
that are in any way related to the services provided by Employee during the term
of his employment with Employer or to the services provided under this
Agreement, or to any other work or project of Employer that Employee may either
become aware of or be assigned to work on by Employer, which he, individually or
jointly, shall make, originate, conceive of or reduce to practice during the
term of his employment with Employer or the term of his relationship with
Employer under this Agreement whether made on or off of the premises of
Employer; and he shall, during and after the term of his employment and the term
4
of this Agreement, assist Employer to obtain, for its own benefit, patents on
such Inventions to remain the property of Employer whether or not patented.
8.2Trailer Period. Employee expressly agrees that any Inventions which
are disclosed or offered to third parties, published or implemented by Employee
or declared in a patent application filed by Employee or by any entity
associated with Employee within one (1) year following termination of Employee's
employment shall be deemed to be originated or made during Employee's employment
with Employer and subject to Section 8.1 hereof, unless Employee can prove by a
preponderance of the evidence to the contrary.
9.Miscellaneous.
9.1Choice of Laws, Jurisdiction, Venue. This Agreement is being
delivered in the State of California and shall be construed in accordance with
and governed by the laws of such state, without regard to principles of
conflicts of laws. Venue for all proceedings in any way relating to this
Agreement, including without limitation, proceedings conducted under Section 9.5
hereof, shall lie in Riverside County, California.
9.2Other Agreements. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have not made agreements, representations or warranties relating
to the subject matter of this Agreement which are not set forth herein. No
amendment or modification of this Agreement shall be deemed effective unless
made in writing signed by the parties hereto.
9.3Successors. This Agreement shall extend to and be binding upon
Employee, his legal representatives, heirs and distributees, and upon Employer,
its successors and assigns; provided, however, that Employee may not delegate
any of Employee's duties under this Agreement. For the purposes of this
Agreement, unless the context otherwise requires, references to Employer shall
include Employer's subsidiaries and affiliated persons.
9.4No Waiver. Forbearance or failure to pursue any legal remedy or
right upon default or breach hereof shall not constitute waiver of such right,
nor shall any such forbearance, failure or actual waiver imply or constitute
waiver of any subsequent default or breach. No term or condition of this
Agreement shall be deemed to have been waived, nor shall there be any estoppel
to enforce any provision of this Agreement, except by a statement in writing
signed by the party against whom enforcement of the waiver or estoppel is
sought.
9.5Arbitration. All disputes arising under or relating to this
Agreement or its breach other than actions for injunctive relief shall be
submitted to binding arbitration under the Commercial Arbitration Rules of the
American Arbitration Association. Any award of the arbitrator(s) shall be final
and binding on the parties hereto and judgment on such award may be entered in
any court of competent jurisdiction.
9.6Attorneys' Fees. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to reimbursement of reasonable
attorneys' fees and costs.
9.7Notices. Any notice with respect to this Agreement shall be deemed
to have been duly served on the party entitled to notice if that notice has been
served at the address provided in this Agreement or such other address as may be
5
provided from time to time and shall be deemed duly given or made if delivered
or deposited in the United States mail as first class mail, postage prepaid.
9.8Headings. Headings used in this Agreement are used for convenience
only and do not constitute substantive matters to be considered in constructing
the terms of this Agreement.
9.9Severability. In case any one or more of the provisions of this
Agreement shall, for any reason, be held invalid, illegal, or unenforceable in
any respect, any other provisions in this Agreement shall be construed as if
such invalid, illegal, or unenforceable provisions had never been contained
herein. Such provisions shall be given effect to the maximum extent permitted by
law.
9.10Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.11Amendments. This Agreement may not be altered, modified or amended
except pursuant to a written instrument executed by all parties hereto.
9.12Construction of Agreement. The parties hereto acknowledge and
agree that neither this Agreement nor any of the other documents executed in
connection herewith shall be construed more favorably in favor of one than the
other based upon which party drafted the same, it being acknowledged that all
parties hereto contributed substantially to the negotiation and preparation of
this Agreement and the documents executed in connection herewith.
9.13No Third Party Beneficiaries. Except as otherwise expressly set
forth in this Agreement, no person or entity not a party to this Agreement shall
have rights under this Agreement as a third party beneficiary or otherwise.
IN WITNESS WHEREOF, the parties hereby have duly executed this Agreement
effective as of the day and year above first written.
"EMPLOYEE" COMPETITIVE COMMUNICATIONS INC.
By:_______________________ By:_________________________
David Kline II David Kline
Chief Executive Officer
6
APPENDIX A
DUTIES OF PRESIDENT AND CHIEF OPERATING OFFICER
Reporting to the Chairman and Chief Executive Officer, the President
shall be the Chief Operating Officer of the corporation and have direct
management and supervision, direction and control of the business and Officers
and personnel of the corporation assigned to him in accordance with policies,
goals and objectives established by the Chairman and Chief Executive Officer and
the Board of Directors. He shall preside at all meetings of the Shareholders and
in the absence of the Chairman of the Board/Chief Executive Officer, or if there
be none, at all meetings of the Board of Directors. He shall be ex officio a
member of all the standing committees, including the Executive Committee, if
any, and shall have the general powers and duties of management usually vested
in the office of President of a corporation, and shall have such other powers
and duties as may be prescribed by the Board of Directors or the By-Laws.
Assists the Chairman and Chief Executive Officer in the development of
corporate policies and goals that cover company operations, personnel, financial
performance and growth. May perform duties of the Chairman and Chief Executive
Officer in his absence.
Directs the activities of Vice President(s) and personnel assigned to him
to include: Chief Technical Manager, and Facility Operations Manager.
Guides and directs the members of management in the development and production
of the corporation's products and services throughout the world.
Directs corporate operations to achieve budgeted profit results and other
financial criteria and preserve the capital funds invested in the enterprise.
Serves as an equal voting member of the Board of Directors. Executes
bonds, mortgages and other contracts requiring a seal, 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.
7
Agreement with LCI Quest
LCI INTERNATIONAL Simply Guaranteed Plus SM
Competitive Promotion
Monthly Commitment and Term Agreement - PROMOTIONAL
$100 $250 $500 $1000 $2000 $4000 $7000 $20,000 $35,000 $50,000 $75,000 $100,000
X
LCI OFFICE USE ONLY
M-M 800010 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
1 YR 810010 810021 810101 810202 810420 810702 811202 812003 813605 815003 817503 819993
2 YR 820010 820021 820101 820202 820402 820702 821202 822003 823605 825003 827503 829993
3 YR x 830010 830021 830101 830202 830402 830702 831202 832003 833605 835003 837503 839993
DEFINITIONS: "you", "your", and "Customer" refers to the name of the company or
entity on whose behalf this Agreement is being executed. "LCI" refers to LCI
International Telecom Corp. "Effective Date" is the date this Agreement
executed.
TARIFF CONSIDERATIONS: LCI will provide to you and you will receive from LCI,
interstate and international telecommunications service(s) provided pursuant to
LCI Tariffs FCC No 1 and 2, and any other applicable interstate and
international tariff of LCI and its affiliate. Interstate telecommunication
services are provided pursuant to LCI's applicable state tariffs governing such
services. This Agreement is subject to and incorporates by reference the terms
of each such tariff. LCI may modify its tariffs from time to time in accordance
with law, which modifications may effect service(s) licenses to you. In order to
receive LCI Access SM Service you must sign an addendum to this Agreement.
MONTHLY COMMITMENT: Customer hereby agrees to the minimum monthly usage
commitment ("Monthly Commitment") described above. During any month of the Term
specified above that your total usage of LCI Simply Guaranteed Plus SM Service
falls below the Monthly Commitment, you shall pay for each such month the actual
amount billed for that service plus the difference between the amount and the
Monthly Commitment. LCI with count Customer's total LCI Simply Guaranteed Plus
SM Services charges based on the applicable tariffed rates associated with the
Monthly Commitment uniform above less taxes, international; data services,
Monthly Recurring Charges (exclusive of LCI Access MRCs), and non-recurring
charges to determine whether you satisfy the Monthly Commitment requirement
designated above.
THE GUARANTEES: In consideration of Customer's commitment to use LCI Simply
Guaranteed Plus SM Service at the usage agreed for the Term specified above. LCI
agrees to provide LCI Simply Guaranteed Plus SM switched and dedicated serviced
for the duration of this Agreement at the LCI tariffed rates in effect at the
time this Agreement is executed by Customer. This guarantee does not apply to
changes or surcharges mandated by any state of federal regulatory entity.
TERMINATION: Either Customer of LCI may terminate this Agreement at the end of
the initial Term by providing not less than thirty- (30) days written notice.
Customer's notice of termination must be sent to, LCI International Telecom
Corp., Cancellation notification Department 0270/1021, 4650 Lakehurst Court,
Dublin, OH 43018. If written notification is not submitted to LCI at least
thirty (30) days prior to expiration of this Agreement and LCI has not given
notice of termination to Customer, this Agreement shall automatically renew at
the same Monthly Commitment level and Term and at the tariffed rates and/or
published rates in effect at the time of such renewal. LCI is providing services
pursuant to the LCI and if the Customer terminated early, it will be subject to
the early termination charges stated in the tariff.
MISCELLANOUS: Customer may not assign this Agreement or any of its rights
or obligations hereunder without the prior written consent of LCI.
This Agreement together with the LCI tariffs constitutes the entire agreement
between the parties and supersedes and prior or contemporaneous proposes,
discussions, or agreements, whether verbal or written, concerning LCI Simply
Guaranteed Plus SM. All amendments to this Agreement must be in writing and
signed by both parties.
AGREED TO AND ACCEPTED
Exhibit # 10.11
Agreement with Inet
CARRIER SERVICES AGREEMENT
This agreement ("Agreement") entered into this 25h day of June, 1999,
by and between INET Interactive Network System, Inc. ("INET"), a California
corporation with principal offices located at 1640 S. Sepulveda Blvd., Suite
320, Los Angeles, California 90025, and Competitive Communications, Inc.,
("Client') whose address is 11731 Sterling Ave., Suite F, Riverside, CA 92503.
This Agreement must be signed by the Client and returned to MET within fifteen
(15) days for INET execution.
Client represents and warrants that all financial information relating
Client has been or will be provided to INET by Client on or before the date of
this Agreement or at the time thereafter is or shall be true and accurate in all
material respects. Client acknowledges that the effectiveness of this Agreement
shall be contingent upon approval of Client's credit application.
1. SERVICE AND POP
A. INET agrees to provide, and Client agrees to purchase, switched termination
services or long distance telecommunications traffic ("Services"), subject
to the terms and conditions set form herein. Client shall comply with the
requirements of the Federal Communications Commission and any and all
local, state or federal governmental agencies having jurisdiction over the
provision of Services.
B. The Point of Presence "(POT) for the Client to access "Services" is at:
1). One Wilshire Building, 624 S. Grand Avenue, 11th Floor, Los Angeles,
CA 90017
2). Telehouse, 25 Broadway, 5th Floor, New York, NY 10004
2. TERMS AND CHARGES
A. the term of this Agreement is twelve (12) months commencing on the "Service
commencement Date", described in Exhibit (A) attached hereto. At the
expiration of the initial term, the Agreement shall continue on a month to
month basis unless terminated by either party. Termination can occur at the
expiration of the initial term or any other time thereafter on thirty(30)
days written notice.
B. the Client will be billed for the traffic volume on the basis of the
pricing outlined in Exhibit (B) attached hereto, or as hereafter modified
and accepted by INET and the Client. During the term of this Agreement, the
Client's per minute rate and applicable traffic volume and other charges
for Service provided should be as detailed in Exhibit (A), attached hereto,
or as hereafter modified and accepted by [NET and the Client.
C. INET will provide to Client monthly statements showing call termination
charges and other charges, if any, owed by Client for Services provided.
All Calls, other than calls to Mexico, will be billed with a thirty second
minimum and thereafter in six-second increments rounded to the next highest
one-tenth of a minute per call record. Calls to Mexico are billed in
one-minute increments.
D. Minimum Monthly Volume: During the term of this Agreement, commencing
on the Service Commencement Date, Client's monthly minimum of billable
minute volume shall be as per Exhibit (A), attached hereto, or as
hereafter modified and accepted by [NET and the Client.
3. PAYMENT AND BILLING
1
A. INET shall invoice all Service -charges provided for each week during the
term of this Agreement. INET will provide Client weekly, via Facsimile,
with an invoice for Services provided during the previous week. The invoice
amount shall be due and payable to INET in U.S. funds within seven (7) days
of receipt of invoice. INET will send Client at the end of each week a
statement that reflects a complete week. Client payments shall be made by
Cashiers or Company check to:
INET
Attn: Claude Socroun
1640 S. Sepulveda Blvd., Suite 320
Los Angeles, CA 90025
A late charge in the amount of one and one-half percent (I 1/2%) per
month shall apply for all past due amounts.
B. any requests by Client for billing adjustments, must be made in writing,
with detail substantiating said request within thirty- (30) days of the
invoice date. Request for billing adjustments shall not be cause for delay
in the payment of the non-contested amount of any invoice. Client* agrees
to pay full amount of non-contested invoice by due date. Amounts determined
by INET to be in error will be credited on the following invoice.
C. Any applicable federal, state or local use, excise, sales or privilege
taxes, duties or similar liabilities, chargeable to or against INET because
of the Services provided to Client, shall be charged to Client and is
payable to INET in addition to the regular charges under this Agreement
unless Client provides INET with applicable tax exemption documentation.
Client is solely liable for and hereby indemnifies and holds INET harmless
from filing all applications, forms, reports, returns, statements, and
other documents and information with and payment of all taxes and/or
assessments to all local, county, state, federal and other taxing
authorities having jurisdiction with respect to any and all charges to
Client's customers for the Services, including without limitation, any
governmental agency or authority in any foreign country.
D. INET agrees to review item A. above after ninety (90) days. If Client has
paid as specified in item A above, during such period then payment terms
shall be extended to (30) days of receipt of written monthly invoice or be
cycle billed.
4. SUSPENSION OR TERMINATION OF SERVICE
If non-contested payment is not made by Client and/or not received by INET on or
before the due date of any given invoice, INET, shall issue a notice to Client,
via facsimile, to immediately correct (cure) the problem of non-payment. If said
payment problem is not corrected (cured) to WET satisfaction within twenty-four
business days from the date of said notice, INET shall have the right to suspend
"Services" to Client (either completely or only with respect to any affected
Services, as INET may at its option elect) until such time as Client has paid
all charges, including any interest as specified herein. Further, the Services
provided to Client are subject to the condition that it may not be used for any
unlawful purpose or in any improper manner, and may be terminated or suspended
by INET without notice, at INETs option, if prohibited use occurs.
Further, if payment problems are not corrected within the timeframe described
above, INET may at its sole option do any of the following:
2
a. Cease accepting or processing orders for the services.
b. Cease all electronically generated information
c. Draw upon any letter or credit, security deposit or other assurance of
payment provided by Client
c. Enforce any security interest granted by Client to INET.
e. Terminate this agreement without liability to INET.
f. Contact the end user directly to inform them that their telecommunications
service will no longer be provided through the client, but may be continued
through INET directly.
g. Bill and collect from the End-Users directly (or through its billing agents)
for services
h. Treat the End-Users as INET customers for all purposes.
i. Pursue such other remedy or relief as may be appropriate.
5. QUALITY AND AVAILABILITY
INET will use reasonable efforts under the circumstances to maintain
overall network quality. The quality and reliability of Services provided
hereunder shall be consistent with other common carrier industry standards,
government regulations and sound business practices. INET MAKES NO OTHER
WARRANTIES ABOUT THE SERVICE PROVIDED, EXPRESS OR IMPLIED. Should INET fail to
maintain industry standards including but not limited to service "up times" at
each of clients' locations then client may terminate this agreement within seven
(7) days or more (at client's discretion) of written notification of INET.
6. EXCHANGE OF INFORMATION
INET and Client shall mark as confidential all information provided by
each party to the other, which is considered by the disclosing party to be
confidential information. The party receiving such confidential information
shall not (i) use any portion of such confidential information other than in
connection with performance under this Agreement, or (ii) disclose such
confidential information to any third party, except to the extent required by
law, to a government agency or department or to enforce its rights under this
Agreement. The obligation to protect such confidential information shall remain
in effect except to the extent that (1) such confidential information becomes
generally available to the public, (ii) such confidential information becomes
generally available to the public, (ii) such confidential information was
developed by the receiving party independently of the disclosures hereunder, or
(iii) such confidential information was previously know to the receiving party
7. LIMITATION OF LIABILITY
INET liability and Client's sole and exclusive remedy, arising from delays in
installation, commencement or restoration of Service to be provided under this
Agreement OR out of mistakes., omissions, interruptions, delays, errors or
defects in transmission in the provision of Service provided hereunder OR any
breach of this Agreement, shall in no event exceed the charges paid by Client
for the period time during which such mistakes, errors, interruptions, described
above, occurred. Client has the right to cancel this Agreement without liability
to either party.
IN NO EVENT SHALL INET BE LIABLE TO THE CLIENT OR ANY OTHER PERSON, FIRM OR
ENTITY IN ANY RESPECT, INCLUDING, WITHOUT LIMITATION, FOR ANY DAMAGES, EITHER
DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL, ACTUAL, PUNITIVE OR ANY
OTHER DAMAGES, OR FOR ANY LOST PROFITS OF ANY
3
KIND OR NATURE WHATSOVER, ARISING OUT OF MISTAKES, ACCIDENTS, ERRORS, OMISSIONS,
INTERRUPTIONS, DELAYS, OR DEFECTS IN TRANSMISSION OR DELAYS, INCLUDING THOSE
WHICH MAY BE CAUSED BY REGULATORY OR JUDICIAL AUTHORITIES, ARISING OUT OF OR
RELATING TO THE AGREEMENT OR THE OBLIGATIONS OF SUPPLIER PURSUANT TO TIES
AGREEMENT. INET MAKES NO WARRANTY, WHETHER EXPRESSED IMPLIED, OR STATUTORY, AS
TO THE DESCRIPTION, QUALITY, MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY
PURPOSE OF THE SERVICE OF THE LOCAL ACCESS, OR AS TO ANY OTHER MATTER, ALL OF
WHICH WARRANTIES BY INET ARE HEREBY EXCLUDED AND DISCLAIMED.
Fraudulent Calls. INET shall not be liable for any fraudulent calls processed by
INET and billed to Client's account. INET shall notify Client promptly of any
fraudulent calling of which INET has actual knowledge, it being understood that
INET is under no obligation to investigate the authenticity of calls charged to
Client's account. INET will assist customer in the resolution of fraudulent
calls and the blocking of these calls as necessary.
8. FORCE MAJEURE
INET and its Representatives are not liable for any loss or damage whatever
caused by delays, failures of performance, damage, destruction, or malfunction
of switching equipment, or any loss or damage occasioned by fire, the elements,
labor disputes, shortages, utility curtailments, power failures, explosions,
civil cable cuts, acts of God, government requisition, changes in government
regulation, acts or omissions of third parties or any other cause beyond INETs
reasonable control.
9. BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided however, Client
shall not assign or transfer its rights or obligations under this Agreement
without the prior written consent of INET which shall not be unreasonably
withheld.
4
10. GOVERNING LAW, JURISDICTION, AND ATTORNEY'S FEES
A. Validity. If any provision of this Agreement is determined by a court or
other government authority to be invalid, illegal or unenforceable, such
invalidity, illegality or enforceability shall not affect the validity,
legality or enforceability of any other provision of this Agreement.
Further, the provision that is determined to be invalid, illegal or
unenforceable shall be reformed and construed to the extent permitted by
law so that it will be valid, legal and enforceable to the maximum extent
possible. Further, nothing in this Agreement shall be deemed to create a
partnership, joint venture or any relationship other than a vendor-Client
relationship.
B. Governing Law and Expedited Dispute Resolution. This Agreement shall be
governed and construed in accordance with the laws of the State of
California without regard to choice of law principles. Any dispute arising
out of or related to this Agreement, which cannot be resolved by
negotiation, shall be settled by binding arbitration through the American
Arbitration Association ("AAA") in accordance with the J.A.M.S./ENDISPUTE
Arbitration Rules and procedures ("Endispute Rules"), as amended by this
Agreement. 'Me costs of arbitration, including the fee of the arbitrator,
shall be shared equally by the Parties unless the arbitration award
provides otherwise. Each Party shall bear the cost of preparing and
presenting its case. The Parties agree that this provision and the
arbitrator's authority to grant relief shall be subject to the United
States Arbitration Act. 9 U.S.C. 116 et seq. ("USAA"), the provisions of
this Agreement, and the ABA AAA Code of Ethics for Arbitrators in
Commercial Disputes. The Parties agree the arbitrator shall have no power
or authority to make awards or issue orders of any kind except as expressly
permitted by this Agreement, and in no event shall the arbitrator have the
authority to make any award that provides for punitive or exemplary
damages. The arbitrator's decision shall follow the plain meaning of the
relevant documents, and shall be final and binding. The award may be
confirmed and enforced in any court of competent jurisdiction. All post
award proceedings shall be governed by the USAA. Any such arbitration or
enforcement shall take. place in California, or such other place mutually
agreed by the parities, or through the federal or state courts located
therein.
C. Indemnification. Both parties agree to defend, hold harmless and indemnify
each other from and against all claims, demands, actions, causes of action,
judgments, costs, attorney's fees and expenses of any kind or nature for
bodily injury, death, property damage, goodwill, or other damages oft any
KIND incurred by either party, its employees, or third parties arising
under this Agreement due to Client's negligence or willful misconduct.
D. Neither party is authorized to act as an agent for, or legal representative
of, the other party and neither party shall have authority to assume or
create any obligation on behalf of, in the name of, or binding upon the
other party. Client shall not represent or intimate that INET is
responsible for the type or quality of Client's services to its Clients.
5
11. NOTICES
Notices to the parties shall be deemed to have been given when delivered, or
when received or refused by the party to whom sent after being mailed be
pre-paid, certified mail return receipt requested, or express carrier, to the
persons -,-,,hose name and business address appears herein. The effective date
of any notice shall be the date of delivery or refusal of such notices, and not
the date of mailing.
If to INET: If to Client:
INET Interactive Network Systems, Inc. Competitive Communications, Inc.
1640 S. Sepulveda Blvd., Suite 320 1173 1 Sterling Ave., Suite F
Los Angeles, California 90025 Riverside, CA 92503
Telephone Number (310) 235-3177 TEL: (909) 687-6100
Facsimile Number (310) 235-3190 FM: (909) 687-6103
Attn: Stan Alvidrez Attn: David Kline
Billing inquiries shall be directed to:
INET Interactive Network Systems, Inc.
1640 S. Sepulveda Blvd., Suite 320
Los Angeles, California 90025
Telephone Number (310) 235-3177
Facsimile Number (310) 235-3190
Attn: Claude Socroun
6
12. ADDITIONAL PROVISIONS
A. The failure of either party to give notice of default or to enforce or
insist upon compliance with any of the terms or conditions of this
Agreement, the waiver of any term or condition of this Agreement or the
granting of an extension of time for performance shall not constitute the
permanent waiver of any term or condition of this Agreement, and this
Agreement and each of its provisions shall remain at all times in full
force and effect until modified by the parties in writing.
B. No subsequent agreement between Client and INET concerning the Service
shall be effective or binding unless it is made in writing and attached to
this Agreement, and no representation-, promise, inducement or statement of
intention has been made by either party, which is not embodied herein.
C. this constitutes the entire Agreement between the parties and it may only
be changed by written agreement executed by INET and Client.
IN WITNESS WHEREOF. the parties hereto have executed this Agreement
as of the day and year first above written.
INET Interactive Network Systems Competitive Communications, Inc.
By:/s/Helen Legendre By:/s/David Kline
Print:Helene Legendre Print:David Kline
Title:Executive V.P. Title:CEO
Date:July 1, 1999 Date:6/30/99
7
EXHIBIT (A)
This is Exhibit A to the Agreement between INET Interactive Network System, Inc.
Los Angeles, California, and Competitive Communications, Inc. ("Client'), dated
this 25th day of June, 1999. In addition to the terms and conditions described
in the Agreement, the following terms and conditions will apply to the Services
provided pursuant to this Exhibit and the Agreement.
1. Service Commencement Date: To be determined, or on such later date that
service is installed by an INET vendor and accepted by Client.
2. Rate to Mexico includes U.S. and Mexican portion of the call. Calls. other
than calls to Mexico, will be billed with a thirty second minimum and thereafter
in six-second increments rounded to the next highest one-tenth of a minute per
call record. Calls to Mexico are billed in one-minute, increments. Rate
increases are subject to change with Five- (5) days written notice from INET to
Client. Rate decreases are effective immediately. Upon notification of rate
increase, Client at its sole discretion, may terminate this agreement with
thirty (30) days written notice.
3. Above Rates are based on minimum of twelve- (12) months contract term, F.O.B.
INET POP. Above rates have been negotiated between INET and Client and Client
agrees to keep the same from the public, competitors, and others who may gain
benefit from such knowledge.
4. Ramp up Period: Ninety (90) days from service inception date.
5. Minimum Commitment: Client agrees to use its best efforts to maintain no less
than 100,000 minutes of traffic per month after ninety (90) day ramp up. If
Client fails to maintain 100,000 minutes after ninety (90) day ramp up, INET
will have the right to terminate Services on seven (7) days written notice to
Customer.
6. The above prices are in US funds and do not include applicable taxes and
government fees, if any, as detailed in section 3.4 of the Agreement.
INET-International Network System Inc. Client: Competitive Communications, Inc.
By:/s/Helen Legendre By:/s/David Kline
Title:Executive V.P. Title:CEO
8
EXHIBIT B
INET INTERNATIONAL/DOMESTIC CARRIER TERMINATION
FOB LOS ANGELAS, New York
6/29/99
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
93 Afghanistan 0.6694 5521 Brazil, Rio De Janeiro 0.1965
355 Albania 0.2320 5511 Brazil, Sao Paulo 0.1520
213 Algeria 0.2581 55219 Brazil, Cellular 0.1593
684 American Samoa 0.2229 284 British Virgin Islands 0.2470
376 Andorra 0.1841 673 Brunei 0.2765
244 Angola 0.2664 359 Bulgaria 0.2642
264 Anguilla 0.3333 226 Burkina Faso 0.3294
67212 Antarctica (Casey Base) 0.2420 257 Burundi 0.4447
672 Antarctica (Scott Base) 0.2420 855 Cambodia (Kampu) 0.5015
268 Antigua & Barbuda 0.3615 237 Cameroon 0.5365
54 Argentina 0.2640 238 Cape Verde Islands 0.4358
541 Argentina, Buenos Aires 0.2110 345 Cayman Islands 0.2373
54 Argentina, Cellular 0.2805 236 Central African Republic 0.6743
374 Armenia 0.4322 235 Chad Republic 0.7333
297 Aruba 0.2460 56 Chile 0.1186
247 Ascension Island 0.5143 569 Chile, Cellular 0.1186
61 Australia 0.0617 86 China Prc 0.2747
612 Australia, Sydney 0.0617 86 China Prc, Cellular 0.2830
61 Australia, Cellular 0.0646 8610 China, Beijing 0.2413
43 Austria 0.0900 86591 China, Fuzhou 0.2685
431 Austria, Vienna 0.0920 8621 China, Shanghai 0.2685
431 Austria, Cellular 0.0949 672 Christmas Island 0.2493
994 Azerbaijan 0.3249 613 Cocos Kelling Island 0.1323
242 Bahamas 0.1492 57 Colombia 0.2565
973 Bahrain 0.5030 5767 Colombia, Armenia 0.2565
880 Bangladesh 0.5666 5758 Colombia, Barranquilla 0.2565
8801 Bangladesh, Cellular 0.5666 571 Colombia, Bogota 0.0994
246 Barbados 0.2106 572 Colombia, Cali 0.1281
375 Belarus 0.2836 573 Colombia, Cellular 0.2568
32 Belgium 0.0735 574 Colombia, Medellin 0.1415
323 Belgium, Antwerp 0.0735 5763 Colombia, Pereira 0.2568
322 Belgium, Brussels 0.0735 2690 Comoros 0.5195
32 Belgium, Cellular 0.0873 242 Congo 0.5180
501 Belize 0.4349 682 Cook Islands 0.7472
229 Benin 0.3910 506 Costa Rica 0.1450
441 Bermuda 0.1403 5063 Costa Rica, Cellular 0.2000
975 Bhutan 0.2052 385 Croatia 0.2355
591 Bolivia 0.3588 53 Cuba 0.5140
387 Bosnia/Herzegovina 0.2852 5399 Cuba-Guantanamo Bay 0.3769
267 Botswana 0.2535 357 Cyprus 0.2434
55 Brazil 0.2345 42 Czech Republic 0.1975
9
Exhibit B
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
45 Denmark 0.0668 4940 Germany, Hambourg 0.0491
45 Denmark, Cellular 0.0683 233 Ghana 0.3523
246 Diego Garcia 0.5336 350 Gibralter 0.2733
253 Djibouti 0.5633 30 Greece 0.2015
767 Dominica 0.3843 301 Greece, Athens 0.1763
594 Dominican Republic 0.1449 299 Greeland 0.2857
594 Dominican Republic, Cellular 0.1499 473 Grenada 0.3685
593 Ecuador 0.2677 590 Guataloupe 0.2945
5932 Ecuador, Quito 0.2119 671 Guam 0.0884
5934 Ecuador, Guayaquil 0.2687 502 Guatemala 0.2159
5939 Ecuador, Cellular 0.3129 50220 Guatemala, Cellular 0.2256
20 Egypt 0.4061 224 Guinea Republic 0.3654
202 Egypt, Cairo 0.4061 245 Guinea - Bissau 0.6223
2012 Egypt, Cellular 0.4061 592 Guyana 0.5500
503 El Salvador 0.2795 509 Haiti 0.4364
5038 El Salvador, Cellular 0.2800 504 Handuras 0.4035
240 Equatorial Guinea 0.6328 852 Hong Kong, China 0.0560
291 Eritrea 0.7237 8529 Hong Kong, Cellular 0.0699
372 Estonia 0.1987 36 Hungary 0.1812
251 Ethiopia 0.7054 354 Iceland 0.1585
298 Faeroe Island 0.2218 91 India 0.4478
500 Falkland Island 0.3484 9198 India, Cellular 0.4837
679 Fiji Islands 0.5827 9144 India, Madras 0.4778
358 Finland 0.0770 9111 India, New Delhi 0.4680
3580 Finland, Helsinki 0.0770 9122 India, Bombay 0.4778
358 Finland, Cellular 0.0770 9180 India, Bangalore 0.4778
33 France 0.0520 62 Indonesia 0.2767
334 France, Nice 0.0520 6221 Indonesia, Jakarta 0.2181
331 France, Paris 0.0520 871 Inmaristat East Atlantic Ocean 4.6282
336 France, Cellular 0.0823 872 Inmaristat Pacific Ocean 4.7910
596 French Antilles/Martinique 0.2873 873 Inmaristat Indian Ocean 4.4652
594 French Guiana 0.3009 874 Inmaristat West Atlantic Ocean 4.4785
689 French Polynesia 0.3665 98 Iran 0.5707
241 Gabon Republic 0.5104 964 Iraq 0.6681
220 Gambia 0.3975 353 Ireland 0.0821
7 Georgia 0.4797 3531 Ireland, Dublin 0.0819
49 Germany 0.0491 353 Ireland, Cellular 0.0821
4930 Germany, Berlin 0.0491 972 Israel 0.1153
49 Germany, Cellular 0.0840 9725 Israel, Cellular 0.1606
4969 Germany, Frankfurt 0.0491 39 Italy 0.0963
10
Exhibit B
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
3910 Italy, Genoa 0.0963 692 Marshall Islands 0.3027
392 Italy, Milan 0.0963 222 Mauritania 0.4565
3911 Italy, Turin 0.0963 230 Mauritius 0.5731
39 Italy, Cellular 0.1063 2696 Mayotte Island ( Comoros) 0.4507
225 Ivory Coast (Cote' D'Ivoire) 0.6613 52 1/ Mexico On net on peak 0.1588
876 Jamaica 0.3387 52 2/ Mexico On net off peak 0.1588
81 Japan 0.0850 52 3/ Mexico On net on peak 0.1588
81 Japan, Cellular 0.1313 52 4/ Mexico On net off peak 0.1588
816 Japan, Osaka 0.0726 691 Micronesia 0.4888
81 Japan, Military 0.0888 373 Moldavia 0.3455
813 Japan, Tokyo 0.0726 339 Monaco 0.1212
8152 Japan, Nagoya 0.0500 976 Mongolia 0.6550
962 Jordan 0.4457 664 Montserrat 0.4129
96279 Jordan, Cellular 0.4457 212 Morocco 0.3348
7 Kazakhstan 0.4554 258 Mozambique 0.3360
254 Kenya 0.4915 95 Myanmar (Birma) 0.6957
686 Kiribati 0.6375 264 Namibia 0.2407
850 Korea - North (DPR) 0.6072 674 Nauru 0.5605
82 Korea, South 0.1212 977 Nepal 0.6047
822 Korea, South Seoul 0.1212 599 Netherlands Antilles 0.2686
9659 Kuwait 0.5124 31 Netherlands 0.0578
965 Kuwait, Cellular 0.5124 3120 Netherlands, Amsterdam 0.0578
996 Kyrgyzstan 0.4464 3165 Netherlands, Cellular 0.0595
856 Laos 0.5804 869 Nevis Island 0.2978
371 Latvia 0.2557 687 New Caledonia 0.4767
961 Lebanon 0.4293 64 New Zealand 0.0694
9613 Lebanon, Cellular 0.4650 64 New Zealand, Cellular 0.0694
266 Lesotho 0.2977 505 Nicaragua 0.3414
231 Liberia 0.3644 5058 Nicaragua, Cellular 0.3414
218 Libyan Arab rep 0.2741 227 Niger republic 0.5007
4175 Liechtenstein 0.0891 234 Nigeria 0.5198
370 Lithuania 0.2708 683 Niue Island 0.7832
352 Luxembourg 0.1069 672 Norfolk Island 0.3378
853 Macao 0.2725 47 Norway 0.0866
389 Macedonia 0.2944 47 Norway, Oslo 0.0866
261 Madagascar 0.6218 47 Norway, Cellular 0.0867
265 Malawi 0.3461 968 Omen Dem Republic 0.5933
60 Malaysia 0.1351 92 Pakistan 0.5450
960 Maldives 0.5772 9221 Pakistan, Karachi 0.5345
223 Mali Republic 0.6306 680 Palau Republic 0.5771
356 Malta 0.1671 507 Panama 0.3773
11
Exhibit B
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
5076 Panama, Cellular 0.3773 869 St Kitts 0.3198
675 Papua New Guinea 0.2842 758 St Lucia 0.4000
595 Paraguay 0.4305 508 St Pierre & Miquelon 0.1951
51 Peru 0.3068 784 St Vincent & Grenadines 0.4055
5114 Peru, Lima 0.3078 72 St Vincent, Mustique 0.5085
51 Peru, Cellular 0.3255 809 St Lucia, Palm 0.5085
63 Philippines 0.2000 809 St Lucia, Union Island 0.5085
63.2 Philippines, Manila 0.2000 249 Sudan 0.3076
48 Poland 0.2100 597 Suriname 0.7451
351 Portugal 0.1722 268 Swazland 0.2043
35191 Portugal, Madeira Island 0.1722 46 Sweden 0.0506
974 Qatar 0.4824 46 Sweden, Cellular 0.0540
262 Reunion Island 0.3825 41 Switzerland 0.0741
40 Romania 0.2964 41 Switzerland, Cellular 0.0741
7 Russia 0.2465 963 Syria 0.4874
7095 Russia, Moscow 0.1419 886 Taiwan 0.1150
7812 Russia, St Petersburg 0.1525 8862 Taiwan, Taipei 0.0988
250 Rwanda Republic 0.6085 8867 Taiwan, Kaohsiung 0.1150
670 Saipan/Mariannas 0.2043 8869 Taiwan, Cellular 0.1155
378 San Marino 0.2825 673 Tajikistan 0.3660
239 Sao Tome/Prinsipe 0.7393 255 Tanzania 0.3979
966 Saudi Arabia 0.5073 66 Thailand 0.2600
221 Senegal Republic 0.5985 662 Thailand, Bangkok 0.2600
248 Seychelles Island 0.6850 228 Togo republic 0.5862
232 Sierra Leone 0.5959 676 Tonga islands 0.6776
65 Singapore 0.1365 868 Trinidad & Tobago 0.3695
421 Slovakia 0.2129 216 Tunisia 0.3231
386 Slovenia 0.1780 90 Turkey 0.2085
677 Solomon Islands 0.4754 905 Turkey, Cellular 0.2085
252 Somalia Republic 0.5880 7 Turkmenistan 0.4705
27 South Africa Republic 0.2715 649 Turks & Caicos Islands 0.3518
2711 South Africa, Johannesburg 0.2153 688 Tuvalu 0.6200
34 Spain 0.1154 256 Uganda 0.3046
343 Spain, Barcelona 0.1154 380 Ukraine 0.2874
34 Spain, Balearic island 0.1154 970 United Arab Emirates 0.3073
3428 Spain, Canary Island 0.1154 44 United Kingdom 0.0302
3456 Spain, Cueta 0.1154 44171 United kingdom, London 0.0302
3452 Spain, Melilla 0.1154 44 United Kingdom, Cellular 0.0519
341 Spain, Madrid 0.1154 598 Uruguay 0.4074
95 Sri Lanka 0.5634 736 Uzbekistan 0.4528
290 St Helena 0.4113 678 Vanuatu Republic/New Hebridi 0.5893
12
Exhibit B
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
396 Vatican City 0.1836
58 Venezuela 0.2700
58 Venezuela, Cellular 0.2700 403 Canada, Alberta 0.0501
58 Venezuela, Caraces 0.1531 250/604 Canada, British Columbia 0.0501
84 Vietnam 0.6613 204 Canada, Manitoba 0.0501
848 Vietnam, Ho Chi Minh City 0.6595 514 Canada, Montreal 0.0501
681 Wallace/Futuna Islands 0.3165 506 Canada, News Brunswick 0.0501
685 Western Somoa 0.4701 709 Canada, New Foundland 0.0501
967 Yemen Arab Republic 0.6073 902 Canada, Nova Scotia 0.0501
969 Yemen Dem Republic 0.7845 416 Canada, Ontario 0.0501
381 Yugoslavia/ Serbia 0.2772 519 Canada, Ontario 0.0501
243 Zaire Republic 0.5025 613 Canada, Ontario 0.0501
260 Zambia 0.4863 807 Canada, Ontario 0.0501
259 Zanzibar 0.6134 905 Canada, Ontario 0.0501
263 Zimbabwe 0.2615 514 Canada, Quebec 0.0501
819 Canada, Quebec 0.0501
306 Canada, Saskatchewan 0.0501
907 Alaska 0.0915
808 Hawaii 0.0858 1 US Interstate 0.0390
787 (PR) Puerto Rico 0.0858 Ca Intrastate 0.0290
809 (VI) Virgin Islands (US) 0.1129 NY Intrastate 0.0575
If in any given month, more than fifteen percent (%15) of the Purchaser's total
USA Continental, dedicated carrier traffic does not terminate to an
RBOC-franchised region, Provider may apply a $.03 per minute surcharge to all
such traffic in excess of the fifteen percent.
13
Exhibit (B)
INET International/Domestic Switched Termination
6/29/99
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
93 Afghanistan 1.9901 359 Bulgaria 0.3669
355 Albania 0.3975 226 Burkina Faso 0.7225
213 Algeria 0.3765 257 Burundi 0.5700
684 American Samoa 0.2859 855 Cambodia (Kampu) 0.8833
376 Andorra 0.2527 238 Cape Verde Islands 0.7794
244 Angola 0.4725 345 Cayman Islands 0.2905
67212 Antarctica (Casey Base) 0.5127 236 Central African Republic 0.9078
672 Antarctica (Scott Base) 0.5127 235 Chad Republic 0.9245
54 Argentina 0.4515 56 Chile 0.1956
541 Argentina, Buenos Aires 0.4515 569 Chile, Cellular 0.1956
54 Argentina, Cellular 0.4515 86 China Prc 0.5015
374 Armenia 0.7829 86 China Prc, Cellular 0.6015
297 Aruba 0.4000 8610 China, Beijing 0.6015
247 Ascension Island 0.8399 86591 China, Fuzhou 0.6015
61 Australia 0.1315 8621 China, Shanghai 0.6015
612 Australia, Sydney 0.1315 672 Christmas Island 0.5127
61 Australia, Cellular 0.1315 613 Cocos Kelling Island 0.1315
43 Austria 0.1815 57 Colombia 0.3774
431 Austria, Vienna 0.1815 5767 Colombia, Armenia 0.3774
431 Austria, Cellular 0.1815 5758 Colombia, Barranquilla 0.3774
994 Azerbaijan 0.3833 571 Colombia, Bogota 0.3774
973 Bahrain 0.6566 572 Colombia, Cali 0.3774
880 Bangladesh 0.7116 573 Colombia, Cellular 0.4186
8801 Bangladesh, Cellular 0.7116 574 Colombia, Medellin 0.3774
375 Belarus 0.3594 5763 Colombia, Pereira 0.3774
32 Belgium 0.1515 2690 Comoros 0.6417
323 Belgium, Antwerp 0.1515 242 Congo 0.8886
322 Belgium, Brussels 0.1515 682 Cook Islands 1.1210
32 Belgium, Cellular 0.5190 506 Costa Rica 0.2674
501 Belize 0.5360 5063 Costa Rica, Cellular 0.2674
229 Benin 0.5430 385 Croatia 0.2715
975 Bhutan 0.7217 53 Cuba 0.7457
591 Bolivia 0.4655 5399 Cuba-Guantanamo Bay 0.7457
387 Bosnia/Herzegovina 0.3752 357 Cyprus 0.3380
267 Botswana 0.3629 42 Czech Republic 0.2865
55 Brazil 0.3515 45 Denmark 0.1372
5521 Brazil, Rio De Janiero 0.3515 45 Denmark, Cellular 0.1372
5511 Brazil, Sao Paulo 0.3515 246 Diego Garcia 0.7699
55219 Brazil, Cellular 0.3515 253 Djibouti 0.8314
284 British Virgin Islands 0.3425 767 Dominica 0.5349
673 Brunei 0.3912 237 Cameroon 0.6951
14
Exhibit B
INET International/Domestic Switched Termination
Effective 6/29/99
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
594 Dominican Republic, Cellular 0.2763 473 Grenada 0.4425
593 Ecuador 0.3727 590 Guadeloupe 0.3500
5932 Ecuador, Quito 0.3727 502 Guatemala 0.2904
5934 Ecuador, Guayaquil 0.3727 50220 Guatemala, Cellular 0.2904
5939 Ecuador, Cellular 0.5363 224 Guinea Republic 0.7515
20 Egypt 0.7021 245 Guinea - Bissau 0.6765
202 Egypt, Cairo 0.7021 592 Guyana 0.7596
2012 Egypt, Cellular 0.7021 509 Haiti 0.5461
503 El Salvador 0.3425 504 Honduras 0.5183
5038 El Salvador, Cellular 0.4315 852 Hong Kong, China 0.1515
240 Equatorial Guinea 1.1950 8529 Hong Kong, Cellular 0.4825
291 Eritrea 1.2823 36 Hungary 0.2505
372 Estonia 0.2701 354 Iceland 0.2630
251 Ethiopia 0.8780 91 India 0.7245
298 Faeroe Island 0.2916 9198 India, Cellular 0.7245
500 Falkland Island 0.7861 9144 India, Madras 0.7245
679 Fiji Islands 0.6963 9111 India, New Delhi 0.7245
358 Finland 0.1432 9122 India, Bombay 0.7245
3580 Finland, Helsinki 0.1432 9180 India, Bangalore 0.7245
358 Finland, Cellular 0.1432 62 Indonesia 0.5951
33 France 0.1625 6221 Indonesia, Jakarta 0.5951
334 France, Nice 0.1625 871 Inmaristat East Atlantic Ocean 5.2069
331 France, Paris 0.1625 872 Inmaristat Pacific Ocean 7.0875
336 France, Cellular 0.4715 873 Inmaristat Indian Ocean 4.4825
596 French Antilles/Martinique 0.3519 874 Inmaristat West Atlantic Ocean 4.4825
594 French Guiana 0.4421 98 Iran 0.9112
689 French Polynesia 0.5056 964 Iraq 1.3280
241 Gabon Republic 0.5918 353 Ireland 0.1571
220 Gambia 0.6001 3531 Ireland, Dublin 0.1571
7 Georgia 0.6144 353 Ireland, Cellular 0.1797
49 Germany 0.1275 972 Israel 0.1751
4930 Germany, Berlin 0.1275 9725 Israel, Cellular 0.3127
49 Germany, Cellular 0.4175 39 Italy 0.1915
4969 Germany, Frankfurt 0.1275 3910 Italy, Genoa 0.1915
4940 Germany, Hambourg 0.1275 392 Italy, Milan 0.1915
233 Ghana 0.4198 3911 Italy, Turin 0.1915
350 Gibraltar 0.4059 39 Italy, Cellular 0.4713
30 Greece 0.2721 225 Ivory Coast (Cote' D'lvoire) 0.8695
301 Greece, Athens 0.2721 81 Japan 0.1850
299 Greenland 0.5700 81 Japan, Cellular 0.1850
15
Exhibit B
INET International/Domestic Carrier Termination
Effective 6/29/99
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
816 Japan, Osaka 0.1850 691 Micronesia 0.5275
81 Japan, Military 0.1850 373 Moldavia 0.4675
813 Japan, Tokyo 0.1850 339 Monaco 0.1759
8152 Japan, Nagoya 0.1850 976 Mongolia 1.0135
962 Jordan 0.6716 212 Morocco 0.4218
96279 Jordan, Cellular 0.6716 258 Mozambique 0.3984
7 Kazakhstan 0.5939 95 Myanmar (Birma) 0.9807
254 Kenya 0.6370 264 Namibia 0.2825
686 Kiribati 0.7638 674 Nauru 0.6539
850 Korea - North (DPR) 0.9590 977 Nepal 0.7370
82 Korea, South 0.2515 599 Netherlands Antilles 0.3237
822 Korea, South Seoul 0.2515 31 Netherlands 0.1375
9659 Kuwait 0.5815 3120 Netherlands, Amsterdam 0.1375
965 Kuwait, Cellular 0.5815 3165 Netherlands, Cellular 0.1375
996 Kyrgyzstan 0.5981 687 New Caledonia 0.5598
856 Laos 0.7239 64 New Zealand 0.1333
371 Latvia 0.3737 64 New Zealand, Cellular 0.2686
961 Lebanon 0.7716 505 Nicaragua 0.4744
9613 Lebanon, Cellular 0.7716 5058 Nicaragua, Cellular 0.4744
266 Lesotho 1.0265 227 Niger republic 0.7575
231 Liberia 0.4634 234 Nigeria 0.6951
218 Libyan Arab rep 0.3127 683 Niue Island 2.1963
4175 Liechtenstein 0.1250 672 Norfolk Island 0.5127
370 Lithuania 0.3425 47 Norway 0.1320
352 Luxembourg 0.1520 47 Norway, Oslo 0.1320
853 Macao 0.3150 47 Norway, Cellular 0.1320
389 Macedonia 0.4183 968 Omen Dem Republic 0.6425
261 Madagascar 0.7477 92 Pakistan 0.6892
265 Malawi 0.4905 9221 Pakistan, Karachi 0.6892
60 Malaysia 0.2607 680 Palau Republic 0.6503
960 Maldives 0.7411 507 Panama 0.5025
223 Mali Republic 0.9256 5076 Panama, Cellular 0.5025
356 Malta 0.2432 675 Papua New Guinea 0.3546
692 Marshall Island 0.3375 595 Paraguay 0.5125
222 Mauritania 0.5377 51 Peru 0.3725
230 Mauritius 0.6684 5114 Peru, Lima 0.3725
2696 Mayotte Island (Comoros) 0.7892 51 Peru, Cellular 0.3725
52 1/Mexico On net on peak 0.2600 63 Philippines 0.3245
52 2/Mexico On net off peak 0.2600 63.2 Philippines, Manila 0.3245
52 3/Mexico On net on peak 0.2600 48 Poland 0.3016
52 4/Mexico Off net off peak 0.2600 351 Portugal 0.2551
16
Exhibit B
INET International/Domestic Carrier Termination
Effective 6/29/99
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
35191 Portugal, Madeira Island 0.2551 41 Switzerland 0.1250
974 Qatar 0.5818 41 Switzerland, Cellular 0.5515
262 Reunion Island 0.5386 963 Syria 0.9310
40 Romania 0.4019 886 Taiwan 0.2515
7 Russia 0.3486 8862 Taiwan, Taipei 0.2515
7095 Russia, Moscow 0.3486 8867 Taiwan, Kaohsiung 0.2515
7812 Russia, St Petersburg 0.3486 8869 Taiwan, Cellular 0.2515
250 Rwanda Republic 0.7433 673 Tajikistan 0.7657
670 Saipan/Mariannas 0.3407 255 Tanzania 0.5425
378 San Marino 0.6017 66 Thailand 0.3625
239 Sao Tome/Prinsipe 1.5227 662 Thailand, Bangkok 0.3625
966 Saudi Arabia 0.6979 228 Togo republic 0.8760
221 Senegal Republic 0.8756 676 Tonga Islands 1.0015
248 Seychelles Island 1.8179 216 Tunisia 0.4297
232 Sierra Leone 0.6350 90 Turkey 0.3250
65 Singapore 0.3075 905 Turkey, Cellular 0.3892
421 Slovakia 0.2865 7 Turkmenistan 0.9965
386 Slovenia 0.3272 688 Tuvalu 0.7433
677 Solomon Islands 0.5225 256 Uganda 0.3425
252 Somalia Republic 0.7986 380 Ukraine 0.3870
27 South Africa Republic 0.3885 970 United Arab Emirates 0.3750
2711 South Africa, Johannesburg 0.3885 44 United Kingdom 0.1325
34 Spain 0.1650 44171 United kingdom, London 0.1325
343 Spain, Barcelona 0.1650 44 United Kingdom, Cellular 0.1725
34 Spain, Balearic island 0.1650 598 Uruguay 0.4525
3428 Spain, Canary Island 0.1650 736 Uzbekistan 0.5657
3456 Spain, Cueta 0.1650 678 Vanuatu Republic/New Hebridi 0.7924
3452 Spain, Melilla 0.1650 396 Vatican City 0.2100
341 Spain, Madrid 0.1650 58 Venezuela 0.3615
95 Sri Lanka 0.7191 58 Venezuela, Cellular 0.3615
290 St Helena 0.6633 58 Venezuela, Caracas 0.3615
508 St. Pierre & Miquelon 0.2315 84 Vietnam 0.8025
784 St. Vincent & Grenadines 0.4450 848 Vietnam, Ho Chi Minh City 0.8025
72 St. Vincent, Mustique 0.6156 681 Wallis/Futuna Islands 0.3725
809 St. Lucia, Palm 0.6156 685 Western Somoa 0.5731
809 St. Lucia, Union Island 0.6156 967 Yemen Arab Republic 0.7679
249 Sudan 0.4543 969 Yemen Dem Republic 0.9150
597 Suriname 0.8803 381 Yugoslavia/Serbia 0.3967
268 Swaziland 0.3697 243 Zaire Republic 0.6719
46 Sweden 0.1275 260 Zambia 0.6363
46 Sweden, Cellular 0.1275 259 Zanzibar 1.1482
17
Exhibit B
INET International/Domestic Carrier Termination
Effective 6/29/99
CODE COUNTRY RATE PER MINUTE CODE COUNTRY RATE PER MINUTE
263 Zimbabwe 0.3939 NPA Off-Shore & Canada
264 Anguilla 0.4320 403 Canada, Alberta 0.1175
268 Antigua & Barbuda 0.4256 250/604 Canada, British Colombia 0.1275
242 Bahamas 0.2085 204 Canada, Manitoba 0.1175
246 Barbados 0.4225 514 Canada, Montreal 0.1085
441 Bermuda 0.1815 506 Canada, New Brunswick 0.1175
594 Dominican Republic 0.2304 709 Canada, New Foundland 0.1175
671 Guam 0.1421 902 Canada, Nova Scotia 0.1175
876 Jamaica 0.4420 416 Canada, Ontario 0.1085
664 Montserrat 0.5658 519 Canada, Ontario 0.1085
869 Nevis Island 0.4300 613 Canada, Ontario 0.1085
869 St. Kitts 0.3400 807 Canada, Ontario 0.1085
758 St. Lucia 0.4425 905 Canada, Ontario 0.1085
868 Trinidad & Tobago 0.4783 514 Canada, Quebec 0.1085
649 Turks & Caicos Island 0.4779 819 Canada, Quebec 0.1175
306 Canada, Saskatchewan 0.1175
907 Alaska 0.1650
808 Hawaii 0.1650 1 US Interstate 0.0390
787 (PR) Puerto Rico 0.1650
809 (VI) Virgin Islands (US) 0.1650
CODE INTRASTATE RATE PER MINUTE CODE INTRASTATE RATE PER MINUTE
AL Alabama 0.0547 NE Nebraska 0.1573
AZ Arizona 0.1632 NV Nevada 0.0623
AR Arkansas 0.0578 NH New Hampshire 0.1345
CA California 0.0409 NJ New Jersey 0.1138
CO Colorado 0.1307 NM New Mexico 0.2042
CT Connecticut 0.1052 NY New York 0.1167
DE Delaware 0.0627 NC North Carolina 0.1248
FL Florida 0.0875 ND North Dakota 0.1889
GA Georgia 0.0933 OH Ohio 0.0423
ID Idaho 0.1218 OK Oklahoma 0.0719
IL Illinois 0.0415 OR Oregon 0.1051
IN Indiana 0.0593 PA Pennsylvania 0.0955
IA Iowa 0.1257 RI Rhode Island 0.1154
KS Kansas 0.1210 SC South Carolina 0.1028
KY Kentucky 0.0500 SD South Dakota 0.1250
LA Louisiana 0.0647 TN Tennessee 0.1005
ME Maine 0.2001 TX Texas 0.1658
MD Maryland 0.0687 UT Utah 0.0813
MA Massachusetts 0.0793 VT Vermont 0.1878
MI Michigan 0.0515 VA Virginia 0.1025
MN Minnesota 0.1191 WA Washington 0.0826
MS Mississippi 0.0783 WV West Virginia 0.1253
MO Missouri 0.1409 WI Wisconsin 0.0393
MT Montana 0.0986 WY Wyoming 0.1219
If any any given month, more than fifteen percent (15%) of Purchaser's total USA Continental,
switched traffic does not terminate to an RBOC-franchised region, Provider may apply
a $.03 per minute surcharge to all such traffic in excess of the fifteen percent.
18
Exhibit # 10.12
Sample Option Agreement - employees
Competitive Companies, Inc.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan (attached as
Exhibit "B") shall have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[NAME]
[STREET ADDRESS]
[CITY, STATE ZIP]
You have been granted an option to purchase Class A Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option Agreement
as follows:
Grant Number 98-Ennnnn
Date of Grant n/nn/nn
Vesting Commencement Date See Vesting Schedule below
Exercise Price per Share See Vesting Schedule below
Total Number of Shares Granted nnn,nnn
Type of Option Incentive Stock Option
Term/Expiration Date See Vesting Schedule below
A.Vesting Schedule. This Option may be exercised in accordance with the
following terms which are based on the Optionee's following performance as an
Agent for the Company:
NUMBER OF FIRST
EXERCISE SHARES WHICH EXERCISE EXPIRATION
OPTIONPRICECAN BE PURCHASEDDATEDATE
A $n.nn [40%] [2 years] [10 years from grant date]*
B $n.nn [20%] [3 years] [10 years from grant date]*
C $n.nn [20%] [4 years] [10 years from grant date]*
D $n.nn [20%] [5 years-1 day] [10 years from grant date]*
* 5 years for 10%+ stockholders
1
B.Termination Period. Those Options which reach the above defined
Levels and have not reached their respective Expiration Date, may be exercised
for ninety (90) days after Optionee ceases to be an Employee of the Company; or
upon the death or Disability of the Optionee, for one hundred eighty (180) days
after Optionee ceases to be an Employee of the Company. In no event shall these
Options be exercised later than the applicable Expiration Date as provided
above.
II. AGREEMENT
A.Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price(s) per Share set forth
in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan (attached as Exhibit "B"), which is incorporated herein
by reference. Subject to Section 7 of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Option Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
1.Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set forth in the Notice of Grant and the
applicable provisions of the Plan and this Stock Agreement.
2.Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit "A" (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect to which Option is being exercised (the "Exercised Shares"), and such
other representations and agreements as may be required by the Company pursuant
to the provisions of the Plan. The Exercise Notice shall be completed by the
Optionee and delivered to the Secretary of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon the receipt
by the Company of such fully executed Exercise Notice accompanied by such
aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3.Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a cashless exercise program
implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a Fair Market Value on the date
2
of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4.Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee.
5.Term of Option. This Option may be exercised only within the term(s)
set out in the Notice of Grant, and may be exercised during such term(s) only in
accordance with the Plan and the terms of this Option Agreement.
6.Tax Consequences. Some of the federal tax consequences relating to this
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OF
DISPOSING OF THE SHARES.
(a)Exercising the Option.
(1)Nonstatutory Stock Option. The Optionee may incur regular federal
income tax liability upon exercise of an NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the same time of
exercise.
(2)Incentive Stock Option. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercise Shares on
the date of exercise over the aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option in the date three (3) months and one (1)
day following such change of status.
(b)Disposition of Shares.
(1)NSO. If the Optionee holds NSO Shares for at least one year,
any gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes.
(2)ISO. If the Optionee holds ISO Shares for at least one year after
exercise and two years after the grant date, any gain realized on disposition of
the Shares will be treated as long-term capital gain for federal income tax
purposes. If the Optionee disposes of ISO Shares within one year after exercise
or two years after the grant date, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the lesser of (a) the difference between the Fair
Market Value of the Shares acquired on the date of exercise and the aggregate
Exercise Price, or (b) the difference between the sale price of such Shares and
the aggregate Exercise Price. Any additional gain will be taxed as capital gain,
short-term or long-term depending on the period that the ISO Shares were held.
3
(c)Notice of Disqualifying Disposition of ISO Shares. If the Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two years after the grant date, or (ii) one year
after the exercise date, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that he or she may be subject
to income tax withholding by the Company on the compensation income recognized
from such early disposition of ISO Shares by payment in cash or out of the
current earnings paid to the Optionee.
7.Entire Agreement Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This Agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8.No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT
THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING AS A SERVICE PROVIDER OR EMPLOYEE, AS THE CASE MAY BE, AT THE WILL OF
THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR
PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVIE PROVIDER OR EMPLOYEE FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER OR
EMPLOYEE AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address and telephone numbers indicated below.
OPTIONEE: COMPETITIVE COMPANIES, INC.
Signature Signature
______________________________ Larry A. Halstead
Print Name Corporate Secretary & Plan Administrator
11731 Sterling Avenue, Suite F
______________________________ Riverside, CA 92503
Address (909) 687-6100
______________________________
City State Zip
(____)________________________
Telephone Number
4
EXHIBIT A
EXERCISE NOTICE
TO: COMPETITIVE COMPANIES, INC.
Attn: Stock Plan Administrator
11731 Sterling Avenue, Suite F
Riverside, CA 92503
FROM: ______________________________
______________________________
______________________________
As of ___________________ (Date) and in accordance with the terms of Stock Option
Grant Number
________ I hereby elect to exercise such Option to the extent delineated below:
1. OPTION NUMBER: __________
2. NUMBER OF SHARES BEING EXERCISED: __________
3. EXERCISE PRICE PER SHARE (PER OPTION NUMBER): $__________
4. AGGREGATE PRICE OF SHARES (#2 X #3, above) $__________
5. PAYMENT METHOD:
_____ Cash Amount: $__________
_____ Check Amount: $__________
_____ Other per Plan (describe below): $__________
_____ Surrender of Other Shares
(Fair Market Value): $__________
(Executed Certificate(s) #____,____,____ attached)
TOTAL (must equal #4 total above): $__________
Other Plan Payment Method:_____________________________________________________
_______________________________________________________________________________
Amount of Payment Enclosed: $__________________
Signed:____________________________ Date:_____________________
Enclosure(s)-
__________________________
__________________________
Exhibit # 10.13
Sample Option Agreement - consultants
Competitive Companies, Inc.
1999 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan (attached as Exhibit
"B") shall have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
James Healey
2435 Coates Street
Dubuque, IA 52003
You have been granted an option to purchase Class A Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement as follows:
Grant Number 99-N00001
Date of Grant 10/1/99
Vesting Commencement Date See Vesting Schedule below
Exercise Price per Share See Vesting Schedule below
Total Number of Shares Granted 50,000
Type of Option Nonstatutory Stock Option
Term/Expiration Date See Vesting Schedule below
A.Vesting Schedule. This Option may be exercised in accordance with the
following terms which are based on the Optionee's following performance as an
Agent for the Company:
UPON COMPANY'S MONTHLY NUMBER OF
BILLING TO AGENT'S CUSTOMERS EXERCISE SHARES WHICH EXPIRATION
OPTIONFIRST REACHING THIS LEVELPRICECAN BE PURCHASEDDATE
A $100,000 $1.00 10,000 10/1/04
B $200,000 $2.00 10,000 10/1/05
C $300,000 $3.00 10,000 10/1/06
D $400,000 $4.00 10,000 10/1/07
E $500,000 $5.00 10,000 10/1/08
1
B.Termination Period. Those Options which reach the above defined
Levels and have not reached their respective Expiration Date, may be exercised
for ninety (90) days after Optionee ceases to be an Agent (Service Provider) for
the Company; or upon the death or Disability of the Optionee, for one hundred
eighty (180) days after Optionee ceases to be an Agent (Service Provider) for
the Company. In no event shall these Options be exercised later than the
applicable Expiration Date as provided above.
II. AGREEMENT
A.Grant of Option. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price(s) per Share set forth
in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan (attached as Exhibit "B"), which is incorporated herein
by reference. Subject to Section 7 of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Option Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B.Exercise of Option.
1.Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set forth in the Notice of Grant and the
applicable provisions of the Plan and this Stock Agreement.
2.Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit "A" (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect to which Option is being exercised (the "Exercised Shares"), and such
other representations and agreements as may be required by the Company pursuant
to the provisions of the Plan. The Exercise Notice shall be completed by the
Optionee and delivered to the Secretary of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon the receipt
by the Company of such fully executed Exercise Notice accompanied by such
aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3.Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a Fair Market Value on the date
2
of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4.Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee.
5.Term of Option. This Option may be exercised only within the term(s)
set out in the Notice of Grant, and may be exercised during such term(s) only in
accordance with the Plan and the terms of this Option Agreement.
6.Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OF
DISPOSING OF THE SHARES.
(a)Exercising the Option.
(1)Nonstatutory Stock Option. The Optionee may incur regular federal
income tax liability upon exercise of an NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the same time of
exercise.
(2)Incentive Stock Option. If this Option qualifies as an ISO, the
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercise Shares on
the date of exercise over the aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option in the date three (3) months and one (1)
day following such change of status.
(b)Disposition of Shares.
(1)NSO. If the Optionee holds NSO Shares for at least one year,
any gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes.
(2)ISO. If the Optionee holds ISO Shares for at least one year after
exercise and two years after the grant date, any gain realized on disposition of
the Shares will be treated as long-term capital gain for federal income tax
purposes. If the Optionee disposes of ISO Shares within one year after exercise
or two years after the grant date, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the lesser of (a) the difference between the Fair
Market Value of the Shares acquired on the date of exercise and the aggregate
Exercise Price, or (b) the difference between the sale price of such Shares and
the aggregate Exercise Price. Any additional gain will be taxed as capital gain,
short-term or long-term depending on the period that the ISO Shares were held.
3
(c)Notice of Disqualifying Disposition of ISO Shares. If the Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two years after the grant date, or (ii) one year after
the exercise date, the Optionee shall immediately notify the Company in writing of
such disposition. The Optionee agrees that he or she may be subject to income
tax withholding by the Company on the compensation income recognized from such
early disposition of ISO Shares by payment in cash or out of the current
earnings paid to the Optionee.
7.Entire Agreement Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This Agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8.No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT
THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING AS A SERVICE PROVIDER OR EMPLOYEE, AS THE CASE MAY BE, AT THE WILL OF
THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR
PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVIE PROVIDER OR EMPLOYEE FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER OR
EMPLOYEE AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address and telephone numbers indicated below.
OPTIONEE: COMPETITIVE COMPANIES, INC.
Signature Signature
______________________________ Larry A. Halstead
Print Name Corporate Secretary & Plan Administrator
3751 Merced Drive, Suite A
______________________________ Riverside, CA 92503
Address (909) 687-6100
______________________________
City State Zip
(_____)_______________________
Telephone Number
4
EXHIBIT A
EXERCISE NOTICE
TO: COMPETITIVE COMPANIES, INC.
Attn: Stock Plan Administrator
3751 Merced Drive, Suite A
Riverside, CA 92503
FROM: ______________________________
______________________________
______________________________
As of ___________________ (Date) and in accordance with the terms of Stock Option
Grant Number
________ I hereby elect to exercise such Option to the extent delineated below:
1. OPTION NUMBER: __________
2. NUMBER OF SHARES BEING EXERCISED: __________
3. EXERCISE PRICE PER SHARE (PER OPTION NUMBER): $__________
4. AGGREGATE PRICE OF SHARES (#2 X #3, above) $__________
5. PAYMENT METHOD:
_____ Cash Amount: $__________
_____ Check Amount: $__________
_____ Other per Plan (describe below): $__________
_____ Surrender of Other Shares
(Fair Market Value): $__________
(Executed Certificate(s)
#____,____,____ attached)
TOTAL (must equal #4 total above): $__________
Other Plan Payment Method:_____________________________________________________
_______________________________________________________________________________
Amount of Payment Enclosed: $__________________
Signed:____________________________ Date:_____________________
Enclosure(s)-
__________________________
__________________________
Exhibit # 10.15
Lease Agreement - Office
1
LEASE AGREEMENT
(Industrial Gross)
Basic Lease Information
Lease Date: July 21, 1999
Landlord: RIVERSIDE BUSINESS CENTER
A California Limited Partnership
Landlord's Address: c/o LEGACY PARTNERS COMMERCIAL, INC.
30 Executive Park, Suite 100
Irvine, California 92623
Tenant: Competitive Communication, Inc.,
a California Corporation
Tenant's Address: 3751 Merced Drive, Suites A, B & C
Riverside, Ca 92503
Premises: Approximately 3,212 rentable square feet as shown on
Exhibit A
Premises Address: 3751 Merced Drive, Suites A, B & C
Riverside, Ca 92501
Building (4): Approximately 16,060 rentable square feet
Park: Riverside Business Center [Approximately 280,354
rentable square feet]
Term: September 15, 1999 ("Commencement Date"), through
November 14, 2002 ("Expiration Date")
Base Rent (Paragraph 3): Two Thousand Eight Seven and 80/100
Dollars ($2,087.80) per month.
Adjustments to Base Rent: September 15, 1999 - November 14, 1999 $0.06 (Rent Waiver)
November 15, 1999 - September 14, 2000 $2,087.80 per month.
September 15, 2000 - September 14, 2001 $2,171.31 per month.
September 15, 2001 - November 14, 2002 $2,258.16 per month.
Security Deposit (Para. 4): Eight Hundred Seventy Five and 00/100 Dollars ($875.00)
Tenant has an existing security deposit in the amount of
$875.00 to be transferred from account # 01-0731BF-01.
Base Year for Tenant's Share of Increased Operating Expenses and Increased Tax Expenses: N/A
*Tenant's Share of Increased Operating Expenses (Para. 6.1): See Addendum I to Lease Agreement
*Tenant's Share of Increased Tax Expenses (Para. 6.2): See Addendum I to Lease Agreement
*Tenant's Share of Common Area Utility Costs (Para. 7): See Addendum I to Lease Agreement
*Tenant's Share of Utility Expenses (Para 7): See Addendum I to Lease Agreement
*The amount of Tenant's Share of the expenses as referenced above shall be subject to modification as
set forth in this Lease.
Permitted Uses: General offices for sales and service of telephone
systems but only to the extent permitted by the City
of Riverside and all agencies and governmental
authorities having jurisdiction thereof
Unreserved Parking Spaces: Eight (8) non-exclusive and non-designated spaces
Broker (Para. 38): None
Exhibits:Exhibit A - Premises, Building, Lot and/or Park
Exhibit B - Intentionally Omitted
Exhibit C - Rules and Regulations
Exhibit D - Covenants, Conditions and Restrictions
Exhibit E - Change of Commencement Date - Example
Exhibit F - Tenant's Initial Hazardous Materials Disclosure Certificate
Exhibit G - Sign Criteria
Addenda: Addendum I - Additional Lease Provisions
1
TABLE OF CONTENTS
SECTIONPAGE
1. PREMISES ..............................................................3
2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES.............3
3. RENT ..................................................................3
4. SECURITY DEPOSIT ......................................................4
5. TENANT IMPROVEMENTS ...................................................4
6. ADDITIONAL RENT .......................................................4
7. UTILITIES .............................................................6
8. LATE CHARGES ..........................................................7
9. USE OF PREMISES .......................................................8
10. ALTERATIONS AND ADDITIONS; AND SURRENDER OF PREMISES ..................9
11. REPAIRS AND MAINTENANCE ...............................................9
12. INSURANCE ............................................................10
13. WAIVER OF SUBROGATION ................................................11
14. LIMITATION OF LIABILITY AND INDEMNITY.................................12
15. ASSIGNMENT AND SUBLEASING ............................................12
16. AD VALOREM TAXES .....................................................13
17. SUBORDINATION ........................................................13
18. RIGHT OF ENTRY .......................................................14
19. ESTOPPEL CERTIFICATE .................................................14
20. TENANTS DEFAULT ......................................................14
21. REMEDIES FOR TENANT'S DEFAULT ........................................15
22. HOLDING OVER .........................................................16
23. LANDLORD'S DEFAULT ...................................................16
24. PARKING .............................................................16
25. SALE OF PREMISES .....................................................17
26. WAIVER ...............................................................17
27. CASUALTY DAMAGE ......................................................17
28. CONDEMNATION .........................................................17
29. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS ............................18
30. FINANCIAL STATEMENTS .................................................19
31. GENERAL PROVISIONS ...................................................20
32. SIGNS ................................................................21
33. MORTGAGEE PROTECTION .................................................21
34. QUITCLAIM ............................................................22
35. MODIFICATIONS FOR LENDER .............................................22
36. WARRANTIES OF TENANT .................................................22
37. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT ......................22
38. BROKERAGE COMMISSION .................................................23
39. QUIET ENJOYMENT ......................................................23
40. LANDLORD'S ABILITY TO PERFORM TENANTS UNPERFORMED OBLIGATIONS ........23
2
LEASE AGREEMENT
DATE: This Lease is made and entered into as of the Lease Date set forth on
Page 1. The Basic Lease Information set forth on Page I and this Lease
are and shall be construed as a single instrument.
1.Premises: Landlord hereby leases the Premises to Tenant upon the terms and
conditions contained herein. Landlord hereby grants to Tenant a license for die
right to use, on a non-exclusive basis, parking areas and ancillary facilities
located within the Common Areas of the Park, subject to the terms of this Lease.
Landlord and Tenant hereby agree that for purposes of this Lease, as of the
Lease Date, the rentable square footage area of the Premises, the Building, the
Lot and the Park shall be deemed to be the number of rentable square feet as set
forth in the Basic Lease Information on Page 1. Tenant hereby acknowledges that
the rentable square footage of the Premises may include a proportionate share of
certain areas used in common by all occupants of the Building and/or die Park
(for example an electrical room or telephone room). Tenant further agrees that
the number of rentable square feet of the Building, the Lot and die Park may
subsequently change after the Lease Date commensurate with any modifications to
any of the foregoing by Landlord, and Tenant's Share shall accordingly change.
2.Adjustment of Commencement Date; Condition of the Premises:
2.1 If Landlord cannot deliver possession of the Premises on the
Commencement Date, Landlord shall not be subject to any liability nor shall the
validity of the Lease be affected; provided, the Lease Term and the obligation
to pay Rent shall commence on the date possession is tendered and the Expiration
Date shall be extended commensurately. In the event the commencement date and/or
the expiration date of this Lease is other than the Commencement Date and/or
Expiration Date provided on Page 1, as the case may be, Landlord and Tenant
shall execute a written amendment to this Lease, substantially in the form of
Exhibit F hereto, wherein the parties shall specify the actual commencement
date, expiration date and the date on which Tenant is to commence paying Rent.
The word "Term" whenever used herein refers to the initial term of this Lease
and any extension thereof By taking possession of the Premises, Tenant shall be
deemed to have accepted die Premises in good condition and state of repair.
Tenant hereby acknowledges and agrees that neither Landlord nor Landlord's
agents or representatives has made any representations or warranties as to the
suitability, safety or fitness of the Premises for the conduct of Tenant's
business, Tenant's intended use of the Premises or for any other purpose. Tenant
agrees that at any time before or during the Term of this Lease, Landlord shall
have the right to relocate Tenant from the Premises described herein to other
space within the Park on substantially the same terms and conditions of this
Lease provided the other space is of comparable size.
2.2 In the event Landlord permits Tenant to occupy die Premises prior
to the Commencement Date, such occupancy shall be at Tenant's sole risk and subject
to all the provisions of this Lease, including, but not limited to, the
requirement to pay Rent and the Security Deposit, and to obtain the insurance
required pursuant to this Lease and to deliver insurance certificates as
required herein. In addition to the foregoing, Landlord shall have the fight to
impose such additional conditions on Tenant's early entry as Landlord shall deem
appropriate. If, at any time, Tenant is in default of any term, condition or
provision of this Lease, any such waiver by Landlord of Tenant's requirement to
pay rental payments shall be null and void and Tenant shall immediately pay to
Landlord all rental payments so waived by Landlord.
3.Rent: On the date that Tenant executes this Lease, Tenant shall deliver
to Landlord the original executed Lease, the Base Rent (which shall be applied
against the Rent payable for the first month Tenant is required to pay Base
Rent), the Security Deposit, and all insurance certificates evidencing the
insurance required to be obtained by Tenant under Section 12 of this Lease.
Tenant agrees to pay Landlord, without prior notice or demand, or abatement,
offset, deduction or claim, the Base Rent described in the Basic Lease
Information, payable in advance at Landlord's address specified in the Basic
Lease Information on the Commencement Date and thereafter on the first (1st) day
of each month throughout the balance of the Term of the Lease. In addition to
the Base Rent set forth in the Basic Lease Information, Tenant shall pay
Landlord in advance on die Commencement Date and thereafter on the first (1st)
day of each month throughout the balance of the Term of this Lease, as
Additional Rent, Tenant's Share of Increased Operating Expenses, Increased Tax
Expenses, Common Area Utility Costs, Utility Expenses and Administrative
Expenses. Tenant shall also pay to Landlord as Additional Rent hereunder,
immediately on Landlord's demand therefor, any and all costs and expenses
incurred by Landlord to enforce the provisions of this Lease, including, but not
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limited to, costs associated with the delivery of notices, delivery and
recordation of notice(s) of default, attorneys' fees, expert fees, court costs
and filing fees (collectively, the "Enforcement Expenses"), The term "Rent"
whenever used herein refers to the aggregate of all these amounts. If Landlord
permits Tenant to occupy the Premises without requiring Tenant to pay rental
payments for a period of time, the waiver of the requirement to pay rental
payments shall only apply to waiver of the Base Rent and Tenant shall otherwise
perform all other obligations of Tenant required hereunder. The Rent for any
fractional part of a calendar month at the commencement or termination of the
Lease term shall be a prorated amount of the Rent for a full calendar month
based upon a thirty (30) day month. The prorated Rent shall be paid on die
Commencement Date and die first day of the calendar month in which the date of
termination occurs, as the case may be.
4.Security Deposit: Upon Tenant's execution of this Lease, Tenant shall
deliver to Landlord, as a Security Deposit for the performance by Tenant of its
obligations under this Lease, the amount specified in the Basic Lease
Information. If Tenant is in default, Landlord may, but without obligation to do
so, use the Security Deposit, or any portion thereof, to cure the default or to
compensate Landlord for all damages sustained by Landlord resulting from
Tenant's default, including, but not limited to the Enforcement Expenses. Tenant
shall, immediately on demand, pay to Landlord a sum equal to the portion of the
Security Deposit so applied or used so as to replenish the amount of die
Security Deposit held to increase such deposit to the amount initially deposited
with Landlord. At any time after Tenant has defaulted hereunder, Landlord may
require an increase in the amount of the Security Deposit required hereunder for
the then balance of the Lease Term and Tenant shall, immediately on demand, pay
to Landlord additional sums in the amount of such increase. As soon as
practicable after the termination of this Lease, Landlord shall return the
Security Deposit to Tenant, less such amounts as arc reasonably necessary, as
determined solely by Landlord, to remedy Tenant's default(s) hereunder or to
otherwise restore the Premises to a clean and safe condition, reasonable wear
and tear excepted. If the cost to restore the Premises exceeds the amount of the
Security Deposit, Tenant shall promptly deliver to Landlord any and all of such
excess sums as reasonably determined by Landlord. Landlord shall not be required
to keep the Security Deposit separate from other funds, and, unless otherwise
required by law, Tenant shall not be entitled to interest on the Security
Deposit. In no event or circumstance shall Tenant have the right to any use of
the Security Deposit and, specifically, Tenant may not use the Security Deposit
as a credit or to otherwise offset any payments required hereunder, including,
but not limited to, Rent or any portion thereof.
5.Tenant Improvements: Tenant hereby accepts the Premises as suitable for
Tenant's intended use and as being in good operating order, condition and
repair, "AS IS". Tenant acknowledges and agrees that neither Landlord nor any of
Landlord's agents, representatives or employees has made any representations as
to die suitability, fitness or condition of the Premises for the conduct of
Tenant's business or for any other purpose, including without limitation, any
storage incidental thereto. Tenant further acknowledges and agrees that neither
Landlord nor any of Landlord's agents, representatives or employees has agreed
to perform or undertake (i) any alterations to the Premises, or (ii) construct
any improvements in or to the Premises (collectively, "Tenant Improvements").
Any exception to the foregoing provisions must be made by express written
agreement by both parties.
6.Additional Rent: The costs and expenses described in this Section 6 and
all other sums, charges, costs and expenses specified in this Lease other than Base
Rent are to be paid by Tenant to Landlord as additional rent (collectively,
"Additional Rent").
6.1Operating Expenses: In addition to die Base Rent set forth in Section
3, Tenant shall pay Tenant's Share, which is specified in the Basic Lease
Information, of all Operating Expenses in excess of the amount of said expenses
for the Base Year for such expenses, as specified in the Basic Lease Information
("Increased Operating Expenses"), as Additional Rent. Ile term "Operating
Expenses" as used herein shall mean the total amounts paid or payable by
Landlord in connection with the ownership, maintenance, repair and operation of
the Premises, the Building and the Lot, and where applicable, of the Park
referred to in the Basic Lease Information. The amount of Tenant's Share of
Increased Operating Expenses shall be reviewed from time to time by Landlord and
shall be subject to modification by Landlord if there is a change in the
rentable square footage of the Premises, the Building and/or the Park.
Notwithstanding anything to the contrary set forth in this Lease, solely for the
purpose of calculating the amount of the Operating Expenses attributable to the
Base Year, the term Operating Expenses shall exclude any costs of any capital
improvements or expenditures, and any market-wide labor-rate increases due to
extraordinary circumstances, including, but not limited to, boycotts and
strikes. However, the foregoing shall not be construed to exclude such costs and
expenses from the definition of Operating Expenses for all other purposes of
this Lease. These Operating Expenses may include, but arc not limited to:
6.1.1 Landlord's cost of repairs to, and maintenance of, the roof, the roof
membrane and the exterior walls of the Building;
6.1.2 Landlord's cost of maintaining the outside paved area, landscaping and
other
4
common areas for the Park. The term "Common Areas" shall mean all areas and
facilities within the Park exclusive of the Premises and the other portions of
the Park leasable exclusively to other tenants. The Common Areas include, but
are not limited to, interior lobbies, mezzanines, parking areas, access and
perimeter roads, sidewalks, rail spurs, landscaped areas and similar areas and
facilities;
6.1.3 Landlord's annual cost of insurance insuring against fire and
extended coverage (including, if Landlord elects, "all risk" or "special purpose"
coverage) and all other insurance, including, but not limited to, earthquake,
flood and/or surface water endorsements for the Building, the Lot and the Park
(including the Common Areas), rental value insurance against loss of Rent in an
amount equal to the amount of Rent for a period of at least six (6) months
commencing on the date of loss, and subject to the provisions of Section 27
below, any deductible;
6.1.4 Landlord's cost of. (i) modifications and/or new improvements
to the Building the Common Areas and/or the Park occasioned by any rules, laws
or regulations effective subsequent to the date on which the Building was
originally constructed; (ii) reasonably necessary replacement improvements to
the, Building, the Common Areas and the Park after the Lease Date; and (iii),
new improvements to the Building, the Common Areas and/or the Park that reduce
operating costs or improve life/safety conditions, all as reasonably determined
by Landlord, in its sole discretion;
6.1.5 If Landlord elects to so procure, Landlord's cost of preventative
maintenance, and repair contracts including, but not limited to, contracts for
elevator systems and heating, ventilation and air conditioning systems, lifts
for disabled persons, and trash or refuse collection;
6.1.6 Landlord's cost of security and fire protection services for the
Building and/or the Park, as the case may be, if in Landlord's sole discretion
such services are provided;
6.1.7 Landlord's establishment of reasonable reserves for replacements
and/or repairs of Common Area improvements, equipment and supplies;
6.1.8 Landlord's cost for the maintenance and repair of any rail spur
and rail crossing, and for the creation and negotiation of, and pursuant to, any
rail spur or track agreements, licenses, casements or other similar
undertakings;
6.1.9 Landlord's cost of supplies, equipment, rental equipment and other
similar items used in the operation and/or maintenance of the Park; and
6.1.10 Landlord's cost for the repairs and maintenance items set forth in
Section 11.2 below.
6.2Tax Expenses: In addition to the Base Rent set forth in Section 3,
Tenant shall pay Tenant's Share, which is specified in the Basic Lease
Information, of all real property taxes applicable to the land and improvements
included within the Lot on which the Premises are situated in excess of the
amount of the Tax Expenses for die Base Year for such expenses, as set forth in
the Basic Lease Information ("Increased Tax Expenses"), and one hundred percent
(100%) of all personal property taxes now or hereafter assessed or levied
against the Premises or Tenant's personal property. The amount of Tenant's Share
of Increased Tax Expenses shall be reviewed from the to time by Landlord and
shall be subject to modification by Landlord if there is a change in the
rentable square footage of the Premises, the Building and/or the Park. Tenant
shall also pay one hundred percent (100%) of any increase in real property taxes
attributable, in Landlord's sole discretion, to any and all alterations or other
improvements of any kind, which are above standard improvements customarily
installed for similar buildings located within the Building or the Park (as
applicable), whatsoever placed in, on or about the Premises for the benefit of,
at the request of, or by Tenant. 'Me term "Tax Expenses" shall mean and include,
without limitation, any form of tax and assessment (general, special,
supplemental, ordinary or extraordinary), commercial rental tax, payments under
any improvement bond or bonds, license fees, license tax, business license fee,
rental tax, transaction tax, levy, or penalty imposed by authority having the
direct or indirect power of tax (including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
district thereof) as against any legal or equitable interest of Landlord in the
Premises, the Building, the Lot or the Park, as against Landlord's right to rent
or as against Landlord's business of leasing the Premises or the occupancy of
Tenant or any other tax, fee, or excise, however described, including, but not
limited to, any value added tax, or any tax imposed in substitution (partially
or totally) of any tax previously included within the definition of real
property taxes, or any additional tax the nature of which was previously
included within the definition of real property taxes. The term "Tax Expenses"
shall not include any franchise, estate, inheritance, net income, or excess
profits tax imposed upon Landlord.
5
6.3Payment of Expenses: Landlord shall estimate Tenant's Share of the
Increased Operating Expenses and Increased Tax Expenses for the calendar year
following the Base Year. Commencing on the first anniversary of the Commencement
Date, one-twelfth (1/12th) of this estimated amount shall be paid by Tenant to
Landlord, as Additional Rent, on the first (1st) day of each month and
throughout the remaining months of such calendar year. Thereafter, Landlord may
estimate such expenses as of the beginning of each calendar year and Tenant
shall pay one-twelfth (1/12th) of such estimated amount as Additional Rent
hereunder on the first day of each month during such calendar year and for each
ensuing calendar year throughout the Term of this Lease. Tenant's obligations to
pay Tenant's Share of Increased Operating Expenses and Increased Tax Expenses
shall survive the expiration or earlier termination of this Lease.
6.4Annual Reconciliation: By June 30th of each calendar year, or as
soon thereafter as reasonably possible Landlord shall endeavor to furnish Tenant
with an accounting of actual Operating Expenses and Tax Expenses. Within thirty (30)
days of Landlord's delivery of such accounting, Tenant shall pay to Landlord the
amount of any underpayment. Notwithstanding the foregoing, failure by Landlord t
o give such accounting by such date shall not constitute a waiver by Landlord of
its right to collect any of Tenant's underpayment at any time. Landlord shall
credit the amount of any overpayment by Tenant toward the next estimated monthly
installment(s) falling due, or where the Term of the Lease has expired, refund
the amount of overpayment to Tenant. If the Term of the Lease expires prior to
the annual reconciliation of expenses Landlord shall have the right to
reasonably estimate Tenant's Share of such expenses, and if Landlord determines
that an underpayment is due, Tenant hereby agrees that Landlord shall be
entitled to deduct such underpayment from Tenant's Security Deposit. If Landlord
reasonably determines that an overpayment has been made by Tenant, Landlord
shall refund said overpayment to Tenant as soon as practicable thereafter.
Notwithstanding the foregoing, failure of Landlord to accurately estimate
Tenant's Share of such expenses or to otherwise perform such reconciliation of
expenses,. including without limitation, Landlord's failure to deduct any
portion of any underpayment from Tenant's Security Deposit, shall not constitute
a waiver of Landlord's right to collect any of Tenant's underpayment at any time
during the Term of the Lease or at any time after the expiration or earlier
termination of this Lease.
6.5Audit: After delivery to Landlord of at least thirty (30) days
prior written notice, Tenant, at its sole cost and expense through any accountant
designated by it, shall have the right to examine and/or audit the books and
records evidencing such costs and expenses for the previous one (1) calendar
year, during Landlord's reasonable business hours but not more frequently than
once during any calendar year. Any such accounting firm designated by Tenant may
not be compensated on a contingency fee basis. The results of any such audit
(and any negotiations between the parties related thereto) shall be maintained
strictly confidential by Tenant and its accounting firm and shall not be
disclosed, published or otherwise disseminated to any other party other than to
Landlord and its authorized agents. Landlord and Tenant shall use their best
efforts to cooperate in such negotiations and to promptly resolve any
discrepancies between Landlord and Tenant in the accounting of such costs and
expenses.
7.Utilities and Administrative Expenses: The Utility Expenses, Common Area
Utility Costs, Administrative Expenses and all other sums or charges set forth
in this Section 7 arc considered part of Additional Rent, and as a net charge.
As such Tenant shall pay to Landlord, as Additional Rent, the Administrative
Expenses and Tenant's Share, which is specified in the Basic Lease Information,
of the Utility Expenses and Common Area Utility Costs on the Commencement Date
and thereafter on the first (1st) day of each month throughout the balance of
the Term of this Lease in the manner set forth in Sections 7.1 and 7.2 below.
7.1Utilities: In addition to the Base Rent set forth in Section 3 hereof,
Tenant shall pay the cost of all water, sewer use, sewer discharge fees and
sewer connection fees, gas, heat, electricity, refuse pickup, janitorial
service, telephone and other utilities billed or metered separately to the
Premises and/or Tenant. Tenant shall also pay Tenant's Share of any assessments
or charges for utility or similar purposes included within any tax bill for the
Lot on which the Premises are situated, including, without limitation,
entitlement fees, allocation unit fees, and/or any similar fees or charges, and
any penalties related thereto. For any such utility fees or use charges that are
not billed or metered separately to Tenant, including without limitation, water
and refuse pick-up charges, Tenant shall pay to Landlord, as Additional Rent,
without prior notice or demand, on the Commencement Date and thereafter on the
first (1st) day of each month throughout the balance of the Term of this Lease
the amount which is attributable to Tenant's use of the utilities or similar
services, as reasonably estimated and determined by Landlord based upon factors
such as size of the Premises and intensity of use of such utilities by Tenant
such that Tenant shall pay the portion of such charges reasonably consistent
with Tenant's use of such utilities and similar services ("Utility Expenses").
If Tenant disputes any such estimate or determination, then Tenant shall either
pay the estimated amount or cause the Premises to be separately metered at
Tenant's sole expense. In addition, Tenant shall pay to Landlord Tenant's Share
of any Common Area utility costs, fees, charges or expenses ("Common Area
Utility Costs"). Tenant shall pay to Landlord one-twelfth (1/12th) of the
estimated amount of Tenant's Share of the Common Area Utility Costs on the
Commencement Date and thereafter on
6
the first (lst) day of each month throughout the balance of the Term of this
Lease and any reconciliation thereof shall be substantially in the same manner
as specified in Section 6.4 above, to the extent applicable. The amount of
Tenant's Share of Common Area Utility Costs shall be reviewed from time to time
by Landlord and shall be subject to modification by Landlord if there is a
change in the rentable square footage of the Premises, the Building and/or the
Park. Tenant acknowledges that the Premises may become subject to the rationing
of utility services or restrictions on utility use as required by a public
utility company, governmental agency or other similar entity having jurisdiction
thereof Notwithstanding any such rationing or restrictions on use of any such
utility services, Tenant acknowledges and agrees that its tenancy and occupancy
hereunder shall be subject to such rationing restrictions as may be imposed upon
Landlord, Tenant, the Premises, the Building or the Park, and Tenant shall in no
event be excused or relieved from any covenant or obligation to be kept or
performed by Tenant by reason of any such rationing or restrictions. Tenant
further agrees to timely and faithfully pay, prior to delinquency, any amount,
tax, charge, surcharge, assessment or imposition levied, assessed or imposed
upon the Premises or Tenant's use and occupancy thereof. Notwithstanding
anything to the contrary contained herein, if permitted by applicable Laws,
Landlord shall have the right at any time and from time to time during the Term
of this Lease to either contract for service from a different company or
companies (each such company shall be referred to herein as an "Alternate
Service Provider") other than the company or companies presently providing
electricity service for the Building or the Park (the "Electric Service
Provider") or continue to contract for service from the Electric Service
Provider, at Landlord's sole discretion. Tenant hereby agrees to cooperate with
Landlord, the Electric Service Provider, and any Alternate Service Provider at
all times and, as reasonably necessary, shall allow Landlord, the Electric
Service Provider, and any Alternate Service Provider reasonable access to the
Building's electric lines, feeders, risers, wiring, and any other machinery
within the Premises.
7.2Administrative Expenses: The Administrative Expenses set forth in
this Section 7.2 are considered part of Additional Rent, and as a net charge. In
addition to the Base Rent set forth in Section 3 hereof, Tenant shall pay
Landlord, without prior notice or demand, commencing on the Commencement Date
and continuing thereafter on the first (1st) day of each month throughout the
balance of the Term of this Lease, as compensation to Landlord for accounting
and management services rendered on behalf of the Building and/or the Park,
one-twelfth (1/12th) of an amount equal to ten percent (10%) of the estimated
amount of the aggregate of the Tenant's Share of (i) the total Operating
Expenses and Tax Expenses as described in Sections 6.1 and 6.2 above,
respectively, and (ii) all Common Area Utility Costs for the Park and Utility
Expenses for the Premises as described in Section 7.1 (collectively, the
"Administrative Expenses"). Any reconciliation of the Administrative Expenses
shall be substantially in the same manner as specified in Section 6.4 above, to
the extent such provisions are applicable. Tenant's obligations to pay such
Administrative Expenses shall survive the expiration or earlier termination of
this Lease.
8.Late Charges: Any and all sums or charges set forth in this Section 8 are
considered part of Additional Rent. Tenant acknowledges that late payment (the
second day of each month or any time thereafter) by Tenant to Landlord of Base
Rent, Tenant's Share of Increased Operating Expenses, Increased Tax Expenses,
Common Area Utility Costs, and Utility Expenses, Administrative Expenses or
other sums due hereunder, will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord by the
terms of any note secured by any encumbrance against the Premises, and late
charges and penalties due to the late payment of real property taxes on the
Premises. Therefore, if any installment of Rent or any other sum due from Tenant
is not received by Landlord when due, Tenant shall promptly pay to Landlord all
of the following, as applicable: (a) an additional sum equal to ten percent
(10%) of such delinquent amount plus interest on such delinquent amount at the
rate equal to the prime rate plus three percent (3%) for the time period such
payments are delinquent as a late charge for every month or portion thereof that
such sums remain unpaid, (b) the amount of seventy-five dollars ($75) for each
three-day notice prepared for, or served on, Tenant, (c) the amount of fifty
dollars ($50) relating to checks for which there are not sufficient funds. If
Tenant delivers to Landlord a check for which there are not sufficient funds,
Landlord may, at its sole option, require Tenant to replace such check with a
cashier's check for the amount of such check and all other charges payable
hereunder. The parties agree that this late charge and the other charges
referenced above represent a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant. Acceptance of any late
charge or other charges shall not constitute a waiver by Landlord of Tenant's
default with respect to the delinquent amount, nor prevent Landlord from
exercising any of the other rights and remedies available to Landlord for any
other breach of Tenant under this Lease. If a late charge or other charge
becomes payable for any three (3) installments of Rent within any twelve (12)
month period, then Landlord, at Landlord's sole option, can either require the
Rent be paid quarterly in advance, or be paid monthly in advance by cashier's
check or by electronic funds transfer.
9.Use of Premises
9.1Compliance with Laws, Recorded Matters, and Rules and Regulations:
The Premises are to be used solely for the purposes and uses specified in the Basic
Lease Information and for no other uses or purposes without Landlord's prior
written consent, which consent shall not be unreasonably withheld or delayed so
long as the proposed use (i) does not involve the use of Hazardous Materials
other than as expressly permitted under the provisions of Section 29 below, (ii)
does not require any additional parking in excess of the parking spaces already
licensed to Tenant pursuant to the provisions of Section 24 of this Lease, and
(iii) is compatible and consistent with the other uses then being made in the
Park and in other similar types of buildings in the vicinity of the Park, as
reasonably determined by Landlord. The use of the Premises by Tenant and its
employees, representatives, agents, invitees, licensees, subtenants, customers
or contractors (collectively, *Tenant's Representatives") shall be subject to,
and at all times in compliance with, (a) any and all applicable laws,
ordinances, statutes, orders and regulations as same exist from time to time
(collectively, the "Laws"), (b) any and all documents, matters or instruments,
including without limitation, any declarations of covenants, conditions and
restrictions, and any supplements thereto, each of which has been or hereafter
is recorded in any official or public records with respect to the Premises, the
Puilding, the Lot and/or the Park, or any portion thereof (collectively, the
"Recorded Matters"), and (c) any and all rules and regulations set forth in
Exhibit C, attached to and made a part of this Lease, and any other reasonable
rules and regulations promulgated by Landlo@d now or hereafter enacted relating
to parking and the operation of the Premises, die Building and the Park
(collectively, the "Rules and Regulations"). Tenant agrees to, and does hereby,
assume full and complete responsibility to ensure that the Premises are adequate
to fully meet the needs and requirements of Tenant's intended operations of its
business within the Premises, and Tenant's use of the Premises and that same are
in compliance with all applicable Laws throughout the Term of this Lease.
Additionally, Tenant shall be solely responsible for the payment of all costs,
fees and expenses associated with any modifications, improvements or alterations
to the Pren-dses, Building, the Common Areas and/or the Park occasioned by the
enactment of, or changes to, any Laws arising from Tenant's particular use of
the Premises or alterations, improvements or additions made to the Premises
regardless of whcA such Laws became effective
9.2Prohibition on Use: Tenant shall not use die Premises or permit
anything to bc done in or about the Premiscs nor keep or bring anything thercin
which will in any way conflict with any of the requirements of die Board of Fire
Underwriters or similar body now or hereafter constituted or in any way increase
the existing rate of or affect any policy of fire or other insurance upon the
Building or any of its contents, or cause a cancellation of any insurance
policy. No auctions may be held or otherwise conducted in, on or about the
Premises, the Building, the Lot or the Park without Landlord's written consent
thereto, which consent may be given or witliheld in Landlord's sole discretion.
Tenant shall not do or permit anything to be done in or about the Prerr@scs
w1iich will in any way obstruct or interfere with the fights of Landlord, other
tenants or occupants of the Building, other buildings in the Park, or other
persons or businesses in tht 'area, or injure or annoy other tenants or use or
allow the Premises to be used for any unlawful or objectionable purpose, as
dcterm@ined by Landlord, in its reasonable discretion, for the bencfit, quiet
enjoyment and use by Landlord and all other tenants or occupants of the Building
or other buildings in the Park; nor shall Tenant cause, maintain or permit any
private or public nuisance in, on or about the Premises, Building, Park and/or
the Common Areas, including, but not limited to, any offensive odors, noises,
fumes or vibrafions. Tenant shall not damage or deface or othcrwisc commit or
suffer to bc committed any waste in, upon or about the Prerrdses. Tenant shall
not place or store, nor permit any other person or entity to place or store, any
property, equipment, materials, supplies, personal property or any other items
or goods outside of the Premises for any period of time. Tenant shall not permit
any animals, including, but not limited to, any household pets, to be brought or
kept in or about die Premises. Tenant shall place no loads upon the floors,
walls, or ceilings in excess of the maximum designed load permitted by the
applicable Uniform Building Code or which may damage die Building or outside
areas-, nor place any harmful liquids in the drainage systems; nor dump or store
waste materials, refuse or other such materials, or allow such to remain outside
the Building area, except for any nonhazrdous or non-harinful materials which
may be stored in refuse dumpsters or in any enclosed trash areas provided.
Tenant shall honor the terms of aH Recorded Matters relating to the Premises,
the Building, the Lot and/or the Park. Tenant shall honor the Rules and
Regulations. If Tenant fails to comply with such Laws, Recorded Matters, Rules
and Regulations or the provisions of this Lease, Landlord shall have the right
to collect from Tenant a reasonable sum as a penalty, in addition to aH fights
and remedies of Landlord hereunder including, but not limited to, the payment by
Tenant to Landlord of all Enforcement Expenses and Landlord's costs and
expenses, if any, to cure any of such failures of Tenant, if Landlord, at its
sole option, elects to undertake such cure.
10.Alterations and Additions: and Surrender of Premises:
10.1Alterations and Additions: Tenant shall not install any signs,
fixtures, improvements, nor make or permit any other alterations or additions to
the Premises without the prior written consent of Landlord. If any such
alteration or addition is expressly permitted by Landlord, Tenant shall deliver
at least twenty (20) days prior notice to Landlord, from the date Tenant intends
to commence construction, sufficient to enable Landlord to post a Notice of
Non-Responsibility. In all events, Tenant shall obtain all permits or other
governmental approvals prior to commencing any of such work and deliver a copy
of same to Landlord. All alterations and additions shall be installed by a
licensed contractor approved by Landlord, at Tenanes sole expense in compliance
with all applicable Laws (including, but not limited to, the ADA as .defined
herein), Recorded Matters, and Rules and Regulations. Tenant shall keep the
Premises and the property on which the Premises are situated free from any liens
arising out of any work performed, materials furnished or obligations incurred
by or on behalf of Tenant. As a condition to Landlord's consent to the
installation of any fixtures, additions or other improvements, Landlord may
require Tenant to post and obtain a completion and indemnity bond for up to one
hundred fifty percent (150%) of the cost of the work.
10.2Surrender of Premises: Upon the termination of this Lease, whether
by forfeiture, lapse of time or otherwise, upon the termination of Tenant's right
to possession of the Premises, Tenant will at once surrender and deliver up the
Premises, together with the fixtures (other than trade fixtures), additions and
improvements which Landlord has notified Tenant, in writing, that Landlord will
require Tenant not to remove, to Landlord in good condition and repair
(including, but not limited to, replacing all light bulbs and ballasts not in
good working condition) and in the condition in which the Premises existed as of
the Commencement Date, except for reasonable wear and tear. Reasonable wear and
tear shall not include any damage or deterioration to the floors of the Premises
arising from die use of forklifts in, on or about the Premises (including,
without limitation, any marks or stains of any portion of the floors), and any
damage or deterioration that would have been prevented by proper maintenance by
Tenant or Tenant otherwise performing all of its obligations under this Lease.
Upon such termination of thi; Lease, Tenant shall remove all tenant signage,
trade fixtures, furniture, furnishings, personal property, additions, and other
improvements unless Landlord requests, in writing, that Tenant not remove some
or all of such fixtures (other than trade fixtures), additions or improvements
installed by, or on behalf of Tenant or situated in or about the Premises. By
the date which is twenty (20) days prior to such termination of this Lease,
Landlord shall notify Tenant in writing of those fixtures (other than trade
fixtures), alterations, additions and other improvements which Landlord shall
require Tenant not to remove from the Premises. Tenant shall repair any damage
caused by the installation or removal of such signs, trade fixtures, furniture,
furnishings, fixtures, additions and improvements which are to be removed from
the Premises by Tenant hereunder. If Landlord fails to so notify Tenant at least
twenty (20) days prior to such termination of this Lease, then Tenant shall
remove all tenant signage, alterations, furniture, furnishings, trade fixtures,
additions and other improvements installed in or about the Premises by, or on
behalf of Tenant. Tenant shall ensure that & removal of such items and the
repair of the Premises will be completed prior to such termination of this
Lease.
11.Repairs and Maintenance:
11.1Tenant's Repairs and Maintenance Obligations: Except for those
portions of the Building to be maintained by Landlord, as provided in Sections
11.2 and 11.3 below, Tenant shall, at Tenant's sole cost and expense, keep and
maintain the Premises and the adjacent dock and staging areas in good, clean and
safe condition and repair to the reasonable satisfaction of Landlord including,
but not limited to, repairing any damage caused by Tenant or Tenant's
Representatives and replacing any property so damaged by Tenant or Tenant's
Representatives. Without limiting the generality of the foregoing, Tenant shall
be solely responsible for maintaining, repairing and replacing (a) all
mechanical systems, heating, ventilation and air conditioning systems
exclusively serving the Premises, (b) all plumbing, electrical wiring and
equipment serving the Premises, (c) all interior lighting (including, without
limitation, light bulbs and/or ballasts) and exterior lighting serving the
Premises or adjacent to the Premises, (d) all glass, windows, window frames,
window easements, skylights, interior and exterior doors, door frames and door
closers, (e) all roll-up doors, ramps and dock equipment, including without
limitation, dock bumpers, dock plates, dock scals, dock levelers and dock
lights, (f) all tenant signagc, (g) lifts for disabled persons serving the
Premises, (h) sprinkler systems, fire protection systems and security systems,
(i) all partitions, fixtures, equipment, interior painting, and interior walls
and floors of the Premises and every part thereof (including, without
limitation, any dernising walls contiguous to any portion of the Premises).
11.2Reimbursable Repairs and Maintenance Obligations: Subject to the
provisions of Sections 6 and 9 of this Lease and except for (i) the obligations
of Tenant set forth in Section 11. 1 above, (ii) die obligations of Landlord set
forth in Section 11.3 below. and (iii) the repairs rendered necessary by the
intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives, Landlord
9
agrees, at Landlord's expense, subject to reimbursement pursuant to Section 6
above, to keep in good repair the plumbing and mechanical systems exterior to
the Premises, any rail spur and rail crossing, the roof roof membranes, exterior
walls of the Building, signage (exclusive of tenant signage), and exterior
electrical wiring and equipment@ exterior lighting, exterior glass, exterior
doorslentrances and door closers, exterior window casements, exterior painting
of the Building (exclusive of the Premises), and underground utility and sewer
pipes outside the exterior walls of the Building. For purposes of this Section
11.2, the term "exterior" shall mean outside of and not exclusively serving the
Premises. Unless otherwise notified by Landlord, in writing, that Landlord has
elected to procure and maintain the following described contmct(s), Tenant shall
procure and maintain (a) the heating. ventilation and air conditioning systems
preventative maintenance and repair contract(s); such contract(s) to be on a
bi-monthly or quarterly basis, as reasonably determined by Landlord, and (b) the
fire and sprinkler protection services and preventative maintenance and'repair
contract(s) (including, without limitation, monitoring services); such
contract(s) to be on a bi-monthly or quarterly basis, as reasonably determined
by Landlord. Landlord reserves the right, but without the obligation to do so,
to procure and maintain (i) the licating, ventilation and air conditioning
system preventative maintenance and repair contract(s), and/or (ii) the fire and
sprinkler protection services and preventative maintenance and repair
contract(s) (including, without limitation, monitoring services). If Landlord so
elects to procure and maintain any such contract(s), Tenant will reimburse
Landlord for thq cost thereof in accordance with the provisions of Section 6
above. If Tenant procures and maintains any of such contract(s), Tenant will
promptly deliver to Landlord a true and complete copy of each such contract and
any and all renewals or extensions thereof, and each service report or other
summary received by Tenant pursuant to or in connection with such contract(s).
11.3Landlord's Repairs and Maintenance Obligations: Except for repairs
rendered necessary by the intentional or negligent acts or omissions of Tenant
or any of Tenant's Representatives, Landlord agrees, at Landlord's sole cost and
expense, to (a) keep in good repair the structural portions of the floors,
foundations and exterior perimeter walls of the Building (exclusive of glass and
exterior doors), and (b) replace the structural portions of die roof of die
Building (excluding the roof membrane) as, and when, Landlord determines such
replacement to be necessary in Landlord's sole discretion.
11.4Tenant's Failure to Perform Repairs and Maintenance Obligations:
Except for normal maintenance and repair of the items described above, Tenant
shall have no right of access to or right to install any device on the roof of
the Building nor make any penetrations of the roof of the Building without the
express prior written consent of Landlord. If Tenant rcfusr-s or neglects to
repair and maintain the Premises and the adjacent areas properly as required
herein and to the reasonable satisfaction of Landlord, Landlord may, but without
obligation to do so, at any time make such repairs and/or maintenance without
Landlord having any liability to Tenant for any loss or damage that may accrue
to Tenant's merchandise, fixtures or other property, or to Tenant's business by
reason thereof, except to the extent any damage is caused by the willful
misconduct or gross negligence of Landlord or its authorized agents and
representatives. In the event Landlord makes such repairs and/or maintenance,
upon completion thereof Tenant shall par *to Landlord, as additional rent@ die
Landlord's costs for making such repairs and/or maintenance, plus twenty percent
(201/6) for overhead, upon presentation of a bill therefor, plus any Enforcement
Expenses. The obligations of Tenant hereunder shall survive die expiration of
the Term of this Lease or the earlier tcrmination thereof. Tenant hereby waives
any right to repair at the expense of Landlord under any applicable Laws now or
hereafter in effect respecting the Premises.
12. Insurance:
12.1Types of Insurance: Tenant shall maintain in full force and effect
at all times during the Term of this Lease, at Tenant's sole cost and expense, for
the protection of Tenant and Landlord, as their interests may appear, policies
of insurance issued by a carrier or carriers reasonably acceptable to Landlord
and its lender(s) which afford the following coverages: (i) worker's
compensation: statutory limits; (ii) employees liability, as required by law,
with a minimum limit of $100,000 per employee and $500,000 per occurrence; (iii)
commercial general liability insurance (occurrence form) providing coverage
against any and all claims for bodily injury and property damage occurring in,
on or about the Premises arising out of Tenant's and Tenant's Representatives'
use and/or occupancy of the Premises. Such insurance shall include coverage for
blanket contractual liability, fire damage, premises, personal injury, completed
operations, products liability, personal and advertising, and a plate-glass
rider to provide coverage for all glass in, on or about the Premises including,
without limitation, skylights. Such insurance shall have a combined single linut
of not less than One Million Dollars ($1,000,000) per occurrence with a Two
Million Dollar ($2,000,000) aggregate limit and excess/umbrella insurance in the
amount of Two Million Dollars (S2,000,000). If Tenant has other locations which
it owns or leases, the policy shall include an aggregate limit per location
endorsement. If necessary, as reasonably determined by Landlord, Tenant shall
provide for restoration of the aggregate limit; (iv) comprehensive automobile
liability insurance: a combined single limit of not less than $2,000,000 per
occurrence and insuring Tenant against liability for claims arising out of the
ownership, maintenance, or use of any owned, hired or non-owned automobiles; (v)
"all risk" or "special purpose" property insurance, including without
limitation, sprinkler
10
leakage,.boiler and machinery comprehensive form, if applicable, covering damage
to or loss of any personal property, trade fixtures, inventory, fixtures and
equipment located in, on or about the Premises, and in addition, coverage for
flood, earthquake, and business interruption of Tenant@ together with, if the
property of Tenant's invitees is to be kept in the Premises, warehouser's legal
liability or bailoe customers insurance for the fall replacement cost of the
property belonging to invitees and located in the Premises. Such insurance shall
be written on a replacement cost basis (without deduction for depreciation) in
an amount equal to one hundred percent (100%) of the full replacement value of
the aggregate of the items referred to in this subparagraph (v); and (vi) such
other insurance as Landlord deems necessary and prudent or as may otherwise be
required by any of Landlord's lenders or joint venture partners.
12.2Insurance Policies: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State of
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of at least A:X (or such higher rating as may be
required by a lender having a lien on the Premises) as set forth in the most
current issue of "A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed One Thousand
Dollars ($1,000). Tenant shall deliver to Landlord certificates of insurance and
true and complete copies of any and all endorsements required herein for all
insurance required to be maintained by Tenant hcreynder at the time of execution
of this Lease by Tenant. Tenant shall, at least thirty (30) days prior to
expiration of each policy, fumish Landlord with certificates of renewal o ,r
"binders" thereof. Each certificate shall expressly provide that such policies
shall not be cancelable or otherwise subject to modification except after thirty
(30) days prior written notice to the parties named as additional insureds as
required in this Lease (except for cancellation for nonpayment of premium, in
which event cancellation shall not take effect until at least ten (10) days'
notice has been given to Landlord). Tenant shall have the right to provide
insurance coverage which it is obligated to carry pursuant to the terms of this
Lease under a blanket insurance policy, provided such blanket policy expressly
affords coverage for the Pren-dses and for Landlord as required by this Lease.
12.3Additional Insureds and Coverage: Landlord, any property management
company and/or agent of Landlord for the Premises, the Building, the Lot or the
Park, and an; lender(s) of Landlord having a lien against the Premises, die
Building, the Lot or the Park shall be named as additional insureds under all of
the policies required in Section 12. 1 (iii) above. Additionally, such -policies
shall provide for scverability of interest. All insurance to be maintained by
Tenant shall, except for workers' compensation and employer's liability
insurance, be primary, without right of contribution from insurance maintained
by Landlord. Any umbrelWcxcess liability policy (which shall be in "following
form") shall provide that if the underlying aggregate is exhausted, die excess
coverage will drop down as primary insurance. The limits of insurance maintained
by Tenant shall not limit Tenant's liability under this Lease. It is the panics'
intention that die insurance to be procured and maintained by Tenant as required
herein shall provide coverage for any and all damage or injury arising from or
related to Tenant's operations of its business and/or Tenant's or Tenant's
Representatives' use of the Premises and/or any of the areas within the Park,
whether such events occur within the Premises (as described in Exhibit A hereto)
or in any other areas of the Park. It is not contemplated or anticipated by the
parties that the aforementioned risks of loss be borne by Landlord's insurance
carriers, rather it is contemplated and anticipated by Landlord and Tenant that
such risks of loss be bome by Tenant's insurance carriers pursuant to the
insurance policies procured and maintained by Tenant as required herein.
12.4Failure of Tenant to Purchase and Maintain Insurance: In the event
Tenant does not purchase the insurance required in this Lease or keep the same
in full force and effect throughout the Term of this Lease (including any
renewals or extensions), Landlord may, but without obligation to do so, purchase
the necessary insurance and pay the premiums therefor. If Landlord so elects to
purchase such insurance, Tenant shall promptly pay to Landlord as Additional
Rent, the amount so paid by Landlord, upon Landlord's demand therefor. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
Additional Rent, any and all Enforcement Expenses and damages which Landlord may
sustain by reason of Tenant's failure to obtain and maintain such insurance. If
Tenant f"s to maintain any insurance required in this Lease, Tenant shall be
liable for all losses, damages and costs resulting from such failure.
13.Waiver of Subrogation: Landlord and Tenant hereby mutually waive their
respective fights of recovery against each other for any loss of, or damage to,
either parties' property to the extent that such loss or damage is insured by an
insurance policy required to be in effect at the time of such loss or damage.
Each party shall obtain any special endorsements, if required by its insurer
whereby the insurer waives its fights of subrogation against die other party.
This provision is intended to waive fully, and for the benefit of the parties
hereto, any fights and/or claims which might give rise to a fight of subrogation
in favor of any insurance carrier. Ile coverage obtained by Tenant pursuant to
Section 12 of dus Lease shall include, without limitation, a waiver of
subrogation endorsement attached to the certificate of insurance. The provisions
of this Section 13 shall not apply in those instances in which such waiver of
subrogation would invalidate such insurance coverage or would cause either
party's insurance coverage to be voided or otherwise uncollectible.
11
14.Limitation of Liability and Indemnity: Except to the extent of damage
resulting from die sole active gross negligence or willful misconduct of
Landlord or its authorized representatives, Tenant agrees to protect, defend
(with counsel acceptable to Landlord) and hold Landlord and Landlord's lenders,
partners, members, property management company (if other than Landlord), agents,
directors, officers, employees, representatives, contractors, shareholders,
successors and assigns and each of their respective partners, members,
directors, employees, representatives, agents, contractors, shareholders,
successors and assigns (collectively, the "Indemnitecs") harmless and indemnify
the Indcrnnitccs from and against all liabilities, damages, claims, losses,
judgments@ charges and expenses (including reasonable attorneys' fees, costs of
court and expenses necessary in the prosecution or defense of any litigation
including the enforcement of this provision) arising from or in any way related
to, directly or indirectly, (i) Tenant's or Tenant's Representatives' use of the
Premises, Building and/or the Park, (ii) the conduct of Tenant's business, (iii)
from any activity, work or thing done, permitted or suffered by Tenant in or
about the Premises, (iv) in any way connected with die Premises or with the
improvements or personal property therein, including, but not limited to, any
liability for injury to person or property of Tenant, Tenant's Representatives,
or third party persons, and/or (v) TcnanCs failure to perform any covenant or
obligation of Tenant under Ns Lease. Tenant agrees that the obligations of
Tenant herein shall survive the expiration or earlier tcnnination of this Lease.
Except to the extent of damage resulting from the sole active gross
negligence or willful misconduct of Landlord or its authorized representatives,
to the fullest extent permitted by law, Tenant agrees that neither Landlord nor
any of Landlord's lcnder(s), partners, members, employers, representatives,
legal representatives, successors or assigns shall at any time or to any extent
whatsoever be liable, responsible or in any way accountable for any loss,
liability, injury, death or damage to persons or property which at any time may
be suffered or sustained by Tenant or by any person(s) whomsoever who may at any
time be using, occupying or visiting the Premises, the Building or the Park,
including, but not limited to, any acts, errors or om@issions by or on behalf of
any other tenants or occupants of the Building and/or the Park. Tenant shall
not, in any event or circumstance, be pcnnittcd to offset or othcrwIsc: credit
against any payments of Rent required herein for matters for which Landlord may
be liable hereunder. Landlord and its authorized representatives shall not be
liable for any interference with light or air, or for any latent defect in the
Premises or the Building.
15.Assignment and Subleasing
15.1Prohibition: Tenant shall not assign, mortgage, hypothecate, encumber,
grant any license or concession, pledge or otherwise transfer this Lease
(collectively, "assignment"), in whole or in part, whether voluntarily or
involuntarily or by operation of law, nor sublet or permit occupancy by any
person other than Tenant of all or any portion of the Premises without first
obtaining the prior written consent of L.indlord, wliicli'@Onscnt shall not be
unreasonably withheld. Tenant hereby agrees that 1-uldlord may withhold its
consent to any proposed sublease or assignment if die proposed sublessee or
assignee or its business is subject to compliance with additional requirements
of the ADA (defined below) and/or Environmental Laws (defined below) beyond
those requirements which are applicable to Tenant, unless the proposed sublessee
or assignee shall (a) first deliver plans and specifications for complying with
such additional requirements and obtain Landlord's written consent thereto, and
(b) comply with all Landlord's conditions for or contained in such consent,
including without limitation, requirements for security to assure the lien-free
completion of such improvements. If Tenant seeks to sublet or assign all or any
portion of the Premises, Tenant shall deliver to Landlord at least thirty (30)
days prior to the proposed commencement of the sublease or assignment (die
"Proposed Effective Date") the following: (i) the name of the proposed assignee
or sublessee; (ii) such infonnafion as to such assignee's or sublessee's
financial responsibility and standing as Landlord may reasonably require; and
(iii) the aforementioned plans and specifications, if any. Within ten (10) days
after Landlord's receipt of a written request from Tenant that Tenant seeks to
sublet or assign all or any portion of die Premises, Landlord shafl deliver to
Tenant a copy of Landlord's standard form of sublease or assignment agreement
(as applicable), which instrument shall be utilized for each proposed sublease
or assignment (as applicable), and such instrument shall include a provision
whereby the assignee or sublessee assumes all of Tenant's obligations hereunder
and agrees to be bound by the terms hereof As Additional Rent hereunder, Tenant
shall pay to Landlord a fee in the amount of five hundred dollars ($500) plus
Tenant shall reimburse Landlord for actual legal and other expenses incurred by
Landlord in connection with any actual or proposed assignment or subletting. In
the event the sublease or assignment (1) by itself or taken together with prior
sublease(s) or partial assignment(s) covers or totals, as the case may be, more
thari twcnty-five percent (25%) of the rentable square feet of the Premises or
(2) is for a term which by itself or taken together with prior or other
subleases or partial assignments is greater dw fifty percent (501%) of the
period remaining in the Term of this Lease as of the time of the Proposed
Effecfive Date, then Landlord shall have the right, to be exercised by giving
written notice to Tenant, to recapture the space described in the sublease or
assignment. If such recapture notice is given, it shall serve to terminate this
Lease with respect to the proposed sublease or assignment space, or, if die
proposed
12
sublease or assignment space covers all the Premises, it shall serve to
terminate the entire term of this Lease in either case, as of the Proposed
Effective Date. However, no termination of this Lease with respect to part or
all of the Premises shall become effective without the prior written consent,
where necessary, of the holder of each deed of trust encumbering the Premises or
any part thereof. If this Uasc is terminated pursuant to the foregoing with
respect to less than the entire Premises, the Rent shall be adjusted on the
basis of the proportion of square feet retained by Tenant to the square feet
originally demised and this Lease as so amended shall continue thereafter in
full force and effect. Each permitted assignee or sublesscc shall assume and be
deemed to assume th@is Lease and shall be and remain liable jointly and
severally with Tenant for payment of Rent and for the due performance of, and
compliance with all the terms, covenants, conditions and agreements herein
contained on Tenant's part to be performed or complied with, for the term of
this Lease. No assignment or subletting shall affect the continuing primary
liability of Tenant (which, following assignment, shall be joint and several
with the assignee), and Tenant shall not be released from performing any of the
terms, covenants and conditions of this Leasc. Tenant hereby acknowledges and
agrees that it understands that Landlord's accounting department may process and
accept Rent payments without verifying that such payments are being made by
Tenant, a permitted sublessce or a permitted assignee in accordance with the
provisions of this Lease. Although such payments may be processed and accepted
by such accounting department personnel, any and all actions or omissions by the
personnel of Landlord's accqunting department shall not be considered as
acceptance by Landlord of any proposed assignee or sublessee nor shall such
actions or omissions be deemed to be a substitute 'for the requirement that
Tenant obtain Landlord's prior written consent to any such subletting or
assignment, and any such actions or omissions by the personnel of Landlord's
accounting department shall not be considered as a voluntary relinquishment by
Landlord of any of its rights hereunder nor shall any voluntary relinquishment
of such rights be inferred therefrom. For purposes hereof, in the event Tenant
is a corporation, partnership, joint venture, trust or other entity other than a
natural person, any change in the direct or indirect ownership of Tenant
(whether pursuant to one or more transfers) which results in a change of more
than fifty percent (50%) in the direct or indirect ownership of Tenant shall be
deemed to be an assignment within the meaning of this Section 15 and shall be
subject to all the provisions hereof Any and all options, first rights of
refusal, tenant improvement allowances and other similar rights granted to
Tenant,in this Lease, if any, shall not be assignable by Tenant unless expressly
authorized in writing by Landlord.
15.2Exce1s Sublease Rental or Assignment Consideration: In the event
of any sublease or assignment of all or any portion of the Premises where the rent
or other consideration provided for in the sublease or assignment either
initially or over the term of the sublease or assignment exceeds die Rent or pro
rata portion of the Rent@ as the case may be, for such space reserved in the
Lease, Tenant shall pay the Landlord monthly, as Additional Rent, at the same
time as die monthly installments of Rent arc payable hereunder, scvcnty-five
percent (75%) of the excess of each such payment of rent or other consideration
in excess of the Rent called for hereunder.
15.3Waiver: Notwithstanding any assigruncrit or sublcasc, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee, or failure by Landlord to take action against any asginee or
sublease, Tenant waives notice of any default of any assignee or sublease
andagrees that Landlord may, at its option, proceed against Tenant without
having taken action against or joined such assignee or sublessee, except that
Tenant shall have the benefit of any indulgences, waivers and extensions of time
granted to any such assignee or sublessee.
16.Ad Valorem Taxes: Prior to delinquency, Tenant shall pay all taxes and
assessments levied upon trade fixtures, alterations, additions, improvements,
inventories and personal property locatcd and/or installed on or in the Premises
by, or on behalf of, Tenant; and if requested by Landlord, Tenant shall promptly
deliver to Landlord copies of receipts for payment of all such taxes and
assessments. To the extent any such taxes are not separately assessed or billed
to Tenant, Tenant shall pay the amount thcreof as invoiced by Landlord.
17.Subordination: Without die necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any bona fide mortgagee or deed of trust beneficiary
with a lien on all or any portion of the Premises or any ground lessor with
respect to die land of which die Prcmiscs are a part, die rights of Tenant under
this Lease and this Lease shall be subject and subordinate at all times to: (i)
all ground leases or underlying leases which may now exist or hereafter be
executed afficting the Building or the land upon which the Building is situated
or both, and (ii) the lien of any mortgage or deed of trust which may now exist
or hereafter be executed in any amount for which the Building, the Lot, ground
leases or underlying leases, or Landlord's interest or estate in any of said
items is specified as security. Notwithstanding the foregoing, Landlord or any
such ground lessor, mortgagee, or any beneficiary shall have the right to
subordinate or cause to be subordinated any such ground leases or underlying
leases or any such liens to this Lease. If any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination and upon the request of such successor to
13
Landlord, attorn to and become the Tenant of the successor in interest to
Landlord, provided such successor in interest will not disturb Tenant's use,
occupancy or quiet enjoyment of the Premises so long as Tenant is not in default
of the ternis and provisions of this Lease. The successor in interest to
Landlord following foreclosure, sale or deed in licu thereof shall not be (a)
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership; (b) subject to any officts or
defenses which Tenant might have against any prior lessor; (c) bound by
prepayment of more than one (1) month's Rent, except in those instances when
Tenant pays Rent quarterly in advance pursuant to Section 8 hereof, then not
more than three months' Rent; or (d) liable to Tenant for any Security Deposit
not actually received by such successor in interest to die extent any portion or
all of such Security Deposit has not already been forfcited by, or refunded to,
Tenant. Landlord shall be liable to Tenant for all or any portion of the
Security Deposit not forfeited by, or refunded to Tenant, until and unless
Landlord transfers such Security Deposit to the successor in interest. Tenant
covenants and agrees to execute (and acknowledge if required by Landlord, any
lender or ground lessor) and deliver, within five (5) days of a demand or
request by Landlord and in die form requested by Landlord, ground lessor,
mortgagee or bcncficiary, any additional documents evidencing die priority or
subordination of this Lease with respect to any such ground [cases or underlying
leases or the lien of any such mortgage or deed of trust. Tenant's failure to
timely execute and deliver such additional documents shall, at Landlord's
option, constitute a material default hereunder. It is further agreed "t Tenant
shall be liable to Landlord, and shall indemnify Landlord from and against any
loss, cost, damage or expense, incidental, consequential, or otherwise, arising
or accruing directly or indirectly, from any failure of Tenant to execute or
deliver to Landlord any such additional documents, together with any and all
Enforcement Expenses.
18.Right of Entry: Tenant grants Landlord or its agents the right to enter
the Premises at all reasonable times for purposes of inspection, exhibition, posting
of notices, repair or alteration. At Landlord's option, Landlord shall at all
times have and retain a key with which to unlock all the doors in, upon and
about die Premises, excluding Tenant's vaults and safes. It is fijrther agreed
that Landlord shall have the right to use any and all means Landlord deems
necessary to enter the Premises in an emergency. Landlord shall have the right
to place "for rent" or "for lease" signs on the outsid@ of the Premises, the
Building and in the Common Areas. Landlord shall also have die right to place
"for sale" signs on the outside of the Building and in the Common Arm. Tenant
hereby waives any claim from damages or for any injury or inconvenience to or
interference with Tenant's business, or any other loss occasioned thereby except
for any claim for any of the foregoing arising out of the sole active gross
negligence or willful misconduct of Landlord or its authorized representatives
19.Estoppel Certificate: Tenant shall execute (and acknowledge if required by
any lender or ground lessor) and deliver to Landlord, within five (5) days after
Landlord provides such to Tenan(a statement in writing certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating the
nature of such modification), the date to wWch the Rent and other charges arc
paid in advance, if any, acknowledging tlit, there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder or specif@bg
such defaults as are claimed, and such other matters as Landlord may reasonably
require. Any such statement may be conclusively relied upon by Landlord and any
prospective purchaser or encumbrancer of the Premises. Tenanes failure to
deliver such statement within such time shall be conclusive upon the Tenant that
(a) th@is Lease is in full force and effect, without modification except as may
be represented by Landlord; (b) there are no uncured defaults in Landlords
performance; and (c) not more than one month's Rent has been paid in advance,
except in those instances when Tenant pays Rent quarterly in advance pursuant to
Section 8 hereof, then not more than three month's Rent has been paid in
advance. Failure by Tenant to so deliver such certified estoppel certificate
shall be a material default of the provisions of this Lease. Tenant shall be
liable to Landlord, and shall indemnify Landlord from and against any loss,
cost, damage or expense, incidental, consequential, or otherwise, arising or
accruing directly or indirectly, from any failure of Tenant to execute or
deliver to Landlord any such certified estoppel certificate, together with any
and all Enforcement Expenses.
20.Tenant's Default: The occurrence of any one or more of the following
events shall, at Landlord's option, constitute a material default by Tenant of
the provisions of this Lease:
20.1 The abandonment of the Premises by Tenant or the vacation of the
Premises by Tenant which would cause any insurance policy to be invalidated or
otherwise lapse. Tenant agrees to notice and service of notice as provided for
in this Lease and waives any right to any other or further notice or service of
notice which Tenant may have under any statute or law now or hereafter in
effect;
20.2 The failure by Tenant to make any payment of Rent, Additional Rent
or any other payment required hereunder on the date said payment is due. Tenant
agrees to notice and service of notice as provided for in this Lease and waives
any right to any other or further notice or service of notice which Tenant may
have under any statute or law now or hereafter in effect;
14
20.3 The failure by Tenant to observe, perform or comply with any of the
conditions, covenants or provisions of this Lease (except failure to make any
payment of Rent and/or Additional Rent) and such failure is not cured within the
time period required under the provisions of this Lease. If such failure is
susceptible of cure but cannot reasonably be cured within the aforementioned
time period (if any), as dctcrmincd solely by Landlord, Tenant shall promptly
commence the cure of such failure and thereafter diligently prosecute such cure
to completion within the time period specified by Landlord in any written notice
regarding such failure as may be delivered to Tenant by Landlord. In no event or
circumstance shall Tenant have more than fifteen (15) days to complete any such
cure, unless otherwise expressly agreed to in writing by Landlord (in Landlord's
sole discretion);
20.4 The making of a general assignment by Tenant for the benefit of
creditors, the filing of a voluntary petition by Tenant or the filing of an
involuntary petition by any of Tenant's creditors seeking the rehabilitation,
liquidation, or reorganization of Tenant under any law rclating to bankruptcy,
insolvency or other relief of debtors and, in the case of an involuntary action,
the failure to remove or discharge the same within sixty (60) days of such
filing, the appointment of a receiver or other custodian to take possession of
substantially all of Tenanes assets or this leasehold, Tenant's insolvency or
inability to pay Tenant's debts or failure generally to pay Tenant's debts when
due, any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenanes assets, Tenant taking
any action toward the dissolution or winding up of Tenant's affairs, the
cessation or suspension of Tenant's use of the Pren-dses, or the attachment@
execution or other judicial seizure of substantially all of Tenant's assets or
this leasehold;
20.5 Tenants use or storage of Hazardous Materials in, on or about the
Premises, the Building, the Lot and/or the Park other than as expressly
permitted by the provisions of Section 29 below; or
20.6 The making of any material misrepresentation or omission by Tenant
in any materials delivered by or on behalf of Tenant to Landlord pursuant to this
Lease.
21.Remedies for Tenant's Default:
21.1Landlord's Rights: In the event of Tenant's material default under
this Lease, Landlord may terminate Tenant's right to possession of the Premises
by any lawful means in which case upon delivery of written notice by Landlord
this Lease shall terminate on the date specified by Landlord in such notice and
Tenant shall immediately surrender possession of the Premises to Landlord. In
addition, the Landlord shall have the immediate right of re-entry whether or not
this Lease is terminated, and if this right of re-entry is exercised following
abandonment of the Premises by Tenant, Landlord may consider any personal
property belonging to Tenant and left on die Premises to also have been
abandoned. No re-entry or taking possession of the Premises by Landlord pursuant
to this Section 21 shall be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant. If Landlord relets
the Premises or any portion thereof, (i) Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in reletting the Premises or any part
thereof, including, without limitation, broker's commissions, expenses of
cleaning, redecorating, and further improving the Premises and other similar
costs (collectively, the "Reletting Costs"), and (ii) the rent received by
Landlord from such reletting shall be applied to die payment of, first, any
indebtedness from Tenant to Landlord other than Base Rent, Increased Operating
Expenses, Increased Tax Expenses, Administrative Expenses, Common Area Utility
Costs, and Utility Expenses; second, all costs including maintenance, incurred
by Landlord in reletting; and, third, Base Rent, Increased Operating Expenses,
Increased Tax Expenses, Administrative Expenses, Common Area Utility Costs,
Utility Expenses, and all other sums due under this Lease. Any and all of the
Relating Costs shall be fully chargeable to Tenant and shall not be prorated or
otherwise amortized in relation to any new lease for the Premises or any portion
thereof. After deducting the payments referred to above, any sum remaining from
the rental Landlord receives from reletting shall be held by Landlord and
applied in payment of future Rent as Rent becomes due under this Lease. In no
event shall Tenant be entitled to any excess rent received by Landlord.
Reletting may be for a period shorter or longer than the remaining tern of this
Lease. No act by Landlord other than giving written notice to Tenant shall
terminate this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession. So long as this Lease is not terminated, Landlord shall have the
right to remedy any default of Tenant, to maintain or improve the Premises, to
cause a receiver to be appointed to administer die Premises and new or existing
subleases and to add to the Rent payable hereunder all of Landlord's reasonable
costs in so doing, with interest at the maximum rate permitted by law froni the
date of such expenditure.
21.2Damages Recoverable: If Tenant breachcs this Lease and abandons
the Premises bcforc the end of the Term, or if Tenant's right to possession is
terminated by Landlord because of a breach or dcfault under this Lease, then in
either such case, Landlord may recover from Tenant all damages suffcrcd by
Landlord as a result of Tenant's failure to perform its obligations hereunder,
including, but not limited
15
to, the portion of any brokees or leasing agent's commission incurred with
respect to the leasing of the Premises to Tenant for the balance of die Term of
the Lease remaining after the date on which Tenant is in default of its
obligations hereunder, and all Reletting Costs, and the worth at the time of the
award (computed in accordance with paragraph (3) of Subdivision (a) of Section
1.951.2 of the California Civil Code) of the amount by which the Rent then
unpaid hereunder for the balance of the Lease Term exceeds the amount of such
loss of Rent for the same period which Tenant proves could be reasonably avoided
by Landlord and in such case, Landlord prior to the award, may rclct the
Premises for the purpose of mitigating damages suffered by Landlord because of
Tenant's failure to perform its obligations hereunder-, provided, however, that
even though Tenant has abandoned the Premises following such breach, this Lease
shall nevertheless continue in full force and cffcct for as long as Landlord
does not terminate Tenant's right of possession, and until such termination,
Landlord shall have the rcmedy described in Section 1951.4 of the California
Civil Code (Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover Rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations) and may enforce all
its rights and remedies under this Lease, including the right to recover the
Rent from Tenant as it becomes due hereunder. ne "worth at the time of the
award" within the meaning of Subparagraphs; (a)(1) and (a)(2) of Section 1951.2
of the California Civil Code shall be computed by allowing interest at the rate
of ten percent (10%) per annum. Tenant waives redemption or relief from
forfqiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises by reason nf any default of Tenant
hereunder.
21.3Rights and Remedies Cumulative: Ile foregoing rights and remedies
of Landlord are not exclusive; they are cumulative in addition to any rights and
remedies now or hereafter existing at law, in equity by statute or otherwise, or
to any equitable remedies Landlord may have, and to any remedies Landlord may
have under bankruptcy laws or laws affecting creditoes rights generally. In
addition to all remedies set forth above, if Tenant materially defaults under
this Lease, any and all Base Rcnt waived by Landlord under Section 3 above shall
be immediately due and payable to Landlord and all options granted to Tenant
hercunder shall automatically terminate, unless otherwise expressly agreed to in
writing by Landlord.
21.4Waiver of a Default: Ile waiver by Landlord of any default of any
provision of this Lease shall not be deemed or construed a waiver of any other
default by Tenant hereunder or of any subsequent default of this Lease, except
for the dcFault specified in the waiver.
22.Holding Over: If Tenant holds possession of die Premises after the
cxpiration of the Term of this Lease with Landlord's consent, Tenant shall
become a tenant from month-to-month upon the terms and provisions of this
L-ease, provided the monthly Base Rent during such hold over period shall be
150% of the Base Rent due on the last month of the Ltase Term, payable in
advance on or before the first day of each month. Acceptance by Landlord of the
monthly Base Rent without the additional fifty percent (50%) increase of Base
'Rent shall not be deemed or construed as a waiver by Landlord of any of its
rights to collect the increased amount of the Base Rent as provided herein at
any time. Such month-to-month tenancy shall not constitute a renewal or
extension for any fiirthcr term. All options, if any, granted under the terms of
this Lease shall be deemed automatically terminated and be of no force or cffcct
during said month-to-month tenancy. Tenant shall continue in possession until
such tenancy shall be terminated by either Landlord or Tenant giving written
notice of tcrmination to die other party at least thirty (30) days prior to the
effective date of termination. This paragraph shall not be construed as
Landlord's permission for Tenant to hold over. Acceptance of Base Rent by
Landlord following expiration or termination of this Lease shall not constitute
a renewal of this Lease.
23.Landlord's Default: Landlord shall not be deemed in breach or default of
this Lease unless Landlord fails within a reasonable time to perform an
obligation required to be performed by Landlord hereunder. For purposes of this
provision, a reasonable time shall not be less than thirty (30) days after
receipt by Landlord of written notice specifying the nature of the obligation
Landlord has not performed, provided, however, that if the nature of Landlord's
obligation is such that more than th@irty (30) days, after receipt of written
notice, is reasonably necessary for its performance, then Landlord shall not be
in breach or default of this Lease if performance of such obligation is
commenced within such thirty (30) day period and thereafter diligently pursued
to completion.
24.Parking: Tenant shall have a license to use the number of non-designated and
non-exclusive parking spaces specified in the Basic Lease Information. Landlord
shall exercise reasonable efforts to insure that such spaces are available to
Tenant for its use, but Landlord shall not be required to enforce Tenant's right
to use the same.
16
25.Sale of Premises: In die event of any sale of the Premises by Landlord or
the cessation otherwise of Landlord's interest therein, Landlord shall be and is
hereby entirely released from any and all of its obligations to perform or
further perform under this Lease and from all liability hereunder accruing from
or after the date of such sale; and die purchaser, at such sale or any
subsequent sale of the Premises shall be deemed, without any further agreement
between the parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of die Landlord under this Lease. For purposes of this
Section 25, die term "Landlord" means only the owner and/or agent of the owner
as such parties exist as of the date on wWch Tenant executes this Lease. A
ground lease or sirnilar long term lease by Landlord of the cnfirc Building, of
which the Premises are a part, shall be deemed a sale within the meaning of d-ds
Section 25. Tenant agrees to attorn to such new owner provided such new owner
does not disturb Tenant's use, occupancy or quiet enjoyment of the Premises so
long as Tenant is not in default of any of the provisions of this Lease.
26.Waiver: No delay or omission in die exercise of any right or remedy of
Landlord on any default by Tenant shall impair such a right or remedy or be
construed as a waiver. The subsequent acceptance of Rent by Landlord after
default by Tenant of any covenant or term of this Lease shall not be deemed a
waiver of such 4cfault@ other than a waiver of timely payment for the particular
Rent payment involved, and shall not prevent Landlord from maintaining an
unlawful dctainer or other action based on such breach. No payment by Tenant or
receipt by Landlord of a lesser amount than die monthly Rent and other sunis due
hereunder shall be deemed to be other than on account of the earliest Rent or
other surns due, nor shall any endorsement or statement on any check or
accompanying any check or payment be deemed an accord and satisfaction; and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Rent or other sum or pursue any other remedy
provided in this Lease. No failure, partial exercise or delay on the part of the
Landlord in exercising any right, power or privilege hereunder shall operate as
a waiver thereof.
27.Casualty Damage: If the Premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give prompt written notice thereof to
Landlord. In case the Building shall be so damaged by fire or other casualty
that substantial alteration or reconstruction of the Building shall, in
Landlord's sole opinion, be required (whether or not the Premises shall have
been damaged by such fire or other casualty), Landlord may, at its option,
tcrininate this Lease by notifying Tenant in writing of such termination within
ninety (90) days after the date of such damage, in which event the Rent shall be
abated as of the date of such damage. If Landlord does not elect to tenninate
this Lease, and provided insurance proceeds and any contributions from Tenant,
if necessary, are available to fully repair the damage, Landlord shall within
one hundred twenty (120) days after the date of such damage commence to repair
and restore the Building and shall proceed with reasonable diligence to restore
the Building (except that Landlord shall not be responsible for delays outside
its control) to substantially the same condition in which it was immediately
prior to the hapging, of the casualty; provided, Landlord shall not be required
to rebuild, repair, or replace any part t Tc, ant's furniture, furnishings,
fixtures and/or equipment removable by Tenant or ally improvements, alterations
or additions installed by or for the benefit of Tenant under the provisions of
this Lease. Landlord shall not in any event be required to spend for such work
all amount in excess of the insurance proceeds (excluding any deductible) and
any contributions from Tenant, if necessary, actually received by Landlord as a
result of die fire or other casualty. Landlord shall not be liable for ally
inconvenience or annoyance to Tenant, injury to the business of Tenant, loss of
use of any part of the Premises by the Tenant or loss of Tenant's personal
propeny resulting in any way from such damage or the repair thereof, except
that, subject to the provisions of the next sentence, Landlord shall allow
Tenant a fair diminution of Rent during the time and to the extent the Premises
are unfit for occupancy. Notwithstanding anything to the contrary contained
herein, if die Premises or any other portion of the Building be damaged by fire
or other casualty resulting from the intentional or negligent acts or omissions
of Tenant or any of Tenant's Representatives, (i) the Rent shall not be
diminished during the repair of such damage, (ii) Tenant shall not have any
right to terminate this Lease due to the occurrence of such casualty or damage,
and (iii) Tenant shall be liable to Landlord for the cost and expense of the
repair and restoration of all or any portion of the Building caused thereby
(including, without limitation, any deductible) to the extent such cost and
expense is not covered by insurance proceeds. In die event the holder of any
indebtedness secured by the Premises requires that the insurance proceeds be
applied to such indebtedness, then Landlord shall have die right to terminate
this Lease by delivering written notice of termination to Tenant within thirty
(30) days after the date of notice to Tenant of any such event, whereupon all
rights and obligations shall cease and terminate hereunder except for those
obligations expressly intended to survive any such termination of this [.me.
Except as otherwise provided in this Section 27, Tenant hereby waives the
provisions of Sections 1932(2.), 1933(4.), 1941 and 1942 of die California Civil
Code.
28.Condemnation: If twcnty-five percent (25%) or more of the Premises is
condemned by eminent domain, inversely condemned or sold in lieu of condemnation
for any public or quasi-public use or purpose ("Condemned"), then Tenant or
Landlord may terminate this Lease as of the date when physical possession
17
of the Premises is taken and title vests in such condemning authority, and Rent
shall be adjusted to the date of terraination. Tenant shall not because of such
condemnation assert any claim against Landlord or the condernning authority for
any compensation because of such condemnation, and Landlord shall be entitled to
receive the entire amount of any award without deduction for any estate of
interest or other interest of Tenant. If neither party elects to terminate this
L@ease, Landlord shall, if necessary, promptly proceed to restore the Premises
or the Building to substantially its same conditionprior to such partial
condemnation, allowing for the reasonable effects of such partial condemnation,
and a proportionate allowance shall be made to Tenant, as solely detem-dned by
Landlord, for the Rent corresponding to the time during which, and to the part
of the Premises of which, Tenant is deprived on account of such partial
condemnation and restoration. Landlord shall not be required to spend funds for
restoration in excess of the amount received by Landlord as compensation
awarded.
29.Environmental Matters/Hazardous Materials:
29.1Hazardous Materials Disclosure Certificate: Prior to excuting this
lease, Tenant has completed, executed and delivered to Landlord Tenanes initial
Hazardous Materials Disclosure Certificate (the "Initial Ha7,Mat Certificate"),
a copy of which is attached hereto as Exhibit G and incorporated herein by this
reference. Tenant covenants, represents and warrants to Landlord that the
information on the Initial HazMat Certificate is true and correct and accurately
describes the use(s) of Hazardous Materials which will be made and/or used on
the Premises by Tenant. Tenant shall commencing with the date which is one year
from the Commencement Date and continuing every year thereafter, complete,
execute, and deliver to Landlord, a Hazardous Materials Disclosure Certificate
("the "HazMat Certificate") describing Tenant's present use of Hazardous
Materials on the Premises, and any other reasonably necessary documents as
requested by Landlord. The HazMat Certificate required hereunder shall be in
substantially the form as that which is attached hereto as Exhibit E.
29.2Definition of Hazardous Materials: As used in this Lease, the term
Hazardous Materials shall mean and include (a) any hazardous or toxic wastes,
materials or substances, @M other pollutants or contaminants, which are or
become regulated by any Environmental Laws; (b) petroleum, petroleum by
products, gasoline, diesel fiiel, crude oil or any fraction thereof, (c)
asbestos and asbestos containing material, in any form, whether friable or
non-friable; (d) polychlorinated biphenyls; (e) radioactive materials; (f) lead
and lead-containing materials; (g) any other material, waste or substance
displaying toxic, reactive, ignitable or corrosive characteristics, as all such
terms are used in their broadest sense, and are defined or become defined by any
Environmental Law (defined below); or (h) any materials which cause or threatens
to cause a nuisance upon or waste to any portion of the Premises, the Building,
the Lot, the Park or any surrounding property; or poses or threatens to pose a
hazard to the health and safety of persons on the Premises or any surrounding
property.
29.3Prohibition; Environmental Laws: Tenant shall not be entitled
to use nor store any Hazardous Materials on, in, or about the Pren-dses, the
Building, the Lot and the Park, or any portion of the foregoing, without, in
each instance, obtaining Landlord's prior written consent thereto. If Landlord
consents to any such usage or storage, then Tenant shall be permitted to use
and/or store only those Hazardous Materials that are necessary for Tenant's
business and to the extent disclosed in the HazMat Certificate and as expressly
approved by Landlord in writing, provided that such usage and storage is only to
the extent of the quantifies of Hazardous Materials as specified in the then
applicable HazMat Certificate as expressly approved by Landlord and provided
further that such usage and storage is in full compliance with any and all
local, state and federal environmental, health and/or safety-related laws,
statutes, orders, standards, courts' decisions, ordinances, rules and
regulations (as interpreted by judicial and administrative decisions), decrees,
directives, guidelines, permits or permit conditions, currently existing and as
amended, enacted, issued or adopted in the future which arc or become applicable
to Tenant or all or any portion of the Premises (collectively, the
"Environmental Laws"). Tenant agrees that any changes to the type and/or
quantities of Hazardous Materials specified in the most recent HazMat
Certificate may be implemented only with the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion. Tenant
shall not be entitled nor permitted to install any tanks under, on or about the
Premises for the storage of Hazardous Materials without the express written
consent of Landlord, which may be given or withheld in Landlord's sole
discretion. Landlord shall have the fight at all times during the Term of this
Lease to (i) inspect the Premises, (ii) conduct tests and investigations to
determine whethel Tenant is in compliance with the provisions of this Section
29, and (iii) request lists of all Hazardous Matdrials used, stored or otherwise
located on, under or about any portion of the Premises and/or die Common Areas*.
Ile cost of all such inspections, tests and investigations shall be home solely
by Tenant, if Landlord reasonably determines that Tenant or any of Tenant's
Representatives are directly or indirectly responsible in any manner for any
contamination revealed by such inspections, tests and investigations. Ile
aforementioned fights granted herein to Landlord and its representatives shall
not create (a) a duty on Landlord's part to inspect, test, investigate, monitor
or otherwise observe the Premises or the activities of Tenant and Tenant's
Representatives with respect to Hazardous Materials, including without
limitation, Tenant's operation, use and any remcdiation related thereto, or (b)
liability on
18
the part of Landlord and its representatives for Tenant's use, storage,
disposal or rcmediation of Hazardous Materials, it being understood that
Tenant shall be solely responsible for all liability in connection therewidi.
29.4Tenant's Environmental Obligations: Tenant shall give to
Landlord immediatc verbal and follow-up written notice of any spills, releases,
discharges, disposals, emissions, migrations, removals or transportation of
Hazardous Materials on, under or about any portion of the Premises or in any
Common Areas. Tenant, at its sole cost and expense, covenants and warrants to
promptly investigate, clean up, remove, restore and otherwise remediate
(including, without limitation, preparation of any feasibility studies or
reports and the performance of any and all closures) any spill, release,
discharge, disposal, emission, migration or transportation of Hazardous
Materials arising from or related to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives such that the affected portions
of the Park and any adjacent property arc returned to the condition existing
prior to the appearance of such Hazardous Materials. Any such investigation,
clean up, removal, restoration and other remcdiation shall only be performed
after Tenant has obtained Landlord's prior written consent, which consent shall
not be unreasonably withheld so long as such actions would not potentially have
a material adverse long-term or short-term cffcct on any portion of the
Premises, the Building, the Lot or the Park. Notwithstanding the foregoing,
Tcn4nt shall be entitled to respond immediately to an emergency without first
obtaining Landlord's prior written consent. Tenant, at its sole cost and
expense, shall conduct and perform, or cause to be conducted and performed, all
closures as required by any Environmental Laws or any agencies or other
governmental authorities having jurisdiction thereof. IfTcnant fails to s'o
promptly investigate, clean up, remove, restore, provide closure or otherwise
so remediate, Landlord may, but without obligation to do so, take any and all
steps necessary to rectify the same and Tenant shall promptly reimburse Landlord,
upon demand, for all costs and expenses to Landlord of perfonning investigation,
clean up, removal, restoration, closure and remediation work. All such work
undertaken by Tenant, as required herein, shall be performed in such a manner so
as to enable Landlord to make full economic use of the Premises, the Building,
the Lot and the Park after the satisfactory completion of such work.
29.5Environmental Indemnity: In addition to Tenant's obligations as
set forth hereinabove, Tenant and Tenant's officers and directors agree to, and
shall, protect, indemnify, defend (with counsel acceptable to Landlord) and hold
Landlord and the other Indemnitees harmless from and against any and all claims,
judgments, damages, penalties, fines, liabilities, losses (including, without
limitation, diminution in value of any portion of the Premises, the Building,
the Lot or die Park, damages for die loss of or restriction on the use of
rentable or usable space, and from any adverse impact of Landlorcrs marketing of
any space within the Building and/or Park), suits, administrative proceedings
and costs (including, but not limited to, attomcys' and consultant fees and
court costs) arising at any time during or after the Term of "s Lease in
connection with or related to, directly or indirectly, the use, presence,
transportation, storage, disposal. migration, removal, spill, release or
discharge of Hazardous Materials on, in or about any portion of the Premises,
the Common Areas, the Building, the Lot or the Park as a result (directly or
indirectly) of the intentional or negligent acts or omissions of Tenant or any
of Tenant's Representatives. Neither the written consent ot Landlord to the
presence, use or storage of Hazardous Materials in, on, under or about any
portion of the Premises, the Building, the Lot and/or the Park, nor the strict
compliance by Tenant with all Divironmental Laws shall excuse Tenant and
Tenant's officers wid directors froin its obligations of indemnification
pursuant hereto. Tenant shall not be relieved of its indcmnification obligations
under the provisions of this Section 29.5 due to Landlord's status as either an
"owner" or "operator" under any Environmental I-aws.
29.6Survival: Tenant's obligations and liabilities pursuant to the
provisions of this Section 29 shall survive the expiration or earlier
termination of this Lease. If it is determined by Landlord that the condition
of all or any portion of the Premises, the Building, the Lot and/or the Park is
not in compliance with the provisions of this Lease with respect to Hazardous
Materials, including without limitation all Environmental Laws at die expiration
or earlier termination of this Lease, then in Landlord's sole discretion,
Landlord may require Tenant to hold over possession of the Premises until Tenant
can surrender the Premises to Landlord in the condition in which the Premises
existed as of the Commencement Date and prior to the appearance of such
Hazardous Materials except for reasonable wear and tear, including without
limitation, the conduct or performance of any closures as required by any
Environmental Laws. The burden of proof hereunder shall be upon Tenant. For
purposes hereof, the term "reasonable wear and (car" shall not include any
deterioration in the condition or diminution of the value of any portion of the
Premises, the Building, the Lot and/or the Park in any manner whatsoever related
to directly, or indirectly, Hazardous Materials. Any such holdover by Tenant
will be with Landlord's consent, will not be terminable by Tenant in any event
or circumstance and will otherwise be subject to the provisions of Section 22 of
this Lease.
30.Financial Statement(s): Tenant, for the reliance of Landlord, any lender
holding or anticipated to acquire a lien upon the Premises, the Building or the
Park or any portion thereof, or any prospective purchaser of the Building or the
Park or any portion thereof, within ten (10) days after Landlord's request
19
therefor, but not more often than once annually so long as Tenant is not in
default of this Ltasc, shall deliver to Landlord the then current audited
financial statements of Tenant (including interim periods following the end of
the last fiscal year for which annual statements are available) which statements
shall be prepared or compiled by a certified public accountant and shall present
fairly the financial condition of Tenant at such dates and the result of its
operations and changes in its financial positions for the periods ended on such
dates. If an audited financial statement has not been prepared, Tenant shall
provide Landlord with an unaudited financial statement and/or such other
information, the type and form of which are acceptable to Landlord in Landlord's
reasonable discretion, which reflects the financial condition of Tenant. If
Landlord so requests, Tenant shall deliver to Landlord an opinion of a certified
public accountant, including a balance sheet and profit and loss statement for
the most recent prior year, all prepared in accordance with generally accepted
accounting principles consistently applied. Any and all options granted to
Tenant hereunder shall be subject to and conditioned upon Landlord's reasonable
approval of Tenant's financial condition at the time of Tenant's exercise of any
such option.
31.General Provisions:
31.1Time. Time is of the essence in this Lease and with respect to each
and all of its provisions in which performance is a factor.
31.2Successors and Assigns. The covenants and conditions herein contained,
subject to the provisions as to assignment, apply to and bind the heirs, successors,
executors, administrators and assigns of the parties hereto
31.3Recordation. Tenant shall not record this Lease or a short form
memorandum hereof without the prior written consent of the Landlord.
31.4Landlord's Personal Liability. The liability of Landlord (which,
for purposes of this Lease, shall include Landlord and the owner of the Building
if other than Landlord) to Tenant for any default by Landlord under the terms of
this Lease shall be limited to the actual interest of Landlord and its present
or future partners or members in the Premises or the Building, and Tenant agrees
to look solely to the Premises for satisfaction of any liability and shall not
look to other assets of Landlord nor seek any recourse against the assets of the
individual partners, members, directors, officers, shareholders, agents or
employees of Landlord (including without limitation, any property management
company of Landlord); it being intended that Landlord and the individual
partners, members, directors, officers, shareholders, agents and employees of
Landlord (including without limitation, any property management company of
Landlord) shall not be personally liable in any manner whatsoever for any
judgment or deficiency. The liability of Landlord under this Lease is limited to
its actual period of ownership of title to the Building, and Landlord shall be
automatically released from further performance under this Lease upon transfer
of Landlord's interest in the Premises or the Building.
31.5Separability. Any provisions of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provisions hcreof and such other provision shall remain in full force and
effect.
31.6Choice of Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
31.7Attorneys' Fees. In the event any dispute between the parties results
in litigation or othcr procccding, the prevailing party shall be reimbursed by
the party not prevailing for all reasonable costs and expenses, including,
without limitation, reasonable attorneys' and experts' fees and costs incurred
by the prevailing party in connection with such litigation or other proceeding,
and any appeal thereof. Such costs, expenses and fees shall be included in and
made a part of the judgment recovered by the prevailing party, if any.
31.8Entire Agreement. This Lease supersedes any prior agreements,
representations, negotiations or correspondence between the parties, and
contains the entire agreement of the parties on matters covered. No other
agreement, statement or promise made by any party, that is not in writing and
signed by all parties to tWs Lease, shall be binding.
31.9Warranty of Authority. On the date that Tenant executes this Lease,
Tenant shall deliver to Landlord an original certificate of status for Tenant
issued by the California Secretary of State or statement of partnership for
Tenant recorded in the county in wl-kh the Premises are located, as applicable,
and such other documents as Landlord may reasonably request with regard to the
lawful existence of Tenant. Each person executing this Lease on behalf of a
party represents and warrants that (1) such person is duly and validly
authorized to do so on behalf of the entity it purports to so bind, and (2) if
such party is a partnership, corporation or trustee, that such partnership,
corporation or trustee has fall right and
20
authority to enter into this Lease and perform all of its obligations hereunder.
Tenant hereby warrants that this Lease is valid and binding upon Tenant and
enforceable against Tenant in accordance with its terms.
31.10Notices. Any and all notices and demands required or permitted to
be given hereunder to Landlord shall be in writing and shall be sent: (a) by United
States mail, certified and postage prepaid; or (b) by personal delivery; or (c)
by overnight courier, addressed to Landlord at 101 Lincoln Center Drive, Fourth
Floor, Foster City, California 94404-1167. Any and all notices and demands
required or permitted to be given hereunder to Tenant shall be in writing and
shall be sent: (i) by United States mail, certified and postage prepaid; or (ii)
by personal delivery to any employee or agent of Tenant over the age of eighteen
(18) years of age; or (iii) by overnight courier, all of which shall be
addressed to Tenant at the Premises Notice and/or demand shall be deemed given
upon the earlier of actual receipt or the third day following deposit in the
United States mail. Any notice or requirement of service required by any statute
or law now or hereafter in effect, including, but not limited to, California
Code of Civil Procedure Sections 1161, 1161.1, and 1162 (including any
amendments, supplements or substitutions thereof), is hereby waived by Tenant.
31.11Joint and Several. If Tenant consists of more than one person or
entity, the obligations of all such persons or entities shall be joint and
several.
31.12Covenants and Conditions. Each provision to be performed by Tenant
hereunder shall be deemed to be both a covenant and a condition.
31.13Waiver of Jury Trial. The parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out of
or in any way related to this Lease, the relationship of Landlord and Tenant,
Tenants use or occupancy of the Premises, the Building or the Park, and/or any
claim of injury, loss or damage.
31.14Counterclaims. In the event Landlord commences any proceedings for
nonpayment of Rent, Additional Rent, or any other sums or amounts due hereunder,
Tenant shall not interpose any counterclaim of whatever nature or description in
any such proceedings, provided, however, nothing contained herein shall be
deemed or construed as a waiver of the Tenant's right to assert such claims in
any separate action brought by Tenant or the fight to offset the amount of any
final judgment owed by Landlord to Tenant.
31.15Underlining. Me use of underlining within the Lease is for Landlord's
reference purposes only and no other meaning or emphasis is intended by this use,
nor should any be inferred
31.16Merger. The voluntary or other surrender of this Lease by Tenant,
the mutual termination or cancellation hereof by Landlord and Tenant, or a
termination of this Lease by Landlord for a material default by Tenant
hereunder, shall not work a merger, and, at the sole option of Landlord, (i)
shall terminate all or any existing subleases or subtcnancies, or (ii) may
operate as an assignment to Landlord of any or all of such subleases or
subtcnancies. Landlords election of either or both of the foregoing options
shall be exercised by delivery by Landlord of written notice thereof to Tenant
and all known subtenants under any sublease.
32.Signs: All signs and graphics of every kind visible in or from public view
or corridors or the exterior of the Premises shall be subject to Landlord's
prior written approval and shall be subject to any applicable governmental laws,
ordinances, and regulations and in compliance with Landlord's sign criteria as
same may exist from time to time or as set forth in Exhibit G hereto and made a
part hereof. Tenant shall remove all such signs and graphics prior to the
termination of this Lease. Such installations and removals shall be made in a
manner as to avoid damage or defacement of the Premises; and Tenant shall repair
any damage or defacement, including without limitation, discoloration caused by
such installation or removal. Landlord shall have the fight, at its option, to
deduct from the Security Deposit such sums as are reasonably necessary to remove
such signs, including, but not limited to, the costs and expenses associated
with any repairs necessitated by such removal. Notwithstanding the foregoing, in
no event shall any: (a) neon, flashing or moving sign(s) or (b) sign(s) which
shall interfere with the visibility of any sign, awning, canopy, advertising
matter, or decoration of any kind of any other business or occupant of the
Building or the Park be permitted hereunder. Tenant further agrees to maintain
any such sign, awning, canopy, advertising matter, lettering, decoration or
other thing as may be approved in good condition and repair at all times.
33.Mortgagee Protection: Upon any default on the part of Landlord, Tenant will
give written notice by registered or certified mail to any beneficiary of a deed
of trust or mortgagee of a mortgage covering the Premises who has provided
Tenant with notice of their interest together with an address for receiving
notice, and shall offer such beneficiary or mortgagee a reasonable opportunity
to cure the default (which, in no event shall be less than ninety (90) days),
including time to obtain possession of die Premises by power
21
of sale or a judicial foreclosure, if such should prove necessary to cffcct a
cure. If such default cannot be cured within such time period, then such
additional time as may be necessary will be given to such beneficiary or
mortgagee to effect s6ch cure so long as such beneficiary or mortgagee has
commenced the cure within the original time period and thereafter diligently
pursues such cure to completion, in which event th@is Lease shall not be
tenninated while such cure is being diligently pursued. Tenant agrees that each
lender to whom this Lease has been assigned by Landlord is an express third
party beneficiary hereof Tenant shall not make any prepayment of Rent more than
one (1) month in advance without the prior written consent of each such lender,
except if Tenant is required to make quarterly payments of Rent in advance
pursuant to the provisions of Section 8 above. Tenant waives the collection of
any deposit from such lender(s) or any purchaser at a foreclosure sale of such
lender(s)' deed of trust unless the lender(s) or such purchaser shall have
actually received and not refunded the deposit. Tenant agrees to make all
payments under this Lease to the lender with the most senior encumbrance upon
receiving a direction, in writing, to pay said amounts to such lender. Tenant
shall comply with such written direction to pay- without determining whether an
event of default exists under such lender's loan to Landlord.
34.Quitclaim: Upon any termination of this Lease, Tenant shall, at Landlord's
request, execute, have acknowledged qnd deliver to Landlord a quitclaim deed of
Tenant's interest in and to the Premises. If Tenant fails to so deliver to
Landlord such a quitclaim deed, Tenant hereby agrees that Landlord shall have
the full authority and right to record such a quitclaim deed signed only by
Landlori. and such quitclaim deed shall be deemed conclusive and binding upon
Tenant.
35.Modifications for Lender: If, in connection with obtaining financing for
the Premises or any portion thereof, Landlord's lender shall request reasonable
modification(s) to this Lease as a condition to such financing, Tenant shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially adversely affect TenanVs rights hereunder or the
use, occupancy or quiet enjoyment of Tenant hereunder
36.Warranties of Tenant: Tenant hereby warrants and represents to Landlord,
for the express benefit of Landlord, that Tenant has undertaken a complete and
independent evaluation of the risks inherent in the execution of this Lease and
the operation of die Premises for die use permitted hereby, and that, based upon
said independent evaluation, Tenant has elected to enter into this Lease and
hereby assumes all risks with respect thereto. Tenant hereby further warrants
and represents to Landlord, for the express benefit of Landlord, that in
entering into this Lease, Tenant has not relied upon any statement, fact,
promise or representation (whether express or implied, written or oral) not
specifically set forth herein in writing and that any statement, fact, promise
or representation (whether express or implied, written or oral) made at any time
to Tenant, which is not expressly incorporated herein in writing, is hereby
waived by Tenant.
37.Compliance with Americans widi Disabilities Act: Landlord and Tenant hereby
agree and acknowledge that the Premises, the Building and/or the Park may be
subject to the requirements of the Americans with Disabilities Act, a federal
law codified at 42 U.S.C. 12101 et seq, including, but not limited to Title III
thereof, all regulations and guidelines related thereto, togethcr with any and
all laws, rules, regulations, ordinances, codes and statutes now or hereafter
enacted by local or state agencies having jurisdiction thereof, including all
requirements of Title 24 of the State of California, as the same may be in
effect on the date of this Lease and may be hereafter modified, amended or
supplemented (collectively, the "ADA"). Tenant shall be solely responsible for
conducting its own independent investigation of this matter and for ensuring
that the design of all improvements or alterations to be made to the Premises
by, or on behalf of, Tenant strictly comply with a requirements of die ADA.
Subject to reimbursement pursuant to Section 6 of the Lease, if any barrier
removal work or other work is required to the Building, the Common Areas or the
Park under the ADA, then such work shall be the responsibility of Landlord;
provided, if such work is required under the ADA as a result of Tenant's use of
the Premises or any work or alteration made to the Premises by or on behalf of
Tenant, then such work shall be performed by Landlord at the sole cost and
expense of Tenant. Except as otherwise expressly provided in this provision,
Tenant shall be responsible at its sole cost and expense for fully and
faithfully complying with all applicable requirements of the ADA, including
without limitation, not discriminating against any disabled persons in the
operation of Tenant's business in or about the Premises, and offering or
otherwise providing auxiliary aids and services as, and when, required by the
ADA. Within ten (10) days after receipt, Landlord and Tenant shall advise the
other party in writing, and provide the other with copies of (as applicable),
any notices alleging violation of the ADA relating to any portion of the
Premises or the Building; any claims made or threatened in writing regarding
noncompliance with the ADA and relating to any portion of the Premises or the
Building; or any governmental or regulatory actions or investigations instituted
or threatened regarding noncompliance with the ADA and relating to any portion
of the Premises or the Building. Tenant shall and hereby agrees to protect,
defend (with counsel acceptable to Landlord) and hold Landlord and the other
Indeninitees harmless and indemnify the Indemnitces from and against all
liabilities, damages, claims,
22
losses, penalties, judgments, charges and expenses (including reasonable
attorneys' fees, costs of court and expenses necessary in the prosecution or
defense of any litigation including the enforcement of this provision) arising
from or in any way related to, directly or indirectly, Tenant's or Tenants
Representatives' violation or alleged violation of the ADA. Tenant agrees that
the obligations of Tenant herein shall survive the expiration or earlier
termination of this Lease.
38.Brokerage Commission: Landlord and Tenant each represents and warrants
for the benefit of the other that it has had no dealings with any real estate
broker, agent or finder in connection with the Premises and/or the negotiation
of this Lease, except for the Broker(s) (as set forth on Page 1), and that it
knows of no other real estate broker, agent or finder who is or might be
entitled to a real estate brokerage commission or finder's fee in connection
with this Lease or otherwise based upon contacts between the claimant and
Tenant. Each party shall indemnify and hold harmless the other from and against
any and a liabilities or expenses arising out of claims made for a fee or
commission by any real estate broker, agent or finder in connection with the
Premises and Us Lease other than Broker(s), if any, resulting from the actions
of the indemnifying party. Any real estate brokerage commission or finder's fee
payable to the Broker(s) in connection with this Lease shall only be payable and
applicable to the extent of the initial Term of the Lease and to the extent of
the Premises as same exist as of the date on which Tenant executes this Lease.
Unless expressly agreed to in writing by Landlord and Broker(s), no real estate
brokerage commission or finder's fee shall be owed to, or otherwise payable to,
the Broker(s) for any renewals or other extensions of the initial Term of this
Lease or for any additional space leased by Tenant other than the Premises as
same exists as of the date on which Tenant executes this Lease. Tenant further
represents and warrants to Landlord that Tenant will not receive (i) any portion
of any brokerage commission or finder's fee payable to the Broker(s) in
connection with this Lease or (ii) any other form of compensation or incentive
from the Broker(s) with respect to this Lease.
39.Quiet Enjoyment: Landlord covenants with Tenant, upon the paying of Rent
and observing and keeping the covenants, agreements and conditions of this Lease
on its part to be kept, and during the periods that Tenant is not otherwise in
default of any of the terms or provisions of this Lease, and subject to the
rights of any of Landlord's lenders, (i) that Tenant shall and may peaceably and
quietly hold, occupy and enjoy the Premises and the Common Areas during die Term
of this Lease, and (ii) neither Landlord, nor any successor or assign of
Landlord, shall disturb Tenant's occupancy or enjoyment of die Premises and the
Common Areas.
40.Landlord's Ability to Perform Tenant's Unperformed Obligations:
Notwithstanding anything to die contrary contained in this Lease, if Tenant
shall fail to perform any of the terms, provisions, covenants or conditions to
be performed or complied with by Tenant pursuant to this Lease, and/or if the
failure of Tenant relates to a matter which in Landlords judgment reasonably
exercised is of an emergency nature and such failure shall remain uncured for a
period of time commensurate with such emergency, then Landlord may, at
Landlord's option without any obligation to do so, and in its sole discretion as
to the necessity therefor, perform any such term, provision, covenant, or
condition, or make any such payment and Landlord by reason of so doing shall not
be liable or responsible for any loss or damage thereby sustained by Tenant or
anyone holding under or through Tenant. If Landlord so performs any of Tenant's
obligations hereunder, the full amount of the cost and expense entailed or the
payment so made or the amount of the loss so sustained shall immediately be
owing by Tenant to Landlord, and Tenant shall promptly pay to Landlord upon
demand, as Additional Rent, the full amount thereof with interest thereon from
the date of payment at the greater of (i) ten percent (10%) per annum, or (ii)
the highest rate permitted by applicable law and Enforcement Expenses.
23
IN WITNESS WHEREOF, this Lease is cxecuted by the parties as of the Lease
Date referenced on Page I of this Lease.
LANDLORD: RIVERSIDE BUSINESS CENTER, a California Limited Partnership
By: LINCOLN PROPERTY COMPANY NO. 1239
Limited Partnership, a California Partnership
By: LEGACY PARTNERS COMMERCIAL, INC., a Texas corporation as
Agent for Riverside Business Center, a California Limited Partnership.
By:_________________________________
Name:_______________________________
Title:______________________________
Date:8-6-99
TENANT: Competitive Communication, Inc.
a California Corporation
By: /s/ David Kline Note: If Tenant is a CORPORATION, the authorized
Its:President officers must sign on behalf of the corporation and
Date:7-27-99 indicate the capacity in which they are signing. The
Lease must be executed by the president or vice president
and the secretary, unless the bylaws or a resolution of the
Board of directors shall otherwise provide, in which event,
The bylaws or a certified copy of the resolution, as the
Case may be, must be attached to this lease.
By:________________________________
Its:Secretary
Date:7-27-99
24
EXHIBIT A - PREMISES
This exhibit, entitled "Premises", is and shall constitute EXHIBIT A to that
certain Lease Agreement dated July 21, 1999 (the "Lease:), by and between
RIVERSIDE BUSMSS CENTER, a California Limited Partnership ("Landlord") and
Competitive Communications, Inc., a California Corporation ("Tenant") for the
leasing of certain premises located in the Riverside Business Center at Building
4, 3751 Merced Drive, Suites A, B & C Riverside, CaUbrnia (the "Premises").
The Premises consist of the rentable square footage of space specified in the
Basic Lease Information and has the address specified in the Basic Lease
Information. The Premises are a part of and are contained in the Building
specified in the Basic Lease Inforrmation. Ile cross-hatched area depicts the
Premises within the building:
IMAGE
25
Exhibit C to Lease Agreement
Rules & Regulations
This exhibit, entitled "Rules & Regulations", is and shall constitute EXHIBIT C
to that certain Lease Agreement dated July 21, 1999 (the "Lease"), by and
between RIVERSIDE BUSINESS CENTER, a California Limited Partnership ("Landlord")
and Competitive Communication, Inc., a California Corporation ("Tenant") for the
leasing of certain premises located in the Riverside Business Center at Building
4. 3751 Merced Drive, Suites A, B & Cc Riverside, California (the "Premises").
The terms, conditions and provisions of this EXHIBIT C are hereby incorporated
into and arc made a part of (lie Lease. Any capitalized terms used-herein and
not otherwise defined herein shall have the meaning ascribed to such terms as
set forth in the Lease:
1. No advertisement, picture or sign of any sort shall be displayed on or
outside the Premises or the Building without the prior written consent
of Landlord. Landlord shall have the right to remove any such unapproved
item without notice and at Tenant's expense.
2. Tenant shall not regularly park motor vehicles in designated parking
areas after the conclusion of normal daily business activity.
3. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord without the prior written consent of
Landlord.
4. All window coverings installed by Tenant- and visible from the outside
of the Building require the prior written approval of Landlord.
5. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance or any flammable or combustible materials on or
around the Premises, the Building or the Park.
6. Tenant shall not alter any lock or install any new locks or bolts on
any door at the Premises without the prior consent of Landlord.
7. Tenant agrees not to make any duplicate keys without the prior consent
or Landlord.
8. Tenant shall park motor vehicles in those general parking areas as
designated by Landlord except for loading and unloading. During those
periods of loading and unloading, Tenant shall not unreasonably
interfere with traffic flow within the Park and loading and unloading
areas of other tenants.
9. Tenant shall not disturb, solicit or canvas any occupant of the Building
or Park and shall cooperate to prevent same.
10. No person shall go on the roof without Landlord's permission.
11. Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building, to such a degree as to be objectionable to Landlord or other
Tenants, shall be placed and maintained by Tenant, at Tenant's expense,
on vibration eliminators or other devices sufficient to eliminate noise
or vibration.
12. All goods, including material used to store goods, delivered to the
Premises of Tenant shall be immediately moved into (lie Premises and
shall not be left in parking or receiving areas overnight.
13. Tractor trailers which must be unhooked or parked with dolly wheels
beyond the concrete loading areas must use steel plates or wood blocks
under the dolly wheels to prevent damage to the asphalt paving surfaces.
No parking or storing of such trailers will be permitted in the auto
parking areas of the Park or on streets adjacent thereto.
14. Forklifts which operate on asphalt paving areas shall not have solid
rubber tires and shall only use tires that do not damage the asphalt.
15. Tenant is responsible for the storage and removal of all trash and
refuse. All such trash and refuse shall be contained in suitable
receptacles stored behind screened enclosures at locations approved by
Landlord.
16. Tenant shall not store or permit the storage or placement of goods, or
merchandise or pallets or equipment of any sort in or around the
Premises, the Building, the Park or any of the Common Areas of the
foregoing. No displays or sales of merchandise shall be allowed in the
parking lots or other Common Areas.
17. Tenant shall not permit any animals, including, but not limited to, any
household pets, to be brought or kept in or about the Premises, the
Building, the Park or any of the Common Areas of the foregoing.
18. Tenant shall not permit any motor vehicles to be washed on any portion
of the Premises or in the Common Areas of the Park, nor shall Tenant
permit mechanical work or maintenance of motor vehicles to be performed
on any portion of the Premises or in the Common Areas of the Park.
26
EXHIBIT D
COVENANT AND AGREEMENT AND DECLARATION OF RESTRICTIONS
This covenant and Agreement and Declaration of Restriction is made and
entered into this 17th day of October, 1986, by RIVERSIDE BUSINESS CENTER, a
California Limited Partnership, the owner of record of (he following described
real property situated in the City of Riverside, County of Riverside, State of
California:
Parcels 1, 2 and 3 of Parcel Map 21191 as shown by map on file in Book
134 of Parcel Maps at pages 33 through 34 thereof Records of Riverside County,
California,
Which property is referred to herein as Parcels 1, 2 or 3 or collectively as the
property.
WHEREAS the undersigned desires to divide the property into three parcels,
as described above, pursuant to tentative Parcel Map 21191; and
WHEREAS the undersigned desires to establish a common driveway to serve
Parcels 1, 2 and 3; and
WHEREAS the undersigned desires to restrict the property with the nonexclusive,
reciprocal easements and the obligations contained herein;
NOW, THEREFORE, the undersigned hereby covenants and agrees with the City of
Riverside as follows:
1. A nonexclusive, reciprocal casement for ingress and egress is
hereby established over and across the northeasterly 15 feet and
the southeasterly 13 1/2 feet of Parcel I for he use and benefit
of Parcels 2 and 3.
2. A nonexclusive, reciprocal casement for ingress and egress is
hereby established over and across the southwesterly 15 feet and
the southeasterly 13 1/2 feet of Parcel 2 for he use and benefit
it of Parcels I and 3.
3. A nonexclusive, reciprocal easement for ingress and egress is
hereby established over and across the northwesterly 13 1/2 feet
of Parcel 3 for the use and benefit of Parcels and 2.
4. The casement areas described above are planned to be developed
as a common driveway and shall be kept in a free and open
condition at all times to permit unimpeded access to parcels 1,2
and 3 and Magnolia Avenue, Pierce Street and Merced Drive. No
structure shall be placed or constructed in the easement areas.
Each casement area shall be maintained in accordance with
the standards of the City of Riverside for private driveways and
in a good, usable and safe condition at all times for the fee
owner of such casement area.
5. In the event any of the property is sold or leased or the
ownership is otherwise changed, as the parcels arc conveyed, the
grantor shall grant and/or reserve, as appropriate, the
above-described non-exclusive, reciprocal casements for ingress
and egress. This casement shall include all rights deemed
reasonable and necessary for the construction, maintenance and
use of common driveway facilities.
6. The terms of this Covenant and Agreement and Declaration of
Restrictions may be enforced by the City of Riverside, its
successors or assigns, or by any owner or tenant of any of the
property. Should the City or any owner or tenant bring an action
to enforce any of the terms of this reasonable attorneys' fee,
expert witnesses' fees and reasonable costs of unit.
7. This Covenant and Agreement and declaration of Restrictions
shall run with (he land and shall be binding upon the
undersigned, its successor and assigns and shall continue in
effect until such time as it is released by the City Council of
the City of Riverside
27
EXHIBIT E
CHANGE OF COMMENCEMENT DATE
EXAMPLE
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into as of________________ 1998, by and between________________________("Landlord"),
and_________________________ ("Tenant"), with reference to the following facts:
RECITALS
A. Landlord and Tenant have entered into that certain Lease Agreement
dated_________________________ (the "Lease"), for the leasing of certain
premises containing approximately _______________________rentable square feet of
space located at __________________________________ Riverside, California (the
"Premises") as such Premises are more fully described in the Lease.
B. Landlord and Tenant wish to amend the Commencement Date of the Lease.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Recitals: Landlord and Tenant agree that the above recitals are true and
correct.
2. The Commencement Date of the Lease shall be
3. The last day of the Term of the Lease (the "Expiration Date") shall be _____________.
4. The dates on which the Base Rent will be adjusted are:
for the period_____________________ the monthly Base Rent shall be_____________
for the period_____________________ the monthly Base Rent shall be_____________, and
for the period_____________________ the monthly Base Rent shall be_____________.
5. Effect of Amendment: Except as modified herein, the terms and conditions of
the Lease shall remain unmodified and continue in full force and effect. In
the event of any conflict between the terms and conditions of the Lease and
this Amendment, the terms and conditions of this Amendment shall prevail.
6. Definitions: Unless otherwise defined in this Amendment, all terms not defined
in this Amendment shall have the meaning set forth in the Lease.
7. Authority: Subject to the provisions of the Lease, this Amendment shall be
binding upon and inure to the benefit of the parties hereto, their respective
heirs, legal representatives, successors and assigns. Each party hereto and the
persons signing below warrant that the person signing below on such party's
behalf is authorized to do so and to bind such party to the terms of this
Amendment.
8. The terms and provisions of the Lease are hereby incorporated in this Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.
28
EXHIBIT F
TENANT'S INITIAL HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:
Landlord: RIVERSIDE BUSINESS CENTER,
A California Limited Partnership
c/o LEGACY PARTNERS COMMERCIAL, INC.
P.O. Box 19693, 30 Executive Park, Suite 100
Irvine, California 92623
Attn: - Terry Thompson
Phone: (714) 261-9871
Name of Tenant: Competitive communications, Inc.
a California Corporation
Mailing Address: 3751 Merced Drive, Suites A, B & C (Bldg. 4)
Riverside, California 92503
Contact Person, Title and Telephone Number(s): Dave, Klein (909) 687-6100
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s): Same as above
Address of Premises: Same as above.
Length of initial Term: 38 Months
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or about die
Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or otherwise
conducted. Existing Tenants should describe any proposed changes to on-going
operations TELEPHONE & CABLE TV SERVICE PROVIDER ADMINISTRATIVE OFFICES.
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, generated, stored or disposed of in,
on or about the Premises? Existing Tenants should describe any Hazardous
Materials which continue to be used, generated, stored or disposed of in, on or
about the Premises.
Wastes Yes ___ No X
Chemical Products Yes ___ No X
Other Yes ___ No X
If Yes is marked, please explain: ___________________________________
_____________________________________________________________________
_____________________________________________________________________
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used,
29
generated, stored or disposed of in, on or about the Premises, including the
applicable hazard class and an estimate of the quantifies of such Hazardous
Materials at any given time; estimated annual throughput; the proposed
location(s) and method of storage (excluding nominal amounts of ordinary
household cleaners and janitorial supplies which are not regulated by any
Environmental Laws); and the proposed location(s) and method of disposal for
each Hazardous Material, including, the estimated frequency, and the proposed
contractors or subcontractors. Existing Tenants should attach a list setting
forth the information requested above and such list should include actual data
from on-going operations and the identification of any variations in such
information from the prior years certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel, petroleum, or
other Hazardous Materials in tanks or sumps proposed in, on or about the
Premises? Existing Tenants should describe any such actual or proposed
activities.
Yes ___ No X
If yes, please explain: _______________________________________
_______________________________________________________________
_______________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator
I.D. Number? Existing Tenants should describe any additional identification
numbers issued since the previous certificate.
Yes ___ No X
4.2 Has your company filed a biennial or quarterly reports as a hazardous waste
generator? Existing Tenants should describe any new reports filed.
Yes ___ No X
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
___storm drain?Xsewer?
___surface water? ___no wastewater or other wastes discharged.
Existing Tenants should indicate any actual discharges. If so, describe the
nature of any proposed or actual discharge(s)
TOILET ONLY - HUMAN WASTE
5.2 Will any such wastewater or waste be treated before discharge?
Yes ___ No X
If yes, describe the type of treatment proposed to be conducted. Existing
Tenants should describe the actual treatment conducted.
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used in your
company's operations in, on or about the Premises that will discharge into the
air; and will such air emissions be monitored? Existing Tenants should indicate
whether or not there are any such air filtration systems or stacks in use in, on
or about the Premises which discharge into the air and whether such air
emissions are being monitored.
Yes ___ No X
If yes, please describe: _______________________________________
30
6.2 Do you propose to operate any of the following types of equipment or any
other equipment requiring an air emissions permit? Existing Tenants should
specify any such equipment being operated in, on or about the Premises.
___Spray booth(s) ___Incinerator(s)
___Dip tank(s) ___Other (Please describe)
___Drying oven(s) ___No Equipment Requiring Air Permits
If yes, please describe: _______________________________________
________________________________________________________________
________________________________________________________________
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a Hazardous
Materials management plan ("Management Plan") pursuant to Fire Department or
other governmental or regulatory agencies' requirements? Existing Tenants should
indicate whether or not a Management Plan is required and has been prepared.
Yes ___ No X
If yes, attach a copy of the Management Plan. Existing Tenants should attach a
copy of any required updates to the Management Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals, proposed to
be used in your operations in, on or about the Premises regulated under
Proposition 65? Existing Tenants should indicate whether or not there are any
new Hazardous Materials being so used which are regulated under Proposition 65.
Yes ___ No X
If yes, please explain: ________________________________________
________________________________________________________________
________________________________________________________________
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has your company
ever been subject to any agency enforcement actions, administrative orders, or
consent decrees or has your company received requests for information, notice or
demand letters, or any other inquiries regarding its operations? Existing
Tenants should indicate whether or not any such actions, orders or decrees have
been, or are in the process of being, undertaken or if any such requests have
been received.
Yes X No ___
If yes, describe the actions, orders or decrees and any continuing compliance
obligations imposed as a result of these actions, orders or decrees and also
describe any requests, notices or demands, and attach a copy of all such
documents. Existing Tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not already delivered to
Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.
DEPARTMENT OF HEALTH SERVICES OCCUPATIONAL HEALTH BRANCH, LETTER DATED 6-27-98,
WAIVER GRANTED UNDER OCCUPATIONAL LEAD POISONING FEE FOR 1997. (PREVIOUSLY
PROVIDED.) WAIVER GRANTED IF NO CHANGES.
8.2 Have there ever been, or are there now pending, any lawsuits against your
company regarding any environmental or health and safety concerns?
Yes ___ No X
If yes, describe any such lawsuits and attach copies of the complaint(s), cross
complaint(s), pleadings and all other documents related thereto as requested by
Landlord. Existing Tenants should describe and attach a copy of any new
complaint(s), cross complaint(s), pleadings and other related documents not
already delivered to Landlord pursuant to the provisions of Section 29 of the
signed Lease Agreement.
________________________________________________________________
31
________________________________________________________________
________________________________________________________________
8.3 Have there been any problems or complaints from adjacent Tenants, owners or
other neighbors at your company's current facility with regard to environmental
or health and safety concerns? Existing Tenants should indicate whether or not
there have been any such problems or complaints from adjacent Tenants, owners or
other neighbors at, about or near the Premises.
Yes ___ No X
If yes, please describe. Existing Tenants should describe any such problems or
complaints not already disclosed to Landlord under the provisions of the signed
Lease Agreement.
________________________________________________________________
________________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses including a
Transporter Permit number issued to your company with respect to its
proposed operations in, on or about the Premises, including, without
limitation, any wastewater discharge permits, air emissions permits, and
use permits or approvals. Existing Tenants should attach copies of any new
permits and licenses as well as any renewals of permits or licenses
previously issued.
The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenant's indemnification of the Indemnities and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlords review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time, or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenants Representatives. Notwithstanding the
foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement.
I, Dave Kline , acting with full authority to bind the (proposed) tenant and on
behalf of the (proposed) Tenant, certify, represent and warrant that the
information contained in this certificate is true and correct.
Tenant: Competitive Communication, Inc.,
a California Corporation
By: /s/David Kline
Dave Kline
Date: 7-27-99
32
ADDENDUM I to Lease Agreement
Additional Lease Provisions
This Addendum I is incorporated as part of that certain Lease Agreement dated
July 21, 1999 (the "Lease"), by and between Competitive Communication, Inc., a
California Corporation ("Tenant") and RIVERSIDE BUSINESS CENTER, a California
Limited Partnership (*Landlord") for leasing of those premises located at 3751
Merced Drive, Suites A, B & C, Riverside, CA 92503 as more particularly
described in Exhibit to the Lease (the "Premises*). Any capitalized term used
herein and not otherwise herein shall have the meaning ascribed to such terms as
set forth in the Lease.
ADDITIONAL RENT: Notwithstanding Sections 6 and 7 of the Lease, Landlord and
Tenant hereby agree that Tenant shall not be required to pay the Additional Rent
as such term is defined in Sections 6 and 7 of the Lease, but rather, Tenant
shall pay to Landlord throughout the Term of the Lease a fixed monthly sum as
set forth below as payment for Operating Expenses, Tax Expenses, Common Area
Utility costs, Utility Expenses and Administrative Expenses, all of which
comprise Additional Rent.
PERIODMonthly Additional Rent
November 15, 1999 - September 14, 2000 $160.60 ($0.05 PSF/Month)
September 15, 2000 - September 14, 2001 $192.72 ($0.06 PSF/Month)
September 15, 2001 - November 14, 2002 $224.84 ($0.07 PSF/Month)
Tenant agrees to pay Landlord the Additional Rent in accordance with the
schedule set forth above on the first (1st') day of each month throughout the
Term of the Lease. The Additional Rent shall be subject to Late Charges pursuant
to Section 8 of the Lease.
TENANT IMPROVEMENTS: Tenant shall assume the Premises in its present "As Is"
condition except that Landlord shall install Landlord's building standard mini
blinds on the storefront windows and doors.
33
EXHIBIT G
RIVERSIDE BUSINESS CENTER
SIGN CRITERIA
MULTI-TENANT AND INDUSTRIAL SUITES
All Tenants are required to install signage at the Tenant's expense and in
accordance with the sign criteria.
All signs shall be approved by the Landlord and property permitted by local
governing authorities prior to installation.
1. TYPE
A. Multi-Tenant Buildings 1-10, 12 and 13 - Tenants leasing less than 3,000
square feet may have a fiberglass mounted wall sign with a maximum
1-112" thick x 16" high x 5' long sign dimension, Tenants leasing 3,000
square feet or greater may have the aforementioned sign or individually
cut foam letters which are 2" thick and 24' high, with a maximum sign
width which is equal tono more than 75% of lineal leased frontage.
B. Industrial Buildings 14-19 - Maximum width shall be equal to no more than
75% of 11 neal leased frontage, 24" maximum channel-lite letters.
II. DESIGN
A.Channel Letter: 8" (maximum) thick internally illuminated channel letters,
with 60 mi. amp neon tubing, shall be composed of red facts (211-1 Acrylite
Red, same as 2283 Red).
B.Foam Letter: 2" thick non-illuminated foam letters composed of
"Profound Blue" #260 (Ameritone) faces and "Badger Gray" #298
returns for Buildings 1-10, 12 and 13 and 14-19 with over 3,000 square
feet of Tenant lease space.
C.Wall Mounted Fiberglass Plaques: Non-illuminated wall mounted fiberglass
identifications sign shall be composed of *Profound Blue' #260 background
and white copy #AGB-225D for Buildings 1- 10, 12 and 13 less than 3,000
square feet of Tenant lease space.
Tenants with two (2) frontage on a public street, parking lot or mall shall be
allowed two (2) wall signs.
III. GENERAL SPECIFICATIONS
A. No animated, flashing or audible signs will be permitted.
B. No exposed lamps or tubing will be permitted.
C. No exposed crossovers, raceways or conduit will be permitted.
D. Painted lettering will not be permitted.
E. Each Tenant shall be permitted to place upon each entrance of its
demised premises not more thin 144 square inches of vinyl, white
lettering not to exceed two (2) inches in height indicating hours
of business, emergency telephone numbers, approved credit cards,
etc.
F. Special event or sales advertising may be placed in or on the
interior windows for a maximum of 30 days, otherwise, no
advertising place cards, flags, balloons, banners, etc., shall be
affixed or maintained upon either the interior or exterior of the
glass panes and supports of the show windows and doors, or upon
the exterior wall of the buildings.
G. Each Tenant who has a non-customer door for receiving merchandise
may have uniformly applied on said door in location, as directed
by Landlord, in 2" high block letters, the Tenant's name and
address. Color letter shall be "Profound Blue* #260.
H. At the termination of Tenant's Lease, Tenant shall be required to
remove his signs and patch the area to match the surrounding
area.
34
Exhibit # 10.16
CLEC License approval Letter - MS
BEFORE THE PUBLIC SERVICE COMMISSION OF MISSISSIPPI
DOCKET NO. 97-AD-770
IN RE: APPLICATION OF BELLSOUTH TELECOMUNICATIONS,
INC. AND COMPETITIVE COMMUNICATIONS, INC. FOR
APPROVAL OF AN INTERCONNECTION AGREEMENT UNDER
THE TELECOMMUNICATIONS ACT OF 1996
ORDER
This matter is before the Mississippi Public Service Commission
("Commission") upon the request of Bellsouth Telecommunications, Inc.
("BellSouth") and Competitive Communications, Inc. ("CCI") for approval of
Amendment to Interconnection Agreement Between BellSouth Telecommunications,
Inc. and Competitive Communications, Inc. dated October 1, 1996 pursuant to the
provisions of Sections 251 and 252 of the Telecommunications Act of 1996 (the
"Amendment"). The original interconnection agreement between the parties dated
October1, 1996 (the "Intercommunication Agreement") has been previously approved
in this docket by the Commission on January 22, 1998.
The Commission, being fully apprised in the premises and having
considered the documents before it, and upon recommendation of the Mississippi
Public Utilities Staff ("MPUS"), finds that it is appropriate to approve the
Amendment for the reasons set forth below:
1
I.
On August 31,1999, BellSouth and CCI filed with this Commission a copy
of their Amendment which had been negotiated between them pursuant to Sections
251 and 252 of the Act, together with a request that the Commission approve said
Amendment pursuant to Section 252(e) of the Act.
II.
Simultaneously with the filing of the Amendment on August 31, 1999, CCI
and BellSouth provided notice of said filing of all parties of record in Docket
No. 95-UA-358, the docket pending before this Commission for consideration of
local exchange telecommunications competition in Mississippi. Said notice set
forth the intention of CCI and BellSouth to present the Amendment to the
Commission for approval on or after twenty-five (25) days from August 31, 1999,
the date of said notice. No opposition or objection has been raised to said
Amendment.
III.
This Commission has duly considered the Amendment in view of the Act,
particularly Section 252 (e)(2)(A) which provides:
(2) Grounds for rejection.--The State commission may only reject--
(A) An agreement (or portion thereof) adopted by negotiation under
subsection (a) if it finds that--
(i) the agreement (or portion thereof) discriminates against a
telecommunications carrier not a party to the agreement; or
2
(ii) the implementation of such agreement or portion is not consistent with the
public interest, convenience, and necessity;....
Thus, our review of such agreements is restricted to determining: (1) whether
the agreement discriminates against a telecommunications carrier not a party to
the agreement; or (2) whether or not the implementation of such agreement is
consistent with the public interest, convenience, and necessity. Further, any
party contending that a negotiated agreement is either discriminatory or
contrary to the public interest, convenience, and necessity has the burden of
proving such.
IV.
Upon a review of the Amendment, the Commission finds that the Amendment
meets the standards set forth in Section 252 (e) for the approval by this
Commission. The Amendment does not discriminate in any manner against any
telecommunications carrier not a party to the Amendment nor has any
telecommunications carrier made such a claim. The Amendment simply sets forth
the terms and conditions of the business relationship between BellSouth and CCI.
Those terms and conditions, on their face, do not address any other
telecommunications carrier and this Commission's review has not revealed any
discriminatory intent or result inherent in those terms and conditions.
Moreover, BellSouth has represented that pursuant to Section 252 (1) of the Act,
it will make the terms and conditions of the Amendment available to any other
requesting
3
telecommunications carrier. Thus, the Amendment does not discriminate against
any telecommunications carrier not a party to the Amendment.
We further find that the terms of the Amendment are not to be
considered as a precedential standard for other amendments, nor is it binding on
any other carrier not a party to the Amendment.
We further find that the terms of the Amendment is consistent with the
public interest, convenience, and necessity. The Amendment is consistent with
the intent of Congress as that intent is revealed in the Act. The Amendment
provides for new competitors in the local exchange market, which will likely
bring new services, lower prices and other benefits to the public at large and
to local telephone service customers in particular.
IT IS, THEREFORE, ORDERED THAT:
The Amendment does not discriminate against any telecommunications
carrier not a party to the Amendment, and is consistent with the public interest,
convenience, and necessity, and therefore, this Commission does hereby approve the
Amendment.
Chairman Bo Robinson voted/s/Aye; Vice-Chairman George Byars voted/s/Aye;
Commissioner Nielsen Cochran voted/s/Aye.
4
SO ORDERED on this the 8th day of November, 1999.
MISSISSIPPI PUBLIC SERVICE COMMISSION
/s/Bo Robinson
BO ROBINSON, CHAIRMAN
/s/George Byars
GEORGE BYARS, VICE CHAIRMAN
/s/Nielsen Cochran
NIELSEN COCHRAN, COMMISSIONER
ATTEST: A TRUE COPY
/s/Brian U. Ray
BRIAN U. RAY
Executive Secretary
5
Exhibit # 10.17
CLEC License approval Letter - CA
Decision 99-12-048 December 16,1999
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking on the Rulemaking 95-04-043
Commission's Own Motion into Competition for (Filed April 26, 1995)
Local Exchange Service.
Investigation 95-04-044
Order Instituting Investigation on the (Filed April 26, 1995)
Commission's Own Motion into Competition for (Petition Nos. 154, 155, 156,
Local Exchange Service. 157, 158, 159, 160, 161, 162
163, 164, 166, 167, 168)
0 P I N I 0 N
By this decision, we grant the petitions for certificates of public
convenience and necessity (CPCN) as competitive local carriers (CLCs) to offer
resold local exchange services within the territories of Pacific Bell (Pacific),
GTE California Incorporated (G TEC), Roseville Telephone Company (RTC.), and
Citizens Telephone Company (CTC), for those petitioners as set forth in Appendix
B of this decision, subject to the terms and conditions included herein. We also
t petitioners' request intrastate interLocal Access and Transport Areas
(interLATA) and intraLATA authority on a statewide basis as designated in
Appendix B. We defer granting full facilities-based local exchange authority at
this time pending resolution of environmental issues as, discussed 'in Section
II below. In this order, we grant only limited facilities-based authority,
restricted to the use of equipment located within previously existing
structures.
1. Background
We initially established rules for entry of facilities-based CLCs in
Decision (D.) 95-07-054. Under those procedures, we processed a group of
candidates that
1
R.95-04-043, I.95-04-044 ALJ/TRP/sid*
filed petitions for CPCNs by September 1, 1995, and granted 'authority effective
January 1, 1996, for qualifying CLCs to provide facilities-based competitive
local exchange service in the territories of Pacific and GTEC. We authorized
CLCs seeking to provide resale-based services to beg-in operations on March 1,
1996. We further advised prospective entrants that any filings from
non-qualifying CLCs, and any filing for CLC operating authority made after
September 1, 1995, would be treated as standard applications and processed in
the normal course of the Commission's business.
By D.96-12-020, effective January 1, 1997, we instituted quarterly
processing cycles for granting CPCN authority for facilities-based CLCs in order
to streamline the approval process for these particular carriers. Since we had
been processing the environmental impact review required under the California
Environmental Quality Act (CEQA) on a consolidated basis for groups of
qualifying facilities-based CLCs, we concluded in D.96-12-020 that it would be
more efficient and consistent to process other aspects of the CLC filings on a
consolidated basis, as well. Accordingly, we directed that any CLC filing on or
after January 1, 1997, for facilities-based CPCN authority was to make its
filing in the form of a petition to be docketed in Investigation (I.) 95-04-044
that would be processed quarterly on a consolidated basis. CLCs seeking only
resale authority continued to file individual applications.
On September 24, 1997, we adopted D.97--09-115 in which we extended the
coverage of our adopted rules for local exchange competition to include the
service territories of California's two mid-sized local exchange carriers
(MSLECs), RTC and CTC. In that decision, we also authorized candidates seeking
CLC CPCN authority within the NSLECs' territories to immediately begin making
filings following the applicable entry rules previously adopted in D.95-07-054
and subsequent decisions. Specifically, requests for CLC CPCN
2
R.95-04-043, I.95-04-044 ALJ/TRP/sid*
authority for facilities-based service were to be filed in the form of a
petition docketed in I.95-04-044. In D.98.01-055, we approved the first group of
petitions for facilities-based CPCNs to offer local exchange service within the
MSLEC territories.
In this decision, we approve limited CPCN authority as set forth below
for those CLCs identified in Appendix B that filed petitions during the third
quarter of 1999 and satisfied all applicable rules for certification as
established in Rulemaking (R-) 95-04-043. The petitioners identified in Appendix
B will be authorized to begin offering service upon the approval of the
Telecommunications Division (TD) staff of filed tariffs and in compliance with
the terms and conditions set forth in this order.
11. CEQA Issues
In accordance with CEQA provisions, the Commission must assess the
potential environmental impact of a CLC's proposed operation in order to
determine that adverse effects are avoided, alternatives are investigated, and
environmental quality is restored or enhanced to the fullest extent possible. To
achieve this objective, Rule 17.1 of the Rules of Practice and Procedure
requires the proponent of any project subject to Commission approval to submit-
with the petition for approval of such project a Proponent's Environmental
Assessment (PEA). The PEA is used by the Commission to focus on any impacts of
the project which may be of concern, and to prepare the Commission's Initial
Study to determine whether the project needs a Negative Declaration or an
Environ mental Impact Report.
Through the second quarter of 1999, the Commission staffs practice was
to prepare a negative declaration covering all CLC petitioners filing for
facilities-based CPCN authority during the previous quarter. The most recent
negative
3
R.95-04-043, I.95-04-044 ALJ/TRP/sid*
declaration prepared by the Commission staff for CLC petitioners covered
Petitions 141-153, which were filed during the second quarter of 1999. Based on
its assessment of the facilities-based petitions and PEAs filed during the
second quarter of 1999, the Commission staffs Negative Declaration and Initial
Study generally described the facilities-based petitioners' projects and their
potential environmental effects.
On July 30, 1999, the Negative Declaration and Initial Study covering
Petitions 141-153 were sent to various city and county planning agencies, as
well as to public libraries throughout the state, for review and comment by
August 30,1999. The Commission staff prepared a public notice that announced the
preparation of the draft negative declaration, the locations where it was
available for review, and the deadline for written comments. The public notice
was advertised in newspapers throughout the state- The draft Negative
Declaration was also submitted to the Governor's Office of Planning and
Research, where it was circulated to affected state agencies for review and
comment.
Comments on the Negative Declaration were filed by various agencies.'
The comments identified a number of issues regarding claimed deficiencies in the
Negative Declaration. The issues include questions concerning the adequacy of
petitioners' project descriptions, the claimed "piecemeal" nature of the
projects presented, and other related concerns. Based on a preliminary review of
the claimed deficiencies identified in comments, we concluded in D.99-10-025
1. Comments were received from the following state agencies: department of
justice, Parks and Recreation Resources Management Division, Business,
Transportation and Housing Agency, Department of Transportation; and the
Department of Fish and Game.
4
R.95-04-043, I.95-04-044 ALJ/TRP/sid*
that additional time would be required to adequately review, address, and
resolve the various issues raised.
Until these issues are resolved, the July 30, 1999 Negative Declaration
cannot be finalized and the previously requested authorizations for full
facilities-based CPCNs considered in D.99-10-025 cannot be approved.
In D.99-10-025, we noted that various CLC petitioners did not anticipate
undertaking any new construction at least for their initial start-up operations.
Instead, they intended to collocate their network equipment within the existing
structure of the central offices of the ILECs, and to provide service by
purchasing an ILEC's existing local loop as an unbundled network element (LINE)
under federal law. Because UNEs are considered "facilities" under federal law, a
facilities-based CPCN is still necessary for a CLC to operate utilizing
collocation UNEs. The CLCs argue that the deficiencies identified in the
negative declaration should not prevent the Commission from granting such
limited facilities-based authority at this time where no construction is
involved.
We concluded in D.99-10-025 that under the limited definition of
facilities-based service utilizing equipment installed in previously existing
structures, no material adverse environmental impacts would result since no
external construction would be involved. Accordingly, for purposes of
D-99-10-025, we granted limited "facilities -based" authority in this restricted
manner to each of the Petitioners 141-153. We shall grant a similar limited
authority to the current group of petitioners identified in Appendix B.
Under the limited authority granted herein, the CLC petitioners are
prohibited from engaging in any construction of buildings, towers, conduits,
poles, or trenches. For those carriers seeking authorization for more extensive
facilities-based authority involving actual construction, such authorization
shall be deferred pending resolution of further CEQA review. If a petitioner
does not
5
R.95-04-043, I.95-04-044 ALJ/TRP/sid*
seek full facilities-based authority requiring a negative declaration in its
current filing, that petitioner shall be required to file a new application at a
later date when or if expanded facilities-based authority is sought.
In the meantime, we will grant the third-quarter petitioners' requests
for authority to provide interexchange services and local exchange services
utilizing resale of other carriers' services and/or utilizing unbundled network
elements and/or equipment installed solely on or within existing buildings and
structures.
III. Review of CPCN Petitions
A. Overview
The CLC petitions have been reviewed for compliance with the
certification-and-entry rules (Certification Rules) adopted in Appendices A and
B of D.95-07-054 and subsequent decisions in R.95-04-043/1.95-04-044, Consistent
with our goal of promoting a competitive market as rapidly as possible, we are
granting authority to all of the CLCs that filed during the third quarter of
1999 and met the Certification Rules as set forth in prior decisions in this
docket. The Certification Rules are intended to protect the public against
unqualified or unscrupulous carriers, while also encouraging and easing the
entry of CLC providers to promote the rapid growth of competition.
Petitioners had to demonstrate that they possessed the requisite
managerial qualifications, technical competence, and financial resources to
provide facilities-based local exchange service. Petitioners were also required
to submit proposed tariffs which conform to the consumer protection rules set
forth
2 Subject to the restrictions deferring full facilities-based authority as set forth
in Section 11.
6
R.95-04-043, I.95-04-044 ALJ/TRP/sid*
in Appendix B of D.95-07-054. The Commission TD shall notify each petitioner
within 10 days of this order as to outstanding tariff deficiencies- All
outstanding tariff deficiencies must be corrected before a petitioner may
otherwise begin to offer service.
As prescribed in Certification Rule 4.B.(I), prospective facilities-based
CLCs must also show that they possess a minimum of $100,000 in cash or cash equivalent
resources. In order to demonstrate that they possess the requisite financial resources,
petitioners submitted copies of recent financial statements because the financial
statements contain commercially sensitive information, the petitioners filed motions
for limited protective orders pursuant to General Order 66-C. we grant those motions
as prescribed in our order below.
Based upon our review, except for the unresolved CEQA issues noted
above, we conclude that each of the petitioners identified in Appendix B has
satisfactorily complied with our certification requirements, subject to
correcting any tariff deficiencies to be identified by TD staff, and satisfying
the additional conditions set forth in the ordering paragraphs below.
Accordingly, we grant these petitioners authority to offer local exchange
service utilizing resale of other carriers' services or unbundled network
elements and equipment located solely within existing structures within the
territories of Pacific and GTEC and, where requested, within the CTC and RTC
territories. We also grant the statewide inter- and intraLATA authority as
requested. With respect to full facilities-based local authority, petitioners'
requests shall be defer-red pending resolution or' outstanding CEQA issues.
Pursuant to D.97-09-115, CLC resale authority within the RTC and CTC
territories was authorized to become effective on or after April 1, 1998. As we
stated in D-97-09-115 until the time that tariffed wholesale discount rates are
adopted for RTC and CTC, individual CLCs certificated to resell local service
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within the CTC/RTC territories may enter into negotiations with each of the
MSLECs to seek agreement on an interim wholesale discount rate. Disputes over
the terms of resale arrangements may be submitted to the Commission for
arbitration pursuant to the provisions of Section 252(b)(1) of the
Telecommunication Act of 1996 and Commission Resolution ALJ-174.
B. Sempra Communications (Sempra)
A response was filed on November 18, 1999, by the Office of Ratepayer
Advocates (ORA) to the petition of Sempra. (3) OR A raises various questions
about the petition.
Sempra's petition is the second of its type in California, bearing
significant similarities to Petition 117 filed by Southern California Edison
Company (SCE or Edison) in August 1998. Although Edison is a regulated energy
company and Sempra is not, Sempra's planned utilization of the facilities owned
by its regulated affiliates, Southern California Gas Company (SoCalGas) and San
Diego Gas & Electric Company (SDG&E), raises issues of affiliate transactions
and the potential for cross-subsidies that were present in the Edison petition,
but which are not typically raised by similar petitions filed by entities
unaffiliated with regulated energy companies. ORA prefers Sempra's petition to
SCE's insofar as Sempra has chosen to create a separate affiliate to enter the
telecommunications market. Moreover, because Sempra's business plan is still
being developed, other types of issues are raised. ORA -has recently begun
3 Sempra's petition was filed in the Commission's San Diego office on
September 29, 1999, but the filing fee was not received in the
Commission's San Francisco Docket Office until October 1, 1999. In any
event, Sempra's petition is being included for consideration with all
other third-quarter petitions
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discovery with Sempra. Although Sempra so fax has been cooperative, ORA
nonetheless foresees the need for further discovery.
Sempra's petition does not provide any details about the particular
facilities, currently owned by SoCalGas and SDG&E, which Sempra may use for its
telecommunications services. Nor does the petition address the manner in which
it will use them. There is no mention of whether assets will be transferred to
Sempra or whether assets will be leased by Sempra. Sempra does not describe
plans for filing applications pursuant to Section 851 of the Public Utilities
Code to request authority to transfer or encumber regulated assets. Sempra's
plans need to be described in more specific terms before the Commission grants
the CPCN. Specifically, the plans for its Section 851 application and a
description of assets to be used need to be detailed. The blending of energy and
telecommunications services that potentially would be provided in part by assets
owned by regulated monopolies within the holding company elevates the importance
of Sempra's facilities-based entry. Such entry may or may not be accomplished
through utilization of fiber or other facilities owned by SoCalGas and SDG&E.
The petition does not indicate which specific facilities, rights of ways, or
other assets of its regulated affiliates Sempra intends to use. Rather, it
simply indicates that it plans to provide its telecommunications services
"through a combination of its own facilities and facilities to be leased or
obtained from a variety of existing carries and other entities." (See Petition,
p. 3.)
ORA does not oppose Sempra's petition but files its comments to
highlight key issues which the Commission should evaluate prior to granting 'the
CPCN. Sempra has the opportunity to provide additional support for its
application. ORA believes the most important question is how to apply the
telecommunications affiliate transaction rules to Sempra.
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Sempra filed a reply to ORA's response on November 29,1999. Sempra
echoes ORA's call for prompt consideration of its petition, and agrees that a
prehearing conference, scheduled at the Commission's earliest convenience, is
appropriate for establishing relevant issues. -Sempra also agrees with ORA that
hearings should not be necessary.
We agree that the questions identified by ORA should be resolved before
any facilities-based authority is granted to Sempra. We shall limit the granted
authority to resale at this time and defer the remainder of the petition to a
subsequent decision.
III. Section 311 (g)(2) - Uncontested/decision grants relief requested
This is an uncontested matter in which the decision grants the relief
requested. Accordingly, pursuant to Pub- Util. Code ss.311(g)(2) the otherwise
applicable 30-day period for public review and comment is being waived.
Findings of Fact
1. Fourteen petitioners filed requests in the third quarter of 1999 seeking
a CPCN, to provide competitive local exchange services in the territories of
various California incumbent local exchange carriers as identified in Appendix B.
2. ORA filed a response to the petition of Sempra raising various issues
concerning Sempra's planned utilization of facilities owned by its regulated
energy utility affiliates
3. In response to the Negative Declaration sent for public comment on July
30, 1999, covering Petitions 141-153, various public agencies filed comments
challenging the Negative Declaration.
4. In D.99-10-025, the Commission found that further inquiry was
required to resolve the CEQA issues raised by the filed comments of public
agencies
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before full facilities-based authority could be considered for pending CLC
petitions.
5. Prior Commission decisions authorized com petition in providing local
exchange telecommunications service within the service territories of Pacific,
GTEC, RTC, and CTC for carriers meeting specified criteria.
6. The petitioners listed in Appendix B have demonstrated that each of
them has a minimum of $100,000 in cash or cash equivalent reasonably liquid and
readily available to meet its start-up expenses.
7. Petitioners' technical experience is demonstrated by supporting
documentation which provides summary biographies of key management personnel
8. By D.97-06-107, petitioners or applicants for CLC authority are
exempt from Rule 18~b).
9. Exemption from the provisions of Pub. Util. Codess.ss.816-830 has
been granted to other nondonminant carriers- (See, e.g., D-86-10-007 and D.88-12-076.)
10. The transfer or encumbrance of property of nondominant carriers has
been exempted from the requirements of Pub. Util. Codes 851 whenever such
transfer or encumbrance serves to secure debt(See D.85-11-044.)
11. The provision of local exchange telecommunications service by
resale or by the utilization of existing unbundled loops and electronic
equipment located within or on existing buildings and structures would not have
a significant effect on the environment.
Conclusions of Law
1. Each of the petitioners listed in Appendix B has the financial ability
to provide the proposed services, and has made a reasonable showing of technical
expertise in telecommunications.
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2. Public convenience and necessity require the competitive local
exchange services to be offered by petitioners subject to the terms, conditions,
and restrictions set forth below.
3. Petitioners must each submit a complete draft of their initial
tariff that complies with the requirements established by the Commission that
corrects any deficiencies identified by the TD and including prohibitions on
unreasonable deposit requirements.
4. Each petitioner is subject to:
a. The current 0.5097'0 surcharge applicable to all intrastate services except
for those excluded by D.94-09-065, as modified by D-95-02-050, to fund the
Universal Lifeline Telephone Service (Pub. Util. Codess. 879; Resolution
T-16366, December 2,1999);
b. The current 0.192% surcharge applicable to all intrastate services Except
for those excluded by D.94-09-065, as modified by D.95-02-050, to fund the
California Relay Service and Communications Devices Fund (Pub. Util- Code
ss. 2881; Resolution T-16234; D.98-12-073, December 17, 1998);
c. The user fee provided in Pub. Util. Codess.ss.431-435, which is 0.11% of
gross intrastate revenue for the 1999-2000 fiscal year (Resolution M-4796);
d. The current surcharge applicable to all intrastate services except for
those excluded by D.94-09-065, as modified by D.95-02-050, to fund the
California High Cost Fund-A (Pub. Util. Codess.1739.30; D.96-10-066, pp.
3-4, Aspp. B, Rule I.C; Resolution T-16242 at 0.0% for 1999, December
3,1998);
e. The current 2.4% surcharge applicable to all intrastate services except for
those excluded by D.94-09-065, as modified by D.95-02-050, to fund the
California High Cost Fund-B, Resolution T-16365, December 2, 1999); and,
f. The current 0.05% surcharge applicable to all intrastate services except
for those excluded by D-94-09-065, as modified by D.95-02-050, to fund
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the California Teleconnect Fund (D.96-1.0-066, p. 88, App. B, Rule S.G,
Resolution T-16165; August 1, 1998).
5. In the case of Sempra, its grant of authority should be limited to
resale only at this time pending further inquiry into issues raised in ORA's
comments concerning facilities-based authority.
6. Petitioners should be exempted from Rule 18(b).
7. Petitioners should be exempted from Pub. Util. Code 816-830.
8. Petitioners should be exempted from Pub. Util. Code 851 when the
transfer or encumbrance serves to Secure debt.
9. A Negative Declaration covering Full facilities-based authority for
the petitioners in Appendix B cannot be finalized at this time due to
outstanding challenges previously made by public agencies which remain to be
resolved
10. Any petitioner seeking full facilities-based authority must agree to, and
is required to, carry out any specific mitigation measures adopted in any
subsequent environmental review of petitioner's project conducted in
compliance with CEQA.
11. The Petitioners should be granted CPCNs for interexchange set-vice and for
local exchange service utilizing resale oil other carriers' service or
unbundled network elements a-rid equipment installed within existing
structures as identified in Appendix B subject to the terms, conditions and
restrictions set forth in the order below. Petitioners' request for full
facilities-based authority should be deferred pending resolution of
outstanding environmental issues identified in connection with the alleged
deficiencies in the previous Negative Declaration issued on July 30, 1999.
12. Any CLC which does not comply with our rules for local exchange competition
adopted in R.95-04-043 shall be Subject to sanctions including, but not
limited to, revocation of its CLC certificate
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0 R D E R
IT IS ORDERED that.
1. A certificate of public convenience and necessity (CPCN), shall be
granted to each of the petitioners listed -in Appendix B (petitioners) to
provide competitive local exchange telecommunications services utilizing resale
of other carriers' services or unbundled network elements and equipment
installed solely within or on existing buildings and structures within the
service territories as noted in Appendix B and, as a statewide nondominant
interexchange carrier (NDIEC), as noted in Appendix B, contingent on compliance
with the terms identified in this order. Authorization for full facilities-based
authority involving construction work will require the filing a new application
in conformance with California Environmental Quality Act (CEQA) requirements
pursuant to comments on the Negative Declaration.
2. Each petitioner shall file a written acceptance of the certificate
granted in this proceeding prior to commencing service.
3. The commission's Division (TD) shall notify Petitioners of any outstanding
tariff deficiencies within 10 days of this Order.
4. a. The petitioners are authorized to file with this Commission
tariff Schedules (-incorporating corrections of TD staff) for the provision of
competitive local exchange, intraLATA (Local Access--, Transport Area) toll, and
intrastate interLATA services, as applicable. The petitioners may not offer
these services until tariffs are on file, and until any applicable deficiencies
as identified by the commission's TD Division have been corrected. Petitioners'
initial filing shall be made in accordance with General Order (GO) 96-A
excluding Sections IV, V,
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and VI, and shall be effective not less than one day after approval by the
Telecommunications Division.
b. The petitioners -are competitive local carriers (CLCs). The
effectiveness of each of their future tariffs is subject to the schedules set
forth in Decision Q.) 95-07-054, Appendix A, 4E:
A. "E. CLCs shall be subject to the following tariff and
contract-filing revision and service-pricing standards:
"(1) Uniform rate reductions for existing tariff services shall become effective
on five (5) working days' notice to the Commission. Customer notification is not
required for rate decreases.
"(2) Uniform major rate increases for existing tariff services shall become
effective on thirty (30) days' notice to the Commission and shall require bill
inserts or a message on the bill itself, or first class mail notice to customers
at least 30 days in advance of the pending rate-increase.
"(3) Uniform minor rate increases, as defined in D-95-07-054, shall become
effective on not less than five (5) working days' notice to the Commission.
Customer notification is not required for such minor rate increases.
"(4) Advice, letter filing for new services and for all other types of tariff
revisions, except changes in text not affecting rates or relocations of text in
the tariff schedules, shall become effective on forty (40) days' notice to the
Commission
"(5) Advice letter filings revising the text or location of material which do
not result in an increase in any rate or charge shall become effective on not
less than five (5) days' notice to the Commission.
"(6) Contracts shall be subject to GO 106-A rules for NDIECs, except
interconnection contracts.
"(7) CLCs shall file tariffs in- accordance with Public Utilities (Pub. Util.)
Code Section 876.
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5. The petitioners may deviate from the following provisions of GO 96-A:
(a) Paragraph ll.C.(1)(b), which requires Consecutive sheet numbering and
prohibits the reuse of sheet numbers, and (b) paragraph II.C.(4), which requires
that a "separate a sheet or series of sheets, should be used for each rule."
Tariff filings in incorporate these deviations shall be subject to the approval
of the Commission's Telecommunications Division. Tariff filings shall reflect
all fees and surcharges to which petitioners are subject, as described in
Conclusion of Law 3. Petitioners are also exempt from GO 96-A section III.G.(1)
and (2), which require service of advice letters on competing and adjacent
utilities, unless such utilities have specifically requested such service.
6. Each petitioner shall file as part of its initial tariffs, after the
effective date of this order a-rid consistent with Ordering Paragraph I a
service area map.
7. Prior to initiating service, each Petitioner shall provide the
Commission's Consumer Services Division with the petitioner's designated contact
persons for purposes of resolving consumer complaints and the corresponding
telephone numbers. This information shall be updated if the name or telephone
numbers change or at least annually.
8. Where applicable, each petitioner shall notify this Commission in
writing of the date local exchange service is first rendered to the public
within five days service begins. The same procedure shall be followed for the
authorized intraLATA and interLATA services, where applicable.
9. Each petitioner shall keep it's books and records in accordance with
generally accepted accounting principles.
10. Petitioners, shall each file an annual report, in compliance with
GO 104-A on a calendar-year basis using the information-request form developed
by the Commission Staff and contained in Appendix A.
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11. Petitioners shall ensure that its employees comply with the
provisions of Pub. Util. Code ~281219.5 regarding solicitation of customers.
12. The certificate granted and the authority- to render service under
the rates charges, and rules authorized will expire if not exercised within 12
months after the effective date of this order.
13. The corporate identification number assigned to each Petitioner as
set forth in Append; 3, shall be include"' in the caption of all original
filings with this Commission, and in the titles of other pleadings filed in
existing cases.
14. Within 60 days of the effective date of this order, each Petitioner
shall comply with Pub. Util. Codess.708, Employee Identification Cards,
reflecting its authority, and notify the Director of the Telecommunication
Division in writing of its compliance.
15. Each petitioner is exempted from the provisions of Pub. Util.
Codess.ss.816-830.
16. Each petitioner is exempted from Pub. Until. Codess.851 for the
transfer or encumbrance of property, whenever such transfer or encumbrance
serves to secure debt.
17. If any petitioner is 90 days or more late in filing an annual
report or in remitting the fees listed in Conclusion of Law 4, the
Telecommunications Division shall Prepare for Commission consideration a
resolution that revokes that petitioner's CPCN, unless that petitioner has
received written permission from the telecommunication a Division file or remit
late.
18. It can be seen with certainty that no material adverse environmental
impacts will result from the limited CPCN authority granted under this order.
19. Any additional environmental review found necessary under the for
approval of hill facilities-based CPCN authority for any of the petitioners in
Appendix B shall be finalized and resolved by subsequent order.
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20. Petitioners shall comply with the consumer protection rules set
forth in Appendix B of D.9-5-07-054.
21. Petitioners snail comply with the commission's rules for local
exchange competition in California that are set forth in Appendix C of
D.95-12-056, including the requirement that CLCs shall place customer deposits
in protected, segregated, Interest-bearing escrow account subject to Commission
oversight.
22. Petitioners shall comply with the customer notification and education
rules adopted in D.96-04-049 regarding the passage of calling party number.
23. Petitioners' respective motions for a limited protective order keeping
designated documents containing financial and other operating information
confidential are granted. Such documents will remain under seal for two years
from today unless a petitioner makes a timely request for extension of
confidential treatment of its documents by filing a separate motion with good
cause shown.
24. The petitions listed in Appendix 6 are granted only as set forth above.
This order is effective today.
Dated December 16, 1999, in Sap, Francisco, California.
RICHARD A. BILAS
President
HENRY A DUQUE
JOSIAH L. NEEPER
JOEL Z. HYATT
CARL W. WOOD
Commissioners
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APPENDIX A
Page 1 of 2
TO: ALL COMPETITIVE LOCAL CARRIERS AND INTEREXHCHANGE TELEPHONE UTILITIES
Article 5 of the Public Utilities Code grants authority to the California Public
Utilities Commission to require all public u doing business in California to
file reports as specified by the Commission on the utilities' California
operations.
A specific annual report form has not yet been prescribed for the California
interexchange telephone utilities. However, you are hereby directed to submit an
original and two copies of the information requested in Attachment A no later
than March 31st of the year following the calendar year for which the annual
report is submitted.
Address your report to:
California Public Utilities Commission
Auditing and Compliance Branch, Room 3251
503 Van Ness Avenue
San Francisco, CA 94102-3298
Failure to file this information on time may result in a penalty as provided for
in 2107 and 2108 of the Public Utilities Code.
If you have any question concerning this matter, please call (415) 703-1961
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APPENDIX A
Page 2 of 2
Information Requested of California Competitive Local Carriers and Interexchange
Telephone Utilities.
To be filed with the California Public Utilities Commission 505 Van Ness Avenue,
Room 32-51, San Francisco, CA 94102-3298, no later than March 31st of the year
following the calendar year for which the annual report is submitted.
1. Exact legal name and U # of reporting utility
2. Address.
3. Name, title, address, and telephone number of the person to be
contacted concerning the reported information.
4. Name and title of the office having custody of the general books
of account and the address of the office where such books
are kept.
5. Type of organization (e.g., corporation, partnership, sole
proprietorship, etc.)
If incorporated, specify:
a. Date of filing articles of incorporation with the Secretary of
State.
b. State in which incorporated.
6. Commission decision number granting operating authority and- the
date of that decision.
7. Date operations were begun.
8. Description of other business activities in which the utility is
engaged.
9. A list of all affiliated companies and their relationship to the
utility.
State if affiliate is a:
a. Regulated public utility.
b. Publicly held corporation.
10. Balance sheet as of December 31st of the year for which
information is submitted
11. Income statement for California operations for the calendar year
for which information is submitted.
(END OF APPENDIX A)
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APPENDIX B
USING OF PETITIONERS GRANTED CPCN AUTHORITY
Requested Authority
Granted
Statewide
Local Exchange Inter/Intra.
Name of Petitioner Petition Utility Facilities-based LATA
No. U-No. Resale (1)
1. ACCESS 21 CORPORATION 154 U-6226-C X X X
2. Local Gateway Exchange (2) 155 U-6192-C X
3. GDN Communications Inc. 156 U-6274-C X X X
4. Prism California Operations, LLC 157 U-6244-C X X X
5. Avista Communications of 158 U-6275-C X X X
California
6. Adelphia Business Solutions 159 U-6248-C X X X
Operations
7. Sentre Communications, LLC 160 U-6260-C X X X
8. DPI-TELECONNECT, L.L.C. 161 U-6276-C X X X
9. UNITED CALLING NETWORK 162 U-6277-C X X X
INC.
10.Premiere Network Services, Inc. 163 U-6278-C X X X
11.Competitive Conununications, 164 U-6279-C- X X X
Inc.
12.US Optics, Inc. 166 U-6280-C X X X
13.Tycho Networks, Inc. 167 U-6281-C X X X
14.Sempra Communications (3) 168 U-6282-C X X
(1) Local exchange authority granted herein is limited to local exchange resale
service and local exchange service utilizing unbundled network elements and
equipment located solely within existing structures. Unless otherwise indicated,
the authorized local exchange service territory of each CLC petitioner is
limited to the ILEC service territories of Pacific, GTEC, RTC, and CTC. Any CLC
seeking an expanded facilities-based authority involving construction must file
a new application and comply with CEQA.
(2) Local Gateway was granted resale and Inter/intraLATA authority in D.99-07-036.
(3) Alt facilities-based authority for Sempra is being deferred at this time,
as discussed in II.B. of the decision.
(END OF APPENDIX B)
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