-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Au0RRkoeheILIkxumnrdt8xIqB7QMhiBgaznpb4Bp49FeThPliq/fzL8BKKEZDSq IWUEftLu3+siJW2cXCC4Ow== /in/edgar/work/20000815/0001116502-00-000018/0001116502-00-000018.txt : 20000922 0001116502-00-000018.hdr.sgml : 20000921 ACCESSION NUMBER: 0001116502-00-000018 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TALK VISUAL CORP CENTRAL INDEX KEY: 0001007367 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 954561156 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-43806 FILM NUMBER: 702721 BUSINESS ADDRESS: STREET 1: 3550 BISCAYNE BLVD STREET 2: SUITE 704 CITY: MIAMI STATE: FL ZIP: 33137 BUSINESS PHONE: 3103487266 MAIL ADDRESS: STREET 1: 3550 BISCAYNE BLVD STREET 2: SUITE 704 CITY: MIAMI STATE: FL ZIP: 33137 FORMER COMPANY: FORMER CONFORMED NAME: LEGACY SOFTWARE INC DATE OF NAME CHANGE: 19960207 SB-2 1 0001.txt REGISTRATION STATEMENT REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TALK VISUAL CORPORATION (Exact name of Registrant as specified in its charter)
NEVADA 4813 95-4561156 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
3550 Biscayne Boulevard Suite 704 Miami, Florida 33137 (305) 572-0575 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Eugene Rosov President Talk Visual Corporation 3550 Biscayne Boulevard Suite 704 Miami, Florida 33137-3857 (305) 572-0575 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copy to: Andrew J. Beck, Esq. Torys 237 Park Avenue New York, New York 10017 (212) 880-6000 Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plan, please check the following box. |_| 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, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act , please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE ========================================== ===================== ===================== ===================== ================= Proposed maximum Proposed maximum Title of each class of Amount to be offering price aggregate offering Amount of securities to be registered registered per share price registration fee - ------------------------------------------ --------------------- --------------------- --------------------- ----------------- Common Stock ($.001 par value)......... Up to 53,475,935(1) $ (2) $22,500,000 (3) $ 5940.00 - ------------------------------------------ --------------------- --------------------- --------------------- ----------------- Common Stock ($.001 par value) 2,542,372 $ (4) $ 1,725,000 $ 455.40 - ------------------------------------------ --------------------- --------------------- --------------------- ----------------- Total Up to 56,018,307 $24,225,000 $ 6395.40 ========================================== ===================== ===================== ===================== =================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933. (2) The price per common share will vary based on the volume-weighted average daily price of Talk Visual's common stock during the drawdown periods provided for in the common stock purchase agreement described in this registration statement. The purchase price will be equal to 85% of the volume-weighted average daily price for each trading day within such drawdown pricing periods when Talk Visual's average market capitalization for the 10 trading days prior to the date the applicable pricing period commences is less than or equal to $30 million. The amount of the discount to the average daily price will be adjusted for increases in Talk Visual's average market capitalization over $30 million as provided in the common stock purchase agreement. The agreement allows for one draw during each drawdown period over a period of 18 months for amounts up to $1,500,000 per draw. (3) This represents the maximum purchase price that Evertrend Holdings Limited is obligated to pay Talk Visual under the common stock purchase agreement, including shares issued pursuant to a warrant certificate permitting Evertrend to purchase up to a number of shares equal to 50% of each drawdown amount. The maximum net proceeds Talk Visual can receive is $22,500,000 less an 8% cash placement fee payable to its placement agent, Ladenburg Thalmann & Co. Inc. and $1,500 in escrow fees and expenses per drawdown. (4) The remainder of the shares to be registered may be offered for sale and sold from time to time during the period the registration statement remains effective, by or for the account of Evertrend or Ladenburg Thalmann. These shares consist of 1,271,186 shares issuable upon the exercise of a warrant issued to Evertrend under the common stock purchase agreement and 1,271,186 shares issuable upon the exercise of a warrant issued to Ladenburg Thalmann as a placement fee. The exercise price of these warrants is $0.6785 per share. These warrants may be exercised until July 27, 2004. The proposed maximum offering price per share has been estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act of 1933. The proposed maximum aggregate offering price for these shares is based upon the average of the high and low reported prices of the registrant's common stock on August 7, 2000. The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The information in this Preliminary Prospectus is not complete and may be changed. We may not sell these securities or accept any offer to buy these securities until we deliver this Prospectus to you in final form. We are not using this Prospectus to offer to sell these securities or to solicit offers to buy these securities in any place where the offer or sale is not permitted. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED August __, 2000 PROSPECTUS 56,018,307 SHARES TALK VISUAL CORPORATION COMMON STOCK The shares of common stock being offered in this prospectus may be issued through a common stock purchase agreement with Evertrend Holdings Limited, as further described in this prospectus, or upon the exercise of stock purchase warrants held by Evertrend and Ladenburg Thalmann. The number of shares of common stock which may be issued through the common stock purchase agreement and upon exercise of the warrants would constitute 98.9% of our issued and outstanding common stock as of August 7, 2000. We will not receive any proceeds from the sale of the shares by Evertrend. However, we will receive the sale price of any common stock that we sell through the common stock purchase agreement and the proceeds upon the exercise for cash of the stock purchase warrants, and Evertrend and Ladenburg Thalmann may resell those shares pursuant to this prospectus. The selling stockholders may offer shares of our common stock on the OTC Bulletin Board, in negotiated transactions or otherwise, or by a combination of these methods. The selling stockholders may sell the shares through broker-dealers who may receive compensation from the selling stockholders in the form of discounts or commissions. Evertrend is an "underwriter" within the meaning of the Securities Act of 1933 in connection with its sales. We will pay the costs of registering the shares under this prospectus, including legal fees. Our common stock is listed on the OTC Bulletin Board under the symbol "TVCP." On August 7, 2000, the closing sale price for our common stock as reported on the OTC Bulletin Board was $0.495 per share. SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD UNDER THIS PROSPECTUS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is August __, 2000.
============================================================================================================== TABLE OF CONTENTS Page Prospectus Summary..........................................................................................1 Risk Factors................................................................................................5 Cautionary Statements Concerning Forward-Looking Information...............................................11 Use of Proceeds............................................................................................12 Dividend Policy............................................................................................13 Price Range of Common Stock................................................................................13 Management's Discussion and Analysis of Financial Condition and Results of Operations...............................................................................14 Business...................................................................................................23 Management.................................................................................................32 Certain Transactions.......................................................................................44 Principal Stockholders.....................................................................................45 Description of Capital Stock...............................................................................46 Common Stock Purchase Agreement............................................................................49 Selling Stockholders.......................................................................................55 Plan of Distribution.......................................................................................56 Legal Matters..............................................................................................61 Experts....................................................................................................61 Available Information......................................................................................61 Index to Financial Statements..............................................................................63 =============================================================================================================
i PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION THAT WE PRESENT FULLY IN THE REST OF THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. THE TERMS "WE," "OUR," "US," THE "COMPANY" AND "TALK VISUAL" MEAN TALK VISUAL CORPORATION AND ITS SUBSIDIARIES. TALK VISUAL CORPORATION Talk Visual Corporation is a leading provider of retail-based videocalling services for business and the general public in North and South America. Through our Retail Operations and Sales Division, we are rapidly developing our videocalling services in Europe, Eastern Europe, the Caribbean and North Africa. Taken together with our innovative videocalling equipment - the TV225, produced under exclusive contract with Motion Media of Bristol, the United Kingdom - our extensive suite of telecommunications products has positioned us to become a major provider of videocalling services to businesses and consumers worldwide, linking people in the developed countries to one another and to businesses and families in less developed nations. Our retail locations and our associated company branch locations in Canada, the United Kingdom, Israel and the Philippines provide an audio-visual link for businesses and families. The service enables unusually low-cost visual communications especially designed for expatriates and the small home office marketplace, allowing these groups to communicate with high-quality audio-visual images over inter-continental distances, in real time. We believe that there is a deep-seated relationship between certain key telecommunications products/services and other tangential products/services we carry in our retail operations. Conceptually, the products/services permit businesses and consumers to communicate domestically and internationally. To support the communication needs of key business and consumer populations, our retail locations sell a wide range of telecom and telecom-related products and services. The products sold include pagers, cellular telephones and videophones; services include long-distance telephone calling in-store ("call-shop services"), money transfer, and air travel ticket issuance. Recently, we have begun the process of retail store build-out to create a network of retail locations during the year 2000. These stores are in addition to the planned deployment of over 1,000 videophone locations associated with Postal Business Center partners in the United States. Generally, most company-owned and partnership locations will sell the majority of our products and services. The Videophone Sales Division markets a highly price-competitive ISDN-based video-telephone, the TV225. The TV225 is a sophisticated interactive video-appliance, with an enhanced features set designed to provide consumers and businesses with the ability to download news, movies, information and other real-time data from the desktop, without the need for a computer. The Videophone Sales Division also arranges for us to provide TV225 purchasers with Local Exchange Carrier hookup for a 128-Kilobit ISDN line. Long distance service, for which the underlying provider is Sprint, is provided by us and billed to the consumer on the local carrier monthly bill or separately, depending upon carrier billing arrangements. Our Carrier Sales Division works with the Videophone Sales Division to resell ISDN service to support 128-Kilobit and greater ISDN videophone calls. The Carrier Sales Division sells both international and domestic service for ISDN ordinary analog telephone service. Both the Carrier Sales Division and the Videophone Sales Division have been created recently (as of March 2000) for the purposes of tying together all aspects of our product and service sales plan. 1 We are also a reseller for Capsule Communications, Inc. (formerly US Wats, Inc.) long distance service on a special website specially designed for verifiable customer authorization for carrier designation. Capsule Communications provides highly competitive domestic and international tariffs on a direct-to-consumer basis, with reseller commissions forwarded automatically to us. We believe that videocalling services will become one of the fastest growing areas of the telecommunications industry. Despite its early promise, videocalling has lagged major telecom products such as fax and cellular telephone service, largely because of: o the cost of equipment; o the absence of a unified ISDN (or IP) setup mechanism; and o the availability of adequate origination and termination points. We believe that we have remedied the first bullet point with the newly available TV225 videophone; that in conjunction with the local exchange carriers and outside ISDN service agencies the ordering and facilitation of ISDN lines is now a routine and simple matter; and because of the low price of the TV225 videophone, we will be able to offer businesses and consumers a broad range of originating and terminating points for convenient videocalls. According to the Gartner Group, a respected telecommunications research company, the videoconferencing market is growing at 48 percent a year from a base of 1.1 billion dollars in 1995. Another industry research company, Forward Concepts, projects a 40% annualized growth rate from over $1 billion in 1996 to over $5 billion by 2001. IDC sees the business market for videoconferencing systems climbing to 600,000 systems in 2001. In contrast, they see the heretofore non-existent consumer market also reaching a quarter-million units in 2001, but blossoming to 5.4 million systems in 2005. Finally, another research firm, Frost and Sullivan, predicts staggering growth of videoconferencing sales to $35 billion by 2002. This prediction for 2002 is exactly equivalent to the industry forecasts for wireless subscriber growth. We believe that we have positioned ourselves to participate in this projected growth by providing equipment, services and especially retail locations for the processing of videocalls and other closely related communications products and services. We were organized as a Florida corporation in 1998 and merged with Talk Visual Corporation (formerly Legacy Software, Inc.), a Delaware corporation, pursuant to a merger agreement in 1999. As part of the merger, we became a Nevada corporation. We introduced our videocalling services, cellular telephone and pager sales products in early 1999 with the launch of our first corporate retail locations. Our principal office is located at 3550 Biscayne Boulevard, Suite 704, Miami, Florida 33137 and our telephone number is (305) 572-0575. 2 THE OFFERING This prospectus covers up to 56,018,307 shares of Talk Visual common stock to be sold by the selling stockholders. The number of shares subject to this prospectus represents 98.9% of our issued and outstanding common stock as of August 7, 2000 and 49.7% after issuance of all currently unissued shares included in this prospectus. We signed a common stock purchase agreement with Evertrend, a British Virgin Islands corporation, on July 27, 2000, for the future issuance and purchase of shares of our common stock. The transaction closed on July 27, 2000. The stock purchase agreement establishes what is sometimes termed an equity line of credit or an equity drawdown facility. In general, the drawdown facility operates like this: the investor, Evertrend, has committed to provide up to $15 million as we request it over an 18 month period, in return for common stock we issue to Evertrend. Once every 22 trading days, we may request a draw of up to $1,500,000 of that money. The maximum amount we actually can draw down upon each request will be determined by the volume-weighted average daily price of our common stock for the 22 trading days prior to our request and the average trading volume for the 45 trading days prior to our request. Each draw down must be for at least $250,000. At the end of a 22 trading day period following the drawdown request, the final drawdown amount is determined based on the volume-weighted average stock price during that 22 day period. We then use the formulas in the common stock purchase agreement to determine the number of shares we will issue to Evertrend in return for that money. Additionally, Evertrend will receive a warrant certificate to purchase up to a number of shares of common stock equal to 50 % of the drawdown. The formulas for determining the final drawdown amounts, the number of shares we issue to Evertrend and the price per share paid by Evertrend are described in detail beginning on page 50. The aggregate total of all draws cannot exceed $15 million and no single draw can exceed $1,500,000. We are under no obligation to request a draw for any period. The market price for our common stock on August 7, 2000 was $0.495 and the average daily trading volume for the 45 trading days ended August 7, 2000 was 943,596 shares. If our market price on August 7, 2000 and the 45-day average trading volume preceding August 7, 2000 each remained constant over the 18 month period of the common stock purchase agreement and we requested the maximum amount available to us under the common stock purchase agreement, each draw would be capped at $1,500,000 and we could make 10 draws for a total amount drawn of $15,000,000. The formula would dictate that, for this example, we would issue Evertrend 35,650,623 shares at $0.42075 per share. The number of shares we would issue and the proceeds we would receive could be limited by a provision of the common stock purchase agreement that prevents us from issuing shares to Evertrend to the extent Evertrend would beneficially own more than 9.9% of our then outstanding common stock. Any resales of shares by Evertrend under this prospectus would reduce the number of shares beneficially owned by Evertrend, and would enable us to issue additional shares to Evertrend without violating this condition. The per share dollar amount Evertrend pays for our common stock for each drawdown includes a discount to the average daily market price of our common stock for the 22-day period 3 after our drawdown request, weighted by trading volume. The discount is determined by reference to our average market capitalization (calculated by multiplying the number of shares of common stock issued and outstanding by the closing bid price of the common stock for the 10 trading days prior to the date the drawdown pricing period commences), and is applied as follows: o 15% of the average daily market price when our average market capitalization is less than or equal to $30 million; o 13% of the average daily market price when our average market capitalization is greater than $30 million and less than or equal to $40 million; o 11% of the average daily market price when our average market capitalization is greater than $40 million and less than or equal to $50 million; and o 9% of the average daily market price when our average market capitalization is greater than $50 million. We will receive the amount of the drawdown less an escrow agent fee of $1,500 and an 8% placement fee payable to the placement agent, Ladenburg Thalmann & Co. Inc., which introduced Evertrend to us. Ladenburg Thalmann is a registered broker dealer. It is not obligated to purchase any of our shares, but as an additional placement fee, we have issued to Ladenburg Thalmann warrants to purchase 1,271,186 shares of our common stock at an exercise price of $0.6785 per share. The common stock issuable upon exercise of those warrants is included in the registration statement of which this prospectus is a part. 4 RISK FACTORS YOU SHOULD BE AWARE OF VARIOUS RISKS BEFORE YOU INVEST IN OUR COMMON STOCK, INCLUDING THOSE RISKS DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY AFFECTED, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT WE HAVE A LIMITED OPERATING HISTORY, WE HAVE EXPERIENCED LOSSES AND WE MAY NEVER BECOME PROFITABLE. Until August, 1999, we were a development stage company, with no history of earnings. For the years ended December 31, 1998 and 1999, we incurred net losses of $1,197,373 and $5,954,719, respectively. Primarily, these losses were incurred in the establishment of the videocalling operations, investment in the development of products, expansion of sales, marketing and administrative systems and opening and start-up of the retail stores. There can be no assurance that we will be profitable on either a quarterly or annual basis in the future. OUR OPERATIONS HAVE EXPANDED RAPIDLY AND WE MAY HAVE DIFFICULTY IN MANAGING OUR GROWTH. We have expanded our operations rapidly, which has created significant demands on our administrative, operational, developmental and financial personnel. Additional expansion will place further demands on these resources. There can be no assurance that our systems, procedures, controls and existing space will be adequate to support expansion of our operations. Future operating results will depend on the ability of our officers and key employees to manage changing business conditions and to continue to improve our operational and financial control and reporting systems. If management is unable to manage growth effectively, our business, financial condition and results of operations could be materially and adversely affected. The success of our business depends in part upon our ability to attract, train and retain a sufficient number of qualified personnel commensurate with our expanding needs. An increase in the turnover rate among our employees would increase recruiting and training costs, and if we were unable to recruit and retain a sufficient number of employees, we could be forced to limit our growth or possibly curtail our operations. There can be no assurance that we will be successful in attracting, training and retaining the required number of employees to support our business in the future. WIDESPREAD OWNERSHIP OF VIDEOCALL TECHNOLOGY MAY SIGNIFICANTLY REDUCE DEMAND FOR OUR SERVICES. The communications industry is characterized by rapidly changing technology, frequent new service and product introductions, significant and rapid lowering of the price of technology, and more widespread personal ownership of technology. New technology may make our technology obsolete. Widespread personal ownership of videocall technology may significantly reduce any demand for our services. 5 CHANGES IN OUR INDUSTRY MAY RENDER OUR BUSINESS PLANS OBSOLETE. The communications industry is fast paced and rapidly changing. There is no guarantee that our plans as they exist today will be viable in the future. Shifts in technology, business and consumer demands, acquisition of alternative systems for teleconferencing and videocall technology by businesses and consumers, and government regulations could hinder our strategy and growth plans. WE FACE SUBSTANTIAL COMPETITION FROM ESTABLISHED AND NEW COMPANIES IN OUR INDUSTRY. We are faced with competition from off-the-shelf and value-added sellers of communications equipment and services and other retail communication product resellers. There is no assurance that we will be able to compete effectively in the future. Existing retailers and value-added communications service providers could, if necessary, alter their business strategies and compete more effectively than we do. Additionally, other start-up operations could open in our targeted markets, thus hindering our growth plans. Many of our current and potential competitors have significantly greater financial, marketing, technical and other competitive resources, as well as greater name recognition, than we have. As a result, our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the promotion and sale of their products and services. There can be no assurance that we will be able to compete successfully with existing competitors or with new competitors. In addition, competition could increase if new companies enter the market or if existing competitors expand their service offerings. An increase in competition could result in price reductions and loss of market share and could have a material adverse effect on our business, financial condition or results of operations. To be competitive we will need to continue to invest in engineering, research and development and sales and marketing. There can be no assurance that we will have sufficient resources to make such investments or that we will be able to make the technological advances necessary to remain competitive. In addition, current and potential competitors have established or may in the future establish collaborative relationships among themselves or with third parties, including third parties with whom we have relationships, to increase the visibility and utility of their products and services. Accordingly, it is possible that new competitors or alliances may emerge and rapidly acquire significant market share. If this were to occur, our business, financial condition and results of operations would be materially adversely affected. WE DO NOT PAY, AND DO NOT ANTICIPATE PAYING, DIVIDENDS ON OUR COMMON STOCK. We intend to use all available funds for the operation and expansion of our telecommunications activities. We have no plans to pay dividends on our common stock for the foreseeable future, even if such funds were to become available. 6 WE MAY BE VULNERABLE TO TECHNICAL MALFUNCTIONS WHICH COULD ADVERSELY AFFECT OUR OPERATIONS. We are in the process of constructing our own network. This involves the acquisition of switching and bridging equipment, along with high capacity telecommunications lines. Our ability to provide services could be jeopardized if our facilities or connections to transmission facilities were damaged by fire or other natural disasters. To the extent that we are principally responsible for providing our customers with telecommunications services, interruption or failure to provide these services may subject us to claims from customers who are damaged as a result of an interruption or failure. Interruptions or other difficulties in operating our network could have a material adverse effect on our financial condition and results of operations. DIFFICULTIES WITH THIRD-PARTY CARRIERS COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS. We obtain services from various long distance and local carriers of telecommunications services for our services and our reselling operations. If these carriers fail to provide service, our customers would still hold us responsible. We may also not be able to obtain competitive or satisfactory rates if carriers: o choose not to enter into agreements with us; o terminate existing contracts with us; o reduce the level or type of telecommunications services they offer; or o refuse to negotiate cost reductions to meet competitive prices. Any such events could have a material adverse effect on our financial condition and results of operations. IF INTERNET TELEPHONY AND INTERNET INFRASTRUCTURE DO NOT CONTINUE TO DEVELOP AS ANTICIPATED, OUR OPERATIONS WILL BE ADVERSELY AFFECTED. For Internet telephony and Internet-based video conferencing services to be commercially viable, the size of the network infrastructure, enabling technologies, necessary performance improvements, and user security will need to be upgraded and usage must increase substantially. If the Internet continues to experience an increased number of users, increased frequency of use, or increased bandwidth requirements, we can provide no assurance that the performance or reliability of the Internet will not be adversely affected. There is no assurance that the infrastructure or products or services necessary to make the Internet a viable commercial marketplace for the long term will be developed. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and could face such outages and delays in the future. These outages and delays could adversely affect the level of Internet telephony usage, the level of traffic, and our Internet-based video-teleconferencing services. 7 DIFFICULTIES WITH A THIRD PARTY MANUFACTURER COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS. We have signed an OEM agreement with Motion Media Technology Limited for the purchase of video conferencing telephone units aggregating $9,994,000 over a three year period. We are entirely reliant on Motion Media to produce these units for us, and in the event there were to be any disruption of production or failure of Motion Media to supply the units for us to resell, it would adversely affect our business, financial condition and results of operation. WE FACE NUMEROUS RISKS ASSOCIATED WITH POSSIBLE STRATEGIC RELATIONSHIPS, JOINT VENTURES AND ACQUISITIONS. We continually evaluate opportunities to acquire additional products, technologies or businesses. Acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, and amortization expense related to intangible assets acquired, any of which could materially adversely affect our financial condition and results of operations. In addition, acquired businesses may be experiencing operating losses, which may adversely affect our earnings. Acquisitions involve a number of risks, including difficulties in the assimilation of the acquired company's operations and products, diversion of management resources, uncertainties associated with operating in new markets and working with new customers, and the potential loss of the acquired company's key employees. As part of our growth plan, we seek to identify retail locations in expatriate communities. We cannot give any assurances that we will be successful in locating, developing and profitably operating such retail sites. Our business operation may be influenced by general retail purchasing trends and local community retail activity. WE INCUR FINANCIAL RISKS IN OUR INTERNATIONAL OPERATIONS. We incur financial risks associated with international operations and related foreign currencies. We anticipate that international telecommunications traffic will account for a significant portion of our consolidated revenue and costs. In addition, the manufacturer of our video telephone model TV225 is based in the United Kingdom and purchases of this equipment are subject to foreign currency exchange risks. Our international video conferences that are initiated outside the United States are denominated in local currency and are subject to foreign currency exchange risks. The assets and liabilities in our international operations and real estate, also are denominated in each country's local currency and are subject to foreign currency exchange risks. Currently, we do not employ currency hedging strategies to reduce this risk. In addition, our international business may be subject to a variety of other risks not mentioned above, including difficulties in collecting international accounts receivable or obtaining U.S. export licenses, potentially longer payment cycles, increased costs associated with maintaining international marketing efforts, the introduction of non-tariff barriers and higher duty rates and difficulties in enforcement of contractual obligations and intellectual property rights. 8 WE MAY BE UNABLE TO EXPAND OUR INTERNATIONAL OPERATIONS AND BRING THEM TO PROFITABILITY WITHIN A REASONABLE TIME. We cannot assure you that all our international locations will become and remain profitable. Our international locations are in Belgium, the Philippines and Hong Kong. Through joint venture agreements, we have locations in Canada, Britain, Israel, South America and Mexico. We intend to expand the scope of our international operations, which may require us to open and staff new locations in additional countries, invest in more bridging, switching and video conferencing equipment, fund marketing expenses, and incur other start-up costs. We incur these start-up expenses when we open a new international location before we generate any revenue from that location. We intend to continue opening new international locations and view these expansion expenses as a necessary investment in future revenue growth, but we need each of these locations to become profitable within a reasonable time if we are to continue building our global platform. WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MAY BE UNAVAILABLE. We may not be able to fully implement our domestic and international expansion and acquisition plans with only the net proceeds from this offering. We may need additional equity or debt financing, collaborative arrangements with corporate partners, or funds from other sources for these purposes. Additional equity financing may be dilutive to our stockholders and debt financing may impose restrictive covenants on the way we operate our business. We may have difficulty obtaining these funds on a timely basis and on acceptable terms, if at all. If we cannot obtain adequate funds from operations or additional sources of financing, we may experience operational difficulties and the loss of customers. Our business, financial condition, and results of operations will be materially and adversely affected by the unavailability of capital when we need it. OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE. The trading in our common stock has been and may continue to be subject to wide fluctuations of both price and volume, in response to various factors such as: o announcement of operating results that differ from expectations; o changes in the mix of products and sales channels; o announcements of significant technological innovations, contracts, acquisitions, strategic partnerships, joint ventures or new products and services by us or our competitors; o announcements of agreements, letters of intent or equity and/or other transactions; o future sales of our common stock; o macroeconomic conditions generally; and o market conditions for stocks of telecommunications services companies in general. 9 In addition, in recent years the stock market in general, and the shares of certain telecommunications-related companies in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of our common stock. THE EXERCISE OF OUTSTANDING WARRANTS, OPTIONS AND PREFERRED CONVERSION RIGHTS MAY DEPRESS OUR STOCK PRICE. The exercise of outstanding warrants and options along with the conversion rights of the 1999 Series A convertible preferred stock and the potential sale of the underlying shares could have a material adverse effect on the public trading price of our stock, if the holders are willing to sell at a price that is significantly less than the current market price or the number of shares sold exceeds the number of shares the market can absorb at the current market price. As of August 7, 2000, we had 56,597,858 shares of common stock outstanding. As of August 7, 2000, various shareholders, former employees, and directors held options and warrants to purchase a total of 18,993,043 shares of common stock at a weighted average exercise price of $0.91 per share. Moreover, Evertrend and Ladenburg Thalmann have been issued warrants allowing each to purchase 1,271,186 shares of our common stock at an exercise price of $0.6785 per share and Evertrend will receive a warrant certificate to purchase up to a number of shares equal to 50% of the drawdown amount. In addition, the 1999 Series A convertible preferred stock, as of August 7, 2000, is convertible into 4,196,805 shares of common stock. WE MAY FAIL TO RETAIN KEY MANAGEMENT PERSONNEL, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS. The successful operation of our business depends on the services of key members of management. If we lost the full-time services of these or other key managers, it could have a material adverse effect on our business and results of operations, and we cannot predict whether we would be able to find replacements with the necessary skills or experience. THE MINIMAL TRADING VOLUME OF OUR COMMON STOCK COULD LIMIT YOUR ABILITY TO RESELL YOUR STOCK. The trading volume for our common stock, as reported on the OTC Bulletin Board, averaged 3,993,062 shares per week during the three month period ended August 4, 2000, and purchasers of our common stock may be unable to sell the common stock at the time or at the price desired. The trading volume of our common stock is lower than many other similarly situated companies listed on the OTC Bulletin Board. STATE REGISTRATION REQUIRED FOR SALES OF SHARES MAY RESTRICT THE TRANSFERABILITY OF THE SHARES COVERED IN THIS PROSPECTUS. Under some state securities laws, shares of common stock may not be sold unless they are qualified for sale or are exempt from the registration requirements of the state in which the prospective purchaser lives. We will use our best efforts to register and qualify our common stock under the state securities laws in which we believe we need to do so. Failure to register 10 and qualify our common stock under applicable state securities laws may indefinitely restrict the ability of a shareholder in a particular state to transfer his or her shares. THERE ARE SIGNIFICANT CONSEQUENCES ASSOCIATED WITH OUR STOCK TRADING ON THE NASD OTC BULLETIN BOARD RATHER THAN A NATIONAL EXCHANGE. We do not currently meet the requirements for trading in the Nasdaq SmallCap Market or other national exchanges. We can give you no assurance that we will achieve the quantitative criteria required by the Nasdaq SmallCap Market or any other national exchange or that, even if we do, our listing application would be approved by any such exchange. The effects of not being able to list our securities on a national exchange include limited release of the market prices of our securities, limited news coverage of our company, limited interest by investors in our securities, increased difficulty in selling our securities in certain states due to "blue sky" restrictions, and limited ability to issue additional securities or to secure additional financing. WE ARE SUBJECT TO THE APPLICATION OF THE PENNY STOCK RULES, WHICH COULD LIMIT YOUR ABILITY TO RESELL YOUR STOCK. Because our common stock is not trading in the Nasdaq SmallCap Market or some other national exchange, and the trading price of the common stock is less than $5 per share, we are subject to the Penny Stock Rules under the Securities Enforcement and Penny Stock Reform Act of 1990. In addition to the risk of volatility of stock prices, low price stocks are subject to the risks of additional federal and state regulatory requirements and the potential loss of effective trading markets. In particular, broker-dealers trading in our common stock are subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended. Rule 15g-9, among other things, requires that broker-dealers satisfy special sales practice requirements, including making individualized written suitability determinations and receiving any purchaser's written consent prior to any transaction. Broker-dealers handling trades in our securities are required to make additional disclosure in connection with those trades, including the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. Such requirements could severely limit the liquidity of our securities and your ability to sell your securities in the secondary market, which could have an adverse impact on the price of our common stock. CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION Certain information both included and incorporated by reference in this prospectus may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project" or the negative thereof or other variations thereon or comparable terminology. Factors which could have a material adverse effect on the operations and future prospects of our company are described under "Risk Factors." These risks and 11 uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein. Our actual results may differ significantly from the results discussed in the forward-looking statements. DILUTION The issuance of further shares and the eligibility of issued shares for resale will dilute our common stock and may lower the price of our common stock. If you invest in our common stock, your interest will be diluted to the extent of the difference between the price per share you pay for the common stock and the pro forma as adjusted net tangible book value per share of our common stock at the time of sale. We calculate net tangible book value per share by calculating the total assets less intangible assets and total liabilities, and dividing it by the number of outstanding shares of common stock. The net tangible book value of our common stock as of August 7, 2000 was $7,849,257, or approximately $0.14 per share. Assuming that: o we issued on August 7, 2000 a total of 35,650,623 shares to Evertrend under the common stock purchase agreement at $0.42075 per share, which is 85% of the closing price for our common stock on August 7, 2000 and reflects Evertrend's 15% discount; o on August 7, 2000, all vested options and warrants to purchase common stock were exercised for cash at the exercise prices stated in the options and warrants, and all conversion rights to common stock were exercised by the holder of our Series A convertible preferred stock; and o on August 7, 2000 you purchased shares under this prospectus for $0.495 per share, which is the closing price for our common stock on August 7, 2000; our pro forma net tangible book value as of August 7, 2000 would have been $49,356,322, or $0.37 per share. This would represent an immediate increase in the pro forma net tangible book value of $0.23 per share to existing shareholders on August 7, 2000 and would represent dilution to you of approximately $0.125 per share. The actual dilution to you may be greater or less than in this example, depending on the actual price you pay for shares, the actual prices at which we issue shares to Evertrend under the common stock purchase agreement and how many of the vested options and warrants outstanding have been exercised at the time of your investment. Furthermore, stock options and warrants to acquire approximately 23.8 million shares of common stock will vest within the next five years, we may issue additional shares, options and warrants and we may grant additional stock options to our employees, officers, directors and consultants under our stock option plan, all of which may further dilute our net tangible book value. USE OF PROCEEDS We will not receive any of the proceeds from the sale of shares by Evertrend Holdings Limited that it has obtained under the common stock purchase agreement. However, we will 12 receive the sale price of any common stock we sell to Evertrend under the common stock purchase agreement described in this prospectus and upon the cash exercise of the stock purchase warrants held by Evertrend and Ladenburg Thalmann. We expect to use the proceeds of any such sales for general working capital purposes. DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock. Except with respect to the payment of dividends on our Series A convertible preferred stock, as described below, we currently anticipate that we will retain all future earnings, if any, for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, the payment of cash dividends may be limited by financing agreements entered into by us in the future. In connection with the acquisition of real estate on February 24, 1999, we issued 975,000 shares of Series A convertible preferred stock, $.001 par value, paying a dividend of $0.095 per share per annum. We paid a total of $69,469 in dividends on the Series A convertible preferred stock during 1999. No further dividend payments are due on the Series A convertible preferred stock. PRICE RANGE OF COMMON STOCK Our common stock is traded on the OTC Bulletin Board under the symbol "TVCP". Our common stock was quoted on the Nasdaq SmallCap Market under the symbol "LGCY" after we began public trading on May 14, 1996 through February 28, 1999, and under the symbol "TVCP" from March 1, 1999 through April 7, 1999. As of July 29, 2000, we had 10,571 holders of record of our common stock and 22 listed market-makers. The following table sets forth the high and low bid information for our common stock for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. Market prices have been adjusted for the 1:3 reverse split of our common stock on September 6, 1998.
High Low ---- --- Fiscal Year Ending December 31, 2000 Quarter ended March 31, 2000 $3.875 $0.395 Quarter ended June 30, 2000 $1.750 $0.410 Quarter ended September 30, 2000 (through July 31, $0.840 $0.400 2000) Fiscal Year Ended December 31, 1999 Quarter ended March 31, 1999 $4.125 $3.625 Quarter ended June 30, 1999 $3.500 $0.460 Quarter ended September 30, 1999 $0.570 $0.120 Quarter ended December 31, 1999 $0.910 $0.057 13 High Low ---- --- Fiscal Year Ended December 31, 1998 Quarter ended March 31, 1998 $3.75 $1.125 Quarter ended June 30, 1998 $3.75 $0.3125 Quarter ended September 30, 1998 $1.78125 $0.9375 Quarter ended December 31, 1998 $4.00 $0.8125
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS DISCUSSION INCLUDES "FORWARD-LOOKING" STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS WE "EXPECT", "ANTICIPATE", "BELIEVE" AND "INTEND" AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING STATEMENTS. INVESTORS SHOULD BE AWARE THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM OUR EXPRESSED EXPECTATIONS BECAUSE OF RISKS AND UNCERTAINTIES INHERENT IN FUTURE EVENTS, PARTICULARLY THOSE RISKS IDENTIFIED IN THE "RISK FACTORS" SECTION OF THIS PROSPECTUS, AND SHOULD NOT UNDULY RELY ON THESE FORWARD LOOKING STATEMENTS. WE WILL NOT NECESSARILY UPDATE THE INFORMATION IN THIS DISCUSSION IF ANY FORWARD-LOOKING STATEMENT LATER TURNS OUT TO BE INACCURATE. OVERVIEW We were organized as Legacy Software, Inc. in California in 1989, as a successor to a partnership formed in 1986, and were reincorporated in Delaware in March, 1996, then reincorporated in Nevada in 1999. We completed an initial public offering of 1,150,000 shares of our common stock, par value $.001 per share, in May of 1996. In September of 1998, we effected a one for three reverse split of our common stock. From inception until October, 1998, Legacy primarily developed and sold educational entertainment software. On September 14, 1998, a merger was announced between Videocall International Corporation and Legacy. Videocall was a development stage company incorporated in Florida in February, 1998, headquartered in Cambridge, Massachusetts, to provide videocalling and related telecommunications services to businesses and consumers. Following the announcement of the proposed merger, the key officers of Videocall were elected as officers of Legacy and open positions on the Board of Directors were filled by Directors of Videocall, thus creating common control of the two companies. By December 31, 1998, Legacy had ceased developing and marketing software products and began focusing on the business activities of Videocall. On March 1, 1999, our name was changed to Talk Visual Corporation. The stock-for-stock transaction, in accordance with the terms of the merger, was approved by the stockholders of both companies June 15, 1999, after which Videocall was merged into Talk Visual, with Talk Visual being the survivor. In addition, the stockholders approved increasing the authorized common shares to 100,000,000 and the authorized preferred shares to 25,000,000. The merger has been accounted for as a reverse acquisition. As a result of the change in control and change in business activity in 1998, the merger is considered to have occurred by December 31, 1998 and, accordingly, all references are to the activities of Videocall. 14 In October of 1998, Videocall acquired the stock of Sacramento Results, Inc., a California corporation. Sacramento Results' primary asset consists of a 119,100 square foot, two story, strip center retail and office complex located in Sacramento, California. In February, 1999, we formed a Canadian subsidiary to acquire a 22,662 square foot property in Toronto, Ontario, Canada, which contains commercial retail rental tenants. Both properties currently represent the primary source of our gross receipts. On August 30, 1999, we moved our headquarters from Cambridge, Massachusetts to Miami, Florida. Prior to August 24, 1999, we were considered a development stage company. On August 24, 1999, we launched our videocalling services through our wholly owned retail stores in the United States and joint venture partners in Europe, Israel, Canada, Asia and South America. On September 2, 1999, we announced the successful transmission of full-motion, superior quality videocalls over the Internet from our Sacramento, California location to our Miami, Florida location. In conjunction with Film World, Inc. and producers John Daly (PLATOON, THE LAST EMPEROR, TERMINATOR) and Menahem Golan (COBRA, DELTA FORCE, RUNAWAY TRAIN, MISSING IN ACTION), we initiated Global Visual Casting on November 2, 1999. This service permits aspiring actors and actresses around the globe to conduct live videocall auditions with Film World's casting directors in Hollywood. In December, 1999, we announced a joint venture with Universal Express, with access to over 7,000 potential sites for installation of videoconferencing equipment. We designed and are currently offering an attractive, low-cost turnkey package for those retail locations to join the videocalling network. Also in December, we initiated our Internet sales operation, Beeperforabuck.com, to commence selling pagers at a low cost over the World Wide Web. On March 16, 2000, we signed an agreement to acquire a 25% interest in Entertech Media Group, Inc. of Hollywood, California. Under the terms of the agreement, we have formed a joint venture with Entertech and will exchange 3,000,000 common shares for 3,666,666 shares of Entertech Media common stock. Entertech has been granted exclusive rights in North America to provide content (such as movies, music, news programs, documentaries, etc.) to customers of Talk Visual who have purchased our videotelephone model TV225. We have launched an aggressive sales program to bring the benefits of the TV225 to the attention of both business and consumers. We are obligated to pay a broker 75,000 shares of our common stock on consummation of this transaction. The transaction is subject to board approval. Through a recently signed contract with an original equipment manufacturer, Motion Media, Ltd., we now offer a desktop-based videoconferencing telephone at a reasonable price. We view this unit as the next step in deploying video telephony to the mass market. On July 2, 2000, we signed a letter of intent to acquire 51% to 60% of YAK Communications (USA) Inc., parent company to YAK Communications Canada, Inc. YAK Canada is a leading Dial-Around service provider in Canada, with annual revenues of $12 million (Cdn). YAK Communications (USA) Inc. is owned 32% by parties related to Talk 15 Visual. We have engaged an independent international consulting firm to render an opinion of valuation for this acquisition. The consideration is $.50 and four shares of Talk Visual common stock for each YAK share. YAK has 3,852,000 shares outstanding. We also agreed to lend up to $5 million to YAK. This agreement is subject to change based upon the valuation and board approval. On June 22, 2000, we entered into an agreement to acquire the assets of 11 retail call centers in the New York and New Jersey area with Various Business Management, Inc. ("VBM"). Terms of the agreement call for cash payments totaling $350,000 and stock in the value of $550,000, for a total purchase price of $900,000. The purchase price is subject to a downward adjustment, to be agreed upon, in the event VBM is unable to obtain a lease assignment for any store location which is for a period of less than three years. We plan expansion through an aggressive program of acquisition, opening new retail sites, forming joint ventures with other telecom providers and expanding the telecom product offerings in all physical and Internet retail sites. We have embarked on an aggressive program to develop videocalling retail locations, joint venture partners and sales of the desktop videophone model TV225. To that end, we currently employ 31 full and part-time employees in the telecommunications operations and nine full and part-time employees in the real estate operations. With the completion of the acquisition of the New York and New Jersey stores, we will add 35 employees to operate those activities. Under the direction of our Chief Technical Manager and our Vice President of Internetworking Systems, we are deploying wireless communication systems for carrying voice, data and videocalls over our network. Additionally, we have tested and began deploying the bridging of ISDN based videocalls over the Internet and full motion, high quality videocalls entirely over the Internet protocol. Our goal is to provide videocall technology over multiple platforms and thus be able to deliver it to large segments of the population. On February 1, 2000, we leased an additional 2,559 square feet of office space at our Miami office headquarters. The lease increased rent obligations by $52,000 per year and expires June 30, 2002. The additional space has been added to house sales and marketing staff, telephonic equipment, the data processing department and conference facilities. We have commenced selling long distance services under an agreement with Capsule Communications, Inc. (formerly US Wats, Inc.) over the Worldwide Web. Employing relatively new technology allowing simple, cost efficient web-based ordering and a unique electronic "Letter of Authorization," methodology along with very favorable telecom rates, this system is anticipated to generate substantial activity. Our long distance services website is located at www.talkvisual-ld.com. This new product offering is a continuing expansion of our e-commerce development programs to enhance and expand revenue sources. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 Prior to August 24, 1999, we were considered a development stage company. On August 24, 1999, we became operational with the launch of our videocalling services. 16 Additionally, during the fourth quarter of 1999, we commenced selling other telecommunications services and equipment through our retail outlets and over the Internet. Telecommunication services, software and product sales increased $94,779 for the six months ended June 30, 2000 compared to the six months ended June 30, 1999. This increase resulted from sales of telephone products in the stores and sales of the Company's TV225 videocalling equipment, which did not exist in 1999. Real estate revenue increased $96,045 for the comparative periods ending June 30, 2000 and 1999, as a result of higher occupancy at the Sacramento building and ownership for the full six months in 2000 of the Canadian property compared to three months of ownership in 1999. Cost of equipment sales, telecommunication and retail operation expenses increased $473,481 to $476,685 for the six months ended June 30, 2000, compared to $3,204 for the six months ended June 30, 1999. This increase reflects the operation of our retail locations, cost of equipment sold and the beeperforabuck web sales activities, which did not exist in 1999. The expense amount of $3,204 for the six months ended June 30, 1999 is attributable to costs of software sales. The increase of $86,354 of depreciation expense for the six months ended June 30, 2000 in comparison to the same period ended June 30, 1999, represents capital assets acquired and put in service following the commencement of operations after August, 1999, and improvements to the real estate in Sacramento. General and administrative expenses incurred in the six months ended June 30, 1999 totaled $3,351,255 and for the six months ended June 30, 2000, totaled $1,700,963, for a decrease of $1,650,292. Of this decrease, $1,535,613 was attributable to consulting services paid for in 1999 that were not incurred in 2000. The majority of the 1999 consulting services were for assistance in financing, investor relations and public relations services and were paid for with common stock. In connection with the acquisition of the Sacramento property, we incurred a short term non-interest bearing obligation of $1,000,000. The short term obligation to the seller of $1,000,000 was renegotiated and partially paid down on February 19, 1999. Under the renegotiated note, we paid an advance against leasehold improvements in the amount of $350,000 and a principal payment of $107,000, leaving a balance due of $893,000 on the renegotiated note, adjusted for certain offsets. On March 29, 2000, the holder of the note signed a settlement agreement in which it accepted a cash payment of $450,000 and 100,000 shares of common stock in full payment of this obligation. The net result of this transaction resulted in the recognition of a gain on debt forgiveness totaling $122,347. This is reported as an extraordinary item in the Condensed Consolidated Statements of Operations for the six months ended June 30, 2000. 17 RESULTS OF OPERATIONS FOR FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1998 Our predecessor, Videocall, was in development stage during all of 1998 and until August 24, 1999. Therefore, revenue from operations only commenced in the fourth quarter of 1999. Sales of $8,147 in services and $79,393 in equipment represent the commencement of our core business activity - selling videocalling and telephony service and equipment. The majority of the equipment sales were to joint venture partners, some of which share common management with us and therefore are considered related parties. The initial investment in real estate property occurred in October, 1998. The increase in real estate revenues of $846,355 results from a full year of ownership of the Sacramento property and the addition in February, 1999 of the Toronto property. The Toronto property accounted for 20% and the Sacramento property for 80% of rental receipts. Software development costs incurred prior to the merger totaled $1,487,018 and accumulated amortization prior to the current year aggregated $1,105,325 for a net asset value of $381,693. Management reviewed the value of the development costs and determined that it was necessary to reduce the value by $206,694 to reflect the net realizable value of the asset. We currently have a contract for sale of the software asset for the amount of the adjusted net realizable value. Telecommunications and retail operation expenses represented the costs of initial store openings and operating expenses for the retail stores. The major elements of the total expense of $442,710 are comprised of the following: Advertising $64,956 Rents 22,704 Tech Support 104,539 Store Salaries 150,064 Telecom costs 46,933 Supplies, Utilities, Misc. 53,514 -------- Total $442,710 ======== Research and development costs decreased $197,609, from $270,376 in 1998 to $72,767 in 1999. This decrease represented the reduction in expenditures as a result of completion of the development of the Web based reservation system for videocalling and the software for retail store operations. Real estate operations expense for the year ended December 31, 1998, included a one time charge to bad debt for $150,959. This amount was for funds transferred by the seller of the Sacramento property to its related entities that were never repaid. Actual general and administrative costs for the rental operations totaled $50,774 for the short period of ownership in 1998 and $292,610 for both properties for the year ended December 31, 1999. 18 General, administrative and marketing expenses are comprised of the following:
1999 1998 ---- ---- Salaries and benefits $719,943 $260,391 Travel 295,286 85,219 Office, computer and maintenance 372,927 90,140 Rents, licenses and other expenses 304,344 66,642 Consultants 1,652,453 48,827 Legal and other professional 1,178,418 205,260 Marketing and public relations 459,782 51,607 ---------- -------- Total $4,983,153 $808,086 ========== ========
Of the total $4,983,153 expense in 1999, $2,441,568 was paid in common stock; actual cash payments totaled $2,541,585. For the year ended December 31, 1998, of the total expense of $808,086, $223,000 was paid in common stock and the balance of $585,086 was paid in cash. Consultants, legal and other professional expenses totaling $2,830,871 for the year ended December 31, 1999, included $2,296,629 paid in common stock, leaving actual cash payments to those professionals in the amount of $534,242. Management anticipates that the majority of these expenses are one time, as they result from identifying, developing and cultivating business relations for deployment of the videocalling network and with respect to the legal expense, resolution of issues arising from the merger and deployment of videocalling services. Interest expense of $663,964 for the year ended December 31, 1999 increased over the year ended December 31, 1998 in the amount of $557,196, primarily from the full year ownership of the Sacramento and Toronto properties in 1999. Dividends paid on the preferred stock in 1999 result from the issuance of the Series A convertible preferred stock for the acquisition of the Toronto property. On December 1, 1999, the holder of the preferred stock notified us of its intention to convert the preferred stock to common stock in accordance with the Certificate of Designation of the Series A convertible preferred stock. No further dividends will be due as a result of the election to convert. As of December 31, 1999, we had federal and state net operating loss carry-forwards of approximately $12,215,000 and $6,552,000, respectively, available to offset taxable income through the year 2013. Our net deferred tax assets consisted primarily of net operating losses. We have established a valuation allowance equal to the net deferred tax asset for each period, as we could not conclude, based upon prior recurring operating losses, that it was more likely than not that we will generate sufficient taxable income before 2013 to utilize all of our deferred tax assets. RESULTS OF OPERATIONS FOR FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1997 For the twelve months ended December 31, 1998, revenue decreased $157,776 from the twelve months ended December 31, 1997. Royalty revenue decreased $205,013, or 50%, from the twelve months ended December 31, 1997, principally due to decreased sales of our ER Intern and DA Pursuit of Justice titles. Software sales decreased $32,763, or 38%, due to decreasing 19 sales of The Best of ER and other offerings of our DOS products. Corporate Services, a division formed in January 1998, recorded $80,000 in revenue for the year ended December 31, 1998. The Corporate Services division was formed to separate the development of new software titles with programming services offered to commercial enterprises. Cost of royalties decreased $201,750 for the twelve months ended December 31, 1998 from the $211,308 recorded in the twelve months ended December 31, 1997. The decrease was caused primarily by the lower royalty sales in 1998 and a reclassification of a reduction in product development costs of $859,424 based on lower forecasted sales associated with the DA Pursuit of Justice title from cost of royalties to product development expense. Cost of software sales decreased from $98,881 in the twelve months ended December 31, 1997 to $33,254 for the twelve months ended December 31, 1998 due to a lower sales volume of all software products. Product development costs increased $389,124 for the twelve months ended December 31, 1998, primarily due to the charge of $859,424 associated with the DA Pursuit of Justice title in 1998, which was offset by a decrease in production development expenses due to the cessation of development of new titles by our company. General and administrative costs decreased from $1,351,127 in the twelve months ended December 31, 1997 to $941,667 for the twelve months ended December 31, 1998, a decrease of 30%. This decrease is due to our implementation in June, 1997 of cost reduction programs by ceasing all costs associated with development of new titles, discontinuing our Internet gaming services, closing one business office, significantly reducing marketing and public relations efforts, reducing the total staff to two persons and implementing other operating cost reductions. Selling expenses decreased $190,067 to $77,309 for the twelve months ended December 31, 1998 from $267,376 for the twelve months ended December 31, 1997. This decrease resulted from the elimination of all selling and public relations efforts in 1998 with the 1998 expense primarily associated with customer service and technical support of titles then in the market. Interest expense in the twelve months ended December 31, 1998 was $47,626, compared to $123,571 for the twelve months ended December 31, 1997 with the reduction attributed to a decrease in the amount of outstanding debt during 1998. Other expenses of $32,862 in 1998 were due to the reduction of our fixed assets to net realizable values and miscellaneous adjustments; other income of $192,798 in 1998 primarily resulted from the sale of certain assets to, and the assumption of certain liabilities by, a third party. The extraordinary item of $300,000 in the twelve months ended December 31, 1998 is due to the cancellation of debt of $300,000. This resulted from our signing a Payment Agreement with IBM relating to the licensing and distribution agreements for the Emergency Room and DA Pursuit of Justice titles formerly co-developed with IBM. In the event of a default in payment by us which is not cured within a thirty day period, an amount of $400,000, less any payments already made under the agreement, would be immediately due and payable to IBM, with interest accruing at the rate of ten percent per annum. 20 As of December 31, 1998, we had federal and state net operating loss carryforwards of approximately $6,851,000 and $3,333,600, respectively, available to offset taxable income through the year 2013. Our net deferred tax assets of approximately $2,790,900 and $2,253,000 as of December 31, 1998 and 1997, respectively, consisted primarily of net operating losses. We established a valuation allowance equal to the net deferred tax asset for each period, as we could not conclude, based upon prior recurring operating losses, that it was more likely than not that we will generate sufficient taxable income before 2013 to utilize all of our deferred tax assets. YEAR 2000 COMPLIANCE We did not encounter any disruptions in service as a result of Year 2000 computer programming. We did not separately identify costs incurred in connection with our Year 2000 compliance activities as such costs were not significant because they generally have been incurred in the normal course of internally modifying and updating our software programs. Future expenditures are not expected to be significant and will be funded out of operating cash flows. LIQUIDITY AND CAPITAL RESOURCES We had $2,044,855 in cash outflows from operating activities for the six months ended June 30, 2000, compared to cash outflows of $704,924 for the six months ended June 30, 1999. This increase in outflows of $1,339,931 primarily resulted from the payment of accounts payable and the increase in inventory over the balances carried at the end of the same period in 1999. Cash used in investing activities for the six months ended June 30, 2000, totaled $745,579, compared to $1,271,204, for the same period in 1999. We purchased less property and equipment during the first six months of the current year compared to the same six months in 1999, which accounted for the decrease in cash expenditures for investing activities. Net cash from financing activities increased in the six months ended June 30, 2000, by $1,470,924, over the six months ended June 30, 1999. This increase resulted from the receipt of option exercise proceeds, receipt of $1,200,000 of private placement proceeds offset by an increase in payments on long term debt over the amount paid in the same prior year period. On February 24, 1999, we acquired an office facility in Ontario, Canada with the issuance of 975,000 shares of Class A Preferred Stock, Series 1999-A, $.001 par value. On December 1, 1999, the holder of the preferred shares issued under this acquisition notified us of its election to convert the preferred stock. The holders of the preferred shares have agreed on all conversions after the first 3,348,500 shares of common stock to reinvest by purchasing shares of common stock from Talk Visual at the then current market price, within the thirty-six month period, $1.00 per share of common stock issued on conversion, for a total investment in Talk Visual of $13,365,881. As of August 7, 2000, the preferred shareholders had paid $2,495,000 toward this agreement, leaving an outstanding commitment of $10,870,881. We have submitted an application to refinance the Sacramento real estate. The letter of interest obtained from a private investment company outlines terms of a $6,600,000 loan at 2.5% over the 10 year U.S. Treasury Bill rate of interest, with principal and interest amortized over 30 years, with a ten year call. We anticipate net proceeds from the refinancing to be about 21 $2,000,000. Additionally, we will benefit in reduced interest costs on the existing mortgages under this refinancing proposal. This loan is subject to completion of the lender's due diligence process. The Chairman of Talk Visual has made a guarantee to fund or obtain funding to meet our obligations and working capital needs. Based upon the current cash utilization rate and management's plan for expansion and new products/joint ventures/acquisitions, the Chairman's funding obligation, the refinancing of the Sacramento property, the agreement of the preferred shareholders and the proposed sale of common stock to Evertrend Holdings Limited as described in this prospectus, management believes that there should be sufficient capital to meet the needs of Talk Visual for both short term needs and growth over at least the next 12 months. 22 BUSINESS OVERVIEW Talk Visual Corporation is a leading provider of retail-based videocalling services for business and the general public in North and South America. Through our Retail Operations and Sales Division, we are rapidly developing our videocalling services in Europe, Eastern Europe, the Caribbean and North Africa. Taken together with our innovative videocalling equipment - the TV225, produced under exclusive contract with Motion Media of Bristol, the United Kingdom - our extensive suite of telecommunications products has positioned us to become a major provider of videocalling services to businesses and consumers worldwide, linking people in the developed countries to one another and to businesses and families in less developed nations. Our retail locations and our associated company branch locations in Canada, the United Kingdom, Israel and the Philippines provide an audio-visual link for businesses and families. The service enables unusually low-cost visual communications especially designed for expatriates and the small home office marketplace, allowing these groups to communicate with high-quality audio-visual images over inter-continental distances, in real time. We believe that there is a deep-seated relationship between certain key telecommunications products/services and other tangential products/services we carry in our retail operations. Conceptually, the products/services permit businesses and consumers to communicate domestically and internationally. To support the communication needs of key business and consumer populations, our retail locations sell a wide range of telecom and telecom-related products and services. The products sold include pagers, cellular telephones and videophones; services include long-distance telephone calling in-store ("call-shop services"), money transfer, and air travel ticket issuance. Recently, we have begun the process of retail store build-out to create a network of retail locations during the year 2000. These stores are in addition to the planned deployment of over 1,000 videophone locations associated with Postal Business Center partners in the United States. Generally, most company-owned and partnership locations will sell the majority of our products and services. The Videophone Sales Division markets a highly price-competitive ISDN-based video-telephone, the TV225. The TV225 is a sophisticated interactive video-appliance, with an enhanced features set designed to provide consumers and businesses with the ability to download news, movies, information and other real-time data from the desktop, without the need for a computer. The Videophone Sales Division also arranges for us to provide TV225 purchasers with Local Exchange Carrier hookup for a 128-Kilobit ISDN line. Long distance service, for which the underlying provider is Sprint, is provided by us and billed to the consumer on the local carrier monthly bill or separately, depending upon carrier billing arrangements. Our Carrier Sales Division works with the Videophone Sales Division to resell ISDN service to support 128-Kilobit and greater ISDN videophone calls. The Carrier Sales Division sells both international and domestic service for ISDN ordinary analog telephone service. Both the Carrier Sales Division and the Videophone Sales Division have been created recently (as of March 2000) for the purposes of tying together all aspects of our product and service sales plan. We are also a reseller for Capsule Communications, Inc. (formerly US Wats, Inc.) long distance service on a special website specially designed for verifiable customer authorization for carrier 23 designation. Capsule Communications provides highly competitive domestic and international tariffs on a direct-to-consumer basis, with reseller commissions forwarded automatically to us. We believe that videocalling services will become one of the fastest growing areas of the telecommunications industry. Despite its early promise, videocalling has lagged major telecom products such as fax and cellular telephone service, largely because of: o the cost of equipment; o the absence of a unified ISDN (or IP) setup mechanism; and o the availability of adequate origination and termination points. We believe that we have remedied the first bullet point with the newly available TV225 videophone; that in conjunction with the local exchange carriers and outside ISDN service agencies, the ordering and facilitation of ISDN lines is now a routine and simple matter; and because of the low price of the TV225 videophone, we will be able to offer businesses and consumers a broad range of originating and terminating points for convenient videocalls. According to the Gartner Group, a respected telecommunications research company, the videoconferencing market is growing at 48 percent a year from a base of 1.1 billion dollars in 1995. Another industry research company, Forward Concepts, projects a 40% annualized growth rate from over $1 billion in 1996 to over $5 billion by 2001. IDC sees the business market for videoconferencing systems climbing to 600,000 systems in 2001. In contrast, they see the heretofore non-existent consumer market also reaching a quarter-million units in 2001, but blossoming to 5.4 million systems in 2005. Finally, another research firm, Frost and Sullivan, predicts staggering growth of videoconferencing sales to $35 billion by 2002. This prediction for 2002 is exactly equivalent to the industry forecasts for wireless subscriber growth. We believe that we have positioned ourselves to participate in this projected growth by providing equipment, services and especially retail locations for the processing of videocalls and other closely related communications products and services. We were organized as a Florida corporation in 1998 and merged with Talk Visual Corporation (formerly Legacy Software, Inc.), a Delaware corporation, pursuant to a merger agreement in 1999. As part of the merger, we became a Nevada corporation. We introduced our videocalling services, cellular telephone and pager sales products in early 1999 with the launch of our first corporate retail locations. Our principal office is located at 3550 Biscayne Boulevard, Suite 704, Miami, Florida 33137 and our telephone number is (305) 572-0575. RETAIL OPERATIONS AND SALES DIVISION We introduced our first retail stores in early 1999, and were offering connectivity in our 14 company-owned locations by July 1999. Through our current partnerships with approximately 30 additional locations, and with 400 Sprint-enabled locations, we can offer 24 service in most major cities on the planet. As we recently transitioned from a development stage company, the revenue from retail sales of products and services is negligible at this time. We sell the following items out of our retail stores: o Telephone calls ("call-shop services") o Videocalls (domestic and international) o Prepaid phone cards and prepaid residential services o Cellular phones, pagers, and related accessories o High-speed Internet services, including free email o Sale and distribution of videotelephones and equipment By the end of the year 2000, we plan to have presence in over 150 U.S. Metropolitan Service Areas, which cover more than 70% of the U.S. population, and all major markets in Canada. We anticipate being the leading videocalling provider for small business and consumer videocalling services, and believe we are currently the lowest-cost provider in the United States and abroad. We purchase low-cost minutes from Sprint and other carriers and resell them to our customers and partner retailers. We have arranged with a variety of domestic and international carriers to carry our voice traffic from key populous cities to South American, Caribbean, Asian, African and European destinations. Calls are routed and rated using outside-vendor software, deployed in each retail store location. A typical average margin of 40% is retained by us for international calls. We purchase our prepaid phone cards from a variety of vendors, and offer our retail clients a range of pricing with "best per-minute values" varying from week to week and month to month, depending upon vendor arrangements. Prepaid phone cards produce a 30% average margin for us. We have not launched our prepaid residential services, but have acquired switching equipment to deliver this service in New York, Los Angeles and Miami. The service is anticipated to be launched during the third quarter of 2000. Cellular telephones and cellular services are provided to us by Voicestream/Omnipoint, AT&T Wireless Services, and Sprint PCS. We make net margins on service implementation of between $100 and $150 per instrument sold. At this time, we do not enjoy any residual payments from these carriers. Accessories for cellular telephones are a high-margin item (typically over 300%), and we promote our accessories sales whenever cellular phones are sold. Pagers are provided to us by Nixxo, Motorola and Philips. Price points enjoyed by Talk Visual allow retail margins of 10% to 50%, depending upon the service plan and product. We believe that our pager sales programs will provide a meaningful contribution to carrying 25 expenses. Accessories are purchased from a range of vendors, largely based on price, quality and the cellular telephones most popular within the retail area. Integrated Digital Services Network, or "ISDN", is made up of two channels of digital signals sent over standard copper telephone lines. Because it is a digital signal, it can achieve information transfer rates of up to five times faster than standard analog lines which carry regular telephone calls. Our ISDN-based network permits a partner retailer to launch calls from the partner's location to our switching platform, via the domestic Sprint network. Calls are launched using either credit-card validation systems over the ISDN network, or via the partnering retailer's locally-provided ISDN lines. All partner retailers' ISDN local lines have long-distance service provided by us, reselling/rebilling Sprint ISDN service. A subscribing partner retailer establishes an account with us by assigning us a Letter of Authorization, allowing us to order local and long distance ISDN service in the partner's name. Fees are paid by the partner retailers to the local exchange carrier for one-time installation and network connection fees, and for ongoing monthly service rates. A wide range of national service plans, provided by the local exchange carriers, offers monthly costs ranging from $30 to $90, with the more costly plans including local exchange "free" minutes. We "PIC" (Preassigned Interexchange Carrier assignment) the ISDN phone numbers to our own account, and receive from Sprint a bill representing the monthly long-distance traffic by individual account. Accounts are viewed on-line on a daily basis by our carrier accounting department, and any calls made from the individual ISDN-based phones are billed directly to the partner retailer. The billing method is simple and effective; the retailer must have on-file with us a valid and current credit card, which is charged for all calls on a daily basis. Charges are based on pre-determined routings and ratings, which are made known to the retailer's customers by literature at the ISDN videophone site. The retailer charges the customer for all call minutes at the time of call termination, and collects cash, credit card or other payment methodology; these methodologies are transparent to us, and we bill the partner retailer's credit card for the appropriate call charges less the retained retailer's portion. This retained portion typically represents about 25% of the final videocall fee. Typical calls are an average of 22 minutes long, and typical fees are $1.00 per minute for domestic videocalls. The retailer, therefore, will normally keep $5.50 for each call. While experience is limited, our current research indicates that five calls per day are the likely complement, subject to local advertising, demographics and location. This would represent approximately $650 per month in revenue to the retailer, of which a median amount of $60 would be direct and indirect costs. It is estimated that most retailers will retain a net income of about $600 monthly. The service is currently being rolled out in the United States. We will provide a minimum of 1,000 retailers who are members of the Postal Business Express Center association (USXP - Universal Express) with low-cost or zero-cost videophones in order to create the network end-points for the origination and termination of videocalls. We are in the process of building retail locations of our own in key major cities. Retail stores are being opened in several business locations and expatriate communities in New York City (in the boroughs of Manhattan and Queens), in towns on the New York/New Jersey border (greater New York area), Miami, Chicago, Denver, Los Angeles and San Francisco. Correlated retail locations are under investigation in the most populous cities of Colombia, Guatemala, Honduras, the Dominican Republic, and Mexico. Some of these retail locations will be partnership locations. In addition to these locations, we have entered into an agreement with 26 Skynet Corporation, an international package delivery service with over 300 locations in major cities worldwide, to set up 200 of its locations with videophone services under a revenue sharing agreement. VIDEOPHONE SALES DIVISION We have begun providing videophone sales in response to the industry's need for low-cost videophone instruments. Our videophone sales division has committed to Motion Media, of Bristol, UK to sell a total of 10,000 of its TV225 videophone units, custom designed for Talk Visual. In order to implement sales programs, we are hiring two teams of eight sales and sales support personnel to implement the investigatory program focused on videophone sales in Miami, Florida. Subscribers to the videophone program will: o purchase a videophone for $1396, based on a downpayment of $100 and 36 monthly payments of $36; o purchase installation of facilities for and monthly ISDN service from the local exchange carrier, arranged for by Talk Visual; and o purchase for $200 the required Network Interface device (NT-1) to connect the videophone to the local network. Purchasers may opt to purchase the videophone outright for $1599, with an additional NT-1 purchase, if needed. Videophone purchasers are connected to the local exchange carrier through the efforts of the Carrier Sales Division. The Carrier Sales Division receives orders from the Videophone Sales Division, implements the service, and follows up with customers to offer them other long distance and local telecommunications service products. We believe that the consumers and both small and larger businesses will appreciate the convenient size and performance of the TV225. In addition, local exchange subscribers are able to have any "regular" telephone service line upgraded to ISDN service for a modest charge. The new ISDN line allows both "regular" telephone services - phone calls, fax calls - and permits as well high-speed Internet connection to the subscriber's Internet Service Provider (ISP), along with providing for connectivity to service videocalls. Long distance ISDN services will be provided by Sprint and other carriers. We believe that our sales efforts in Miami can be expanded city by city into every major American business and population center. The combination of: o a quality, low-cost videophone; o "wrapped" service for the arranging of ISDN line installation; o videophone availability in local retail partnership operations; o the existing "legacy" ISDN-based equipment in tens of thousands of businesses; and o the presence of videophones in high-visibility areas such as airport lounges will create a vibrant market for videophone carrier sales and videophone instrument sales. 27 ENGINEERING, RESEARCH AND DEVELOPMENT We believe that our future success will depend in large part on our ability to enhance existing services and develop new services in response to changing market, consumer or technological developments in the video-telecommunications areas. An important factor in the future success of our videophone sales and service offerings will be our ability to provide, at competitive prices, more functionality and features than those which might become typically available in other competitive offerings. While we do not know of any other entities currently providing truly competitive services, we do believe that such competition will arise in the future. We are developing proprietary methodologies to route, rate and service videocalls. Calls being launched from our partnership locations in, for example, Trans World Airlines "Ambassadors Club" lounges, will go through the local exchange carrier to a platform at our headquarters. Specialized ISDN-based T-1 circuits will route and rate the outbound call to other videocall equipment anywhere in the world. The calling customer will pay for the call using a standard credit card, the information for which is entered at the time of the call. We believe that providing a platform for centralization of videocalling is a key element in our future growth. The platform allows callers to access a vast menu of available sites to call - both private and business sites - in addition to our locations. Callers may access a complete menu of choices in order to make reservations with a live operator on-line, place a videocall, or receive information from news or entertainment sources. These technologies are currently under development at the research level. We anticipate making them available to the general public by the middle of year 2000. We believe that two key wireless technologies will assist in our effective delivery of services: o the linking of physical locations, whether retail operations or switching locations, by wireless services generally in the unregulated 2.4 gigahertz range, to key points-of-presence for carriers - specifically to avoid the costs associated with "IP-T-1" facilities traditionally deployed by the local exchange carriers, and the major long-distance carriers, for prices in excess of $1,000 monthly carrying fees; and o the development of "local area" wireless video-telephony to enable a wireless mobile "cart" or "unit" to move around in hospital, nursing home and hotel environments. We are developing both these technologies, in both the ISDN and IP transmission realms, and anticipate trial deployment before the end of year 2000. SALES, MARKETING AND DISTRIBUTION Our sales strategy is to establish and maintain long-term relationships with our consumer and business customers, and to leverage relationships with major corporations in order to rapidly expand our presence and reach. We utilize a consultative sales process to understand and define customer needs, and determine how those needs can be addressed by our services. We seek to build upon our existing customer relationships by integrating and cross-selling our different service offerings. Our sales cycle varies for different services and products, and the development 28 of key large corporate relationships can be up to 12 months for our Carrier and Videophone Sales Divisions. Our sales force consists of sales representatives who generally have significant experience in either retail and/or telecommunications sales, either as former employees of wireline or wireless carriers or in selling products and services to businesses and/or within a quality retail environment. We typically assign each business sales representative to a well-defined group of business prospects in order to support the development and maintenance of long-term strategic customer relationships. The sales representatives are supported by product specific account and service managers within the sales teams and who assist in the management of the accounts on a daily basis after the completion of the initial sale. At this time, our sales representatives are located at our headquarters in Miami, Florida; however, we intend to roll out our Miami-based sales programs into strategic cities in major geographic regions. Our direct sales strategy is complemented by a marketing program that includes participation in industry shows, advertising and public relations. Because our business and retail consumer groups are diverse, we seek to gain wide exposure through selected promotions and advertising on a highly targeted basis. CUSTOMERS We provide our services to small and large business users of video-telephony through our Videophone Sales Division; to expatriate populations seeking to contact their business associates, friends and family abroad through the various Talk Visual and partnership retail outlets as mediated by the Retail Operations and Sales Division; and to partners themselves through specialized team members who are integrated into the other sales and support divisions. We believe that a close integration and inter-penetration of sales, marketing and support personnel helps to create the cross-communication necessary for a vibrant, multi-purpose sales effort. For the year ended December 31, 1999, our sales totaled $1,165,988, which was composed of $1,075,482 from rental operations and $90,506 from telecommunication products and services. COMPETITION The market for videocalling services is competitive on the equipment side, and just beginning to develop on the carrier, support and product development/features side. A number of companies currently offer one or more of the services provided by us, but generally only in the area of hardware. In some instances, such as, for example, in the case of Polycom and PictureTel, we act as a reseller of equipment purchased through a major dealer such as Sprint. At this time, we do not know of any other providers who bring together the various disparate elements of the video-services sales process - from retail operations, to hardware, to support of installation and long-distance services. We believe that the principal competitive factors in the video-telephony industry include the ability to identify and respond to customer needs, quality and breadth of service offerings, price and technical expertise. Our ability to compete also depends in part on a number of 29 competitive factors out of our control, including the ability to hire and retain employees, the development by others of products and services that are competitive with our products and services, the price at which others offer comparable products and services and the extent of our competitors' responsiveness to customer needs. There can be no assurance that we will be able to continue to compete successfully with our existing competitors or with new competitors. GOVERNMENT REGULATION The Federal Communications Commission (FCC), under the terms of the Communications Act of 1934, as amended, including the Telecommunications Act of 1996, regulates interstate communications and use of radio spectrum, including entry, exit, rates and terms of operation. We presently neither operate any facilities utilizing regulated frequencies nor have any facilities-based services involving interstate communications. However, we have applied for and have been granted a "Section 214" license from the FCC, which allows us to resell international long-distance services. We will continue to maintain this license, along with the reporting requirements pursuant thereto. We recognize that the long-distance and local exchange carriers that underlie our services are regulated at both the federal and state levels. Such regulation may decrease the growth of the videocalling industry, affect the development of key markets, and limit the number of potential customers for our services or impede our ability to offer competitive services, or otherwise have a material adverse effect on our business and results of operation. REAL ESTATE OPERATIONS As more fully described below under "Facilities," we own and operate two real estate properties. One is located in Sacramento, California and the other is in Toronto, Ontario, Canada. Both properties are leased to commercial tenants and are held by our subsidiaries. EMPLOYEES As of August 7, 2000, we had a total of 82 full-time employees and 2 part-time employees. Our employees are not covered by a collective bargaining agreement and we have experienced no work stoppages. We believe that our relationships with our employees are good. FACILITIES We lease space at two retail locations, and at our principal headquarters in Miami, Florida. The Miami location serves as the core sales, support and marketing facility headquarters for our executive, engineering, sales, human resources and finance personnel. The following is a listing of our significant leased facilities:
Location Square Footage Expiration Date -------- -------------- --------------- Miami, Florida - Headquarters 5,702 June 30, 2002 Miami, Florida - Retail Store 1,890 December 31, 2001 Boston, Massachusetts - Store 1,030 December 31, 2001
30 Through our subsidiaries, we also own two commercial real estate properties. We acquired a 119,100 square foot, two story, strip center retail and office complex located in Sacramento, California with the acquisition of Sacramento Results, Inc. A retail videocalling center has been opened in a 515 square foot space. On February 24, 1999, we acquired a 22,662 square foot property in Toronto, Canada, which contains commercial rental tenants. The Sacramento property has an occupancy rate of 82.2% and is composed of 50.46% office rental and 49.54% retail stores. Two of the twenty six tenants occupy more than ten percent of the rentable square footage; one is the U. S. Post Office and the other operates a bingo hall. The average effective annual rental per square foot for the entire property is $9.88. All existing leases, excluding renewal provisions and the U. S. Post Office, will expire within the next ten years. Management believes that the property is stable and the current occupancy rate will be maintained or improved. For federal tax purposes, the basis in the property is the acquisition price paid by Sacramento Results, Inc., the subsidiary in which the property is held. The property is being depreciated over 39 years under the straight line method. Real estate taxes for 1999 totaled $55,696. This property is encumbered by three loans as follows: o Mortgage note, secured by a first lien on the land and building, including a deed of trust on rents and fixtures, bearing interest at 12%, payable monthly with the entire principal due January, 2004. The current balance on this mortgage is $3,840,000. o 12.5% mortgage note, secured by a second lien on the land and building, including a deed of trust on rents and a lien on specified equipment; disbursed to a maximum funding of $500,000 based upon completion of certain leasehold improvements and delivery of specified equipment; payable in monthly installments of principal and interest for 60 months; undisbursed funds at August 7, 2000 totaled $350,000. The balance on the mortgage is $118,755 at June 30, 2000. o A 9% mortgage note, secured by a lien on the land and building, with a maximum funding of $1,000,000 due September 1, 2000. Interest is payable monthly. The balance at June 30, 2000 is $500,000. The Toronto, Ontario, Canada property has an occupancy rate of 79.07%, which represents three tenants out of the four units available. All tenants are retail stores on street level. The average effective annual rental for 1999 was $8.51 per square foot. All existing leases will expire within the next ten years; however, management is confident that the property will maintain or improve upon its current occupancy level. The property is located in Canada and subject to Canadian tax law. Real estate taxes for the year ended December 31, 1999 totaled $47,406. This property is encumbered by a 7.05% mortgage note, secured by the land and building and matures February 1, 2002. The mortgage is payable in monthly installments of $8,000, 31 including principal and interest. The mortgage is payable in Canadian dollars. The balance on June 30, 2000 in US dollars was $923,652. The property was pledged by the seller as collateral on an unrelated bank debt of the seller in the amount of $621,000. The seller has provided a personal guarantee and indemnity until the pledge is discharged. The seller is in the process of having the pledge discharged. Management believes it carries sufficient and adequate insurance on all properties. LEGAL PROCEEDINGS We are not currently involved in any litigation that is expected to have a material adverse effect on our business or financial position. There can be no assurance, however, that third parties will not assert infringement or other claims against us in the future which, regardless of the outcome, could have an adverse impact on us as a result of defense costs, diversion of management resources and other factors. MANAGEMENT DIRECTORS AND OFFICERS The following sets forth certain information regarding our executive officers and directors:
Name Age Position(s) Held with Company - ---- --- ----------------------------- Eugene A. Rosov 52 President, Chief Executive Officer and Director Michael J. Zwebner 47 Chairman of the Board Clinton H. Snyder 45 Chief Financial Officer, Secretary and Director Michael Cuzner-Charles 46 Director David B. Hurwitz 37 Director Alexander H. Walker, Jr. 74 Director
DAVID B. HURWITZ has been a director since November, 1998. Mr. Hurwitz is the President and Chief Executive Officer of Capsule Communications, Inc. Prior to joining Capsule Communications, Inc., Mr. Hurwitz was with Commonwealth Long Distance/RCN as Vice President of Sales and Marketing. Mr. Hurwitz was involved in several entrepreneurial start-up ventures funded by Petrocelli Industries of NYC before joining Commonwealth Long 32 Distance/RCN. As Executive Vice President and Chief Operating Officer of InterNet Communications Services, Inc., Mr. Hurwitz was responsible for the development and operation of a prepaid "debit" long distance calling card service and validation processing service bureau, and as General Manager of FiberNet, Mr. Hurwitz was responsible for overseeing the sale and marketing of services associated with FiberNet's Upstate and New York Metropolitan Area Networks. Prior to developing the business plan and negotiating funding for InterNet, Mr. Hurwitz participated in the due diligence and sale of FiberNet's Upstate and Metropolitan New York Area markets to MFS. While affiliated with Rochester Tel. Telecommunications Group, a division of Rochester Telephone (now Frontier) from 1985 until February of 1992, Mr. Hurwitz held numerous positions including Account Executive, Regional Sales Manager and Director of the Mid-Atlantic and Central Regions. Mr. Hurwitz graduated with a B.A. in English and History from Hobart College in 1985. He completed Master's level course work in Telecommunications Management in 1988 and 1989 at the State University of New York at Albany. MICHAEL ZWEBNER is our founder and has served as Chairman of the Board of Directors of Videocall International Corporation since February, 1998. Mr. Zwebner has recently been appointed to the board of a Canadian public firm. From 1974 to 1986, Mr. Zwebner founded and ran a travel and tourism company and a charter airline, specializing in the areas of air charter travel, wholesale ticketing and general business and tourist travel. From 1986 to 1990, Mr. Zwebner owned and operated several real estate companies as well as managed a chain of five family restaurants and related catering services in England. From 1991 to 1997, Mr. Zwebner founded and served as Vice-President of Cardcall International Holdings Inc. (USA) and Operating Manager of Cardcall (UK) Ltd. for which he designed and developed telecommunications and marketing concepts and organized the prepaid phone card operations. Mr. Zwebner also coordinated corporate finance activities for Cardcall. In February of 1997, Mr. Zwebner negotiated and secured the sale/merger of the Cardcall Group to DCI Telecommunications Inc., a publicly-held entity based in Connecticut. In addition, in February of 1988, Mr. Zwebner negotiated the creation of a multi-million dollar joint venture between Cardcaller Canada Inc. with Datawave Systems Inc. of Vancouver, Canada. Mr. Zwebner has served as Chairman of the Board and a director of Talk Visual since September, 1998. EUGENE ROSOV has served as director, President and Chief Executive Officer of Videocall International Corporation since June, 1998. In 1967, Mr. Rosov started a national music educational and touring company, and in 1978 started the international chamber music association, Chamber Music America. Mr. Rosov served as acting Director of Marketing for the nation's largest public radio station, WNYC, from 1979 to 1980. In 1980, he was founder, President and Chief Executive Officer of Water Test Corporation, a national drinking water testing laboratory acquired by Household International in 1987. From 1988 to 1995, he was founder, president, Chief Executive Officer and Chairman of Innovative Telecom Corporation, the Nashua, New Hampshire telecommunications systems integrator and provider to five (of six) Regional Bell operating companies of prepaid telephone card technologies and customer service operations. From 1995 to 1998, Mr. Rosov acted as a consultant to various telecom companies. Mr. Rosov graduated from Harvard College in 1971 with a B.A. in General Studies. Mr. Rosov has served as Chief Executive Officer since November, 1998 and a director since September, 1998. 33 MICHAEL CUZNER-CHARLES currently serves as Chief Executive Officer and is a Director with the Internet-based firm Tango-Zebra. He formerly served as a director of Regal Brook Ltd. in Berkshire (UK), since 1995. He was finance director of Kingston Coatings, Courtaulds Plc from 1976 to 1979, and became a director of the CJ Phoenix Group (Jewelers in Paris, London and Birmingham) in 1979 until 1982. For the international management consulting firm of Grant Thornton, Mr. Cuzner-Charles was senior manager from 1982 to 1984, and became senior manager of Corporate Finance for Touche Ross from 1984-1992. From 1992-1995, Mr. Cuzner-Charles served as a director of MBS Plc, a computer distribution company, and was Chief Executive Officer of Trade Intermediary Group Plc. He is a Fellow of the Institute of Chartered Accountants in England and Wales. Mr. Cuzner-Charles has served as a Director of Talk Visual since September, 1998. ALEXANDER H. WALKER has served as a Director of Videocall International Corporation since July, 1998. Since 1968, Mr. Walker has served as Chairman of the Board of the Nevada Agency and Trust Company in Reno, Nevada, a licensed and registered trust company and transfer agent in business since 1903. He received his B.A. from Waynesburg College in 1950 and his J.D. from the University of Pittsburgh School of Law in 1952. From 1956 to date, he has maintained a private practice as an attorney in Utah. Mr. Walker has served as a Director of Talk Visual since September, 1998. CLINTON H. SNYDER, CPA has held the positions of Chief Financial Officer since November, 1998, Secretary since March 1, 1999 and a Director since June, 2000. From 1975 to 1982, he served as auditor and business consultant with the public accounting firm of Stegman & Associates. From 1982 to 1985, he served as Finance Officer for a multi-national construction products and real estate development firm in Baltimore, Maryland. From 1985 to 1990, he served as Executive Officer for Finance and Administration with North American Beauty Services, Inc., a wholesale and retail distributor of beauty products. From 1990 to 1992, he served as Vice President of Finance for Innovative Telecom Company, Inc., a telecommunications provider. From 1992 to 1998, he served as a business consultant and financial and tax strategist for companies throughout the New England area. COMPENSATION OF DIRECTORS We have no standard arrangements pursuant to which directors are compensated for any services provided as a director except for the automatic option grant program component of the 1995 Stock Option/Stock Issuance Plan. Directors who are not current employees are eligible for the automatic option grant program component of the stock option/stock issuance plan under which option grants will automatically be made at periodic intervals to eligible non-employee board members to purchase shares of our common stock at an exercise price equal to 100% of their fair market value on the grant date. Under the automatic option grant program, each individual who is first elected or appointed as a non-employee board member will receive a 3,333 share option grant on the date of such election or appointment, provided such individual has not been in the prior employ of Talk Visual. In addition, at each annual meeting, beginning with the 1997 annual meeting, each individual who is to continue to serve as a non-employee board member after the meeting will receive an additional option grant to purchase 833 shares of our common stock whether or not such individual has been in the prior employ of Talk Visual. 34 Each automatic grant will have a term of ten years, subject to the earlier termination following the optionee's cessation of board service. Each automatic option will be immediately exercisable; however, any shares purchased upon exercise of the option will be subject to repurchase should the optionee's service as a non-employee board member cease prior to vesting in the shares. The initial 3,333 share grant will vest in four equal and successive annual installments over the optionee's period of board service. Each additional 833 share grant will vest upon the optionee's completion of one year of board service measured from the grant date. However, each outstanding option will immediately vest upon certain changes in the ownership or control of Talk Visual or the death or disability of the optionee while serving as a board member. COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth certain summary information concerning compensation paid or accrued on behalf of the Chairman, the Chief Executive Officer and the other most highly compensated executive officers whose total annual salary and bonus for fiscal year 1999 exceeded $100,000 ("named executive officers"), with respect to services rendered by such persons for each of the fiscal years ended December 31, 1997, 1998 and 1999:
SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation Awards ---------------------------- --------------------- Fiscal Salary Other Annual Securities Name and Principal Position Year ($) Compensation ($) Underlying Options - --------------------------- ----- ------- ---------------- --------------------- Michael J. Zwebner (1)......... 1999 -0- $120,000(2) -0- Chairman of the Board of 1998 -0- $30,000(2) -0- Directors 1997 -0- -0- -0- Eugene A. Rosov (3)............ 1999 $148,961 $112,500(4) -0- Chief Executive Officer, 1998 -0- -0- -0- President 1997 -0- -0- -0- Clinton H. Snyder, CPA (5)..... 1999 $120,000 -0- -0- Chief Financial Officer and 1998 -0- -0- -0- Secretary 1997 -0- -0- -0-
- ---------- (1) Mr. Zwebner became Chairman on November 6, 1998. (2) Mr. Zwebner's compensation is paid under a contract with Overseas Communication, Ltd., a non U.S. company. This amount was paid by the issuance of 1,698,014 shares at $.0766 per share on November 4, 1999. (3) Mr. Rosov became Chief Executive Officer on November 6, 1998 (4) Paid by the issuance of 50,000 shares on June 8, 1999, at a value of $2.25 per share. (5) Mr. Snyder became Chief Financial Officer on October 6, 1998 and Secretary on March 1, 1999. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has appointed an audit committee, compensation committee and a stock option committee, but has not appointed a standing nominating committee. 35 The members of the audit committee as appointed are Michael Cuzner-Charles and Alexander H. Walker, Jr. During the fiscal year ended December 31, 1999, the audit committee did not meet. The audit committee is responsible for reviewing financial statements, consulting with the independent auditors concerning our financial statements, accounting and financial policies and internal controls and reviewing the scope of the independent auditors' activities and fees. The members of the compensation committee are Messrs. Hurwitz, Rosov and Cuzner-Charles. During the fiscal year ended December 31, 1999, the compensation committee met one time. The compensation committee reviews and makes recommendations to the board of directors with respect to the compensation of all officers and issuances of equity securities to directors, officers, employees and consultants of Talk Visual. The members of the stock option committee are Messrs. Hurwitz, Rosov and Cuzner-Charles. During the fiscal year ended December 31, 1999, the stock option committee did not meet. The stock option committee is responsible for administering our stock option/stock issuance plan and granting options thereunder. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The compensation committee of the board of directors was formed in January, 1996 to establish salary, bonus and other forms of compensation for officers, provide recommendations for the salaries and incentive compensation of the employees and consultants and make recommendations to the board of directors regarding such matters. The principal objectives of our executive compensation are to: o support the achievement of the desired company performance; o align the executive officer's interests with the success of Talk Visual and with the interests of our stockholders; and o provide compensation that will attract and retain qualified management and reward performance. These objectives are principally achieved through compensation in the form of annual base salaries, discretionary bonuses and equity investment opportunities, such as stock option grants. Prior to January, 1996, the board of directors performed the functions of the compensation committee. We have not historically linked executive compensation directly to corporate performance. During the 1999 fiscal year, the compensation committee was composed of Messrs. Hurwitz, Rosov and Cuzner-Charles. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. 36 STOCK OPTION PLAN On June 28, 2000, the board of directors of Talk Visual adopted, and on July 27, 2000, the shareholders of Talk Visual approved, an amendment to the 1995 Stock Option/Stock Issuance Plan that increased the number of shares of common stock reserved for future issuance under the plan by 3,500,000. The amendment to increase the share reserve is designed to assure that a sufficient reserve of common stock is available under the stock option/stock issuance plan to attract and retain the services of key individuals essential to our long-term growth and success, and to more closely align their interests with those of the stockholders. The stock option/stock issuance plan became effective on November 9, 1995, upon adoption by the board, and was subsequently approved by the stockholders on November 9, 1995. On March 28, 1997, the board adopted amendments to the stock option/stock issuance plan which were subsequently approved by the stockholders on May 29, 1997. On August 20, 1998, the board approved an amendment removing individual limits on amounts that may be granted under the plan. The following is a summary of the principal features of the stock option/stock issuance plan. EQUITY INCENTIVE PROGRAMS The stock option/stock issuance plan contains three separate equity incentive programs: (i) a discretionary option grant program, (ii) a stock issuance program, and (iii) an automatic option grant program. The principal features of each program are described below. The stock option/stock issuance plan (other than the automatic option grant program) is administered by the stock option committee. The stock option committee acting in such administrative capacity as the plan administrator has complete discretion (subject to the provisions of the stock option/stock issuance plan) to authorize option grants and direct stock issuances under the stock option/stock issuance plan. All grants under the automatic option grant program will be made in strict compliance with the provisions of that program, and no administrative discretion will be exercised by the plan administrator with respect to the grants made under such program. SHARE RESERVE A total of 3,807,267 shares of common stock has been reserved for issuance over the term of the stock option/stock issuance plan, after giving effect to a 1 for 3 reverse split on September 8, 1998. The shares issuable under the stock option/stock issuance plan may be drawn from shares of our authorized but unissued common stock or from shares of common stock reacquired by Talk Visual, including shares purchased on the open market. Should an option expire or terminate for any reason prior to exercise in full, or be cancelled in accordance with the cancellation-regrant provisions under the plan, the shares subject to the portion of the option not so exercised or cancelled will be available for subsequent issuance under the stock option/stock issuance plan. Unvested shares issued under the stock option/stock issuance plan and 37 subsequently repurchased by Talk Visual at the original option exercise or share issue price paid per share will be added back to the share reserve and will accordingly be available for subsequent issuance under the stock option/stock issuance plan. In the event any change is made to the outstanding shares of common stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change in corporate structure effected without our receipt of consideration, appropriate adjustments shall be made to o the maximum number and/or class of securities issuable under the stock option/stock issuance plan; o the maximum number and/or class of securities for which any one person may be granted options, separately exercisable stock appreciation rights and direct stock issuances per calendar year; o the number and/or class of securities for which option grants will subsequently be made under the automatic option grant program to each newly-elected or continuing non-employee board member; and o the number and/or class of securities and the exercise price per share in effect under each outstanding option. ELIGIBILITY Officers and other employees of Talk Visual and our parent or subsidiary corporations, non-employee members of the board or the board of directors of any parent or subsidiary corporation and consultants and other advisors in the service of Talk Visual or our parent or subsidiary corporations will be eligible to participate in the discretionary option grant and stock issuance programs. Non-employee members of the board will also be eligible to participate in the automatic option grant program. VALUATION The fair market value per share of common stock on any relevant date under the stock option/stock issuance plan will be the closing selling price per share on that date in the market in which the common stock is traded. DISCRETIONARY OPTION GRANT PROGRAM Options may be granted under the discretionary option grant program at an exercise price per share not less than 85% of the fair market value per share of common stock on the option grant date. No granted option will have a term in excess of ten years. The options will generally become exercisable in a series of installments over the optionee's period of service with Talk Visual. Upon cessation of service, the optionee will have a limited period of time in which to exercise his or her outstanding options for any shares in which the optionee is vested at that time. 38 The plan administrator will have complete discretion to extend the period following the optionee's cessation of service during which his or her outstanding options may be exercised and/or to accelerate the exercisability or vesting of such options in whole or in part. Such discretion may be exercised at any time while the options remain outstanding, whether before or after the optionee's actual cessation of service. The plan administrator is authorized to issue two types of stock appreciation rights in connection with option grants made under the discretionary option grant program: o Tandem stock appreciation rights provide the holders with the right to surrender their options for an appreciation distribution from Talk Visual equal in amount to the excess of (a) the fair market value of the vested shares of common stock subject to the surrendered option over (b) the aggregate exercise price payable for such shares. Such appreciation distribution may, at the discretion of the plan administrator, be made in cash or in shares of common stock. o Limited stock appreciation rights may be provided to one or more officers or non-employee Board members of Talk Visual as part of their option grants. Any option with such a limited stock appreciation right may be surrendered to Talk Visual upon the successful completion of a hostile tender offer for more than 50% of our outstanding voting stock. In return for the surrendered option, the officer will be entitled to a cash distribution from Talk Visual in an amount per surrendered option share equal to the excess of (a) the highest price paid per share of common stock paid in connection with the tender offer over (b) the exercise price payable for such share. The shares of common stock acquired upon the exercise of one or more options may be unvested and subject to repurchase by Talk Visual, at the original exercise price paid per share, if the optionee ceases service with Talk Visual prior to vesting in those shares. The plan administrator will have complete discretion to establish the vesting schedule to be in effect for any such unvested shares and may at any time cancel our outstanding repurchase rights with respect to those shares and thereby accelerate the vesting of those shares. The plan administrator will also have the authority to effect the cancellation of outstanding options under the discretionary option grant program which have exercise prices in excess of the then current market price of the common stock and to issue replacement options with an exercise price based on the lower market price of common stock at the time of the new grant. STOCK ISSUANCE PROGRAM Shares may be sold under the stock issuance program at a price per share not less than 85% of fair market value, payable in cash or check made payable to Talk Visual. Shares may also be issued solely as a bonus for past services. The issued shares may either be immediately vested upon issuance or subject to a vesting schedule tied to the performance of service or the attainment of performance goals. The plan 39 administrator will, however, have the discretionary authority at any time to accelerate the vesting of any and all unvested shares outstanding under the option plan. AUTOMATIC OPTION GRANT PROGRAM Under the automatic option grant program, each individual who first becomes a non-employee board member, whether through election by the stockholders or appointment by the board, will automatically be granted, at the time of such initial election or appointment, a non-statutory option to purchase 3,333 shares of common stock, provided such individual has not previously been in our employ. On the date of each annual stockholders meeting after an individual's initial grant, each individual who continues to serve as a non-employee board member will automatically be granted a non-statutory option to purchase an additional 833 shares of common stock, provided such individual has served as a non-employee board member for at least six months. There is no limit on the number of such 833-share option grants any one eligible non-employee board member may receive over his or her period of board service. Each 3,333-share or 833-share option granted under the automatic option grant program will have an exercise price per share equal to 100% of the fair market value per share of common stock on the option grant date and a maximum term of ten years measured from the grant date. The option will be immediately exercisable for all the option shares, but any purchased shares will be subject to repurchase by Talk Visual, at the exercise price paid per share, upon the optionee's cessation of board service prior to vesting in those shares. Each initial 3,333-share option will vest, and our repurchase right will lapse, in four successive equal annual installments over the optionee's period of board service, with the first such installment to vest upon completion of one year of board service measured from the option grant date. Each annual 833-share grant will vest, and our repurchase right will lapse, upon the optionee's completion of one year of board service measured from the option grant date. The shares subject to each outstanding automatic option grant will immediately vest should the optionee die or become permanently disabled while a board member or should any of the following events occur while the optionee continues in board service: an acquisition of Talk Visual by merger or asset sale, the successful completion of a tender offer for more than 50% of our outstanding voting securities, or a change in the majority of the board effected through one or more contested elections for board membership. In addition, upon the successful completion of a hostile tender offer for more than 50% of our outstanding voting stock, each automatic option grant may be surrendered to Talk Visual for a cash distribution per surrendered option share in an amount equal to the excess of (a) the highest price per share of common stock paid in connection with such tender offer over (b) the exercise price payable for such share. GENERAL PROVISIONS ACCELERATION In the event that we are acquired by merger or asset sale, each outstanding option under the discretionary option grant program which is not to be assumed or replaced by the successor corporation will automatically accelerate in full, and all unvested shares under the discretionary option grant and stock issuance programs will immediately vest, except to the extent our 40 repurchase rights with respect to those shares are to be assigned to the successor corporation. Any options assumed in connection with such acquisition will accelerate in full, and any unvested shares which do not vest at the time of such acquisition will vest in full, in the event the individual's service with the successor entity is terminated within 12 months following the acquisition. In connection with a change in control of Talk Visual (whether by successful tender offer for more than 50% of the outstanding voting stock or by contest for the election of board members), the plan administrator will have the discretionary authority to provide for automatic acceleration of outstanding options under the discretionary option grant program and the automatic vesting of all unvested shares outstanding under the discretionary option grant and stock issuance programs, with such acceleration or vesting to occur either at the time of such change in control or upon the subsequent termination of the individual's service. The acceleration of vesting upon a change in the ownership or control of Talk Visual may be seen as an anti-takeover provision and may have the effect of discouraging a merger proposal, a takeover attempt or other efforts to gain control of Talk Visual. FINANCIAL ASSISTANCE The plan administrator may institute a loan program to assist one or more participants in financing the exercise of outstanding options or the purchase of shares under the discretionary option grant and stock issuance programs. The plan administrator will have complete discretion to determine the terms of any such financial assistance. However, the maximum amount of financing provided any individual may not exceed the cash consideration payable for the issued shares plus all applicable taxes. Any such financing may be subject to forgiveness in whole or in part, at the discretion of the plan administrator, over the participant's period of service. SPECIAL TAX ELECTION The plan administrator may provide one or more holders of options or unvested shares with the right to have Talk Visual withhold a portion of the shares otherwise issuable to such individuals in satisfaction of the tax liability incurred by such individuals in connection with the exercise of those options or the vesting of those shares. Alternatively, the plan administrator may allow such individuals to deliver previously acquired shares of common stock in payment of such tax liability. STOCK AWARDS AND NEW PLAN BENEFITS During 1999, the stock option committee did not grant any stock options. The stock option committee has not approved any grants that require shareholder approval of the plan, as amended. On June 28, 2000, on recommendation of the stock option committee, the Board of Director's approved the following stock option grants together with its price (based on 100% of the closing day's price): 41
Options Granted Exercise Name and Title (Number of Shares) Price Per Share -------------- ------------------ --------------- Eugene A. Rosov 2,350,000 $ 0.4375 CEO and President Clinton H. Snyder, CPA 750,000 $ 0.4375 CFO, Secretary Non-Employee Directors 300,000 $ 0.4375
We cannot currently determine the number of stock options or the type of stock options that may be granted to eligible participants under the plan, as amended, in the future. Such determinations will be made from time to time by the stock option committee. [On June 30, 2000, the closing price per share of our common stock on the OTC Bulletin Board was $0.4375.] AMENDMENT AND TERMINATION The board may amend or modify the option plan in any or all respects whatsoever, subject to any stockholder approval required under applicable law or regulation. The board may terminate the option plan at any time, and the option plan will in all events terminate on October 31, 2005. OPTION GRANTS Options granted under the stock option/stock issuance plan may be either incentive stock options which satisfy the requirements of Section 422 of the Internal Revenue Code or non-statutory options which are not intended to meet such requirements. The Federal income tax treatment for the two types of options differs as follows: INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the time of the option grant, and no taxable income is generally recognized at the time the option is exercised. The optionee will, however, recognize taxable income in the year in which the purchased shares are sold or otherwise made the subject of a taxable disposition. For Federal tax purposes, dispositions are divided into two categories: qualifying and disqualifying. A qualifying disposition occurs if the sale or other disposition is made after the optionee has held the shares for more than two years after the option grant date and more than one year after the exercise date. If either of these two holding periods is not satisfied, then a disqualifying disposition will result. If the optionee makes a disqualifying disposition of the purchased shares, then we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal to the excess of (i) the fair market value of such shares on the option exercise date over (ii) the exercise price paid for the shares. In no other instance will we be allowed a deduction with respect to the optionee's disposition of the purchased shares. NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon the grant of a non-statutory option. The optionee will in general recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares 42 on the exercise date over the exercise price paid for the shares, and the optionee will be required to satisfy the tax withholding requirements applicable to such income. If the shares acquired upon exercise of the non-statutory option are unvested and subject to repurchase by Talk Visual in the event of the optionee's termination of service prior to vesting in those shares, then the optionee will not recognize any taxable income at the time of exercise but will have to report as ordinary income, as and when our repurchase right lapses, an amount equal to the excess of (i) the fair market value of the shares on the date the repurchase right lapses over (ii) the exercise price paid for the shares. The optionee may, however, elect under Section 83(b) of the Internal Revenue Code to include as ordinary income in the year of exercise of the option an amount equal to the excess of (i) the fair market value of the purchased shares on the exercise date over (ii) the exercise price paid for such shares. If the Section 83(b) election is made, the optionee will not recognize any additional income as and when the repurchase right lapses. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the optionee with respect to the exercised non-statutory option. The deduction will in general be allowed for the taxable year of Talk Visual in which such ordinary income is recognized by the optionee. STOCK APPRECIATION RIGHTS An optionee who is granted a stock appreciation right will recognize ordinary income in the year of exercise equal to the amount of the appreciation distribution. We will be entitled to an income tax deduction equal to such distribution for the taxable year in which the ordinary income is recognized by the optionee. DIRECT STOCK ISSUANCE The tax principles applicable to direct stock issuances under the stock option/stock issuance plan will be substantially the same as those summarized above for the exercise of non-statutory option grants. DEDUCTIBILITY OF EXECUTIVE COMPENSATION We anticipate that any compensation deemed paid by us in connection with disqualifying dispositions of incentive stock option shares or exercises of non-statutory options granted with exercise prices equal to the fair market value of the option shares on the grant date will qualify as performance-based compensation for purposes of Internal Revenue Code Section 162(m) and will not have to be taken into account for purposes of the $1 million limitation per covered individual on the deductibility of the compensation paid to certain executive officers of Talk Visual. Accordingly, all compensation deemed paid with respect to those options will remain deductible by Talk Visual without limitation under Internal Revenue Code Section 162(m). ACCOUNTING TREATMENT Option grants or stock issuances with exercise or issue prices less than the fair market value of the shares on the grant or issue date will result in a compensation expense to our 43 earnings equal to the difference between the exercise or issue price and the fair market value of the shares on the grant or issue date. Such expense will be accruable by Talk Visual over the period that the option shares or issued shares are to vest. Option grants or stock issuances with exercise or issue prices equal to the fair market value of the shares at the time of issuance or grant will not result in any charge to our earnings, but we must disclose, in the notes to our financial statements, the pro-forma impact those option grants would have upon our reported earnings were the value of those options treated as compensation expense. Whether or not granted at a discount, the number of outstanding options may be a factor in determining our earnings per share on a fully-diluted basis. Should one or more optionees be granted stock appreciation rights which have no conditions upon exercisability other than a service or employment requirement, then such rights will result in a compensation expense to our earnings. AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND VALUE OF OPTIONS AT END OF FISCAL 1999 The following table sets forth certain information with respect to our named executive officers concerning unexercised stock options held as of December 31, 1999. No stock options were exercised by such individuals during fiscal year 1999. We did not grant any stock appreciation rights during fiscal year 1999 and no such rights were outstanding as of the end of such fiscal year.
Number of Unexercised Securities Value of Unexercised Underlying In-the-Money Options at Options at Fiscal Year End Fiscal Year End($) -------------------------------- ------------------------------- Name Exercisable/ Unexercisable Exercisable/ Unexercisable - ---- ------------ ------------- ------------ ------------- Michael J. Zwebner -0- -0- -0- -0- Eugene A. Rosov -0- -0- -0- -0- Clinton H. Snyder, CPA -0- -0- -0- -0-
CERTAIN TRANSACTIONS We engage the services of Michael Zwebner, the Chairman of the Board, through Overseas Communications, Ltd. The annual payment is $120,000. Overseas Communications, Ltd. is 33% owned by Mr. Zwebner. On July 2, 2000, we signed a letter of intent to acquire 51% to 60% of YAK Communications (USA) Inc. The consideration is $.50 and four shares of Talk Visual common stock for each YAK share. YAK has 3,852,000 shares outstanding. We also agreed to lend up to $5 million to YAK. YAK Communications (USA) Inc. is owned 17% by Charles Zwebner, brother to the Chairman, 7% by Michael Zwebner, Chairman and 8% by Anthony Heller, who is the beneficial owner of Helmsbridge Holdings, Ltd., initial owner of our preferred shares. On March 16, 2000, we signed an agreement to purchase a 25% interest in Entertech Media Group, Inc. of Hollywood, California. Under the terms of the agreement, we will exchange 3,000,000 common shares for 3,666,666 shares of Entertech Media common stock. Entertech's Chairman is John Daly, who is a principal shareholder of Whyteburg Ltd. At the 44 time of the Merger, Whyteburg Ltd. was a more than 5% holder of common stock. We have agreed to pay a broker 75,000 shares of our common stock on consummation of this transaction. On May 25, 2000, Hard Disk Cafe, Inc. entered into a three year lease agreement with Sacramento Results, Inc., a subsidiary of Talk Visual. Under the terms of the lease, Hard Disk Cafe rents approximately 12,326 feet of commercial space from Sacramento Results at a rent of $5200 per month for the first year commencing January 1, 2000 and $12,326 per month for the second and third years. Hard Disk Cafe may terminate the lease at the end of the twelfth month if it does not have annualized sales of $600,000 based on the prior three months. Michael Zwebner, our Chairman, is a director and principal shareholder of Hard Disk Cafe. PRINCIPAL SHAREHOLDERS The following table sets forth, as of June 30, 2000, the number and percentage of shares of common stock beneficially owned (as defined in Rule 13d-3 adopted under the Exchange Act) by o all persons known to us to own beneficially more than 5% of any class of voting security of Talk Visual; o each of our directors; o our officers named in the summary compensation table set forth herein; and o all directors and executive officers of as a group.
Common Stock ------------------------------------------------------ Number of Shares Percentage of Shares Name and Addresses (1) Beneficially Owned (2)(3) Beneficially Owned (2)(3) - ---------------------- ------------------------- ------------------------- Overseas Communications, Ltd. (4) 46/11 Diskin St Jerusalem, Israel 4,835,670 8.55% Helmsbridge Holdings Ltd. (5) c/o Plazacorp Investments 3845 Bathurst St. Toronto, Ontario, Canada 3,341,690 5.91% Eurocap Holdings, Ltd. 5 Page Meadow London, England 5,110,940 9.03% European Central Ltd. Twin Towers 2, Rm 201 35 Jabotinsky St. Ramat Gan 52511 Israel 6,907,023 12.2% Michael Cuzner-Charles 375,000 * David B. Hurwitz 200,000 * Eugene A. Rosov 3,500,000 6.18% 45 Common Stock ------------------------------------------------------ Number of Shares Percentage of Shares Name and Addresses (1) Beneficially Owned (2)(3) Beneficially Owned (2)(3) - ---------------------- ------------------------- ------------------------- Clinton H. Snyder 1,250,000 * Alexander H. Walker, Jr. 200,000 * Michael J. Zwebner (6) 5,071,890 8.96% All directors and executive officers as a Group (6 persons) (7) 10,596,890 18.7%
- -------------- * Amount represents less than 1% of the total number of shares of common stock outstanding as of August 7, 2000. (1) Unless otherwise indicated, the shareholder's address is Talk Visual's principal executive offices. (2) Percentage ownership is based on 56,597,858 shares of common stock outstanding as of August 7, 2000, plus any shares issuable pursuant to options or warrants held by the person or class in question which may be exercised within 60 days of August 7, 2000. Only those shares beneficially owned by the person holding such options are included in the outstanding shares for purposes of computing the percentage beneficially owned by that person; such shares are not deemed to be outstanding for purposes of computing any other person's percentage. (3) Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in this table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. (4) Michael J. Zwebner owns 33% of this entity, all other owners own less than 10%. The shares listed include 2,000,000 issuable pursuant to currently exercisable options at an exercise price of $1.00 per common share. (5) The beneficial owner of Helmbridge Holdings Ltd. is Anthony Heller. The entire amount is composed of the common shares issuable upon conversion of the preferred stock. (6) Includes 1,611,890 beneficially owned. (7) Includes options to purchase 5,588,667 shares of common stock. DESCRIPTION OF CAPITAL STOCK GENERAL We are authorized to issue up to 100,000,000 shares of common stock, par value $.001 per share, and 25,000,000 shares of preferred stock, par value $.001 per share. As of August 7, 2000, 56,597,858 shares of common stock were issued and outstanding and 244,794 shares of preferred stock were issued and outstanding. COMMON STOCK The holders of shares of common stock are entitled to one vote per share in the election of our directors and on all other matters to be voted on by shareholders. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution or winding up of Talk Visual Corporation, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable. 46 PREFERRED STOCK The Board may without further action by our shareholders, from time to time, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the rights, preferences and limitations of each series. The rights of any such series may include voting and conversion rights which would adversely affect the voting power of the holders of our common stock. Satisfaction of any dividend preferences of outstanding preferred stock would reduce the amount of funds available for payment of dividends on our common stock. Also, the holders of preferred stock would normally be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of Talk Visual before any payment is made to the holders of our common stock. We presently have 244,794 shares of one series of preferred stock, the Class A Preferred Stock, Series 1999-A, outstanding. Each share of Series A preferred stock is entitled to cumulative dividends, before any dividends are paid on our common stock, at the annual rate of $0.095 per share, payable monthly. The Series A preferred stock is redeemable by Talk Visual at any time, in whole or in part, at the price of $1.15 per share, plus accrued and unpaid cumulative dividends On December 1, 1999, the holder of the 975,000 shares of our Series A preferred stock, originally issued in connection with the acquisition of the Toronto property, notified us of its intention to convert the preferred stock to common stock. Pursuant to the terms of conversion for the preferred shares, the arithmetic average yields $0.0583 per share, for a total issue obligation of 16,714,381 shares. At August 7, 2000, 12,517,576 shares had been converted. We have been advised that the preferred shareholder will convert the remaining shares over the next thirty-six months. The holders of the preferred shares have agreed on all conversions after the first 3,348,500 shares to re-invest by purchasing common stock from us at the three day average closing price, less 25%, within the thirty-six month period, in the amount of $1.00 per converted share, for a total investment in Talk Visual of $13,365,881. As of August 7, 2000, the preferred shareholders had paid $2,495,000 toward this agreement, leaving an outstanding commitment of $10,870,881. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND NEVADA LAW The following provisions of the Nevada General Corporation Law and our articles of incorporation and bylaws could have the effect of preventing or delaying a person from acquiring or seeking to acquire a substantial equity interest in, or control of, our company. PREFERRED STOCK. Our board of directors is authorized to issue preferred stock in one or more series and to fix the voting rights, liquidation preferences, dividend rights, conversion rights, redemption rights and terms, including sinking fund provisions and certain other rights and preferences, of the preferred stock. The board of directors can, without stockholder approval, issue shares of such preferred stock with voting, conversion and liquidation rights which could adversely affect the voting power and liquidation rights of the holders of common stock and may have the effect of delaying, deferring or preventing a change in control of Talk Visual. 47 STATUTORY PROVISIONS. The State of Nevada has enacted legislation that may deter or frustrate takeovers of Nevada corporations. The Nevada General Corporation Law generally prohibits a Nevada corporation with more than 200 record shareholders from engaging in certain significant business transactions with an "interested shareholder," which is defined as a person or group of persons that beneficially owns 10% or more of the outstanding voting stock of the corporation, for a period of three years following the date that the shareholder became an interested shareholder, unless the transaction or the purchase of shares made by the interested shareholder is approved by the board of directors of the corporation prior to the date of the acquisition of shares. A corporation may not engage in such transactions with an interested shareholder of the corporation after the expiration of three years after his date of acquiring shares unless: o the transaction or the purchase of shares made by the interested shareholder is approved by the board of directors of the corporation prior to the date the interested shareholder acquired the shares; o the transaction is approved by the holders of stock representing a majority of the outstanding voting power not beneficially owned by the interested shareholder proposing the transaction, at a meeting called for that purpose at least three years after the date of acquiring shares; or o the total amount of cash and other consideration to be received by all of the holders of outstanding common stock of the corporation not beneficially owned by the interested shareholder satisfies certain fair value requirements of the statute. Prohibited transactions include, among other things, o a merger or consolidation with, disposition of assets to, or issuance or transfer to, the interested stockholder; or o allowing the interested shareholder to receive any disproportionate benefit as a shareholder. STOCK TRANSFER AGENT AND REGISTRAR The stock transfer agent and registrar for the common stock is Nevada Agency and Trust Company, Reno, Nevada. STOCKHOLDER REPORTS We furnish our stockholders with annual reports containing audited financial statements and may furnish our stockholders quarterly or semi-annual reports containing unaudited financial information. 48 COMMON STOCK PURCHASE AGREEMENT OVERVIEW We signed a common stock purchase agreement with Evertrend Holdings Limited, a British Virgin Islands corporation, on July 27, 2000, for the future issuance and purchase of shares of our common stock. The transaction closed on July 27, 2000. The stock purchase agreement establishes what is sometimes termed an equity line of credit or an equity drawdown facility. In general, the drawdown facility operates like this: the investor, Evertrend, has committed to provide us up to $15 million as we request it over an 18 month period, in return for common stock we issue to Evertrend. Once every 22 trading days, we may request a draw of up to $1,500,000 of that money. The maximum amount we actually can draw down upon each request will be determined by the volume-weighted average daily price of our common stock for the 22 trading days prior to our request and the average trading volume for the 45 trading days prior to our request. Each draw down must be for at least $250,000. At the end of a 22 trading day period following the drawdown request, the actual drawdown amount is determined based on the volume-weighted average stock price during that 22-day period. We then use the formulas in the common stock purchase agreement to determine the number of shares we will issue to Evertrend in return for that money. Additionally, Evertrend will receive a warrant certificate to purchase up to a number of shares equal to 50% of each drawdown amount. The formulas for determining the actual drawdown amounts, the number of shares we issue to Evertrend and the price per share paid by Evertrend are described in detail beginning on page 50. The aggregate total of all draws cannot exceed $15 million and no single draw can exceed $1,500,000. We are under no obligation to request a draw for any period. The per share dollar amount Evertrend pays for our common stock for each drawdown includes a discount to the average daily market price of our common stock for the 22-day period after our drawdown request, weighted by trading volume. The discount is determined by reference to our average market capitalization (calculated by multiplying the number of shares of common stock issued and outstanding by the closing bid price of the common stock for the 10 trading days prior to the date the drawdown pricing commences), and is applied as follows: o 15% of the average daily market price when our average market capitalization is less than or equal to $30,000,000; o 13% of the average daily market price when our average market capitalization is greater than $30,000,000 and less than or equal to $40,000,000; o 11% of the average daily market price when our average market capitalization is greater than $40,000,000 and less than or equal to $50,000,000; and 49 o 9% of the average daily market price when our average market capitalization is greater than $50,000,000. We will receive the amount of the drawdown less an escrow agent fee of $1,500 and an 8% placement fee payable to the placement agent, Ladenburg Thalmann & Co. Inc., which introduced Evertrend to us. Ladenburg Thalmann is not obligated to purchase any of our shares, but as an additional placement fee, we have issued to Ladenburg Thalmann warrants to purchase 1,271,186 shares of our common stock at an exercise price of $0.6785 per share. The common stock issuable upon exercise of those warrants is included in the registration statement of which this prospectus is a part. In lieu of providing Evertrend with a minimum aggregate drawdown commitment, we have issued to Evertrend a stock purchase warrant to purchase 1,271,186 shares of our common stock with an exercise price of $0.6785 per share, which was 115% of the closing bid price of ($.590) of the common stock on July 26, 2000, the day prior to the closing date. The warrant expires July 27, 2004. Based on a review of our trading volume and stock price history and the number of drawdowns we estimate making, we are registering 35,650,623 shares of common stock for possible issuance under the stock purchase agreement and 20,367,684 shares underlying the warrants for common shares delivered to Evertrend and Ladenburg Thalmann & Co. Inc. The common stock purchase agreement does not permit us to drawdown funds if the issuance of shares of common stock to Evertrend pursuant to the drawdown would result in Evertrend owning more than 9.9% of our outstanding common stock on the drawdown exercise date. THE DRAWDOWN PROCEDURE AND THE STOCK PURCHASES We may request a drawdown by faxing a drawdown notice to Evertrend, stating the amount of the drawdown we wish to exercise, the minimum threshold price, if any, at which we are willing to sell the shares and the date on which the pricing period will begin. A pricing committee consisting of two directors sets the threshold price by determining the price below which we are unwilling to sell shares of our common stock. The pricing committee has complete discretion when determining the threshold price. AMOUNT OF THE DRAW No draw can exceed the lesser of $1,500,000 and the capped amount that is derived from the following formula: o Average daily trading volume for the 45 trading days immediately prior to the date we give notice of the drawdown, multiplied by 22 multiplied by o The average of the volume-weighted average daily prices for the 22 trading days immediately prior to the date we give notice of the drawdown 50 multiplied by o 20%. The lesser of our draw request and the capped amount is reduced by 1/22 for every day in the 22 trading days after our drawdown request that the volume-weighted average daily price for a trading day is below the threshold price set by us in the request. If the daily price for a day is below the threshold price, we will not issue any shares and Evertrend will not purchase any shares for that day. Thus, if our pricing committee sets a threshold price too high and our stock price does not consistently meet that level during the 22 trading days after our drawdown request, the amount we can draw and the number of shares we issue to Evertrend will be reduced. On the other hand, if our pricing committee sets a threshold price too low and our stock price falls significantly but stays above the threshold price, we will be able to draw the lesser of our draw request and the capped amount, but we will have to issue a greater number of shares to Evertrend at the reduced price. We cannot make another drawdown request until expiration of the 22 trading days that follow a drawdown request we have already made. NUMBER OF SHARES The 22 trading days immediately following the drawdown notice are also used to determine the number of shares we will issue in return for the money provided by Evertrend, and thus the price per share Evertrend will pay for our shares. To determine the number of shares of common stock we must issue in connection with a drawdown, take 1/22 of the drawdown amount determined by the formulas above, and for each of the 22 trading days immediately following the date we give notice of the drawdown, divide it by 85% of the volume-weighted average daily trading price of our common stock for that day. The 85% accounts for Evertrend's 15% discount which is the applicable discount if our average market capitalization is less than or equal to $30 million. The sum of these 22 daily calculations produces the number of common shares we will issue, unless the volume-weighted average daily price for any given trading day is below the threshold amount, in which case that day is ignored in the calculation. The price per share Evertrend ultimately pays is determined by dividing the final drawdown amount by the number of shares we issue Evertrend. SAMPLE CALCULATION OF STOCK PURCHASES The following is an example of the calculation of the drawdown amount and the number of shares we would issue to Evertrend in connection with that drawdown based on hypothetical assumptions. SAMPLE DRAWDOWN AMOUNT CALCULATION. We provide a drawdown notice to Evertrend that we wish to make a drawdown. Suppose that our pricing committee of the board of directors has specified in the notice a threshold price of $.50, below which we will not sell any shares to Evertrend during this drawdown period. Suppose the average daily trading volume for the 45 trading days prior to our drawdown notice is 200,000 and that the average of the volume-weighted average daily prices of our 51 common stock for the 22 trading days prior to the notice is $.625. You can apply the formula to these hypothetical numbers as follows: o the average trading volume for the 45 trading days prior to our drawdown notice (200,000) multiplied by 22, equals 4,400,000 multiplied by o the average of the volume-weighted average daily prices of our common stock for the 22 trading days prior to the notice ($.625) multiplied by o 20% The maximum amount we can draw down under the formula is therefore capped at $550,000, subject to further adjustments if the volume-weighted average daily price of our common stock for any of the 22 trading days following the drawdown notice is below the threshold price we set of $.50. For example, if the volume-weighted average daily price of our common stock is below $.50 on two of those 22 days, the $550,000 would be reduced by 1/22 for each of those days and our draw down amount would be 20/22 of $550,000, or $500,000. SAMPLE CALCULATION OF NUMBER OF SHARES Assume that we have made a drawdown request with a threshold price of $.50. Assume the maximum amount we can draw down is capped at $550,000 based on the formula above. Also, assume that the volume-weighted average daily price for our common stock is as set forth in the table on the next page. The number of shares to be issued based on any trading day during the drawdown period is calculated from the formula: o 1/22 of the drawdown amount of $550,000 divided by o 85% of the volume weighted average daily price. For example, for the first trading day in the example in the table below, the calculation is as follows: 1/22 of $550,000 is $25,000. Divide $25,000 by 85% of the volume-weighed average daily price for that day of $.625 per share, to get 47,059 shares. Perform this calculation for each of the 22 measuring days, excluding any days on which the volume-weighted average daily price is below the $.50 threshold price, and add the results to determine the number of shares to be issued. In the table below, there are two days which must be excluded: days 16 and 17. After excluding the days that are below the threshold price, the amount of our drawdown in this example would be 550,000 and the total number of shares we would issue to Evertrend for this drawdown request would be 963,240, so long as those shares would not cause Evertrend to beneficially own more than 9.9% of our then outstanding common stock. Evertrend would pay $.52 per share for these shares. 52
Number of Shares of Common Volume-Weighted 1/22 of Requested Stock to be Issued for the Trading Day Average Daily Stock Price* Draw Down Amount Trading Day ----------- -------------------------- ---------------- ----------- 1 $ .6250 $ 25,000 47,059 2 .6875 25,000 42,781 3 .6250 25,000 47,059 4 .5625 25,000 52,288 5 .5625 25,000 52,288 6 .5000 25,000 58,824 7 .5625 25,000 52,288 8 .6250 25,000 47,059 9 .6875 25,000 42,781 10 .7500 25,000 39,216 11 .8125 25,000 36,199 12 .7500 25,000 39,216 13 .6250 25,000 47,059 14 .5625 25,000 52,288 15 .5000 25,000 58,824 16** .4375 -- -- 17** .4375 -- -- 18 .5000 25,000 58,824 19 .5625 25,000 52,288 20 .6250 25,000 47,059 21 .6875 25,000 42,781 22 .6250 25,000 47,059 TOTAL $500,000 963,240
- ------------ * The share prices are illustrative only and should not be interpreted as a forecast of share prices or the expected or historical volatility of the share prices of our common stock. ** Excluded because the volume-weighted average daily price is below the threshold specified in our hypothetical draw down notice. We would receive the amount of our drawdown ($500,000) less an 8% cash fee paid to the placement agent of $40,000, less a $1,500 escrow fee, for net proceeds to us of $458,500. The delivery of the requisite number of shares and payment of the draw will take place through an escrow agent, Epstein, Becker & Green, P.C. of New York. The escrow agent pays 92% of the draw to us -- after subtracting its escrow fee -- and 8% to Ladenburg Thalmann & Co. Inc., our placement agent, in satisfaction of placement agent fees. NECESSARY CONDITIONS BEFORE EVERTREND IS OBLIGATED TO PURCHASE OUR SHARES The following conditions must be satisfied before Evertrend is obligated to purchase the common shares that we wish to sell from time to time: o A registration statement for the shares must be declared effective by the Securities and Exchange Commission and must remain effective and available as of the draw down settlement date for making resales of the common shares purchased by Evertrend; o There can be no material adverse change in our business, operations, properties, prospects or financial condition; o We must not have merged or consolidated with or into another company or transferred all or substantially all of our assets to another company, unless the acquiring company has agreed to honor the common stock purchase agreement; 53 o No statute, rule, regulation, executive order, decree, ruling or injunction may be in effect which prohibits consummation of the transactions contemplated by the stock purchase agreement; o No litigation or proceeding nor any investigation by any governmental authority can be pending or threatened against us or Evertrend seeking to restrain, prevent or change the transactions contemplated by the stock purchase agreement or seeking damages in connection with such transactions; and o Trading in our common shares must not have been suspended by the Securities and Exchange Commission or the OTC Bulletin Board, or any national market or exchange on which our stock is listed or trades. On each drawdown settlement date for the sale of common shares, we must deliver an opinion from our counsel about a number of these matters. RESTRICTIONS ON FUTURE FINANCINGS The common stock purchase agreement limits our ability to raise money by selling our securities for cash at a discount to the market price until the earlier of 18 months from the effective date of the registration statement of which this prospectus is a part or the date which is 60 days after Evertrend has purchased the maximum of $15,000,000 worth of common stock from us under the common stock purchase agreement. There are exceptions to this limitation for securities sold in the following situations: o in a registered public offering which is underwritten by one or more established investment banks; o in one or more private placements where the purchasers do not have registration rights; o pursuant to any presently existing or future employee benefit plan which plan has been or is approved by our stockholders; o pursuant to any compensatory plan for a full-time employee or key consultant; o in connection with a strategic partnership or other business transaction, the principal purpose of which is not simply to raise money; and o a transaction to which Evertrend gives its written approval. COSTS OF CLOSING THE TRANSACTION At the closing of the transaction on July 27, 2000, we delivered the requisite opinion of counsel to Evertrend and paid the escrow agent, Epstein Becker & Green P.C., $35,000 for Evertrend's legal, administrative and escrow costs. We will pay Ladenburg Thalmann & Co. Inc. an additional $150,000 as a non-accountable expense allowance for its expenses at the initial 54 drawdown. Ladenburg Thalmann also received warrants for a total of 1,271,186 shares of our common stock with an exercise price per share equal to 115% of the closing bid price of our common stock as reported on the OTC Bulletin Board on July 26, 2000 or $0.6785. Ladenburg Thalmann is not obligated to purchase any of our shares pursuant to the warrant. TERMINATION OF THE STOCK PURCHASE AGREEMENT Evertrend may terminate the equity draw down facility under the stock purchase agreement if the registration statement of which this prospectus forms a part is not declared effective by September 30, 2000. INDEMNIFICATION OF EVERTREND Evertrend is entitled to customary indemnification from us for any losses or liabilities suffered by it based upon material misstatements or omissions from the registration statement and the prospectus, except as they relate to information supplied by Evertrend to us for inclusion in the registration statement and prospectus. SELLING STOCKHOLDER OVERVIEW Common shares registered for resale under this prospectus constitute 98.9% of our issued and outstanding common shares as of August 7, 2000. The number of shares we are registering is based in part on our good faith estimate of the maximum number of shares we will issue to Evertrend under the common stock purchase agreement. Accordingly, the number of shares we are registering for issuance under the common stock purchase agreement may be higher than the number we actually issue under the common stock purchase agreement. EVERTREND HOLDINGS LIMITED Evertrend Holdings Limited is engaged in the business of investing in publicly traded equity securities for its own account. Evertrend's principal offices are located at Aeulestrasse 74, FL-9490 Vaduz, Liechtenstein. Investment decisions for Evertrend are made by its board of directors. Other than the warrants we issued to Evertrend in connection with closing the common stock purchase agreement, Evertrend does not currently own any of our securities as of the date of this prospectus. Other than its obligation to purchase common shares under the common stock purchase agreement, it has no other commitments or arrangements to purchase or sell any of our securities. There are no business relationships between Evertrend and us other than the common stock purchase agreement. LADENBURG THALMANN & CO. INC. Ladenburg Thalmann & Co. Inc. has acted as placement agent in connection with the common stock purchase agreement. Ladenburg Thalmann introduced us to Evertrend and assisted us with structuring the equity line of credit with Evertrend. Ladenburg Thalmann's duties as placement agent were undertaken on a reasonable best efforts basis only. It made no 55 commitment to purchase shares from us and did not ensure us of the successful placement of any securities. This prospectus covers 1,271,186 shares of common stock issuable upon exercise of warrants we have issued to Ladenburg Thalmann as a placement fee for introducing us to Evertrend. Those warrants are exercisable at $0.6785 per share and expire July 27, 2004. The decision to exercise any warrants issued, and the decision to sell the common stock issued pursuant to the warrants, will be made by Ladenburg Thalmann's officers and board of directors. Other than the warrants, Ladenburg Thalmann does not currently own any of our securities as of the date of this prospectus. Our agreement with Ladenburg Thalmann provides Ladenburg Thalmann with a right of first refusal for one year after completion of the offering under the common stock purchase agreement, as underwriter or placement agent for all of our financing arrangements on terms no less favorable than we could obtain in the market. PLAN OF DISTRIBUTION GENERAL Evertrend is offering the common shares for its account as statutory underwriter, and not for our account. We will not receive any proceeds from the sale of common shares by Evertrend. Evertrend may be offering for sale up to 53,475,935 common shares acquired by it pursuant to the terms of the stock purchase agreement more fully described under the section above entitled "Common Stock Purchase Agreement" and the warrants we issued to it in connection with the transaction. Evertrend has agreed to be named as a statutory underwriter within the meaning of the Securities Act of 1933 in connection with such sales of common stock and will be acting as an underwriter in its resales of the common stock under this prospectus. Evertrend has, prior to any sales, agreed not to effect any offers or sales of the common stock in any manner other than as specified in the prospectus and not to purchase or induce others to purchase common stock in violation of any applicable state and federal securities laws, rules and regulations and the rules and regulations of the OTC Bulletin Board. If the maximum number of shares permitted to be issued pursuant to the common stock purchase agreement and the warrants are in fact to be issued, we will seek shareholder approval to increase the number of authorized shares. On August 7, 2000, we had 56,597,858 shares of common stock outstanding. The following table shows the number of shares we would issue to Evertrend pursuant to the stock purchase agreement and the price it would pay for those shares given the hypothetical variables shown in the table, if o we requested drawdowns of the maximum amounts under the common stock purchase agreement; o we set a threshold price of $0.25; o the volume-weighted average daily price in the table is the volume-weighted average daily price of our common stock for the 22 trading days before each drawdown request under the common stock purchase agreement and the 22 trading days after each drawdown request; 56 o the average trading volume in the table is the average trading volume for the 45 trading days before each drawdown request; and o we do not issue more shares to Evertrend under the common stock purchase agreement than we are currently registering for resale of the shares issued under the common stock purchase agreement.
Number of Shares Issuable to Evertrend under Common Volume-Weighted Average Stock Purchase Price per Share Daily Price Average Trading Volume Agreement(g) paid by Evertrend ----------- ---------------------- ------------ ----------------- $0.2791(a) 471,798(d) 35,620,623(h) $0.23724 $0.5582(b) 943,596(e) 35,620,623(h) $0.47447 $0.8373(c) 1,415,394(f) 35,620,623(h) $0.71171
- -------- (a) Represents 50% of the average closing price of our common stock for the 22 trading days before August 7, 2000. (b) Represents the average closing price of our common stock for the 22 trading days before August 7, 2000. (c) Represents 150% of the average closing price of our common stock for the 22 trading days before August 7, 2000. (d) Represents 50% of the average trading volume of our common stock for the 45 trading days preceding August 7, 2000. (e) Represents the average trading volume of our common stock for the 45 trading days preceding August 7, 2000. (f) Represents 150% of the average trading volume of our common stock for the 45 trading days preceding August 7, 2000. (g) The number of shares we would issue could be limited by a provision of the common stock purchase agreement that prevents us from issuing shares to Evertrend to the extent Evertrend would beneficially own more than 9.9% of our then outstanding common stock. (h) Represents all 35,650,623 shares we are registering under the common stock purchase agreement. To permit Evertrend to resell the common shares issued to it under the stock purchase agreement, we agreed to register those shares and to maintain that registration. To that end, we have agreed with Evertrend that we will prepare and file such amendments and supplements to the registration statement and the prospectus as may be necessary in accordance with the Securities Act and the rules and regulations promulgated thereunder, to keep it effective until the earliest of any of the following dates: o the date after which all of the common shares held by Evertrend or its transferees that are covered by the registration statement of which this prospectus is a part have been sold under the provisions of Rule 144 under the Securities Act of 1933; o the date after which all of the common shares held by Evertrend or its transferees that are covered by the registration statement have been transferred to persons who may trade such shares without restriction under the Securities Act of 1933 and we have delivered new certificates or other evidences of ownership of such common shares without any restrictive legend; o the date after which all of the common shares held by Evertrend or its transferees that are covered by the registration statement have been sold by Evertrend or its transferees pursuant to such registration statement; o the date after which all of the common shares held by Evertrend or its transferees that are covered by the registration statement may be sold, in the opinion of our counsel, 57 under Rule 144 under the Securities Act of 1933 irrespective of any applicable volume limitations; o the date after which all of the common shares held by Evertrend or its transferees that are covered by the registration statement may be sold, in the opinion of our counsel, without any time, volume or manner limitations under Rule 144(k) or similar provision then in effect under the Securities Act of 1933; or o the date after which none of the common shares held by Evertrend that are covered by the registration statement are or may become issued and outstanding. Shares of common stock offered through this prospectus may be sold from time to time by Evertrend and Ladenburg Thalmann. We will supplement this prospectus to disclose the names of any pledgees, donees, transferees or other successors in interest that intend to offer common stock through this prospectus. Sales may be made on the over-the-counter market or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated private transactions, or in a combination of these methods. The selling stockholders will act independently of us in making decisions with respect to the form, timing, manner and size of each sale. WE HAVE BEEN INFORMED BY THE SELLING STOCKHOLDERS THAT THERE ARE NO EXISTING ARRANGEMENTS BETWEEN ANY OF THE SELLING STOCKHOLDERS AND ANY OTHER STOCKHOLDER, BROKER, DEALER, UNDERWRITER OR AGENT RELATING TO THE SALE OR DISTRIBUTION OF SHARES OF COMMON STOCK WHICH MAY BE SOLD BY THE SELLING STOCKHOLDERS THROUGH THIS PROSPECTUS. Evertrend is an underwriter and Ladenburg Thalmann may be deemed an underwriter in connection with resales of their respective shares. The common shares may be sold in one or more of the following manners: o a block trade in which the broker or dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker or dealer for its account under this prospectus; or o ordinary brokerage transactions and transactions in which the broker solicits purchases. In effecting sales, brokers or dealers engaged by the selling stockholders may arrange for other brokers or dealers to participate. Except as disclosed in a supplement to this prospectus, no broker-dealer will be paid more than a customary brokerage commission in connection with any sale of the common shares by the selling stockholders. Brokers or dealers may receive commissions, discounts or other concessions from the selling stockholders in amounts to be negotiated immediately prior to the sale. The compensation to a particular broker-dealer may be in excess of customary commissions. Profits on any resale of the common shares as a principal by such broker-dealers and any commissions received by such broker-dealers may be deemed to be underwriting discounts and commissions under the Securities Act of 1933. Any broker-dealer participating in such transactions as agent may receive commissions from the selling 58 stockholders (and, if they act as agent for the purchaser of such common shares, from such purchaser). Broker-dealers may agree with the selling stockholders to sell a specified number of common shares at a stipulated price per share, and, to the extent a broker dealer is unable to do so acting as agent for the selling stockholders, to purchase as principal any unsold common shares at a price required to fulfill the broker-dealer commitment to the selling stockholders. Broker-dealers who acquire common shares as principal may thereafter resell such common shares from time to time in transactions (which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above) in the over-the-counter market, in negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices, and in connection with such resales may pay to or receive from the purchasers of such common shares commissions computed as described above. Brokers or dealers who acquire common shares as principal and any other participating brokers or dealers may be deemed to be underwriters in connection with resales of the common shares. In addition, any common shares covered by this prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus. We will not receive any of the proceeds from the sale of these common shares, although we have paid the expenses of preparing this prospectus and the related registration statement of which it is a part, and have reimbursed Evertrend $35,000 for its legal, administrative and escrow costs. Ladenburg Thalmann & Co. Inc. will receive, out of the initial drawdown, $150,000 as a non-accountable expense allowance for its expenses. Evertrend is subject to the applicable provisions of the Exchange Act, including without limitation, Rule 10b-5 thereunder. Under applicable rules and regulations under the Exchange Act, any person engaged in a distribution of the common shares may not simultaneously engage in market making activities with respect to such securities for a period beginning when such person becomes a distribution participant and ending upon such person's completion of participation in a distribution, including stabilization activities in the common shares to effect covering transactions, to impose penalty bids or to effect passive market making bids. In addition, in connection with the transactions in the common shares, Evertrend and we will be subject to applicable provisions of the Exchange Act and the rules and regulations under that Act, including, without limitation, the rules set forth above. These restrictions may affect the marketability of the common shares. The selling stockholders will pay all commissions and its own expenses, if any, associated with the sale of the common shares, other than the expenses associated with preparing this prospectus and the registration statement of which it is a part. The price at which we will issue the common shares to Evertrend under the stock purchase agreement will be 85% (assuming the average market capitalization for the 10 trading days prior to the commencement of the applicable drawdown pricing period is less than or equal to $30 million) of the volume-weighted average daily trading price on the OTC Bulletin Board, for each day in the pricing period with respect to each drawdown request. Assuming we use the entire $15 million of financing available under the stock purchase agreement, and assuming we 59 issue all 35,620,623 shares registered for issuance under the common stock purchase agreement, we will pay underwriting compensation to and expenses for Evertrend, and other offering expenses, as follows:
UNDERWRITING COMPENSATION AND EXPENSES Per Share Total --------- ----- Discount to Evertrend (15%)(a) $0.0641 $3,504,375.00 Expenses payable on behalf of Evertrend: Escrow Fees $15,000.00 Legal Fees of Evertrend $35,000.00 Estimated offering expenses: Placement agent fees (b) $.034 $1,869,000.00 SEC filing fee $6,395.40 Accountant's fees and expenses $10,000.00 Legal fees and expenses $50,000.00 Total $5,489,770.40
- ---------------- (a) We also issued to Evertrend a warrant to purchase 1,271,186 shares of our common stock at $0.6785 per share as consideration for providing the common stock purchase agreement. Our common stock price on July 26, 2000 was $0.59. The warrant expires July 27, 2004. Additionally, at each drawdown settlement date, we will issue a warrant certificate to purchase up to a number of shares equal to 50% of the draw down at the weighted average of the purchase prices of the common stock. The drawdown warrants will expire 22 days after their issuance. (b) We also issued to the placement agent a warrant to purchase 1,271,186 shares of our common stock at $0.6785 per share as consideration for placement services. Our common stock price on July 26, 2000 was $0.59. The warrant expires July 27, 2004. LIMITED GRANT OF REGISTRATION RIGHTS We granted registration rights to Evertrend to enable it to sell the common stock it purchases under the common stock purchase agreement. In connection with any such registration, we will have no obligation: o to assist or cooperate with Evertrend in the offering or disposition of such shares; o to indemnify or hold harmless the holders of any such shares (other than Evertrend) or any underwriter designated by such holders; o to obtain a commitment from an underwriter relative to the sale of any such shares; or o to include such shares within any underwritten offering we do. We will assume no obligation or responsibility whatsoever to determine a method of disposition for such shares or to otherwise include such shares within the confines of any registered offering other than the registration statement of which this prospectus is a part. We will use our best efforts to file, during any period during which we are required to do so under our registration rights agreement with Evertrend, one or more post-effective amendments to the registration statement of which this prospectus is a part to describe any material information with respect to the plan of distribution not previously disclosed in this prospectus or any material change to such information in this prospectus. This obligation may 60 include, to the extent required under the Securities Act of 1933, that a supplemental prospectus be filed, disclosing o the name of any broker-dealers; o the number of common shares involved; o the price at which the common shares are to be sold; o the commissions paid or discounts or concessions allowed to broker-dealers, where applicable; o that broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplemented; and o any other facts material to the transaction. Our registration rights agreement with Evertrend permits us to restrict the resale of the shares Evertrend has purchased from us under the common stock purchase agreement for a period of time sufficient to permit us to amend or supplement this prospectus to include material information. If we restrict Evertrend for more than 20 days in any 12-month period and our stock price declines during the restriction period, we are required to pay to Evertrend cash to compensate Evertrend for its inability to sell shares during the restriction period. The amount we would be required to pay would be the difference between our stock price on the first day of the restriction period and the last day of the restriction period, for each share held by Evertrend during the restriction period that has been purchased under the common stock purchase agreement. LEGAL MATTERS The law firm of Torys, New York, New York will pass upon the validity of the shares of common stock offered under this prospectus. EXPERTS Our financial statements as of December 31, 1998 and 1999, and for each of the two years in the period ended December 31, 1999, have been included in this prospectus and in the Registration Statement filed with the Securities and Exchange Commission in reliance upon the report of Mayer, Ripsler & Company, P.C., independent certified public accountants, upon its authority as experts in accounting and auditing. Mayer, Ripsler & Company, P.C.'s report on the financial statements can be found at the end of this prospectus and in the Registration Statement. AVAILABLE INFORMATION We have filed with the Securities and Exchange Commission under the Securities Act a registration statement on Form SB-2. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, certain 61 items of which are contained in exhibits and schedules as permitted by the rules and regulations of the Securities and Exchange Commission. We are subject to the informational requirements of the Exchange Act and, in accordance therewith, file certain periodic reports, proxy statements and other information with the Securities and Exchange Commission. Reports and other information filed by us may be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at its principal offices located at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional offices of the Securities and Exchange Commission: Seven World Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60601. Copies of such material may be obtained by mail from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Securities and Exchange Commission maintains a Web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including Talk Visual Corporation. THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT WE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD RELY ONLY ON THE INFORMATION OR REPRESENTATIONS PROVIDED IN THIS PROSPECTUS. WE HAVE AUTHORIZED NO ONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT. 62 Item 22. Financial statements ---------------------
Contents For the Years Ended December 31, 1999 and 1998 Report of Independent Auditors......................................... F-1 Consolidated Balance Sheets............................................ F-2 - F-3 Consolidated Statements of Operations.................................. F-4 Consolidated Statements of Shareholders' Equity........................ F-5 - F-6 Consolidated Statements of Cash Flows.................................. F-7 - F-8 Notes to Consolidated Financial Statements............................. F-9 - F-24 For the six months ended June 30, 2000 and June 30, 1999 Condensed Consolidated Balance Sheet...................................F-25 - F-26 Condensed Consolidated Statements of Operations........................ F-27 Condensed Consolidated Statements of Cash Flows........................F-28 - F-29 Notes to Condensed Consolidated Financial Statements...................F-30 - F-32
63 Report of Independent Auditors To the Stockholders of Talk Visual Corporation Miami, Florida We have audited the accompanying consolidated balance sheet of Talk Visual Corporation as of December 31, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Talk Visual Corporation at December 31,1999, and the results of its operations and its cash flows for each of the two years ended in the period ended December 31, 1999, in conformity with generally accepted accounting principles. As more fully described in Note 2 to the financial statements, there are certain liquidity matters concerning the Company. Management's plans with regard to these liquidity matters are discussed in Note 2. Mayer Rispler & Company,P.C. Brooklyn, New York March 30, 2000 Page F-1 TALK VISUAL CORPORATION CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 ASSETS CURRENT ASSETS Cash and cash equivalents $ 287,156 Accounts receivable, net of allowances for doubtful accounts of $3,017 46,031 Inventory 25,853 Other receivables 530,319 Stock subscriptions receivable 1,908,790 Marketable securities 180,043 Other current assets 56,172 ---------- Total current assets $ 3,034,364 PROPERTY AND EQUIPMENT, net 11,477,805 ADVANCES TO RELATED ENTITIES 675,102 OTHER ASSETS 451,118 ---------- TOTAL $15,638,389 ========== See notes to consolidated financial statements. Page F-2 TALK VISUAL CORPORATION CONSOLIDATED BALANCE SHEET (continued) DECEMBER 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 1,571,634 Accounts payable 918,780 Accrued expenses 248,824 Other current liabilities 52,828 ---------- Total current liabilities 2,792,066 LONG-TERM DEBT, net of current portion 5,372,001 --------- TOTAL LIABILITIES 8,164,067 --------- COMMITMENTS AND CONTINGENCIES - STOCKHOLDERS' EQUITY Series A Convertible redeemable preferred stock - liquidation value $1 per share, par value $.001 per share, 25,000,000 shares authorized; 975,000 issued and outstanding 975 Common Stock, par value $.001 per share, 100,000,000 shares authorized; 32,060,978 shares issued and outstanding 32,061 Common stock subscribed 4,241 Additional paid in capital 16,409,119 Accumulated deficit (7,221,561) Accumulated other comprehensive loss (688,537) Stock subscriptions receivable (1,061,976) ---------- Total Stockholders' Equity 7,474,322 ---------- TOTAL $15,638,389 ========== See notes to consolidated financial statements. Page F-3 TALK VISUAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 ---- ---- REVENUE Telecommunication Services and Product sales $ 8,147 $ - Equipment sales, related parties 79,393 - Real Estate revenues 1,075,482 229,127 Other income 2,966 - ---------- --------- Total revenue 1,165,988 229,127 ---------- --------- COSTS AND EXPENSES Cost of equipment sales, telecommunication and retail operation expenses 442,710 - Depreciation and amortization 299,264 41,982 Research and development 72,767 270,376 Real estate operations 292,610 201,733 General, administrative and marketing 4,983,153 808,086 Write-down of software development costs 206,694 - ---------- --------- Total costs and expenses 6,297,198 1,322,177 ---------- --------- LOSS FROM OPERATIONS (5,131,210) (1,093,050) ---------- --------- OTHER INCOME (EXPENSE) Interest expense ( 663,964) (106,768) Interest income 5,915 2,445 Foreign currency translation loss (962) - Adjustment of non-marketable securities to fair value ( 164,498) - ---------- ---------- ( 823,509) ( 104,323) ---------- ---------- NET LOSS $(5,954,719) $(1,197,373) DIVIDEND ON PREFERRED STOCK $ 69,469 $ - ---------- ---------- NET LOSS APPLICABLE TO COMMON SHARES $(6,024,188) $(1,197,373) ========== ========== NET LOSS PER COMMON SHARE BASIC AND DILUTED $ (0.23) $ (0.06) ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD 26,674,262 21,234,818 ========== ========== See notes to consolidated financial statements Page F-4 Talk Visual Corporation Consolidated Statements of Stockholders' Equity Years Ended December 31, 1998 and 1999
Preferred Shares Common Shares Stock Additional Shares Amount Shares Amount Subscribed Paid In Capital ------ ------ ------ ------ ---------- ------- Balance January 1,1998 -- $ -- 885,000 $ 885 -- $ 7,062,557 Year Ended December 31, 1998: Common shares issued in private- placements -- -- 427,667 473 -- 308,777 Exercise of warrants -- -- 19,084 19 -- 74,981 Common shares subscribed -- -- -- 354 2,453,748 Common shares issued for services -- -- 16,667 -- 222,983 Common shares exchanged for debt -- -- -- 28 73,172 Net Loss -- -- -- -- -- -- Other comprehensive income - Unrealized gain (loss) on marketable securities -- -- -- -- -- -- Comprehensive loss Issued pursuant to Videcall- Talk Visual Merger -- -- 19,841,400 19,841 25,693 (481,599) ------------ ------------ ------------ ------------ ------------ ------------ Balance December 31, 1998 -- -- 21,234,818 21,235 26,075 9,714,619 Year Ended December 31,1999: Effect Equity transfer of Talk - Visual-Videocall Merger -- -- -- -- -- 678,592 Collections on subscriptions -- -- -- -- (25,693) -- Common shares issued for services -- -- 4,459,642 4,460 -- 2,437,108 Common shares issued in exchange For debt -- -- 27,500 28 -- 106,535 Previously subscribed stock, issued -- -- 2,321,017 2,292 (354) (1,938) Insurance of preferred shares 975,000 975 -- -- -- 94,024 Insurance of stock for prior agreement -- -- -- 28 (28) -- Common shares issued in private placement -- -- 4,000,000 4,000 -- 996,000 Common shares subscribed -- -- -- -- 2,241 1,495,759 Issued to employees -- -- 18,000 18 -- 8,420 Net Loss -- -- -- -- -- -- Other comprehensive loss - unrealized loss on marketable securities and currency exchange -- -- -- -- -- -- Comprehensive loss -- -- -- -- -- -- Dividends paid on preferred stock -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Balance December 31, 1999 $ 975,000 $ 975 $ 32,060,977 $ 32,061 $ 4,241 $ 16,409,119 ============ ============ ============ ============ ============ ============
See notes to consolidate financial statements F-5 Talk Visual Corporation Consolidated Statements of Stockholders' Equity Years Ended December 31, 1998 and 1999 (continued)
Accumulated Accumulated Stocks Total Comprehensive Deficit Other Subscription Stockholders' Loss Comprehensive Receivable Equity Loss ------- ----- ------------ ------------- ---- Balance January 1,1998 $(6,511,054) $ -- $ -- $ 552,388 -- Year Ended December 31, 1998: Common shares issued in private- placements -- -- -- 309,250 -- Exercise of warrants -- -- -- 75,000 -- Common shares subscribed -- -- (157,000) 2,297,102 -- Common shares issued for services -- -- -- 223,000 -- Common shares exchanged for debt -- -- -- 73,200 -- Net Loss (1,318,706) -- -- (1,318,706) $(1,318,706) Other comprehensive income - Unrealized gain (loss) on marketable securities -- 207,043 -- 207,043 207,043 ----------- Comprehensive loss -- -- -- -- $(1,111,663) Issued pursuant to Videcall-Talk Visual Merger 6,632,387 -- (1,589,666) 4,606,656 ----------- ----------- ----------- ----------- Balance December 31, 1998 (1,197,373) 207,043 (1,746,666) 7,024,933 Year Ended December 31,1999: Effect Equity transfer of Talk - Visual-Videocall Merger -- -- -- 678,592 -- Collections on subscriptions -- -- 1,746,666 1,720,973 -- Common shares issued for services -- -- -- 2,441,568 -- Common shares issued in exchange For debt -- -- -- 106,563 -- Previously subscribed stock, issued -- -- -- -- -- Insurance of preferred shares -- -- -- 974,999 -- Insurance of stock for prior agreement -- -- -- -- -- Common shares issued in private placement -- -- -- 1,000,000 -- Common shares subscribed -- -- (1,061,796) 438,024 -- Issued to employees -- 18,000 -- 8,438 -- Net Loss (5,954,719) -- -- (5,954,719) (5,954,719) Other comprehensive loss - unrealized Loss on marketable securities and currency exchange -- (895,580) -- (895,580) (895,580) ----------- Comprehensive loss -- -- -- -- $(6,850,299) Dividends paid on preferred stock -- (69,469) -- (69,469) ----------- ----------- ----------- ----------- Balance December 31, 1999 $(7,221,561) $ (688,537) $(1,061,976) $ 7,474,322 =========== =========== =========== ===========
See notes to consolidate financial statements Page F-6 TALK VISUAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 ---- ---- Cash Flows From Operating Activities: Net Loss $(5,954,719) $(1,197,374) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 272,491 41,979 Amortization of product development costs 206,605 - Write down of other investments 145,563 - Write off of intangibles 27,645 - Issuance of common stock in exchange for services 2,441,567 223,000 Increase (decrease) in cash from changes in: Accounts receivable, net 27,785 28,326 Inventory (17,603) - Other receivables (134,320) (98,674) Other current assets 81,740 (94,160) Accounts payable 514,893 184,838 Accrued expenses 73,232 43,024 Other current liabilities 28 29,530 --------- ---------- Net Cash from Operating Activities (2,315,093) ( 839,511) --------- ---------- Cash Flows From Investing Activities: Purchase of property and equipment (1,275,724) (125,138) Advances - related parties (589,366) - Purchase of subsidiary - (468,950) Assets acquired in merger 2,157,842 153,608 Acquisition or disposition of other assets 2,237 (85,606) --------- ---------- Net Cash from Investing Activities 294,989 ( 526,086) --------- ---------- Cash Flows from Financing Activities: Borrowings on debt 1,054,568 608,493 Payments on Notes Payable and Long Term Debt (727,883) (1,812) Proceeds from Private Placements of Common Stock 1,000,000 1,172,709 Collections on stock subscriptions receivable 688,931 - Cash dividend payments (69,469) - Other (17,545) (36,349) --------- ---------- Net Cash from Financing Activities 1,928,602 1,743,041 --------- ---------- Increase (decrease) in cash and cash equivalents (91,502) 377,444 Cash and cash equivalents at beginning of period 378,658 1,214 --------- ---------- Cash and cash equivalents at end of period $ 287,156 $ 378,658 ========= ==========
See notes to consolidated financial statements Page F-7 TALK VISUAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (continued) YEAR ENDED DECEMBER 31, ----------------------- Supplemental disclosure of cash flow information: 1999 1998 ---- ---- a. Cash paid during the period for: interest $ 641,888 $ 5,540 --------- ---------- income taxes $ 800 $ -0- --------- ---------- b. Noncash investing and financing transactions: For the year ended December 31, 1999: Purchase of Canadian real estate in exchange for 975,000 shares of convertible preferred stock and assumption of a mortgage in the amount of $987,755. Issuance of 200,000 shares of common stock in satisfaction of accounts payable in the amount of $81,240. Issuance of 55,650 shares of common stock in satisfaction of notes payable in the amount of $129,009. Videocall International - ----------------------- For the year ended December 31, 1998: Issuance of 611,909 shares of common stock for $75,000 in equipment and $66,000 in third party notes receivable. Issuance of 2,974,250 shares of common stock for marketable securities with a value of $882,100. Issuance of 3,000,000 common shares and a note payable for $1,000,000 for the acquisition of the subsidiary which holds the California real estate. Issuance of 212,500 shares of common stock for 212,500 options to purchase marketable securities, valued at $341,998 net of the option exercise price. Talk Visual Corp. (formerly Legacy Software, Inc.) - -------------------------------------------------- For the year ended December 31, 1998: On December 18, 1998, the Company agreed to issue 52,051 shares of common stock in exchange for the contribution of a short term investment with a market value of $104,102. In December, 1998, the Company agreed to issue 28,150 shares of common stock for the cancellation of a note payable including accrued interest in the amount of $73,200. Sale of assets and assumption of debt by a third party $147,935. Reduction of debt by a former co-development partner $300,000. See notes to consolidated financial statements Page F-8 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Merger Talk Visual Corporation, formerly Legacy Software, Inc. ("Legacy") was incorporated in Delaware in 1996 and primarily developed and sold educational entertainment software. Videocall International Corporation ("Videocall") was a development stage company incorporated in Florida in February, 1998, to provide videocalling services to businesses and consumers. Pursuant to an Agreement and Plan of Merger ("Merger"), dated September 14, 1998, a merger was announced between Videocall and Legacy. Subsequently, the key officers of Videocall were elected as directors and officers of Legacy, thus creating common control of the two companies. At December 31, 1998, Legacy had ceased developing and marketing software products and began focusing on the business activities of Videocall. In February, 1999, Legacy's name was changed to Talk Visual Corporation ("Talk Visual"). The stock-for-stock transaction was approved by the stockholders of both companies June 15, 1999, after which Videocall was merged with Talk Visual, with Talk Visual (the "Company") being the survivor. The Merger has been accounted for as a reverse acquisition. Shareholders of the Company also approved the re-incorporation of the Company in Nevada. Each share of Videocall's common stock was converted into either 3 shares, 1 share and/or options exercisable at $1.00 per share, depending on the shareholder's purchase price of the holdings. In effecting the Merger, the Company was obligated to issue 19,841,400 shares of common stock to the Videocall shareholders, and has granted 15,608,475 three year options for one share of stock each, at an exercise price of $1.00 per share. As a result of the common control and change of business activities, these financial statements reflect the combined operations of both companies for the full 1999 fiscal year, as if the merger had occurred at December 31, 1998. Business Prior to August 24, 1999, the Company was considered a development stage company. On August 24, 1999, the Company became operational with the launch of its videocalling services through its wholly owned retail stores in the United States and joint venture partners in Europe, Israel, Canada, Asia and South America. Additionally, during 1999, the Company commenced selling other telecommunications services and equipment through its retail outlets and over the internet. The Company also owns and operates, through its wholly owned subsidiary, Sacramento Results, Inc., a commercial property located in Sacramento, California and through its wholly owned subsidiary, The Ontario International Property Corporation, a commercial property in Toronto, Ontario, Canada. On August 30, 1999, the Company moved its headquarters from Cambridge, Massachusetts to Miami, Florida. On February 8, 1999, the Company purchased a commercial property through its wholly owned subsidiary, The Ontario International Property Corporation, a Canadian corporation, as follows: Page F-9 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Business(continued) Assumption of mortgage $ 987,755 Issuance of 975,000 shares of Class A Convertible preferred stock valued at $1.00 per share, paying dividends of $.095 per share 975,000 Cash 45,383 --------- $2,008,138 ========= The property was purchased subject to a lien of $621,000. The prior owners have committed to have the lien released on the property and have provided a personal guarantee and indemnity to that effect from the prior owner's principal. Principles of Consolidation The consolidated financial statements include the accounts of Talk Visual Corporation and its wholly owned subsidiaries, Sacramento Results, Inc. and The Ontario International Property Corporation. All intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and temporary cash investments. At times, cash balances held at financial institutions were in excess of federally insured limits. The Company places its temporary cash investments with high-credit, quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. The Company believes no significant concentration of credit risk exists with respect to these cash investments. Page F-10 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Inventory Inventory, which consists of finished goods, is valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Stock Subscriptions Receivable On December 14, 1999 a private placement of $1,500,000 for 4,241,322 shares of Common Stock was subscribed to by third party investors to provide additional capital to the Company. Of the $2,970,766 still due under the subscriptions at December 31, 1999, through March 27, 1999, $1,908,790 has been received in cash and have been presented as a component of current assets in the accompanying financial statements; the balance of $1,061,976 remains to be collected, and has been presented as a reduction of stockholders' equity in the accompanying financial statements. Property and Equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from three to seven years for furniture, fixtures and equipment and fifteen to forty years for real estate. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS 109, deferred tax assets may be recognized for temporary differences that will result in deductible amounts in future periods. A valuation allowance is recognized, if on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Revenue Recognition Revenue is recognized upon completion of the service or delivery of equipment. Earnings Per Share The Company adopted SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average Page F-11 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Earnings Per Share (continued) number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts, such as stock options, to issue common stock were exercised or converted into common stock. All amounts have been adjusted for the September 8, 1998 one for three reverse split. For the years ended December 31, 1999 and 1998, diluted earnings per share have not been included as it would be antidilutive. Foreign Currency Conversion The financial statements of the Company's foreign subsidiary have been translated into United States dollars at the average exchange rate during the year for the statement of operations and year-end rate for the balance sheet. Stock Based Compensation The Company accounts for its stock option awards under the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. The Company makes pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied as required by SFAS No. 123, "Accounting for Stock-Based Compensation". Recent Accounting Pronouncements Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133") issued by the FASB is effective for financial statements with fiscal years beginning after June 15, 2000. This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company does not expect the adoption of SFAS 133 to have an impact on its financial position or results of operations. NOTE 2 - LIQUIDITY As reflected in the accompanying financial statements, the Company incurred significant net losses for the years 1999 and 1998, and expects to continue to incur losses in 2000. The Company is dependent on revenues from the real estate operations, investor stock subscriptions, short term and long term borrowings and retail videocalling and telecommunication product sales for working capital Page F-12 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 2 - LIQUIDITY (continued) needs, until the operating activities generate sufficient cash flow to fund the Company. During the first quarter of 2000 the Company collected $1,908,790 of its subscriptions receivable. It is anticipated that the remaining $1,061,976 will be collected during the second quarter of 2000. Additionally, the Company collected $1,053,500 in option exercise payments and $446,900 due from the Chairman, during the first quarter of 2000. The Chairman of the Company has made a guarantee to fund or obtain funding to meet the obligations and working capital needs of the Company. Based upon the current cash utilization rate and Management's plan for expansion and new products/joint ventures/acquisitions, and the Chairman's funding obligation, Management believes that there should be sufficient capital to meet the needs of the Company for the next twelve months. In addition to the funding noted above, the Company has entered into a placement agreement with an investment banking firm for a proposed offering of equity securities to provide capital to the Company in an amount of up to $75,000,000. NOTE 3 - MARKETABLE SECURITIES Marketable securities consist of common stock currently trading on a national exchange. Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. At December 31, 1999, marketable securities were considered as available-for-sale as defined by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. The cost of investments sold is determined on the specific identification or the first-in, first-out method. At December 31, 1999, available-for-sale equity securities and their market value was as follows: Equity Securities, at cost $ 882,100 Unrealized Loss (702,057) ------- Market Value at December 31, 1999 $ 180,043 ======= These equity securities are held in a Canadian brokerage account under the name of the Company's chairman. The Company has received executed stock assignment certificates. Page F-13 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 4 - OTHER RECEIVABLES Included in other receivables at December 31, 1999, is a receivable in the amount of $446,901 due from the Chairman of the Company. This receivable was repaid, in full, during the first quarter of 2000. NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment are summarized as follows: Other operations: Equipment, Machinery and Automobiles $ 406,106 Furniture and Fixtures 42,255 Leasehold Improvements 348,568 Real estate operations: Equipment, Machinery and Automobiles 137,476 Furniture and Fixtures 13,833 Leasehold Improvements 92,268 Buildings 6,167,094 Land 4,590,296 --------- 11,797,896 Less accumulated depreciation ( 320,091) ---------- Net assets $11,477,805 ========== Depreciation and amortization expense on property and equipment was $223,733 for the year ended December 31, 1999 and $29,793 for the year ended December 31, 1998. NOTE 6 - PRODUCT DEVELOPMENT COSTS As noted earlier, the Company has ceased developing and marketing software products and is focusing on videoconferencing and telecommunications. With respect to the year ended December 31, 1999, the Company reduced the capitalized software development costs by $206,694 to reflect management's determination of the current estimated net realizable value. NOTE 7 - DEBT The Company's debt is as follows: In connection with the acquisition of the Sacramento property, the Company incurred a short term non-interest bearing obligation of $1,000,000. The short term obligation to the Page F-14 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 7 - DEBT (continued) seller of $1,000,000 was renegotiated and partially paid down on February 19, 1999. Under the renegotiated note, the Company paid an advance against leasehold improvements in the amount of $350,000 and a principal payment of $107,000, leaving a balance due of $893,000 on the renegotiated note. The renegotiated note is secured by a third position on the real estate and collateralized by 200,000 shares of Talk Visual common stock. Subsequent to the balance sheet date, the holder of the note signed a settlement agreement in which it has accepted a cash payment of $450,000 and 100,000 shares of common stock in full payment of this obligation. The adjustment will be reflected in subsequent financial statements. Balance due as of December 31, 1999 $ 893,000 Unsecured note payable to IBM (past due, currently in negotiation) 150,000 Due to prior officer (in arbitration) 72,066 Convertible discounted loan note ("CDLN"), secured by an unrecorded lien on the Sacramento land and building, with imputed interest at the rate of 9.4%, interest payable monthly, principal balance due November 2001, net of unamortized discount of $108,900 (see discussion below) 386,100 Mortgage note, secured by a first lien on the Sacramento land and building, including a deed of trust on rents and fixtures; bearing interest at 10% for the initial 12 months and 12% thereafter; payable monthly, interest only for seventy-two months, with the entire principal due January, 2004 3,840,000 12.5% Mortgage note, secured by a second lien on the Sacramento land and building, including a deed of trust on rents and a lien on specified equipment; disbursed to a maximum funding of $500,000 based upon completion of certain leasehold improvements and delivery of specified equipment; payable in monthly installments of principal and interest for 60 months; undisbursed funds at December 31, 1999 totaled $350,000 124,912 9% Mortgage note, secured by a lien on the Sacramento land and building, maximum funding of $1,000,000 due September 1, 2000. Interest payable monthly 500,000
Page F-15 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 7 - DEBT (continued) 7.05% Mortgage note, secured by the land and building in Toronto Ontario, and matures February 1, 2002. The mortgage is payable in monthly installments of $8,000, including principal and interest The mortgage is payable in Canadian dollars 964,089 10.27% Unsecured installment obligation payable monthly, principal and interest, in the amount of $1,561.21 for 9 months 13,468 ---------- Total Debt $6,943,635 Less current maturity 1,571,634 ---------- Long term obligations $5,372,001 ========== The aggregate maturities of long-term debt maturing in succeeding years are as follows: Amount --------- 2001 $ 499,423 2002 62,058 2003 934,924 2004 3,875,596 Concurrent with the placement of the Convertible Discounted Loan Note ("CDLN"), the lenders have subscribed to 990,000 shares of common stock at a price of $990,000, paying $108,900 toward the total subscription. The CDLN is convertible with an additional payment of $108,900, at the option of the holder, into 495,000 shares of the Company's common stock, during the term of the note or at maturity. If at maturity, the holder declines the conversion feature, the Company is obligated to pay the principal on the note, rescind the subscription for the 990,000 shares of common stock and refund the deposit paid toward that subscription. At the time of the placement of the CDLN, there was no beneficial conversion feature as the conversion price and market price of the underlying common stock were both at $1.00 per share. NOTE 8 - COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases certain equipment and real estate under various operating leases which expire at various dates through June 30, 2002. Future minimum rental payments required under operating leases that have initial or remaining terms in excess of one year at December 31, 1999 are as follows: Page F-16 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued) Operating December 31, Leases ------------ ------ 2000 $114,358 2001 92,586 2002 23,573 ------- Total future minimum rentals $230,517 ======= Rent expense for the years ended December 31, 1999 and 1998 was $144,432 and $42,601, respectively. Legal Proceedings There are no material legal proceedings, other than routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party to or which any of their property is subject. NOTE 9 - STOCKHOLDERS' EQUITY The Company's authorized capital stock consists of 100,000,000 shares of common stock, par value of $0.001 and 25,000,000 shares of non-voting preferred stock, par value $0.001. At December 31, 1999, the Company has 32,060,978 issued and outstanding Common shares and 975,000 issued and outstanding Series 1999-A Preferred shares. The preferred issue has a stated liquidation preference value of $975,000 or $1.00 per share, with no voting rights and pays a cumulative dividend of $0.095 per share. Holders of the Series 1999-A preferred have the right to convert the stated value of their shares, in whole or in part, into common stock at a conversion price of $1.00 per share. The Company has the right to redeem, in whole or in part, the Series 1999-A Preferred issue for $1.15 per share at any time. In May 1996, the Company consummated an initial public offering of 383,333 shares of its common stock, adjusted for the 1:3 reverse split in September 1998. On June 18, 1999, the Company completed the merger with Videocall International Corporation. This transaction was recorded as a reverse merger effective December 31, 1998. Options and Warrants Outstanding As a result of the Merger, on June 18, 1999, the Company issued options to purchase 15,608,475 shares of common stock at $1.00 per share with a three year expiration period to the Videocall shareholders and 1,800,000 warrants at $0.25 per share with a three year expiration period as a commission fee to brokers involved in the introduction of the merged companies. No value has been recorded for these options since they have not been registered and are not tradeable. Page F-17 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 9 - STOCKHOLDERS' EQUITY (continued) On May 30, 1999, the Company issued 45,000 options at $2.97 per share with a two year expiration period to a former employee. The stock price on the date of issue was $2.875. Accordingly, no compensation expense was recorded. In connection with the Company's initial public offering of common stock, the Company issued warrants to a trust company to purchase 66,667 shares of common stock at $3.93 per share, expiring five years from the date of issue. The warrants were exercisable immediately. Through December 31, 1999, the trust company has exercised 60,432 of the warrants. As of December 31, 1999, warrants and options to purchase 17,593,043 shares of common stock were outstanding. Capital Stock Transactions During 1999 the Company issued an aggregate 1,132,128 shares of common stock, for various services and obligations. At issuance, the stock ranged in price from $0.0625 per share to $4.00 per share. These issuances were recorded at a total expense of $2,056,773, which includes a non-marketability discount. Included in this amount is 50,000 shares of common stock to the President as a bonus and 18,000 shares of common stock to employees and associates as additional compensation. On January 25, 1999, the Company issued 600,000 shares of common stock pursuant to the agreement with the parties responsible for the introduction of Videocall to the Company. This transaction was priced at $3.75 per share for a total cost of $2,250,000, which was charged to equity. The Company is also obligated under the agreement, to issue options, exercisable at $0.25 per share, to the same parties. See the discussion under the June 18, 1999 equity transaction noted below. On February 24, 1999, the Company acquired a 22,622 square foot office facility in Ontario, Canada with the issuance of 975,000 shares of Class A Preferred Stock, Series 1999-A, $.001 par value, and the assumption of a first mortgage in the amount of $935,450 along with various minor obligations totaling $31,293. The total acquisition price of the property was $2,008,138. On December 1, 1999, the holder of the Preferred shares issued under this acquisition, notified the Company of its election to exercise the convertibility feature of the certificate provisions. Under the formula outlined in the certificate of designation of the preferred stock and based upon the price of the Company's common stock for the time period on which the conversion is based, each share of preferred stock will be converted to 17.14 shares of common stock. The conversion of the preferred stock will result in the issuance of 16,714,381 shares of common stock. The Company has been advised that the Preferred shareholder will convert the shares over the next thirty six months. The holder of the Preferred shares has agreed on all conversions after the first 3,348,500 shares to reinvest, within the thirty-six month period, $1.00 per converted share, for a total investment to the Company of $13,365,000. On March 5, 1999, the Company issued 27,500 shares of common stock in exchange for $105,000 of notes payable and accrued interest at $3.875 per share. The market value Page F-18 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 9 - STOCKHOLDERS' EQUITY (continued) of the shares issued on the date of exchange exceeded the obligations recorded on the books of the Company by $1,562. On June 18, 1999, as a result of the Videocall Merger, each share of Videocall common was converted into the right to receive either one share, three shares, and/or options of Talk Visual Common Stock or, 19,841,400 shares and 15,608,477 options in the aggregate. The options are exercisable at $1.00 per share and expire three years from their issue date. In connection with the Merger, the Company also issued 1,800,000 options, in addition to the options to the shareholders previously noted, at an exercise price of $0.25 per share for a three year period, to third parties who were responsible for the introduction of the Company and Videocall. On July 16, 1999, the Company issued 4,000,000 shares of common stock under a private placement subscription dated July 7, 1999. The shares were issued at a subscribed price of $0.25 per share, based on the trading price for the day at a twenty percent discount. On November 4, 1999, the Company satisfied its obligation to Overseas Communications, Ltd., a foreign corporation in which the Chairman of the Company is a 33% shareholder, for open invoices in the amount of $130,000, representing consulting and management services provided by the Chairman, with the issuance of 1,698,014 shares of common stock. The value on the date of issue was $.0766 per share. Pursuant to an S-8 filing December 17, 1999, the Company issued 980,000 shares of common stock to various individuals as compensation for services rendered. Issue prices ranged from $0.10 per share to $0.4688 per share, for a total value of $347,750. NOTE 10 - STOCK OPTION AND PURCHASE PLAN Talk Visual Corporation, formerly Legacy Software, Inc., predecessor to the merged entities, had a tax qualified stock option plan for employees and certain non-employees, that provided for the granting of stock options and authorized the issuance of common stock. On June 19, 1997, in connection with the termination of certain employment agreements, all stock options were fully vested for terminating employees. At December 31, 1999, all outstanding stock options were fully vested. Under the former option plan, options granted fell into two catagories: (i) the Incentive Stock Option Plan under which qualified employees could, at the discretion of the Plan administrator, be granted options to purchase shares of Common Stock at an exercise price of not less than 85% of their fair market value on the grant date or at the Plan Administrator's discretion, be issued shares of Common Stock Page F-19 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 10 - STOCK OPTION AND PURCHASE PLAN (continued) directly, through the purchase of shares at a price not less than 85% of their fair market value at the time of issuance or as a bonus tied to the performance of services; and (ii) the Automatic Option Grant Program under which option grants will automatically be made at periodic intervals to eligible non-employee Board members to purchase shares of Common Stock at an exercise price equal to 100% of the fair market value on the grant date. Videocall International Corporation granted a stock option with respect to Talk Visual common stock, to a former employee. Dated May 30, 1999, the employee was granted the right to purchase up to 45,000 shares at a price of $2.97 per share expiring February 28, 2002. Option activity within each plan was as follows: Weighted Incentive Directors Average Stock Option Stock Option Price Plan Plan Per Share ------------ ------------ --------- Balance outstanding, December 31, 1997 119,000 8,333 $9.60 Options granted range from $2.07 to $12.00 per share 140,000 1,667 $3.20 Options cancelled range from $3.00 to $12.00 per share (6,667) (10,000) $9.60 ------- -------- Balance outstanding, December 31, 1998 252,333 -0- $5.74 ======== Options expired range from $8.25 to $9.75 per share (119,000) $9.00 ------- Balance outstanding, December 31, 1999 133,333 $2.85 ======= Talk Visual stock option granted by Videocall International Corporation: 45,000 shares at a weighted average price per share of $2.97 The total balance outstanding at December 31, 1999 is 178,333, with a weighted average exercise price of $2.88 per share. Information relating to stock options outstanding and exercisable at December 31, 1999, summarized by exercise price are as follows: Page F-20 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 10 - STOCK OPTION AND PURCHASE PLAN (continued) Life Exercise Shares (months) Price -------- ------ -------- Incentive Stock Option Plan 8,333 9.0 $4.14 25,000 14.0 $4.14 8,333 9.0 $3.11 25,000 14.0 $3.11 16,667 9.0 $2.07 50,000 14.0 $2.07 Granted May 30, 1999 45,000 26.0 $2.97 ------- Total 178,333 $2.88 ======= All stock options issued to employees have an exercise price of not less than 85% of the fair market value of the Company's common stock on the date of the grant, and in accordance with accounting for such options utilizing the intrinsic value method there is a related compensation expense recorded in the Company's financial statements representing 15% of the fair market value. Had the compensation cost for stock-based compensation been determined based on the fair value of the grant dates consistent with the method of SFAS 123, the Company's net loss and loss per share for the years ended December 31, 1999 and 1998 would have been increased to the pro forma amounts presented below as follows: 1999 1998 --------- --------- Net loss as reported $(6,024,188) $(1,197,373) Net loss pro forma $(6,092,320) $(1,244,787) Basic and diluted net loss per common share as reported $(0.23) $(0.06) Basic and diluted net loss per common share pro forma $(0.23) $(0.06) The fair value of option grants is estimated on the date of grant utilizing the Black-Sholes option-pricing model with the following weighted average assumptions for grants in 1999 and 1998: expected life of option of 2.5 years and 10 years, respectively, expected volatility of 80.0% and 26.2%, respectively, risk-free interest rate of 6.0% and a 0% dividend yield for both years. The weighted average fair value at date of grants for options granted during 1999 and 1998 was $1.51 and $0.34 per option, respectively. Page F-21 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 11 - GENERAL, ADMINISTRATIVE AND MARKETING EXPENSE General, administrative and marketing expense is comprised of the following items: 1999 1998 ------ ------ Salaries and benefits $ 719,943 $260,391 Consultants 1,652,453 48,827 Legal and other professional 1,178,418 205,260 Marketing and public relations 459,782 51,607 Other general and administrative 972,557 242,001 --------- ------- Total $4,983,153 $808,086 ========= ======= Of the total $4,983,153 expense in 1999, $2,441,567 was paid in common stock; actual cash payments totaled $2,541,585. For the year ended December 31, 1998, of the total expense of $808,086, $223,000 was paid in common stock and the balance of $585,086 was paid in cash. NOTE 12 - INCOME TAXES At December 31, 1999, the Company had federal and state net operating loss carryforwards of approximately $12,215,000 and $6,552,000, available to offset taxable income expiring at various times through the year 2019. The Tax Reform Act of 1986 contains provisions which limit the federal net operating loss carryforwards available that can be used in any given year in the event of certain occurrences, which include significant ownership changes. At December 31, 1999 and 1998, the Company's net deferred tax asset consisted primarily of net operating losses. The Company established a 100% valuation allowance equal to the net deferred tax asset, as the Company could not conclude that it was more likely than not that the deferred tax asset would be realized. NOTE 13 - RELATED PARTY TRANSACTIONS The Company provided certain administrative, technical and operational support, loan advances, loan of equipment and sales of equipment along with facilities utilization to the foreign entities TV Telecommunications, Ltd, Videocall of Canada, Inc., Videocall Israel, Ltd. and the Belgium operations. These entities are owned and/or managed by individuals are stockholders of in the Company. At December 31, 1999, balances due from these entities totaled $675,102. During 1999, the Company incurred and paid $35,788 of interest and recorded $6,413 of prepaid interest to a foreign entity managed by a Director of the Company. The same Director was issued 175,000 shares of common stock at a price of $2.719 for a Page F-22 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 13 - RELATED PARTY TRANSACTIONS(continued) total charge to expense of $475,781, for services rendered in securing financing for the Company. The Company accrued $150,000 to Overseas Communications Ltd., a foreign corporation owned 33% by the Chairman of the Company, for consulting services provided by the Chairman. The Company issued common stock in payment of $130,000 of this obligation. NOTE 14 - EARNINGS PER SHARE The following is a reconciliation of the weighted average number of shares used to compute basic and diluted earnings per share: 1999 1998 ---- ---- Basic weighted average shares outstanding 26,674,262 20,895,575 Dilutive effect of options -- -- ---------- ---------- Diluted weighted average shares outstanding 26,674,262 20,895,575 ========== ========== Options and warrants to purchase 17,593,043 and 252,333 shares were outstanding during the years ended December 31, 1999 and 1998, respectively, and Class A Preferred Stock, Series 1999-A convertible into 16,715,241 shares was also outstanding, but these amounts were not included in the computation of diluted loss per common share because the effect would be antidilutive. NOTE 15 - SUBSEQUENT EVENTS Business Acquisitions On January 30, 2000, the Company signed a letter of intent to acquire 100% of First Debit Corporation for $2,750,000, payable by $225,000 in cash and the balance in common shares. First Debit Corporation specializes in the production, distribution and sales of prepaid telephone cards in Toronto and Montreal. On March 6, 2000, the Company signed a letter of intent to acquire 70% of YAK Communications (USA) Inc., a company of which 17% is owned by Charles Zwebner, brother to the Chairman of the Company, 7% by the Chairman and 8% by the principal holder of the convertible preferred stock. The consideration is 8,400,000 preferred shares with a face value of $8,400,000 convertible into common shares at the lower of $3.875 per share or the average of the lowest closing bid price in the five days prior to conversion. The Company also agreed to invest an additional $6,000,000 consisting of $500,000 in cash and $5,500,000 of convertible preferred shares under the same terms. The Company has engaged an independent outside valuation firm for this acquisition. Page F-23 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 15 - SUBSEQUENT EVENTS (continued) Business Acquisitions (continued) On March 16, 2000, the Company signed an agreement to purchase a 25% interest in Entertech Media Group, Inc. of Hollywood, CA. Under the terms of the agreement, the Company will exchange 3,000,000 common shares for 3,666,666 shares of Entertech Media common stock. Entertech has agreed to provide content (such as movies, music, news programs, documentaries, etc.) to customers of the Company who have purchased the Company's videotelephone model TV225. The Company has agreed to pay a broker 75,000 shares of its common stock on consummation of this transaction. The transaction is subject to Board approval. On March 24, 2000, the Company signed a letter of intent to acquire QuickPage of NJ, Inc., a retail chain of fourteen stores in the New York/New Jersey area. The consideration is $5,500,000, payable in stock and cash. At closing, the Company will make a cash payment of $250,000, pay cash for the inventory, not to exceed $250,000, and will commence payments of $100,000 per month for the ten months following closing. The balance, due in common stock, will be priced at the average trading price for the five trading days prior to closing. Manufacturing Agreement On February 11, 2000, the Company signed an OEM agreement with Motion Media Technology Limited for the purchase of video conferencing telephone units aggregating $9,994,000 over a three year period. Financing Agreement On March 30, 2000, the Company entered into a one year placement agreement with an investment banking firm for a proposed underwriting of common stock in an amount of up to $75,000,000. Under the terms of the agreement, the Company is required to file a registration statement with the Securities and Exchange Commission covering the common stock to be issued. The issue price of the stock will be based upon an average price for a period of 22 consecutive trading days preceding the date of funding. If the underwriter is unable to locate a qualified institutional investor willing to invest in the offering within sixty days of the contract signing, the Company has the right to terminate the agreement. Facilities The Company leased an additional 2,559 square feet at its corporate headquarters effective February 1, 2000. The lease term is twenty nine months and calls for a monthly payment of $4,265 the first year, increasing $170 in year two and $179 in the final year, for a total obligation of $127,480. Page F-24 TALK VISUAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 16 - SEGMENT INFORMATION Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS 131") issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. SFAS 131 requires that public companies report certain information about operating segments, products, services and geographical areas in which they operate and their major customers. The Company's reportable operating segments consist of real estate and telecommunication services. The summary of the operating segment information is as follows at December 31,: Rental Telecom Total ---------- ---------- ---------- 1999 Net revenue $1,075,482 $ 90,506 $1,165,988 Depreciation/Amortization 213,323 85,940 299,263 Operating Income (loss) (414,784) (5,539,935) (5,954,719) Assets, net 11,068,078 4,570,311 15,638,389 Capital expenditures 2,637,963 619,016 3,256,979 1998 Net revenue 229,127 - 229,127 Depreciation/Amortization 36,701 5,280 41,982 Operating Income (loss) (190,549) (1,006,824) (1,197,373) Assets, net 8,564,161 889,113 9,453,274 Capital expenditures 8,363,003 177,913 8,540,916 F-24 TALK VISUAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 609,699 $ 287,156 Accounts receivable, net of allowances 64,989 46,031 Inventory 138,028 25,853 Other receivables 91,584 530,319 Stock subscriptions receivable -- 1,908,790 Marketable securities 102,238 180,043 Other current assets 161,294 56,172 ----------- ----------- Total current assets 1,167,832 3,034,364 PROPERTY AND EQUIPMENT, net 11,808,613 11,477,805 ADVANCES TO RELATED ENTITIES 730,797 675,102 OTHER ASSETS 644,033 451,118 ----------- ----------- TOTAL $14,351,275 $15,638,389 =========== =========== See notes to condensed consolidated financial statements. F-25 TALK VISUAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (continued)
JUNE 30, DECEMBER 31, 2000 1999 ------------ ------------ (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 259,329 $ 1,571,634 Accounts payable 514,032 918,780 Accrued expenses 252,758 248,824 Other current liabilities 92,779 52,828 ------------ ------------ Total current liabilities 1,118,898 2,792,066 LONG-TERM DEBT, net of current portion 5,376,252 5,372,001 ------------ ------------ TOTAL LIABILITIES 6,495,150 8,164,067 ------------ ------------ COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY Series A convertible redeemable preferred stock - liquidation value $1 per share, par value $.001 per share, 25,000,000 shares authorized; 469,289 and 975,000 shares issued and outstanding 469 975 Common Stock, par value $.001 per share, 100,000,000 shares authorized; 50,638,244 and 32,060,977 shares issued and outstanding 50,638 32,061 Common stock subscribed -- 4,241 Additional paid in capital 18,025,939 16,409,119 Accumulated deficit (9,298,447) (7,221,561) Accumulated other comprehensive loss (766,342) (688,537) Stock subscriptions receivable (156,132) (1,061,976) ------------ ------------ Total Stockholders' Equity 7,856,125 7,474,322 ------------ ------------ TOTAL $ 14,351,275 $ 15,638,389 ============ ============
See notes to condensed consolidated financial statements. F-26 TALK VISUAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ REVENUE Telecommunication services, Software and product sales $ 87,623 $ 13,232 $ 110,039 $ 15,260 Real estate revenue 310,858 304,201 626,414 530,369 Other income -- -- 3,435 -- ------------ ------------ ------------ ------------ Total revenue 398,481 317,433 739,888 545,629 ------------ ------------ ------------ ------------ COSTS AND EXPENSES Cost of equipment sales, telecommunication and retail operation expenses 295,201 -- 476,685 3,204 Depreciation and amortization 99,688 52,678 185,012 98,658 Research & product development -- 79,389 10,000 118,324 Real estate operations 138,454 170,870 243,175 290,958 General & administrative 1,018,317 1,230,247 1,700,963 3,351,255 ------------ ------------ ------------ ------------ Total costs and expenses 1,551,660 1,533,183 2,615,835 3,862,398 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (1,153,179) (1,215,750) (1,875,947) (3,316,769) ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) INTEREST EXPENSE (143,582) (192,883) (323,886) (323,696) INTEREST INCOME 289 2,169 599 6,206 ------------ ------------ ------------ ------------ (143,293) (190,714) (323,287) (317,490) LOSS BEFORE EXTRAORDINARY ITEM (1,296,472) (1,406,464) (2,199,234) (3,634,259) EXTRAORDINARY ITEM - DEBT RESTRUCTURING -- -- 122,347 -- ------------ ------------ ------------ ------------ NET LOSS (1,296,472) (1,406,464) (2,076,887) (3,634,259) DIVIDENDS ON PREFERRED STOCK -- 23,156 -- 30,875 ------------ ------------ ------------ ------------ NET LOSS APPLICABLE TO COMMON SHARES (1,296,472) $ (1,429,620) (2,076,887) $ (3,665,134) ============ ============ ============ ============ NET LOSS PER COMMON SHARE BASIC (1) BEFORE EXTRAORDINARY ITEM $ ( 0.02) $ ( 0.06) $ (0.05) $ (0.15) EXTRAORDINARY ITEM -- -- $ 0.00 -- $ ( 0.02) $ ( 0.06) $ (0.05) (0.15) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD 43,791,469 24,678,614 40,884,211 24,046,944
(1) The effect of common stock options and warrants is excluded from diluted earnings per share as its inclusion would be anti-dilutive for the three month and six months periods ended June 30, 2000 and 1999. See notes to condensed consolidated financial statements. F-27 TALK VISUAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
SIX MONTHS ENDED JUNE 30, ---------------------------------- 2000 1999 ----------- ----------- Cash Flows From Operating Activities: Net Loss $(2,076,887) $(3,634,259) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 185,012 98,658 Amortization of product development costs 12,000 -- (Gain) loss on stock exchanged for debt (122,347) 1,563 Issuance of common stock in exchange for services 149,900 2,251,387 Increase (decrease) in cash from changes in: Accounts receivable, net (18,958) 55,124 Inventory (112,175) 221 Other receivables 438,735 (23,018) Other current assets (105,122) 2,732 Accounts payable (438,898) 520,634 Accrued expenses 3,934 (4,435) Other current liabilities 39,951 26,469 ----------- ----------- Net Cash from Operating Activities (2,044,855) (704,924) ----------- ----------- Cash Flows From Investing Activities: Purchase of property and equipment (491,441) (1,001,300) Disposal of marketable securities -- 89,210 Advances - related parties (55,695) (358,246) Deposit on asset acquisition (158,285) -- Other (40,158) (868) ----------- ----------- Net Cash from Investing Activities (745,579) (1,271,204) ----------- ----------- Cash Flows from Financing Activities: Borrowings on debt 54,567 -- Payments on notes payable and long term debt (544,522) (247,451) Proceeds from exercise of options on common stock 591,000 -- Collections on stock subscriptions receivable 1,929,293 1,900,000 Proceeds from private placements of common stock 1,200,000 -- Cash dividend payments -- (23,156) Other (117,361) 12,660 ----------- ----------- Net Cash from Financing Activities 3,112,977 1,642,053 ----------- ----------- Increase (decrease) in cash and cash equivalents 322,543 (334,075) Cash and cash equivalents at beginning of period 287,156 378,658 ----------- ----------- Cash and cash equivalents at end of period $ 609,699 $ 44,583 =========== ===========
See notes to condensed consolidated financial statements. F-28 TALK VISUAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued) SIX MONTHS ENDED JUNE 30, ------------------------- Supplemental disclosure of cash flow information: 2000 1999 ---- ---- a. Cash paid during the period for: interest $ 321,489 $ 320,321 --------- ---------- income taxes $ 800 $ 800 ---------- ---------- b. Noncash investing and financing transactions: For the period ended June 30, 1999: Purchase of Canadian real estate in exchange for 975,000 shares of convertible preferred stock and assumption of a mortgage in the amount of $987,755. Issuance of 55,650 shares of common stock in satisfaction of notes payable in the amount of $129,009. Issuance of 600,000 shares of common stock as a commission with respect to the acquisition of Videocall International Corp, total value of $2,250,000. Cancellation of an advance payable in the amount of $30,000 in exchange for 7,500 shares of common stock. Issuance of 19,841,400 shares of common stock pursuant to the merger of Videocall International Corp. with Talk Visual Corporation. For the period ended June 30, 2000: Conversion of the Convertible Discounted Loan Notes into 495,000 shares of common stock, previously issued, for the outstanding balance of the note in the amount of $386,100. Cashless exercise of an Option to purchase 900,000 shares of common stock at $0.25 per share, at a market price of $3.875 for a total issue of 841,935 shares. F-29 TALK VISUAL CORPORATION NOTES TO FINANCIAL STATEMENTS (1) General and Summary of Business and Significant Accounting Policies Basis of presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the Company's financial position at June 30, 2000, the results of operations for the six months ended June 30, 2000 and June 30, 1999, and the cash flows for the six months ended June 30, 2000 and June 30, 1999 are included. Operating results for the six month period ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The information contained in this Form 10-QSB should be read in conjunction with the audited financial statements as of December 31, 1999, filed as part of the Company's Annual Report on Form 10-KSB. Prior Period Restatement The Company, prior to February, 1999, was known as Legacy Software, Inc., a developer of educational entertainment software. In September of 1998, an agreement and plan of merger between Legacy Software, Inc. ("Legacy")and Videocall International Corp ("Videocall") was announced, but didn't take effect until June of 1999. Videocall was a development stage company in the telecommunications industry. During the fourth quarter of 1998, key officers of Videocall were elected as directors and officers of Legacy, and effective at the end of December, the business activity of Legacy was changed to focus on the business activity of Videocall. Even though the stock-for-stock transaction merger was approved by the stockholders of both companies in June of 1999, as a result of the common control and change of business activities, these financial statements, as reflected in the December 31, 1999 form 10-KSB, report the combined operations of both companies as if the merger had occurred at December 31, 1998. A summary of the adjusted amounts for the six months ended June 30, 1999, in comparison to amounts reported on the June 30, 1999 10-QSB is as follows: Reported on 6/30/99 10-QSB Restated -------------- -------------- Total Revenue $ 131,508 $ 545,629 Total Expenses 2,602,853 3,862,398 Loss From Operations (2,471,345) (3,316,769) Net Loss Applicable to Common Shares (2,511,244) (3,665,134) Net Loss per Common Share Basic and Diluted ($0.37) ($0.15) F-30 (2) Financial Condition and Liquidity Since inception, the Company has incurred significant net losses and expects to continue to incur losses through year end. The Company is dependent on revenues from the real estate operations, investor stock subscriptions, short term and long term borrowings to supplement retail videocalling and telecommunication product sales for working capital needs, until the operating activities generate sufficient cash flow to fund the Company. The Company collected $1,929,293 of its subscriptions receivable, $591,000 in option exercise payments, $1,200,000 in private placement funds and $446,900 due from the Chairman, during the six months ended June 30, 2000. The Company is pursuing refinancing of the Sacramento property and has received a term sheet proposing $6,600,000 of first mortgage financing. This refinancing would make $2,100,000 available to the Company, after satisfying existing debt on the property. Additionally, the Chairman of the Company has made a guarantee to fund or obtain funding to meet the obligations and working capital needs of the Company. Finally, the Company has entered into a placement agreement with an investment banking firm for a proposed offering of equity securities to provide capital to the Company in an amount of up to $75,000,000. In connection with the proposed offering, the Company signed a Common Stock Purchase Agreement with a private investor for an amount of up to $15 Million, on July 28, 2000. See the discussion below for more information. Based upon the current cash utilization rate and Management's plan for expansion and new products/joint ventures/acquisitions, the Chairman's funding obligation, the recently signed Common Stock Purchase Agreement and the proposed equity offering, Management believes that there should be sufficient capital to meet the needs of the Company for the next thirteen months. (3) Recent Sale of Equity Securities The Company has issued and sold unregistered securities that have not been previously reported as set forth below. An underwriter was not utilized in any of these transactions. The recipients of securities in each transaction represented their intention to acquire the securities without a view to the distribution thereof. All the issued securities were restricted securities, under Rule 144, or Reg S regulations, and appropriate restrictive legends were affixed to the securities in each transaction. On June 29, 2000, the Company issued 841,935 shares of common stock from the cashless exercise of 900,000 warrants, at $0.25 per share. On June 29, 2000, the Company issued 155,000 shares of common stock to two vendors for services rendered, at a price of $0.4375 per common share for a total value of $67,813. On June 29, 2000, the Company issued 2,250 shares of common stock to an employee pursuant to an employment letter of agreement, at a price of $0.4375 per common share for a total value of $914. On June 29, 2000, the Company issued 3,412,968 shares of common stock under a private placement subscription pursuant to the agreement of the preferred shareholders to contribute $1.00 per converted common share received after the first 3,348,500 common shares. The shares were issued at a price of $0.3516 per share, based on the average closing price for the day of funding and two days prior to the funding, at a twenty five percent discount. Included in the total subscription, was 1,137,656 shares to Overseas Communications Ltd., a foreign corporation which is 33% owned by the Chairman of the Company. F-31 (4) Segment Information The Company's reportable operating segments consist of real estate and telecommunication services. The summary of the operating segment information is as follows: Rental Telecom Total ---------- ---------- ---------- June 30, 2000 Net revenue $ 626,414 $ 113,474 $ 739,888 Depreciation/amortization 117,474 67,538 185,012 Income (loss)before extraordinary item (90,193) (1,986,694) (2,076,887) Assets, net 10,914,469 3,436,806 14,351,275 June 30, 1999 Net revenue 527,189 18,440 545,629 Depreciation/amortization 74,766 23,892 98,658 Loss (344,966) (3,289,293) (3,634,259) Assets, net 10,770,953 3,140,135 13,911,088 (5) Contingencies The Company is involved in certain claims arising in the normal course of business. An estimate of the possible loss resulting from these matters cannot be made; however, the Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial position or results of operations. (6) Subsequent Events On July 3, 2000, the Company hired Pedro D. Sanchez as Chief Technical Officer. Mr. Sanchez has an extensive background in computer telephony and telco system design, testing, deployment and management. For the period July 17, 2000, through August 3, the Company received $1,295,000 in private placement funds as part of the commitment made by the preferred shareholders to contribute funds on the conversion of the preferred shares into common shares. A total of 3,169,120 shares were issued at prices ranging from $0.3125 to $0.5517. On July 28, 2000, the Company signed a Common Stock Purchase Agreement with a private equity investor pursuant to an equity line agreement. The private investor has committed to purchase up to $15 million of the Company's common stock, subject to the effectiveness of a Registration Statement to be filed with the Securities Exchange Commission. The issuance of the common stock to be sold to the private investor under the Common Stock Purchase Agreement will not be registered under the Securities Act of 1933. However, the Company plans to file a Registration Statement on Form SB-2 covering the resale of the shares by the investor. The Company's ability to draw down on the $15 million that the investor is committing for the purchase of the common stock is conditioned on the SB-2 being declared effective by the SEC. Draws under the Common Stock Purchase Agreement may be in increments of up to $1.5 million. It was announced on August 10, 2000, that the Company's Chairman of the Board, Mr. Michael Zwebner, had been elected to the Board of Sector Communications, Inc. Sector Communications, Inc. is listed on the Over the Counter Bulletin Board under the symbol SECT. F-32 ================================================================================ 56,018,307 SHARES COMMON STOCK TALK VISUAL CORPORATION --------------------------------------------- PRELIMINARY PROSPECTUS --------------------------------------------- August __, 2000 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses to be incurred and borne by Talk Visual in connection with the sale of the shares offered hereby. All amounts shown are estimates, except for the Securities and Exchange Commission filing fee.
Securities and Exchange Commission filing fee................................. $ 6,395.40 Legal fees and expenses....................................................... $ 50,000 Accounting fees and expenses.................................................. $ 10,000 Blue Sky fees and expenses.................................................... $ ------------- Miscellaneous................................................................. $ ------------- Total fees and expenses.................................................. $ -------------
ITEM 25. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under the provisions of Article Twelve of the Articles of Incorporation of the Company, a director or officer of the Company shall not have personal liability to the Company or to its stockholders for monetary damages for a breach of his fiduciary duty as a director or officer, except in the case where the director or officer engaged in intentional misconduct or fraud, knowingly violated a law, or authorized the payment of dividends in violation of Nevada corporate law. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES The Company has issued and sold unregistered securities that have not been previously reported as set forth below. An underwriter was not utilized in any of these transactions. The recipients of securities in each transaction represented their intention to acquire the securities without a view to distribution. All the issued securities were restricted securities under Rule 144, or Reg S regulations, and appropriate restrictive legends were affixed to the securities in each transaction. Unless otherwise indicated, the securities were issued in transactions that were exempt from registration under the Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the Securities Act of 1933. On August 15, 1997 a trust company exchanged 41,348 warrants on the Company's common stock for $162,500. On June 23, 1998 a trust company exchanged 19,084 warrants on the Company's common stock for $75,000. On June 30, 1998 the Company issued 72,667 shares of common stock in a private placement of $109,250. II-1 On September 14, 1998 the Company issued 400,000 shares of common stock in a private placement for $200,000. On September 22, 1998 the Company received stock subscriptions for 2,040,818 shares of common stock in a private placement of $2,000,000. At that date $100,000 was paid on the subscriptions. Of the remaining $1,900,000 due under the subscriptions, $1,743,000 was subsequently received in cash funds, and, the balance of $157,000 was received in other assets. On October 1, 1998 the Company issued 16,667 shares of common stock for services. On December 18, 1998, the Company exchanged 52,051 shares for marketable securities with a market value of $104,102. On December 31, 1998, the Company had received $300,000 in cash and an advance receivable in the amount of $50,000 for 200,000 shares to be issued. On December 31, 1998, a shareholder and former member of the Board, agreed to cancel the Company's debt obligation to him of $73,200 in exchange for 28,150 shares of stock to be issued. The debt was cancelled effective December 31, 1998. On January 19, 1999, the Company issued 175,000 shares of common stock to an entity for services related to obtaining financing sources. This transaction was priced at $3.625 per share for a total expense of $634,375. On January 25, 1999, the Company issued 600,000 shares of common stock pursuant to the agreement with the parties responsible for the introduction of Videocall to the Company. This transaction was priced at $3.75 per share for a total cost of $2,250,000. The Company was also obligated under the agreement to issue options, exercisable at $0.25 per share, to the same parties. On January 25, 1999, the Company issued 190,000 shares of common stock for consulting services at $3.75 per share for a total expense of $712,500. On February 1, 1999, the Company issued 5,000 shares of common stock for legal services at $3.25 per share for a total expense of $16,250. On February 2, 1999, the Company issued 40,000 shares of common stock for consulting services at $3.25 per share for a total expense of $130,000. On February 24, 1999, the Company acquired a 22,622 square foot office facility in Ontario, Canada with the issuance of 975,000 shares of Class A Preferred Stock, Series 1999-A, $.001 par value, and the assumption of a first mortgage in the amount of $935,450 along with various minor obligations totaling $31,293. The preferred shares had a stated value of $975,000 ($1.00 per share), were non-voting, and paid a cumulative dividend of $0.095 per share. On March 5, 1999, the Company issued 27,500 shares of common stock in exchange for $105,000 of notes payable and accrued interest at $3.875 per share. II-2 On March 16, 1999, the Company issued 1,128 shares of common stock for services rendered at $4.00 per share for a total expense of $4,512. On April 9, 1999, the Company issued 30,000 shares of common stock for legal services at $3.375 per share for a total expense of $101,250. On that same date, the Company set aside 200,000 shares in escrow for the former owners of Sacramento Results, Inc., the subsidiary of Videocall which holds the Town and Country Plaza real estate. This stock was set aside as collateral for the note payable from Videocall to the former owners of Sacramento Results, Inc. as part of the original purchase agreement. On June 8, 1999, the Company issued 50,000 shares of common stock to the President of the Company as a bonus. The Company also issued 220,000 shares in payment for legal services and set aside 20,000 for a consultant, to be released at a later date. The shares were issued at a price of $2.25, for a total expense of $652,500. On June 18, 1999, as a result of the Videocall merger, each share of Videocall common stock was converted into the right to receive either one share, three shares, and/or options of Talk Visual common stock or, 19,841,400 shares and 15,608,477 options in the aggregate. The options are exercisable at $1.00 per share and expire three years from their issue date. The transaction was valued at $0.275 per share for a total purchase price of $5,462,458. In connection with the merger, the Company also issued 1,800,000 options, in addition to the options to the shareholders previously noted, at an exercise price of $0.25 per share for a three year period, to third parties who were responsible for the introduction of the Company and Videocall. On July 16, 1999, the Company issued 4,000,000 shares of common stock under a private placement subscription dated July 7, 1999. The shares were issued at a subscribed price of $0.25 per share. On October 26, 1999, the Company issued 200,000 shares of common stock to a consultant for services in representing the Company to the investing community. The shares were issued at a value of $0.0625 for a total value of $12,500. On November 4, 1999, the Company satisfied its obligation to a foreign-based corporation in which the Chairman of the Company is a 33% shareholder for open invoices in the amount of $130,000, representing consulting and management services provided by the Chairman, with the issuance of 1,698,014 shares. The value on the date of issue was $.0766 per share. On November 17, 1999, the Company issued 100,000 shares of common stock to a consultant for services in representing the Company to the investing public via the Internet. The shares were issued at $0.7031 for a total value of $70,310. On December 23, 1999, the Company issued 18,000 shares to employees and associates as additional compensation. These shares were valued at $0.4688 per share, for a total expense of $8,438. II-3 On December 30, 1999, the Company issued 150,500 shares in satisfaction of consulting contract obligations to three consultants for marketing, business acquisition and computer programming services. Issue prices ranged from $0.4062 to $0.4688 per share for a total expense of $70,523. During the three months ended March 31, 2000, the Company issued 1,100,000 shares of common stock from the exercise of options and warrants, at prices ranging from $0.25 to $2.07 per share. On January 14, 2000, the Company issued 10,000 shares of common stock to a former employee pursuant to an employment agreement, at a price of $0.4375 per share for a total value of $4,365. On March 23, 2000, the Company issued 100,000 shares of common stock along with a payment of $450,000 in exchange for a note payable with an adjusted book value of $840,997. The price of the common stock on the date of issue was $2.6865 per share, for a total value of $268,650. The difference of $122,347 is reflected as extraordinary income. On March 27, 2000, the Company issued 45,000 shares of common stock for legal services in the amount of $50,000. At issuance, the stock was priced at $1.87 per share, which includes a non-marketability discount, for a total expense of $84,150. On June 29, 2000, the Company issued 2,250 shares of common stock to an employee and 155,000 shares to two consultants. The price of the common stock on the date of issue was $0.4062 per share, for a total expense of $63,875. On June 29, 2000, the Company exchanged 900,000 stock purchase warrants in a cashless exchange for 841,935 shares of common stock. On June 29, 2000, the Company issued 3,412,968 shares of common stock under a private placement subscription pursuant to the agreement of subscription on the Series A 1999-A Preferred Share exchange. The shares were issued at a subscribed price of $0.3516 per share, for a total contribution of $1,200,000. On July 17, 2000, the Company issued 1,707,433 shares of common stock under a private placement subscription pursuant to the agreement of subscription on the Series A 1999-A Preferred Share exchange. The shares were issued at prices ranging from $0.3125 to $0.5517 per share, for a total contribution of $650,000. The Company has received $645,000 on a subscription pursuant to the agreement of subscription on the Series A 1999-A Preferred Share exchange, for 1,461,687 shares of common stock at prices ranging from $0.3828 to $0.4570 per share, but has not issued the shares under the subscription as of August 7, 2000. II-4 ITEM 27. EXHIBITS. The following is a list of exhibits filed as a part of this registration statement: EXHIBIT NUMBER DESCRIPTION OF DOCUMENT -------------- ----------------------- 1.1 Common Stock Purchase Agreement dated July 27, 2000 between Registrant and Evertrend Holdings Limited 1.2 Amendment, dated July 28, 2000, to the Common Stock Purchase Agreement dated July 27, 2000 between Registrant and Evertrend Holdings Limited. 3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to the Registrant's Annual Report on Form 10-KSB) 3.2 By-Laws (Incorporated by reference to Exhibit 3(ii) to Registrant's Annual Report on Form 10-KSB) 4.1 1995 Stock Option/Stock Issuance Plan 4.2 Stock Purchase Warrant dated July 27, 2000, issued to Evertrend Holdings Limited 4.3 Stock Purchase Warrant dated __________ issued to Evertrend Holdings Limited. 4.4 Stock Purchase Warrant dated July 27, 2000, issued to Ladenburg Thalmann & Co. Inc. 4.5 $3,840,000 Note dated September 24, 1998 issued by Sacramento Results, Inc. to Bar K, Inc. 5.1 Opinion of Torys (regarding the validity of the shares of Common Stock) 10.1 Registration Rights Agreement dated July 27, 2000 between Registrant and Evertrend Holdings Limited 10.2 Escrow Agreement dated July 27, 2000 among Registrant, Evertrend Holdings Limited, and Epstein, Becker & Green, P.C. 10.3 OEM Agreement dated as of February 11, 2000 between the Registrant and Motion Media Technology Limited 10.4 Joint Venture Agreement dated February ___, 2000 between the Registrant and EnterTech Media Group 10.5 Lease Agreement dated July 30, 1999 between Lucky Capital, Inc. and Talk Visual Corporation. 10.6 Lease Agreement dated February 1, 2000 between Lucky Capital, Inc. and Talk Visual Corporation. 10.7 Agreement dated as of June __, 2000 by and between Talk Visual Retail Acquisitions, Inc. and Various Business Management. 10.8 Agreement and Plan of Merger dated as of September 14, 1998 among the Registrant, Legacy Software Acquisition, Inc., and Videocall International Corporation (incorporated herein by reference to Annex A to the Proxy Statement/Prospectus/Notification of Merger, included in the Registration Statement on Form S-4 of the Registrant (File No. 333-79597) declared effective by the Commission on June 1, 1999) 10.9 Amendment No. 1 to Agreement and Plan of Merger dated as of December 1, 1998 among the Registrant, Legacy Software Acquisition, Inc., and Videocall International Corporation (incorporated herein by reference to Annex A to the Proxy Statement/Prospectus/Notification of Merger, included in the Registration Statement on Form S-4 of the Registrant (File No. 333-79597) declared effective by the Commission on June 1, 1999) 21.1 Subsidiaries of Talk Visual Corporation 23.1 Consent of Mayer, Ripsler & Company, P.C., Independent Auditors 23.2 Consent of Torys (included in Exhibit 5.1) II-5 EXHIBIT NUMBER DESCRIPTION OF DOCUMENT -------------- ----------------------- 24.1 Power of Attorney (included on page II-7) ITEM 28. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as 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 small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the II-6 matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act, Talk Visual Corporation certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on August 14, 2000. TALK VISUAL CORPORATION By: /s/ Eugene Rosov ----------------------------------------- Eugene Rosov President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Eugene Rosov, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution in the premises for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any other Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Date Signature/Title ---- --------------- Dated: August 14, 2000 /s/ Eugene Rosov ---------------------------------------- Eugene Rosov President and Chief Executive Officer (Principal Executive Officer) and Director Dated: August 14, 2000 /s/ C. Harold Snyder ---------------------------------------- C. Harold Snyder II-7 Principal Financial Officer and Principal Accounting Officer and Director Dated: August 14, 2000 /s/ Michael Zwebner ---------------------------------------- Michael Zwebner Chairman of the Board and Director Dated: August 14, 2000 /s/ David B. Hurwitz ---------------------------------------- David B. Hurwitz Director Dated: August 14, 2000 /s/ Alexander Walker, Jr. ---------------------------------------- Alexander Walker, Jr. Director Dated: August 14, 2000 /s/ Michael Cuzner-Charles ---------------------------------------- Michael Cuzner-Charles Director
II-8 EXHIBIT INDEX ------------- EXHIBIT NUMBER DESCRIPTION OF DOCUMENT -------------- ----------------------- 1.1 Common Stock Purchase Agreement dated July 27, 2000 between Registrant and Evertrend Holdings Limited 1.2 Amendment, dated July 28, 2000, to the Common Stock Purchase Agreement dated July 27, 2000 between Registrant and Evertrend Holdings Limited. 3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to the Registrant's Annual Report on Form 10-KSB) 3.2 By-Laws (Incorporated by reference to Exhibit 3(ii) to Registrant's Annual Report on Form 10-KSB) 4.1 1995 Stock Option/Stock Issuance Plan 4.2 Stock Purchase Warrant dated July 27, 2000, issued to Evertrend Holdings Limited 4.3 Stock Purchase Warrant dated __________ issued to Evertrend Holdings Limited. 4.4 Stock Purchase Warrant dated July 27, 2000, issued to Ladenburg Thalmann & Co. Inc. 4.5 $3,840,000 Note dated September 24, 1998 issued by Sacramento Results, Inc. to Bar K, Inc. 5.1 Opinion of Torys (regarding the validity of the shares of Common Stock) 10.1 Registration Rights Agreement dated July 27, 2000 between Registrant and Evertrend Holdings Limited 10.2 Escrow Agreement dated July 27, 2000 among Registrant, Evertrend Holdings Limited, and Epstein, Becker & Green, P.C. 10.3 OEM Agreement dated as of February 11, 2000 between the Registrant and Motion Media Technology Limited 10.4 Joint Venture Agreement dated February ___, 2000 between the Registrant and EnterTech Media Group 10.5 Lease Agreement dated July 30, 1999 between Lucky Capital, Inc. and Talk Visual Corporation. 10.6 Lease Agreement dated February 1, 2000 between Lucky Capital, Inc. and Talk Visual Corporation. 10.7 Agreement dated as of June __, 2000 by and between Talk Visual Retail Acquisitions, Inc. and Various Business Management. 10.8 Agreement and Plan of Merger dated as of September 14, 1998 among the Registrant, Legacy Software Acquisition, Inc., and Videocall International Corporation (incorporated herein by reference to Annex A to the Proxy Statement/Prospectus/Notification of Merger, included in the Registration Statement on Form S-4 of the Registrant (File No. 333-79597) declared effective by the Commission on June 1, 1999) 10.9 Amendment No. 1 to Agreement and Plan of Merger dated as of December 1, 1998 among the Registrant, Legacy Software Acquisition, Inc., and Videocall International Corporation (incorporated herein by reference to Annex A to the Proxy Statement/Prospectus/Notification of Merger, included in the Registration Statement on Form S-4 of the Registrant (File No. 333-79597) declared effective by the Commission on June 1, 1999) 21.1 Subsidiaries of Talk Visual Corporation 23.1 Consent of Mayer, Ripsler & Company, P.C., Independent Auditors 23.2 Consent of Torys (included in Exhibit 5.1) 24.1 Power of Attorney (included on page II-7) EX-1.1 2 0002.txt COMMON STOCK PURCHASE AGREEMENT COMMON STOCK PURCHASE AGREEMENT This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of July 27, 2000 by and between Talk Visual Corporation, a Nevada corporation (the "Company"), and Evertrend Holdings Limited (the "Purchaser"). The parties hereto agree as follows: Article I DEFINITIONS Section 1.1. Certain Definitions. ------------------- (a) "Average Daily Price" shall be the price based on the VWAP of the Company on the Principal Market. (b) "Draw Down" shall have the meaning assigned to such term in Section 6.1(a) hereof. (c) "Draw Down Exercise Date" shall have the meaning assigned to such term in Section 6.1(b) hereof. (d) "Draw Down Pricing Period" shall mean a period of twenty-two (22) consecutive Trading Days beginning on the date specified in the Draw Down Notice; except that, if the Draw Down Pricing Period is to commence on the Trading Day the Draw Down Notice is delivered, then receipt of such Draw Down Notice must be confirmed by the Purchaser before trading commences on such Trading Day. (e) "Effective Date" shall mean the date the Registration Statement of the Company covering the Shares being subscribed for hereby is declared effective. (f) "Material Adverse Effect" shall mean any adverse effect on the business, operations, properties or financial condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to perform any of its material obligations under this Agreement or the Registration Rights Agreement or to perform its material obligations under any other material agreement. (g) "Principal Market" shall mean initially the OTC Bulletin Board, and shall include the Nasdaq National Market, the Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock Exchange if the Company is listed and trades on such market or exchange. (h) "Purchase Price" shall mean with respect to Shares during each applicable Draw Down Pricing Period (excluding Shares issued upon the exercise of Warrants): (i) if the Company's average market cap, calculated by multiplying the number of shares of Common Stock issued and outstanding by the closing bid price of the Common Stock (the "Market Cap"), is less than or equal to $30,000,000 for the ten (10) Trading Days prior to the date the Draw Down Pricing Period commences (the "Market Cap Period"), eighty-five percent (85%) of the Average Daily Price on the date in question; (ii) if the Market Cap is greater than $30,000,000 and less than or equal to $40,000,000 during the Market Cap Period, eighty-seven percent (87%) of the Average Daily Price on the date in question; (iii) if the Market Cap is greater than $40,000,000 and less than or equal to $50,000,000 during the Market Cap Period, eighty-nine percent (89%) of the Average Daily Price on the date in question; and (iv) if the Market Cap is greater than $50,000,000 during the Market Cap Period, ninety-one percent (91%) of the Average Daily Price on the date in question. (i) "Registration Statement" shall mean the registration statement under the Securities Act of 1933, as amended, to be filed with the Securities and Exchange Commission for the registration of the Shares pursuant to the Registration Rights Agreement attached hereto as Exhibit A. (j) "SEC Documents" shall mean the Company's latest Form 10-K or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the Proxy Statement for its latest fiscal year as of the time in question until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement. (k) "Shares" shall mean, collectively, the shares of Common Stock of the Company being subscribed for hereunder and those shares of Common Stock issuable to the Purchaser upon exercise of the Warrants. (l) "Threshold Price" is the lowest Average Daily Price at which the Company will sell its Common Stock with respect to this Agreement. (m) "Trading Day" shall mean any day on which the Principal Market is open for business. (n) "VWAP" shall mean the daily volume weighted average price of the Company's Common Stock on the Principal Market as reported by Bloomberg Financial using the AQR function. ARTICLE II ARTICLE II PURCHASE AND SALE OF COMMON STOCK Section 2.1. Purchase and Sale of Stock. Subject to the terms and conditions of this Agreement, the Company may issue and sell to the Purchaser and the Purchaser shall purchase from the Company up to Fifteen Million Dollars ($15,000,000) of the Company's Common Stock, $0.001 par value per share (the "Common Stock"), based on Draw Downs of up to One Million Five Hundred Thousand Dollars ($1,500,000) per Draw Down. Section 2.2. The Shares. The Company has authorized and has reserved and covenants to continue to reserve, free of preemptive rights and other similar contractual rights of stockholders, a sufficient number of its authorized but unissued shares of its Common Stock to cover the Shares to be issued in connection with all Draw Downs requested under this Agreement. Anything in this Agreement to the contrary notwithstanding, the Company may not make a Draw Down to the extent that, after such purchase by the Purchaser, the sum of the number of shares of Common Stock beneficially owned by the Purchaser and its affiliates would result in beneficial ownership by the Purchaser and its affiliates of more than 9.9% of the then outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Section 2.3. Purchase Price and Closing. The Company agrees to issue and sell to the Purchaser and, in consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Purchaser agrees to purchase that number of the Shares to be issued in connection with each Draw Down. The initial closing under this Agreement shall take place at the offices of Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York 10177 (the "Closing") within fifteen (15) days of the date hereof or (ii) such other time and place or on such date as the Purchaser and the Company may agree upon (the "Closing Date"). Each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Closing. ARTICLE III ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1. Representation and Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchaser: (a) Organization, Good Standing and Power. The Company is a corporation duly incorporated validly existing and in good standing under the laws of the State of Nevada and has all requisite corporate authority to own, lease and operate its properties and assets and to carry on its business as now being conducted. The Company does not have any subsidiaries and does not own more than fifty percent (50%) of or control any other business entity except as set forth in the SEC Documents or on Schedule 3.1(a) hereto. The Company is duly qualified and is in good standing as a foreign corporation to do business in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect on the Company's financial condition. (b) Authorization, Enforcement. (i) The Company has the requisite corporate power and corporate authority to enter into and perform its obligations under this Agreement, the Registration Rights Agreement, the Escrow Agreement and to issue the Draw Down Shares pursuant to their respective terms, (ii) the execution, issuance and delivery of this Agreement, the Registration Rights Agreement and the Escrow Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required, and (iii) this Agreement, the Registration Rights Agreement and the Escrow Agreement have been duly executed and delivered by the Company and at the initial Closing shall constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. The Company has duly and validly authorized and reserved for issuance shares of Common Stock sufficient in number for the issuance of the Draw Down Shares. (c) Capitalization. The authorized capital stock of the company consists of 100,000,000 shares of Common Stock, $0.001 par value per share, of which 54,194,260 shares are issued and outstanding and 25,000,000 shares of preferred stock, $0.001 par value per share, of which 361,478 are issued and outstanding. All of the outstanding shares of the Company's Common Stock have been duly and validly authorized and are fully-paid and non-assessable. Except as set forth in this Agreement and the Registration Rights Agreement and as set forth in the SEC Documents, or on Schedule 3.1(c) hereto, no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set forth in this Agreement and as set forth in the SEC Documents or on Schedule 3.1(c), there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company. The Company is not a party to any agreement granting registration rights to any person with respect to any of its equity or debt securities (except for the Registration Rights Agreement). The Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. Except as set forth in the SEC Documents or on Schedule 3.1(c) hereto, the offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all applicable federal and state securities laws, and no stockholder has a right of rescission or damages with respect thereto which would have a Material Adverse Effect on the Company's financial condition or operating results. The Company has made available to the Purchaser true and correct copies of the Company's Articles of Incorporation as in effect on the date hereof (the "Charter"), and the Company's Bylaws as in effect on the date hereof (the "Bylaws"). The Company has not received any notice from the Principal Market questioning or threatening the continued inclusion of the Common Stock on such market. (d) Issuance of Shares. The Shares to be issued under this Agreement have been duly authorized by all necessary corporate action and, when paid for or issued in accordance with the terms hereof, the Shares shall be validly issued and outstanding, fully paid and non-assessable, and the Purchaser shall be entitled to all rights accorded to a holder of Common Stock. (e) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated herein do not and will not (i) violate any provision of the Company's Charter or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party, (iii) create or impose a lien, charge or encumbrance on any property of the Company under any agreement or any commitment to which the Company is a party or by which the Company is bound or by which any of its respective properties or assets are bound, or (iv) result in a violation of any federal, state, local or other foreign statute, rule, regulation, order, judgment or decree (including any federal or state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries are bound or affected, except, in all cases, for such conflicts, defaults, termination, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The business of the Company and its subsidiaries is not being conducted in violation of any laws, ordinances or regulations of any governmental entity, except for possible violations which singularly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under any federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement, or issue and sell the Shares in accordance with the terms hereof (other than any filings which may be required to be made by the Company with the Securities and Exchange Commission (the "Commission") or state securities administrators subsequent to the Closing and any registration statement which may be filed pursuant hereto); provided that, for purpose of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Purchaser herein. (f) Commission Documents, Financial Statements. The Common Stock of the Company is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed in the SEC Documents or on Schedule 3.1(f) hereto, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including filings incorporated by reference therein being referred to herein as the "Commission Documents"). The Company has delivered or made available to the Purchaser true and complete copies of the Commission Documents filed with the Commission since December 31, 1998. The Company has not provided to the Purchaser any information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but which has not been so disclosed, other than with respect to the transactions contemplated by this Agreement. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder applicable to such documents, and, as of their respective dates, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Commission Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). (g) Subsidiaries. The SEC Documents or Schedule 3.1(g) hereto sets forth each subsidiary of the Company, showing the jurisdiction of its incorporation or organization and showing the percentage of each person's ownership of the outstanding stock or other interests of such subsidiary. For the purposes of this Agreement, "subsidiary" shall mean any corporation or other entity of which at least a majority of the securities or other ownership interests having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other subsidiaries. All of the outstanding shares of capital stock of each subsidiary have been duly authorized and validly issued, and are fully paid and non-assessable. There are no outstanding preemptive, conversion or other rights, options, warrants or agreements granted or issued by or binding upon any subsidiary for the purchase or acquisition of any shares of capital stock of any subsidiary or any other securities convertible into, exchangeable for or evidencing the rights to subscribe for any shares of such capital stock. Neither the Company nor any subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any subsidiary or any convertible securities, rights, warrants or options of the type described in the preceding sentence. Neither the Company nor any subsidiary is a party to, nor has any knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of any subsidiary. (h) No Material Adverse Effect. Since March 31, 2000, no Material Adverse Effect has occurred or exists with respect to the Company, except as disclosed in the SEC Documents or on Schedule 3.1(h) hereof. (i) No Undisclosed Liabilities. Except as disclosed in the SEC Documents or on Schedule 3.1(i) hereto, neither the Company nor any of its subsidiaries has any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) that would be required to be disclosed on a consolidated balance sheet of the Company and its subsidiaries (including the notes thereto) in conformity with GAAP which are not disclosed in the Commission Documents, other than those incurred in the ordinary course of the Company's or its subsidiaries respective businesses since such date or which, individually or in the aggregate, do not or would not have a Material Adverse Effect on the Company or its subsidiaries. (j) No Undisclosed Events or Circumstances. Since September 30, 1999 no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the SEC Documents. (k) Indebtedness. The SEC Documents or Schedule 3.1(k) hereto sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any subsidiary, or for which the Company or any subsidiary has commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money or amounts owed in excess of $250,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company's balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $250,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any subsidiary is in default with respect to any Indebtedness. (l) Title to Assets. Each of the Company and the subsidiaries has good and marketable title to all of its real and personal property reflected in the Commission Documents, free of any mortgages, pledges, charges, liens, security interests or other encumbrances, except for those indicated in the SEC Documents or on Schedule 3.1(1) hereto or such that do not cause a Material Adverse Effect on the Company's financial condition or operating results. All said leases of the Company and each of its subsidiaries are valid and subsisting and in full force and effect. (m) Actions Pending. There is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any subsidiary which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the SEC Documents or on Schedule 3.1(m) hereto, there is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened, against or involving the Company, any subsidiary or any of their respective properties or assets which could have a Material Adverse Effect. There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against the Company or any subsidiary which could have a Material Adverse Effect. (n) Compliance with Law. The business of the Company and the subsidiaries has been and is presently being conducted in accordance with all applicable federal, state and local governmental laws, rules, regulations and ordinances, except as set forth in the SEC Documents or on Schedule 3.1(n) hereto or such that do not cause a Material Adverse Effect. The Company and each of its subsidiaries have all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of their respective businesses as now being conducted by them unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (o) Taxes. The Company and each subsidiary has filed all Tax Returns which it is required to file under applicable laws, except for any failure to file which could not reasonably be expected to have a Material Adverse Effect; all such Tax Returns are true and accurate in all material respects and has been prepared in compliance with all applicable laws; the Company has paid all material Taxes due and owing by it or any subsidiary (whether or not such Taxes are required to be shown on a Tax Return) and have withheld and paid over to the appropriate taxing authorities all Taxes which it is required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third parties; and since December 31, 1999, the charges, accruals and reserves for Taxes with respect to the Company (including any provisions for deferred income taxes) reflected on the books of the Company are adequate to cover any Tax liabilities of the Company if its current tax year were treated as ending on the date hereof. No claim has been made by a taxing authority in a jurisdiction where the Company does not file tax returns that the Company or any subsidiary is or may be subject to taxation by that jurisdiction. There are no foreign, federal, state or local tax audits or administrative or judicial proceedings pending or being conducted with respect to the Company or any subsidiary; no information related to Tax matters has been requested by any foreign, federal, state or local taxing authority; and, except as disclosed above, no written notice indicating an intent to open an audit or other review has been received by the Company or any subsidiary from any foreign, federal, state or local taxing authority. There are no material unresolved questions or claims concerning the Company's Tax liability. The Company (A) has not executed or entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any predecessor provision thereof or any similar provision of state, local or foreign law; and (B) has not agreed to or is required to make any adjustments pursuant to ss. 481(a) of the Internal Revenue Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or any of its subsidiaries or has any knowledge that the IRS has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company. The Company has not been a United States real property holding corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code. The Company has not made an election under ss. 341(f) of the Internal Revenue Code. The Company is not liable for the Taxes of another person that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. The Company is not a party to any tax sharing agreement. The Company has not made any payments, is not obligated to make payments nor is it a party to an agreement that could obligate it to make any payments that would not be deductible under ss. 280G of the Internal Revenue Code. For purposes of this Section 3.1(o): "IRS" means the United States Internal Revenue Service. "Tax" or "Taxes" means federal, state, county, local, foreign, or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not. "Tax Return" means any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendment thereof. (p) Certain Fees. Except as set forth on Schedule 3.1(p) hereto, no brokers, finders or financial advisory fees or commissions will be payable by the Company or any subsidiary with respect to the transactions contemplated by this Agreement. (q) Disclosure. To the best of the Company's knowledge, neither this Agreement or the Schedules hereto nor any other documents, certificates or instruments furnished to the Purchaser by or on behalf of the Company or any subsidiary in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading. (r) Operation of Business. The Company and each of the subsidiaries owns or possesses all patents, trademarks, service marks, trade names, copyrights, licenses and authorizations as set forth in the SEC Documents and on Schedule 3.1(r) hereto, and all rights with respect to the foregoing, which are necessary for the conduct of its business as now conducted without any conflict with the rights of others. (s) Regulatory Compliance. The Company has all necessary licenses, registrations and permits to conduct its business as now being conducted in all states where the Company conducts its business, except for any failure to have which would not have a Material Adverse Effect. (t) Books and Records. The records and documents of the Company and its subsidiaries accurately reflect in all material respects the information relating to the business of the Company and the subsidiaries, the location and collection of their assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company or any subsidiary. (u) Material Agreements. Except as set forth in the SEC Documents, or on Schedule 3.1(u) hereto, neither the Company nor any subsidiary is a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission as an exhibit to a registration statement on Form S-1 or other applicable form (collectively, "Material Agreements") if the Company or any subsidiary were registering securities under the Securities Act of 1933, as amended (the "Securities Act"). The Company and each of its subsidiaries have in all material respects performed all the obligations required to be performed by them to date under the foregoing agreements, have received no notice of default and, to the best of the Company's knowledge are not in default under any Material Agreement now in effect, the result of which could cause a Material Adverse Effect. No written or oral contract, instruments, agreement, commitment, obligation, plan or arrangement of the Company or of any subsidiary limits or shall limit the payment of dividends on the Company's Common Stock. (v) Transactions with Affiliates. Except as set forth in the SEC Documents or on Schedule 3.1(v) hereto, there are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions exceeding $100,000 between (a) the Company or, any subsidiary or any of their respective customers or suppliers on the one hand, and (b) on the other hand, any officer, employee, consultant or director of the Company, or any of its subsidiaries, or any person owning in excess of 5% of the outstanding capital stock of the Company or any subsidiary or any member of the immediately family of such officer, employee, consultant, director or stockholder or any corporation or other entity controlled by such officer, employee, consultant, director or stockholder, or a member of the immediate family of such officer, employee, consultant, director or stockholder. (w) Securities Act of 1933. The Company has complied and will comply with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Shares hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly, has or will sell, offer to sell or solicit offers to buy the Shares or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any person (other than the Purchaser), so as to bring the issuance and sale of the Shares and/or Warrants under the registration provisions of the Securities Act and applicable state securities laws. Neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Shares. (x) Governmental Approvals. Except as set forth in the SEC Documents or on Schedule 3.1(x) hereto, and except for the filing of any notice prior or subsequent to the Closing that may be required under applicable federal or state securities laws (which if required, shall be filed on a timely basis), including the filing of a registration statement or statements pursuant to this Agreement, no authorization, consent, approval, license, exemption of, filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary for, or in connection with, the execution or delivery of the Shares, or for the performance by the Company of its obligations under this Agreement. (y) Employees. Neither the Company nor any subsidiary has any collective bargaining arrangements or agreements covering any of its employees, except as set forth in the SEC Documents or on Schedule 3(y) hereto. Except as set forth in the SEC Documents or on Schedule 3(y) hereto, neither the Company nor any subsidiary is in breach of any employment contract, agreement regarding proprietary information, noncompetition agreement, nonsolicitation agreement, confidentiality agreement, or any other similar contract or restrictive covenant, relating to the right of any officer, employee or consultant to be employed or engaged by the Company or such subsidiary. Since the date of the December 31, 1998 Form 10-KSB, no officer, consultant or key employee of the Company or any subsidiary whose termination, either individually or in the aggregate, could have a Material Adverse Effect, has terminated or, to the knowledge of the Company, has any present intention of terminating his or her employment or engagement with the Company or any subsidiary. (z) Absence of Certain Developments. Except as provided in SEC Documents or in Schedule 3.1(z) hereto, since March 31, 2000 neither the Company nor any subsidiary has: (i) issued any stock, bonds or other corporate securities or any rights, options or warrants with respect thereto; (ii) borrowed any amount or incurred or become subject to any liabilities (absolute or contingent) except current liabilities incurred in the ordinary course of business which are comparable in nature and amount to the current liabilities incurred in the ordinary course of business during the comparable portion of its prior fiscal year, as adjusted to reflect the current nature and volume of the Company's or such subsidiary's business; (iii) discharged or satisfied any lien or encumbrance or paid any obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business; (iv) declared or made any payment or distribution of cash or other property to stockholders with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or redeem, any shares of its capital stock; (v) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business; (vi) sold, assigned or transferred any patent rights, trademarks, trade names, copyrights, trade secrets or other intangible assets or intellectual property rights, or disclosed any proprietary confidential information to any person except to customers in the ordinary course of business or to the Purchaser or its representatives; (vii) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of prospective business; (viii) made any changes in employee compensation except in the ordinary course of business and consistent with past practices; (ix) made capital expenditures or commitments therefor that aggregate in excess of $500,000; (x) entered into any other material transaction, whether or not in the ordinary course of business; (xi) suffered any material damage, destruction or casualty loss, whether or not covered by insurance; (xii) experienced any material problems with labor or management in connection with the terms and conditions of their employment; or (xiii) effected any two or more events of the foregoing kind which in the aggregate would be material to the Company or its subsidiaries. (aa) Use of Proceeds. The proceeds from the sale of the Shares will be used by the Company and its subsidiaries for general corporate purposes. (bb) Acknowledgment Regarding Purchaser's Purchase of Shares. Company acknowledges and agrees that Purchaser is acting solely in the capacity of arm's length purchaser with respect to this Agreement and the transactions contemplated hereunder. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereunder and any advice given by the Purchaser or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereunder is merely incidental to the Purchaser's purchase of the Shares. The Company further represents to the Purchaser that the Company's decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its own representatives and counsel. Section 3.2. Representations and Warranties of the Purchaser. The Purchaser hereby makes the following representations and warranties to the Company: (a) Organization and Standing of the Purchaser. The Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands. (b) Authorization and Power. The Purchaser has the requisite power and authority to enter into and perform this Agreement and to purchase the Shares being sold to it hereunder. The execution, delivery and performance of this Agreement by Purchaser and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Purchaser or its Board of Directors or stockholders is required. This Agreement has been duly executed and delivered by the Purchaser and at the initial Closing shall constitute the valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. (c) No Conflicts. The execution, delivery and performance of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby or relating hereto do not and will not (i) result in a violation of the Purchaser's charter documents or bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Purchaser is a party or (iii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument to which the Purchaser is a party, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to the Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a Material Adverse Effect on Purchaser). The Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or to purchase the Shares in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, the Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein. (d) Financial Risks. The Purchaser acknowledges that it is able to bear the financial risks associated with an investment in the Shares and that it has been given full access to such records of the Company and the subsidiaries and to the officers of the Company and the subsidiaries as it has deemed necessary or appropriate to conduct its due diligence investigation. The Purchaser is capable of evaluating the risks and merits of an investment in the Shares by virtue of its experience as an investor and its knowledge, experience, and sophistication in financial and business matters and the Purchaser is capable of bearing the entire loss of its investment in the Shares. (e) Accredited Investor. The Purchaser is an "accredited investor" as defined in Regulation D promulgated under the Securities Act. (f) Compliance With Law. The Purchaser's trading and distribution activities with respect to the Shares will be in compliance with all applicable state and federal securities laws, rules and regulations and the rules and regulations of the Principal Market. (g) General. The Purchaser understands that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the suitability of the Purchaser to acquire the Shares. ARTICLE IV COVENANTS The Company covenants with the Purchaser as follows: Section 4.1. Securities Compliance. The Company shall notify the NASD, in accordance with their rules and regulations, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Shares and the Warrants to the Purchaser or subsequent holders. Section 4.2. Registration and Listing. The Company will cause its Common Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects with its reporting and filing obligations under the Exchange Act, will comply with all requirements related to any registration statement filed pursuant to this Agreement, and will not take any action or file any document (whether or not permitted by the Securities Act or the rules promulgated thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act, except as permitted herein. The Company will take all action necessary to continue the listing or trading of its Common Stock on the Principal Market or another Principal Market and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the NASD and the Principal Market. Section 4.3. Registration Statement. The Company shall cause to be filed the Registration Statement, which Registration Statement shall provide for the sale of the Shares to the Purchaser and resale by the Purchaser to the public in accordance with this Agreement. The Company shall cause such Registration Statement to be declared effective by the Commission as expeditiously as practicable. Before the Purchaser shall be obligated to accept a Draw Down request from the Company, the Company shall have caused a sufficient number of shares of Common Stock to be registered to cover the Shares to be issued in connection with such Draw Down. Section 4.4. Escrow Arrangement. The Company and the Purchaser shall enter into an escrow arrangement with Epstein Becker & Green, P.C. (the "Escrow Agent") in the form of Exhibit B hereto respecting payment against --------- delivery of the Shares. Section 4.5. Compliance with Laws. The Company shall comply, and cause each subsidiary to comply, with all applicable laws, rules, regulations and orders, noncompliance with which would have a Material Adverse Effect. Section 4.6. Keeping of Records and Books of Account. The Company shall keep and cause each subsidiary to keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and its subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made. Section 4.7. Amendments. The Company shall not amend or waive any provision of the Charter or Bylaws, in any way, that would adversely affect the dividend rights or voting rights of the holders of the Shares, it being understood that an increase in the authorized capital stock shall not be deemed to violate this provision. Section 4.8. Other Agreements. The Company shall not enter into any agreement the terms of which such agreement would restrict or impair the right to perform of the Company or any subsidiary under this Agreement or the Charter of the Company. Section 4.9. Notice of Certain Events Affecting Registration; Suspension of Right to Request a Draw Down. The Company will immediately notify the Purchaser upon the occurrence of any of the following events in respect of the Registration Statement or related prospectus in respect of the Shares: (i) receipt of any request for additional information from the Commission or any other federal or state governmental authority during the period of effectiveness of the Registration Statement the response to which would require any amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not 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, and that in the case of the related prospectus, it will not 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, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Purchaser any such supplement or amendment to the related prospectus. The Company shall not deliver to the Purchaser any Draw Down Notice during the continuation of any of the foregoing events. Section 4.10. Consolidation; Merger. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity (a "Consolidation Event") unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument or by operation of law the obligation to deliver to the Purchaser such shares of stock and/or securities as the Purchaser is entitled to receive pursuant to this Agreement. Section 4.11. Limitation on Future Financing. The Company agrees that, except as set forth below, it will not enter into any sale of its securities for cash at a discount to the current market price until the earlier of (i) eighteen (18) months from the effective date of the Registration Statement or (ii) sixty (60) days after the entire $15,000,000 of Shares has been purchased by Purchaser. The foregoing shall not prevent or limit the Company from engaging in any sale of securities (i) in a registered public offering by the Company which is underwritten by one or more established investment banks, (ii) in one or more private placements where the purchasers do not have registration rights, (iii) pursuant to any presently existing or future employee benefit plan which plan has been or is approved by the Company's stockholders, (iv) pursuant to any compensatory plan for a full-time employee or key consultant, (v) in connection with a strategic partnership or other business transaction, the principal purpose of which is not simply to raise money, (vi) upon the exercise of options, warrants or other convertible securities outstanding as of the date hereof or (vii) to which Purchaser gives its written approval. Further, the Purchaser shall have a right of first refusal, to elect to participate, in such subsequent transaction in the case of (ii) and (vii) above. Such right of first refusal must be exercised in writing within seven (7) Trading Days of the Purchaser's receipt of notice of the proposed terms of such financing. ARTICLE V CONDITIONS TO CLOSING AND DRAW DOWNS Section 5.1. Conditions Precedent to the Obligation of the Company to Sell the Shares. The obligation hereunder of the Company to issue and sell the Shares to the Purchaser is subject to the satisfaction or waiver, at or before the Closing, of each of the conditions set forth below. These conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. (a) Accuracy of the Purchaser's Representations and Warranties. The representations and warranties of the Purchaser shall be true and correct in all material respects as of the date when made and as of the Closing and as of each Draw Down Exercise Date as though made at that time, except for representations and warranties that speak as of a particular date. (b) Performance by the Purchaser. The Purchaser shall have performed, satisfied and complied in all material respects with all material covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Purchaser at or prior to the Closing and as of each Draw Down Exercise Date. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against the Purchaser or the Company or any subsidiary, or any of the officers, directors or affiliates of the Company or any subsidiary seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions. Section 5.2. Conditions Precedent to the Obligation of the Purchaser to Close. The obligation hereunder of the Purchaser to enter into this Agreement is subject to the satisfaction or waiver, at or before the Closing, of each of the conditions set forth below. These conditions are for the Purchaser's sole benefit and may be waived by the Purchaser at any time in its sole discretion. (a) Accuracy of the Company's Representations and Warranties. Each of the representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing as though made at that time (except for representations and warranties that speak as of a particular date). (b) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against the Purchaser or the Company or any subsidiary, or any of the officers, directors or affiliates of the Company or any subsidiary seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions. (e) Opinion of Counsel, Etc. At the Closing, the Purchaser shall have received an opinion of counsel to the Company, dated the date of Closing, in the form of Exhibit C hereto, and such other certificates and documents as the Purchaser or its counsel shall reasonably require incident to the Closing. (f) Warrant. In lieu of a minimum Draw Down commitment by the Company, the Purchaser shall receive at the Closing, a warrant certificate to purchase up to a number of shares of Common Stock equal to $750,000 divided by the closing bid price of the Common Stock on the Trading Day prior to the date of the Closing. The Warrant shall have an exercise price equal to 115% of the closing bid price of the Common Stock on the Trading Day immediately preceding the date of the Closing and a term of four (4) years. The Common Stock underlying the Warrants will be registered in the Registration Statement referred to in Section 4.3 hereof. The Warrants shall be in the form of Exhibit E hereto. Section 5.3. Conditions Precedent to the Obligation of the Purchaser to Accept a Draw Down and Purchase the Shares. The obligation hereunder of the Purchaser to accept a Draw Down request and to acquire and pay for the Shares is subject to the satisfaction or waiver, at or before each Draw Down Exercise Date, of each of the conditions set forth below. The conditions are for the Purchaser's sole benefit and may be waived by the Purchaser at any time in its sole discretion. (a) Satisfaction of Conditions to Closing. The Company shall have satisfied, or the Purchaser shall have waived, the conditions set forth in Section 5.2 hereof (b) Effective Registration Statement. The Registration Statement registering the Shares shall have been declared effective by the Commission and shall remain effective on each Draw Down Exercise Date. (c) No Suspension. Trading in the Company's Common Stock shall not have been suspended by the Commission or the Principal Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to each Draw Down request), and, at any time prior to such request, trading in securities generally as reported on the Principal Market shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported on the Principal Market. (d) Material Adverse Effect. No Material Adverse Effect and no Consolidation Event shall have occurred. (e) Opinion of Counsel. The Purchaser shall have received a "down-to-date" letter from the Company's counsel, confirming that there is no change from the counsel's previously delivered opinion, or else specifying with particularity the reason for any change. (f) Future Financing.The Company shall have not completed any financing prohibited by Section 4.11 unless, prior to the Company delivering a Draw Down Notice after any such financing and for each such financing, the Company pays the Purchaser the sum of $100,000. (f) Bankruptcy. The Company shall not have filed for protection from creditors under any applicable law. ARTICLE VI DRAW DOWN TERMS Section 6.1. Draw Down Terms. Subject to the satisfaction of the conditions set forth in this Agreement, the parties agree as follows: (a) The Company, may, in its sole discretion, issue and exercise a draw down (a "Draw Down") during each Draw Down Pricing Period, which Draw Down the Purchaser will be obligated to accept for a period of eighteen (18) months commencing on the Effective Date. (b) Only one Draw Down shall be allowed in each Draw Down Pricing Period. The price per share paid by the Purchaser shall be based on the Average Daily Price on each separate Trading Day during the Draw Down Pricing Period. The number of shares of Common Stock purchased by the Purchaser with respect to each Draw Down shall be determined on a daily basis during each Draw Down Pricing Period and settled on a weekly basis (each such date of settlement, a "Draw Down Exercise Date"). In connection with each Draw Down Pricing Period, the Company may set an Average Daily Price below which the Company will not sell any Shares (the "Threshold Price"). If the Average Daily Price on any day within the Draw Down Pricing Period is less than the Threshold Price, the Company shall not sell and the Purchaser shall not be obligated to purchase the Shares otherwise to be purchased for such day. (c) The minimum Draw Down shall be $250,000 unless otherwise agreed by Purchaser. (d) The maximum dollar amount of each Draw Down during any Draw Down Pricing Period shall be limited pursuant to the following formula: Average Stock Price: Average of the Average Daily Prices for the 22 Trading Days prior to the Draw Down Notice date. Average Trading Volume: Average daily trading volume for the 45 Trading Days prior to the Draw Down Notice date. Maximum dollar amount of each Draw Down: 20% of (Average Stock Price x (Average Trading Volume x 22)) the number of Shares of Common Stock to be issued in connection with each Draw Down shall be equal to the sum of the quotients (for each trading day within the Draw Down Pricing Period) of (x) 1/22nd of the Draw Down amount and (y) the Purchase Price on each Trading Day within the Draw Down Pricing Period. If the Average Daily Price on a given Trading Day is less than the Threshold Price, then the Purchaser's Draw Down will be reduced by 1/22nd and that day shall be withdrawn from the Draw Down Pricing Period, except that, the Purchaser may elect to purchase such Shares at the Threshold Price. Prior to 6:15 pm Eastern Time on the date prior to the applicable Draw Down Exercise Date, the Purchaser shall instruct the Company as to how many below Threshold Price days the Purchaser elects to purchase such shares. Additionally, the Purchaser may, at its sole discretion, increase the amount of the Shares to be purchased at the Purchase Price on any Draw Down Exercise Date by up to an additional fifty percent (50%) if it notifies the Company by 6:15 pm Eastern Time on the date prior to such Draw Down Exercise Date. (e) The Company must inform the Purchaser by delivering a Draw Down Notice, in the form of Exhibit D hereto, via facsimile transmission as to the amount of the Draw Down the Company wishes to exercise before the first day of the Draw Down Pricing Period (the "Draw Down Notice"). The Company may set the Threshold Price, if any, prior to each Draw Down request. At no time shall the Purchaser be required to purchase more than the scheduled Draw Down amount for a given Draw Down Pricing Period so that if the Company chooses not to exercise the maximum permitted Draw Down in a given Draw Down Pricing Period the Purchaser is not obligated to purchase more than the scheduled maximum amount in a subsequent Draw Down Pricing Period. (f) On or before three (3) Trading Days after each Draw Down Exercise Date, the Shares purchased by the Purchaser shall be delivered to The Depository Trust Company ("DTC") on the Purchaser's behalf. The Shares shall be credited by the Company to the DTC account designated by the Purchaser upon receipt by the Escrow Agent of payment for the Draw Down into the Escrow Agent's trust account as provided in the Escrow Agreement. The Escrow Agent shall be directed to pay the purchase price to the Company, net of $1,500 as escrow expenses to the Escrow Agent, and 8% of the purchase price to Ladenburg Thalmann & Co. Inc. The delivery of the Shares into the Purchaser's DTC account in exchange for payment therefor shall be referred to herein as "Settlement". TERMINATION Section 7.1. Termination by Mutual Consent. The term of this Agreement shall be eighteen (18) months from the Effective Date. Section 7.2. Other Termination. (a) The Company may terminate this Agreement upon one (1) Trading Day's notice if the Purchaser shall fail to fund more than one properly noticed Draw Down within three (3) Trading Days of the date payment for such Draw Down is due. Section 7.3. Effect of Termination. In the event of termination by the Company or the Purchaser, written notice thereof shall forthwith be given to the other party and the transactions contemplated by this Agreement shall be terminated without further action by either party. If this Agreement is terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become void and of no further force and effect, except for Sections 9.1 and 9.2, and Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the Company or the Purchaser from any liability for any breach under this Agreement, or to impair the rights of the Company and the Purchaser to compel specific performance by the other party of its obligations under this Agreement. ARTICLE VII INDEMNIFICATION Section 8.1. General Indemnity. The Company agrees to indemnify and hold harmless the Purchaser (and its directors, officers, affiliates, agents, successors and assigns) from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorney's fees, charges and disbursements) incurred by the Purchaser as a result of any inaccuracy in or breach of the representations, warranties or covenants made by the Company herein. The Purchaser agrees to indemnify and hold harmless the Company and its directors, officers, affiliates, agents, successors and assigns from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys fees, charges and disbursements) incurred by the Company as result of any inaccuracy in or breach of the representations, warranties or covenants made by the Purchaser herein. Notwithstanding anything to the contrary herein, the Purchaser shall be liable under this Section 8.1 for only that amount as does not exceed the net proceeds to the Purchaser as a result of the sale of Shares pursuant to the Registration Statement. Section 8.2. Indemnification Procedure. Any party entitled to indemnification under this Article VIII (an "indemnified party") will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article VIII except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any action, proceeding or claim is brought against an indemnified party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of counsel to the indemnified party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. In the event that the indemnifying party advises an indemnified party that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the indemnified party's costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying party in connection with any settlement negotiations or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party which relates to such action or claim. The indemnifying party shall keep the indemnified party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the indemnified party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent. Notwithstanding anything in this Article VIII to the contrary, the indemnifying party shall not, without the indemnified party's prior written consent (which consent shall not be unreasonably withheld), settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the indemnified party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such claim. The indemnification required by this Article VIII shall be made by periodic payments of the amount thereof during the course of investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred, within ten (10) Trading Days of written notice thereof to the indemnifying party so long as the indemnified party irrevocably agrees to refund such moneys if it is ultimately determined by a court of competent jurisdiction that such party was not entitled to indemnification. The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the indemnified party against the indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to. ARTICLE IX MISCELLANEOUS Section 9.1. Fees and Expenses. The Company shall pay all fees and expenses related to the transactions contemplated by this Agreement; provided, that the Company shall pay, at the Closing, all attorneys and escrow fees and expenses (exclusive of disbursements and out-of-pocket expenses) incurred by the Purchaser of $35,000 in connection with the preparation, negotiation, execution and delivery of this Agreement and the transactions contemplated hereunder. In addition, the Company shall pay all reasonable fees and expenses incurred by the Purchaser in connection with any amendments, modifications or waivers of this Agreement or the Registration Rights Agreement or incurred in connection with the enforcement of this Agreement and the Registration Rights Agreement, including, without limitation, all reasonable attorneys fees and expenses. The Company shall pay all stamp or other similar taxes and duties levied in connection with issuance of the Shares pursuant hereto. Section 9.2. Specific Enforcement. The Company and the Purchaser acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Section 9.3. Entire Agreement; Amendment. This Agreement, together with the Registration Rights Agreement and the Escrow Agreement contains the entire understanding of the parties with respect to the matters covered hereby and thereby and, except as specifically set forth herein or therein, neither the Company nor the Purchaser makes any representations, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by a written instrument signed by the party against whom enforcement of any such amendment or waiver is sought. Section 9.4. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: If to the Company: 3550 Biscayne Blvd., Suite 704 Miami, Florida 33137 Telephone Number: (305) 572-0575 Fax: (305) 572-0576 Attention: Michael Zwebner With copies to: Torys 237 Park Avenue New York, New York 10017 Telephone: (212) 880-6000 Fax: (212) 682-0200 Attention: Andrew J. Beck, Esq. If to Purchaser: c/o Dr. Dr. Batliner & Partner Aeulestrasse 74 FL-9490 Vaduz, Liechtenstein Fax: 011-075-236-0405 Attention: Hans Gassner with copies to: Epstein Becker & Green, P. C. 250 Park Avenue New York, New York 10177-1211 Telephone: (212) 351-3771 Fax: (212) 661-0989 Attention: Robert F. Charron Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto in accordance herewith. Section 9.5. Waivers. No waiver by either party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. Section 9.6. Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof. Section 9.7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The parties hereto may not amend this Agreement or any rights or obligations hereunder without the prior written consent of the Company and the Purchaser. After Closing, the assignment by a party to this Agreement of any rights hereunder shall not affect the obligations of such party under this Agreement. Section 9.8. No Third Party Beneficiaries.This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. Section 9.9. Governing Law/Arbitration.This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to the choice of law provisions. Any dispute under this Agreement or any Exhibit attached hereto shall be submitted to arbitration under the American Arbitration Association (the "AAA") in New York City, New York, and shall be finally and conclusively determined by the decision of a board of arbitration consisting of three (3) members (hereinafter referred to as the "Board of Arbitration") selected as according to the rules governing the AAA. The Board of Arbitration shall meet on consecutive business days in New York City, New York, and shall reach and render a decision in writing (concurred in by a majority of the members of the Board of Arbitration) with respect to the amount, if any, which the losing party is required to pay to the other party in respect of a claim filed. In connection with rendering its decisions, the Board of Arbitration shall adopt and follow the laws of the State of New York. To the extent practical, decisions of the Board of Arbitration shall be rendered no more than thirty (30) calendar days following commencement of proceedings with respect thereto. The Board of Arbitration shall cause its written decision to be delivered to all parties involved in the dispute. The Board of Arbitration shall be authorized and is directed to enter a default judgment against any party refusing to participate in the arbitration proceeding within thirty days of any deadline for such participation. Any decision made by the Board of Arbitration (either prior to or after the expiration of such thirty (30) calendar day period) shall be final, binding and conclusive on the parties to the dispute, and entitled to be enforced to the fullest extent permitted by law and entered in any court of competent jurisdiction. The prevailing party shall be awarded its costs, including attorneys' fees, from the non-prevailing party as part of the arbitration award. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. The prevailing party in such injunctive action shall be awarded its costs, including attorney's fees, from the non-prevailing party. Section 9.10. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile. Section 9.11. Publicity. Except as required by applicable law or regulation, prior to the Closing, neither the Company nor the Purchaser shall issue any press release or otherwise make any public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this Agreement. After the Closing, the Company may issue a press release or otherwise make a public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this Agreement; provided, that prior to issuing any such press release, making any such public statement or announcement, the Company obtains the prior consent of the Purchaser, which consent shall not be unreasonably withheld or delayed. Section 9.12. Severability. The provisions of this Agreement are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible. Section 9.13. Further Assurances. From and after the date of this Agreement, upon the request of the Purchaser or the Company, each of the Company and the Purchaser shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. Section 9.14. Effectiveness of Agreement. This Agreement shall become effective only upon satisfaction of the conditions precedent to the initial Closing set forth in Article I of the Escrow Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of this 27 day of July, 2000. TALK VISUAL CORPORATION By: /s/ Eugene A. Rosov --------------------------------- Eugene A. Rosov, President & CEO PURCHASER: Evertrend Holdings Limited By:/s/ Hans Gassner ----------------------------------- Hans Gassner, Authorized Signatory SCHEDULE 3.1(c) WARRANTS ENTITLED TO REGISTRATION RIGHTS - Stock Purchase Warrant No. 2, dated December 31, 1999, for the purchase of 150,000 shares of common stock at a price of $0.25 per share, exercisable until December 31, 2000. The holder has not notified the Company of its desire to include those underlying securities in this filing. OUTSTANDING OPTIONS - Cert # Quantity Price Expiration ------ -------- ----- ---------- - 16,667 2.07 10/01/00 - 8,333 3.11 10/01/00 - 8,333 4.14 10/01/00 - 25,000 3.11 03/01/01 - 25,000 4.14 03/01/01 #101-137 15,308,475 1.00 06/15/02 201 45,000 2.97 02/30/02 - 6,235 3.93 05/14/01 #304-305 3,100,000 0.4375 06/29/05 301-303 300,000 0.4375 06/29/03 SHARE ISSUE COMMITMENTS - Letter of commitment dated July 2, 2000, to YAK Communications (USA), Inc. for Talk Visual Corporation to purchase up to 2,311,200 shares of the YAK common stock at an exchange ratio of 4 Talk Visual shares to 1 YAK share, for a total commitment of 9,244,800 shares. Binding agreement dated June 22, 2000 to issue to Various Business Management, 1,066,718 shares as part of the acquisition costs of the stores located in NY and NJ, amount subject to offset for seller's liabilities paid by the Corporation. Letter of non-binding agreement dated May 30, 2000, to Frederick Engineering, Inc. on the purchase of all outstanding stock, obligation of Company pending final agreement is about 3,365,400 shares. Balance at July 21, 2000 of Class A Preferred Series 1999-A shares of 361,478 to be converted into common stock - 6,196,806 shares of common stock. Subscription pursuant to a letter of agreement with three preferred shareholders, that for each share of preferred Series 1999-A converted to common, one dollar per common share received will be subscribed to at a price of the three day average less 25%, on the date of payment. At July 21, 2000, the preferred shareholders had a remaining balance due under the subscription of $11,340,881 which at the closing price on July 21, 2000 would result in an issuance of 26,156,676 shares. Shares of common stock subscribed and paid for but not issued as of July 21, 2000 amounted to 403,598 shares. Letter of Agreement dated March 16, 2000, with Entertech Media Group, Inc. to issue 3,000,000 shares in exchange for 3,666,666 of Entertech Media Group, Inc. common stock. A commission of 75,000 shares is due to a third party on the exchange of the Company's shares with Entertech. Pursuant to a letter of employment with the Chief Technical Officer, the Company is obligated to issue 4,500 shares between July 1, 2000 and November 30, 2000. Equipment line of credit - the Company is currently negotiating a one million dollar equipment leasing line of credit which would require the issuance of warrants in the amount of 10% of the facility, at an exercise price of the last purchase price of the common stock prior to the commitment of the lease facility. At the July 21, 2000 stock price, this would result in warrants for the purchase of 164,096 shares. VOTING RESTRICTION RIGHTS - Pursuant to the merger of Videocall International, Inc. into Talk Visual Corp., all the shareholders and option holders of Videocall International, Inc. who received common stock and/or option in the exchange, have agreed to vote with management for the two year period following the date of the merger, which occurred in June, 1999. Schedule 3.1(o) Tax Returns - the Company has not filed the following tax returns: Fiscal year ended 12/31/98 Federal Consolidated Corporate Income tax return California State income tax return Massachussetts State income tax return Fiscal year ended 12/31/99 Federal Consolidated Corporate Income tax return California State income tax return Massachussetts State income tax return Florida Corporate income tax return Such returns are in the process of being prepared, and do not establish a Material Adverse Effect, as there is no taxable income to be reported on those returns. Schedule 3.1(z) Material transaction - The Company has made an informal offer to acquire a parcel of land adjacent to the Company's property in Sacramento, California for a total purchase price of $500,000. Counsel for the Company is drafting a formal agreement for all parties to execute. EX-1.2 3 0003.txt AMENDMENT TO PURCHASE AGREEMENT Exhibit 1.2 TALK VISUAL CORPORATION 3550 Biscayne Blvd., Suite 704 Miami, Florida 33137 (305) 572-0575 July 26, 2000 Evertrend Holdings Limited C/o Dr. Dr. Batliner & Partner Aeulestrasse 74 FL-9490 Vaduz, Liechtenstein Attn.: Mr. Hans Gassner Re: Amendment to Common Stock Purchase Agreement ------------------------------------------------- Gentlemen: Reference is made to that certain Common Stock Purchase Agreement (the "Purchase Agreement"), dated July 27, 2000, between Talk Visual Corporation (the "Company") and Evertrend Holdings Limited (the "Purchaser"). In order to register for resale the Common Stock to be purchased pursuant to the Purchase Agreement, certain provisions of the Purchase Agreement must be deleted or revised. In consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree to restate the following section of the Purchase Agreement as follows: Section 5.2 (f) Warrants. The Purchaser shall receive (i) at the Closing, a warrant certificate to purchase up to a number of shares of Common Stock equal to $750,000 divided by the closing bid price of the Common Stock on the Trading Day prior to the date of the Closing in the form of Exhibit E. (the "Initial Warrant") and (ii) as to each Draw Down Exercise Date, a warrant certificate to purchase up to a number of shares of Common Stock equal to 50% of the number of shares of Common Stock purchased by the Investor on such Draw Down Exercise Date pursuant to this Agreement in the form of Exhibit F (each a "Purchaser Warrant")(the "Initial Warrant" and the "Purchaser Warrants" collectively referred to as the "Warrants"). The Initial Warrant shall have a term from its date of issuance of four years. The Purchaser Warrants shall each have a term from their date of issuance of 22 Trading Days. The Strike Price of the Initial Warrants shall be 115% of the closing bid price of the Common Stock on the Trading Day immediately preceding the date of the Closing. The exercise price of the Purchaser Warrants shall be the weighted average of the Purchase Prices of the Common Stock purchased on the applicable Draw Down Exercise Date. The Common Stock underlying the Warrants will be registered in the Registration Statement. "Warrant Shares" shall mean the shares of Common Stock issuable upon exercise of the Warrants. Section 5.3 Conditions Precedent to the Obligation of the Purchaser to accept a Draw Down and Purchase the Shares. The obligation hereunder of the Purchaser to accept a Draw Down request and to acquire and pay for the Shares is subject to the satisfaction, at or before each Draw Down Exercise Date, of each of the conditions set forth below. Section 6.1 (c) The minimum Draw Down shall be $250,000. Section 6.1 (d) The maximum dollar amount of each Draw Down during any Draw Down Pricing Period shall be limited pursuant to the following formula: Average Stock Price: Average of the Average Daily Prices for the 22 Trading Days prior to the Draw Down Notice date. Average Trading Volume: Average daily trading volume for the 45 Trading Days prior to the Draw Down Notice date. Maximum dollar amount of each Draw Down: 20% of (Average Stock Price x (Average Trading Volume x 22)) the number of Shares of Common Stock to be issued in connection with each Draw Down shall be equal to the sum of the quotients (for each trading day within the Draw Down Pricing Period) of (x) 1/22nd of the Draw Down amount and (y) the Purchase Price on each Trading Day within the Draw Down Pricing Period. If the Average Daily Price on a given Trading Day is less than the Threshold Price, then the Purchaser's Draw Down will be reduced by 1/22nd and that day shall be withdrawn from the Draw Down Pricing Period. Section 7.1 Term. The term of this Agreement shall be eighteen (18) months from the Effective Date. In addition, Section 2.2 of Escrow Agreement shall be restated as follows: Section 2.2 Each time the Purchaser shall purchase Shares pursuant to a Draw Down, the Purchaser shall send the applicable purchase price of the Draw Down Shares to the Escrow Agent, which shall advise the Company in writing that it has received the purchase price for such Draw Down Shares. The Company shall promptly, but no later than three (3) Trading Days after receipt of such funding notice from the 2 Escrow Agent, cause its transfer agent to issue the Draw Down Shares to the Purchaser via DTC deposit to the account specified by the Purchaser from time to time and deliver the Purchaser Warrant to the Purchaser. Upon receipt of written confirmation from the transfer agent or from the Purchaser that such Draw Down Shares have been so deposited and the Purchaser Warrants have been so delivered the Escrow Agent shall within one (1) Trading Day wire 92% of the purchase price per the written instructions of the Company, net of $1,500 as escrow expenses to the Escrow Agent, and the remaining 8% of the purchase price as directed by Ladenburg Thalmann & Co. Inc. Finally, the second paragraph of Section 3(a) of the Registration Rights Agreement shall be restated as follows: The Company shall use its best efforts to cause the Registration Statement to become effective within five (5) days of SEC clearance and will within said five (5) days request acceleration of effectiveness. The Company will notify Purchaser of the effectiveness of the Registration Statement within one Trading Day of such event. Except as specifically amended by the terms of this letter, the Purchase Agreement and its exhibits shall remain unmodified and in full force and effect, and shall not be in any way changed, modified or superseded by the terms set forth herein. All terms used but not defined in this letter shall have the meanings set forth in the Purchase Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile. If the foregoing correctly sets forth our understanding and agreement, please so indicate by signing where indicated below. TALK VISUAL CORPORATION By: /s/ Eugene A. Rosov ------------------------------------ Eugene A. Rosov, President & CEO ACCEPTED AND AGREED TO: EVERTREND HOLDINGS LIMITED By: /s/ Hans Gassner ----------------------------------------- Hans Gassner, Authorized Signatory 4 EX-4.1 4 0004.txt 1995 STOCK OPTION/STOCK ISSUANCE PLAN TALK VISUAL CORPORATION 1995 STOCK OPTION/STOCK ISSUANCE PLAN (Amended and Restated as of June 29, 2000) ARTICLE ONE GENERAL PROVISIONS I. PURPOSE OF THE PLAN This 1995 Stock Option/Stock Issuance Plan is intended to promote the interests of Talk Visual Corporation, a Nevada corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation. Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. II. STRUCTURE OF THE PLAN A. The Plan shall be divided into three separate equity programs: (i) the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, (ii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary), and (iii) the Automatic Option Grant Program under which Eligible Directors shall automatically receive option grants at periodic intervals to purchase shares of Common Stock. B. The provisions of Articles One and Five shall apply to all equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan. A-1 III. ADMINISTRATION OF THE PLAN A. Prior to the Section 12(g) Registration Date, the Plan shall be administered by the Board. From and after the Section 12(g) Registration Date, the Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. B. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board's discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer those programs with respect to all such persons. The members of the Secondary Committee may be Board members who are Employees eligible to receive discretionary option grants or direct stock issuances under the Plan or any other stock option, stock appreciation, stock bonus or other stock plan of the Corporation (or any Parent or Subsidiary). C. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee. D. Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant or Stock Issuance Program under its jurisdiction or any stock option or stock issuance thereunder. E. Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan. F. Administration of the Automatic Option Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to option grants made thereunder. A-2 IV. ELIGIBILITY A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows: (i) Employees, (ii) non-employee members of the Board or the board of directors of any Parent or Subsidiary, and (iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). B. Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority (subject to the provisions of the Plan) to determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive such issuances, the time or times when such issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration to be paid for such shares. C. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. D. The individuals eligible to participate in the Automatic Option Grant Program shall be limited to (i) those individuals who first become non-employee Board members on or after the Section 12(g) Registration Date, whether through appointment by the Board or election by the Corporation's stockholders, and (ii) those individuals who are re-elected as non-employee Board members at one or more Annual Stockholders Meetings held after the Section 12(g) Registration Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to receive an initial option grant under the Automatic Option Grant Program on the Section 12(g) Registration Date or (if later) at the time he or she first becomes a non-employee Board member, but such individual shall be eligible to receive periodic option grants under the Automatic Option Grant Program upon his or her re-election as a non- employee Board member at one or more Annual Stockholders Meetings held after the Section 12(g) Registration Date. A-3 V. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 3,807,267 shares. Such share reserve includes the 3,500,000-share increase authorized by the Board on June 29, 2000, subject to stockholder approval at the 2000 Annual Meeting. B. Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. In addition, unvested shares issued under the Plan and subsequently repurchased by the Corporation, at the original exercise or issue price paid per share, pursuant to the Corporation's repurchase rights under the Plan, shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan. Shares subject to any stock appreciation rights exercised under the Plan shall not be available for subsequent issuance under the Plan. In addition, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the stock issuance, and not by the net number of shares of Common Stock issued to the holder of such option or stock issuance. C. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which any one person may be granted options, separately exercisable stock appreciation rights and direct stock issuances per calendar year, (iii) the number and/or class of securities for which automatic option grants are to be subsequently made per Eligible Director under the Automatic Option Grant Program and (iv) the number and/or class of securities and the exercise price per share in effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. A-4 ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM I. OPTION TERMS Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. A. Exercise Price. 1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Five and the documents evidencing the option, be payable in cash or check made payable to the Corporation. From and after the Section 12(g) Registration Date, the exercise price may also be paid in either of the following forms: (i) in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or (ii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. A-5 B. Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date. C. Effect of Termination of Service. 1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: (i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. (ii) Any option exercisable in whole or in part by the Optionee at the time of death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. (iii) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more thanthe number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable post-Service exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares. (iv) Should the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding. 2. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: (i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the period otherwise in effect for that option to such greater period of time as the A-6 Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service. D. Stockholder Rights. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. E. Repurchase Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. F. Limited Transferability of Options. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, Non-Statutory Options may, in connection with the Optionee's estate plan, be assigned in whole or in part during the Optionee's lifetime to one or more members of the Optionee's immediate family or to a trust established exclusively for one or more such family members. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. II. INCENTIVE OPTIONS The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II. A-7 A. Eligibility. Incentive Options may only be granted to Employees. B. Exercise Price. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. C. Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. D. 10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. III. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall NOT so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights A-8 are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. C. The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide for the automatic acceleration of one or more outstanding options (and the automatic termination of one or more outstanding repurchase rights with the immediate vesting of the shares of Common Stock subject to those rights) upon the occurrence of a Corporate Transaction, whether or not those options are to be assumed or replaced (or those repurchase rights are to be assigned) in the Corporate Transaction. D. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). E. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to (i) the number and class of securities available for issuance under the Plan following the consummation of such Corporate Transaction, (ii) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same, and (iii) the maximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under the Plan per calendar year. F. Any options which are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at that time shall automatically accelerate (and any of the Corporation's outstanding repurchase rights which do not otherwise terminate at the time of the Corporate Transaction shall automatically terminate and the shares of Common Stock subject to those terminated rights shall immediately vest in full) in the event the Optionee's Service should subsequently terminate by reason of an Involuntary Termination within twelve (12) months following the effective date of such Corporate Transaction. Any options so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. G. The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to (i) provide for the automatic acceleration of one or more outstanding options (and the automatic termination of one or more outstanding repurchase rights with the immediate vesting of the shares of Common Stock subject to those rights) upon the occurrence of a A-9 Change in Control or (ii) condition any such option acceleration (and the termination of any outstanding repurchase rights) upon the subsequent Involuntary Termination of the Optionee's Service within a specified period following the effective date of such Change in Control. Any options accelerated in connection with a Change in Control shall remain fully exercisable until the expiration or sooner termination of the option term. H. The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. I. The grant of options under the Discretionary Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new grant date. V. STOCK APPRECIATION RIGHTS A. The Plan Administrator shall have full power and authority to grant to selected Optionees tandem stock appreciation rights and/or limited stock appreciation rights. B. The following terms shall govern the grant and exercise of tandem stock appreciation rights: (i) One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect between the exercise of the underlying option for shares of Common Stock and the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (a) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (b) the aggregate exercise price payable for such shares. A-10 (ii) No such option surrender shall be effective unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the Optionee shall be entitled may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. (iii) If the surrender of an option is rejected by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of (a) five (5) business days after the receipt of the rejection notice or (b) the last day on which the option is otherwise exercisable in accordance with the terms of the documents evidencing such option, but in no event may such rights be exercised more than ten (10) years after the option grant date. C. The following terms shall govern the grant and exercise of limited stock appreciation rights: (i) One or more Section 16 Insiders may be granted limited stock appreciation rights with respect to their outstanding options. (ii) Upon the occurrence of a Hostile Take-Over, each individual holding one or more options with such a limited stock appreciation right shall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation, to the extent the option is at the time exercisable for vested shares of Common Stock. In return for the surrendered option, the Optionee shall receive a cash distribution from the Corporation in an amount equal to the excess of (A) the Take-Over Price of the shares of Common Stock which are at the time vested under each surrendered option (or surrendered portion thereof) over (B) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the option surrender date. (iii) The Plan Administrator shall pre-approve, at the time the limited stock appreciation right is granted, the subsequent exercise of that right in accordance with the terms of the grant and the provisions of this Section V.C. No additional approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash distribution. A-11 (iv) The balance of the option (if any) shall continue in full force and effect in accordance with the documents evidencing such option. A-12 ARTICLE THREE STOCK ISSUANCE PROGRAM I. STOCK ISSUANCE TERMS Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. A. Purchase Price. 1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the issuance date. 2. Subject to the provisions of Section I of Article Five, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, or (ii) past services rendered to the Corporation (or any Parent or Subsidiary). B. Vesting Provisions. 1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program, namely: (i) the Service period to be completed by the Participant or the performance objectives to be attained, (ii) the number of installments in which the shares are to vest, A-13 (iii) the interval or intervals (if any) which are to lapse between installments, and (iv) the effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. 2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. 4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase- money note of the Participant attributable to the surrendered shares. 5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the cessation of the Participant's Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares A-14 of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives. II. CORPORATE TRANSACTION/CHANGE IN CONTROL A. All of the outstanding repurchase/cancellation rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent (i) those repurchase/cancellation rights are assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement. B. To the extent any repurchase/cancellation rights applicable to the Participant's outstanding shares under the Stock Issuance Program are assigned in the Corporate Transaction, those rights shall automatically terminate, and the shares subject to those terminated rights shall immediately vest in full, in the event the Participant's Service should subsequently terminate by reason of an Involuntary Termination within twelve (12) months following the effective date of such Corporate Transaction. C. The Plan Administrator shall have the discretion, exercisable either at the time the unvested shares are issued or at any time while the Corporation's repurchase rights remain outstanding, to (i) provide for the automatic termination of one or more outstanding repurchase/cancellation rights and the immediate vesting of the shares of Common Stock subject to those rights upon the occurrence of a Change in Control or (ii) condition any such accelerated vesting upon the subsequent Involuntary Termination of the Participant's Service within a specified period following the effective date of such Change in Control. III. SHARE ESCROW/LEGENDS Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. A-15 ARTICLE FOUR AUTOMATIC OPTION GRANT PROGRAM I. OPTION TERMS A. Grant Dates. Option grants shall be made on the dates specified below: 1. Each individual who is first elected or appointed as a non-employee Board member on or after the Section 12(g) Registration Date shall automatically be granted, on the Section 12(g) Registration Date or any later date of initial election or appointment, a Non-Statutory Option to purchase 10,000 shares of Common Stock, provided such individual has not previously been in the employ of the Corporation (or any Parent or Subsidiary). 2. On the date of each Annual Stockholders Meeting held after the Section 12(g) Registration Date, each individual who is to continue to serve as an Eligible Director shall automatically be granted a Non-Statutory Option to purchase 2,500 shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months. There shall be no limit on the number of such 2,500-share option grants any one Eligible Director may receive over his or her period of Board service. B. Exercise Price. 1. The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. C. Option Term. Each option shall have a term of ten (10) years measured from the option grant date. D. Exercise and Vesting of Options. Each option shall be immediately exercisable for any or all of the option shares. However, any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares. Each initial 10,000-share grant shall vest, and the Corporation's repurchase right shall lapse, in A-16 a series of four (4) successive equal annual installments over the Optionee's period of continued service as a Board member, with the first such installment to vest upon the Optionee's completion of one (1) year of Board service measured from the option grant date. Each annual 2,500-share grant shall vest, and the Corporation's repurchase right shall lapse, upon the Optionee's completion of one (1) year of Board service measured from the option grant date. E. Effect of Termination of Board Service. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee ceases to serve as a Board member: (i) The Optionee (or, in the event of Optionee's death, the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution) shall have a twelve (12)-month period following the date of such cessation of Board service in which to exercise each such option. (ii) During the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of vested shares of Common Stock for which the option is exercisable at the time of the Optionee's cessation of Board service. (iii) Should the Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of Board service, be exercised for all or any portion of those shares as fully-vested shares of Common Stock. (iv) In no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)-month exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Board service for any reason other than death or Permanent Disability, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares. A-17 II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Corporate Transaction, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Immediately following the consummation of the Corporate Transaction, each automatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). B. In connection with any Change in Control, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Each such option shall remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the surrender of the option in connection with a Hostile Take-Over. C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each automatic option granted under this Article Four. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. Stockholder approval of the March 28, 1997 amended and restated Plan shall constitute pre-approval of the subsequent grant of each such option surrender right under this Automatic Option Grant Program and the subsequent exercise of that right in accordance with the terms and provisions of this Section II.C. No additional approval of the Board or Plan Administrator shall be required at the time of the actual option surrender and cash distribution. D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. A-18 E. The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. III. REMAINING TERMS The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. A-19 ARTICLE FIVE MISCELLANEOUS I. FINANCING A. The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price for shares issued under the Stock Issuance Program by delivering a promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. Promissory notes may be authorized with or without security or collateral. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. B. The Plan Administrator may, in its discretion, determine that one or more such promissory notes shall be subject to forgiveness by the Corporation in whole or in part upon such terms as the Plan Administrator may deem appropriate. II. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of stock options or stock appreciation rights or upon the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvested shares of Common Stock under the Plan with the right to use shares of Common Stock in satisfaction of all or part of the Taxes incurred by such holders in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats: (i) Stock Withholding: The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. A-20 (ii) Stock Delivery: The election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option exercise or share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. III. EFFECTIVE DATE AND TERM OF THE PLAN A. The Discretionary Option Grant and Stock Issuance Programs became effective on the November 9, 1995 Effective Date. The Automatic Option Grant Program became effective on the May 17, 1996 Section 12(g) Registration Date. Options may be granted under the Discretionary Option Grant Program, and shares may be issued under the Stock Issuance Program, at any time on or after the Effective Date. In addition, initial option grants under the Automatic Option Grant Program shall be made to the Eligible Directors at any time on or after the Section 12(g) Registration Date. B. On March 28, 1997, the Board adopted a series of amendments to the Plan which (i) increased the number of shares of Common Stock reserved for issuance over the term of the Plan by an additional 400,000 shares, (ii) rendered non-employee Board members serving on the Primary Committee eligible to receive option grants and stock issuances under the Discretionary Option Grant and Stock Issuance Programs, (iii) allowed unvested shares issued under the Plan and subsequently repurchased by the Corporation at the option exercise price or direct issue price paid per share to be reissued under the Plan, (iv) removed certain restrictions on the eligibility of non-employee Board members to serve as Plan Administrator, and (v) effected a series of additional changes to the provisions of the Plan (including the stockholder approval requirements) in order to take advantage of the recent amendments to Rule 16b-3 of the 1934 Act which exempts certain officer and director transactions under the Plan from the short-swing liability provisions of the federal securities laws. The March 28, 1997 amendments are subject to stockholder approval at the 1997 Annual Meeting. Should stockholder approval of the 1997 amendments not be obtained, then any options granted on the basis of the 400,000-share increase shall terminate and cease to remain outstanding without ever becoming exercisable for those shares, and no further option grants shall be made on the basis of such increase. However, the provisions of the Plan as in effect immediately prior to the March 28, 1997 amendments shall automatically be reinstated, and option grants and share issuances may thereafter continue to be made pursuant to the reinstated provisions of the Plan. C. The Plan shall terminate upon the earliest of (i) October 31, 2005, (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of the options or the issuance of shares (whether vested or unvested) under the Plan or (iii) the termination of all outstanding options in connection A-21 with a Corporate Transaction. Upon such Plan termination, all outstanding stock options and unvested stock issuances shall continue to have force and effect in accordance with the provisions of the documents evidencing such options or issuances. IV. AMENDMENT OF THE PLAN A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to options, stock appreciation rights or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations. B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs are held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess grant or issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. V. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. VI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option or stock appreciation right under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any option or stock appreciation right or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options and stock appreciation rights granted under it and the shares of Common Stock issued pursuant to it. A-22 B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws and all applicable listing requirements of any Stock Exchange (or the Nasdaq Small Cap or the Nasdaq National Market, if applicable) on which Common Stock may then be listed for trading. VII. NO EMPLOYMENT/SERVICE RIGHTS Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. A-23 APPENDIX The following definitions shall be in effect under the Plan: A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant program in effect under the Plan. B. BOARD shall mean the Corporation's Board of Directors. C. CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected through either of the following transactions: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders, or (ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination. D. CODE shall mean the Internal Revenue Code of 1986, as amended. E. COMMON STOCK shall mean the Corporation's common stock. F. CORPORATE TRANSACTION shall mean either of the following stockholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction; or A-24 (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. G. CORPORATION shall mean Legacy Software, Inc., a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of Legacy Software, Inc. which shall by appropriate action adopt the Plan. H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option grant program in effect under the Plan. I. EFFECTIVE DATE shall mean November 9, 1995, the date on which the Plan was adopted by the Board. J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to participate in the Automatic Option Grant Program in accordance with the eligibility provisions of Article One. K. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. L. EXERCISE DATE shall mean the date on which the Corporation shall have received written notice of the option exercise. M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (i) If the Common Stock is at the time traded on the Nasdaq SmallCap or the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq Small Cap or the Nasdaq National Market (or any successor system). If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of A-25 transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) For purposes of option grants and direct stock issuances made on the date the Underwriting Agreement is executed and the initial public offering price of the Common Stock is established, the Fair Market Value shall be deemed to be equal to the established initial offering price per share. For purposes of option grants and direct stock issuances made prior to such date, the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. N. HOSTILE TAKE-OVER shall mean the direct or indirect acquisition by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept. O. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422. P. INVOLUNTARY TERMINATION shall mean the termination of the Service of any individual which occurs by reason of: (i) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or (ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and participation in corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. A-26 Q. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary). R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended. S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422. T. OPTIONEE shall mean any person to whom an option is granted under the Discretionary Option Grant or Automatic Option Grant Program. U. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. V. PARTICIPANT shall mean any person who is issued shares of Common Stock under the Stock Issuance Program. W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. However, solely for the purposes of the Automatic Option Grant Program, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. X. PLAN shall mean the Corporation's 1995 Stock Option/Stock Issuance Plan, as set forth in this document. A-27 Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction. Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-employee Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. AA. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders. AB. SECTION 16 INSIDER shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act. AC. SECTION 12(G) REGISTRATION DATE shall mean May 17, 1996, which is the first date on which the Common Stock was registered under Section 12(g) of the 1934 Act. AD. SERVICE shall mean the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. AE. STOCK EXCHANGE shall mean either the American Stock Exchange or the New York Stock Exchange. AF. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program. AG. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect under the Plan. AH. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A-28 AI. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per share of Common Stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over or (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (i) price per share. AJ. TAXES shall mean the Federal, state and local income and employment tax liabilities incurred by the holder of Non-Statutory Options or unvested shares of Common Stock in connection with the exercise of those options or the vesting of those shares. AK. 10% STOCKHOLDER shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). AL. UNDERWRITING AGREEMENT shall mean the agreement between the Corporation and the underwriter or underwriters who managed the initial public offering of the Common Stock. EX-4.2 5 0005.txt STOCK PURCHASE WARRANT Exhibit 4.2 NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase 1,271,186 Shares of Common Stock of Talk Visual Corporation THIS CERTIFIES that, for value received, Evertrend Holdings Limited (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after July 27, 2000 (the "Issuance Date") and on or prior to the close of business on July 27, 2004 (the "Termination Date") but not thereafter, to subscribe for and purchase from Talk Visual Corporation, a Nevada corporation (the "Company"), up to 1,271,186 shares (the "Warrant Shares") of Common Stock, $0.001 par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $0.6785 [115% of the closing bid price of the Common Stock on the Principal Market using the HP function on the Trading Day immediately prior to the Closing Date]. The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and the Common Stock Purchase Agreement dated July 27, 2000 pursuant to which this Warrant has been issued (the "Purchase Agreement"), the Purchase Agreement shall control. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 1. Title to Warrant. Prior to the Termination Date hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Issuance Date hereof and before the close of business on the Termination Date hereof. Exercise of this Warrant or any part hereof shall be effected by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. This Warrant may also be exercised by means of a "cashless exercise" in which the holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the average of the high and low trading prices per share of Common Stock on the Principal Market on the Trading Day preceding the date of such election; (B) = the Exercise Price of the Warrants; and (X) = the number of shares issuable upon exercise of the Warrants in accordance with the terms of this Warrant. 2 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the closing bid price on the date of exercise. 5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 6. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant. 7. Transfer, Division and Combination. (a) Subject to compliance with any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of shares of Common Stock without having a new Warrant issued. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. 3 (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant certificate or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. 4 (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 12. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 5 14. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. 6 The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be reasonably necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use all commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be reasonably necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 16. Miscellaneous. (a) Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of New York without regard to its conflict of law principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date hereof. If the Company willfully fails to comply with any material provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 7 (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Indemnification. The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure by the Company to perform or observe in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from Holder's negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. (i) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (j) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. (k) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 8 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: Talk Visual Corporation By: /s/ Eugene Rosov --------------------------------- Eugene A. Rosov, President & CEO NOTICE OF EXERCISE To: Talk Visual Corporation (1)______The undersigned hereby elects to purchase [________] shares of Common Stock (the "Common Stock"), of Talk Visual Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2)______Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------- Name Address: --------------------------- --------------------------- Dated: ----------------------- Signature ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to [NAME] whose address is [_________________________]. Dated: Holder's Signature: --------------------------------- Holder's Address: --------------------------------- --------------------------------- Signature Guaranteed: --------------------------------- NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-4.3 6 0006.txt STOCK PURCHASE WARRANT Exhibit 4.3 NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase ___________ Shares of Common Stock of Talk Visual Corporation THIS CERTIFIES that, for value received, Evertrend Holdings Limited (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after ______ __, 200__ (the "Issuance Date") and on or prior to the close of business on 22nd Trading Day after the Issuance Date (the "Termination Date") but not thereafter, to subscribe for and purchase from Talk Visual Corporation, a Nevada corporation (the "Company"), up to ________________ (_________) shares (the "Warrant Shares") of Common Stock, $0.001 par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be [$______] [the weighted average of the Purchase Prices of the Common Stock purchased on the applicable Draw Down Exercise Date]. The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and the Common Stock Purchase Agreement dated July 27, 2000 pursuant to which this Warrant has been issued (the "Purchase Agreement"), the Purchase Agreement shall control. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 1. Title to Warrant. Prior to the Termination Date hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Issuance Date hereof and before the close of business on the Termination Date hereof. Exercise of this Warrant or any part hereof shall be effected by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the closing bid price on the date of exercise. 5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 2 6. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant. 7. Transfer, Division and Combination. (a) Subject to compliance with any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of shares of Common Stock without having a new Warrant issued. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant certificate or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 3 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, 4 reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 12. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 14. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, 5 (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be reasonably necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use all commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. 6 Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be reasonably necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 16. Miscellaneous. (a) Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of New York without regard to its conflict of law principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date hereof. If the Company willfully fails to comply with any material provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7 (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Indemnification. The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure by the Company to perform or observe in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from Holder's negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. (i) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (j) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. (k) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 8 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: Talk Visual Corporation By: /s/ Eugene Rosov ------------------------------------ Eugene A. Rosov, President & CEO NOTICE OF EXERCISE To: Talk Visual Corporation (1)______The undersigned hereby elects to purchase [________] shares of Common Stock (the "Common Stock"), of Talk Visual Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2)______Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------- Name Address: --------------------------- --------------------------- Dated: --------------------------- Signature ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to [NAME] whose address is [_________________________]. Dated: Holder's Signature: -------------------------------- Holder's Address: -------------------------------- -------------------------------- Signature Guaranteed: -------------------------------- NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-4.4 7 0007.txt STOCK PURCHASE WARRANT EXHIBIT 4.4 NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase 1,271,186 Shares of Common Stock of Talk Visual Corporation THIS CERTIFIES that, for value received, Ladenburg Thalmann & Co. Inc. (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after the date hereof (the "Issuance Date") and on or prior to the close of business on July 27, 2004 (the "Termination Date") but not thereafter, to subscribe for and purchase from Talk Visual Corporation, a Delaware corporation (the "Company"), up to 1,271,186 shares (the "Warrant Shares") of Common Stock, $0.001 par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $0.6785 (115% of the closing bid price of the Common Stock on the Trading Day immediately preceding the Trading Day prior to the Closing). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. 1. Title to Warrant. Prior to the Termination Date hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Issuance Date hereof and before the close of business on the Termination Date hereof. Exercise of this Warrant or any part hereof shall be effected by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. This Warrant may also be exercised by means of a "cashless exercise" in which the holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the average of the high and low trading prices per share of Common Stock on the Trading Day preceding the date of such election; (B) = the Exercise Price of the Warrants; and (X) = the number of shares issuable upon exercise of the Warrants in accordance with the terms of this Warrant. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the closing bid price on the date of exercise. 5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 2 6. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant. 7. Transfer, Division and Combination. (a) Subject to compliance with any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of shares of Common Stock without having a new Warrant issued. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant certificate or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 3 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of 4 Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 12. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 14. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more 5 of such cases, the Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be reasonably necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use all commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be reasonably necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 6 Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 16. Miscellaneous. (a) Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of New York without regard to its conflict of law principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date hereof. If the Company willfully fails to comply with any material provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 7 (g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Indemnification. The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure by the Company to perform or observe in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from Holder's negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. (i) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (j) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. (k) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 8 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: Talk Visual Corporation By: /s/ Eugene Rosov ----------------------------------- Eugene A. Rosov, President & CEO NOTICE OF EXERCISE To: Talk Visual Corporation (1)______The undersigned hereby elects to purchase [________] shares of Common Stock (the "Common Stock"), of Talk Visual Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2)______Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ------------------------------- Name Address: ------------------------------- ------------------------------- Dated: ----------------------------- Signature 381580.1 22891-0999 ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to [NAME] whose address is [_________________________]. Dated: Holder's Signature: -------------------------------------- Holder's Address: -------------------------------------- -------------------------------------- Signature Guaranteed: -------------------------------------- NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-4.5 8 0008.txt NOTE SECURED BY DEED OF TRUST NOTE SECURED BY DEED OF TRUST (This Note Contains An Acceleration Clause) San Leandro, California $3,840,000.00 DATE: DECEMBER 22, 1997 In installments as herein stated, for value received, the undersigned, promise to pay to: BAR K, INC. A CALIFORNIA CORPORATION. or order ("Lender"), at 432 Estudillo Avenue, San Leandro, CA 94577, or other place that may be designated by Lender through written notice to the undersigned. the sum of: $3,840,000.00------------(THREE MILLION EIGHT HUNDRED FORTY THOUSAND DOLLARS) with interest from the date of funding (which is ) on the unpaid principal balance outstanding from time to time at the RATE OF INTEREST stated below, payable in interest only monthly insta11ments in the amount of the MONTHLY INSTALLMENT (S) stated below, due on the day of each month, beginning on, 1998 and continuing monthly thereafter until maturity, at which time all sums of principal and interest then remaining unpaid shall be due and payable in full. RATE OF INTEREST: The rate of interest for the first year of the term of this promissory note shall be TEN per cent (10%) per annum. , The rate of interest for the second through sixth years, inclusive, of the term of this promissory note shall be TWELVE percent (12%) per annum. MONTHLY INSTALLMENTS The monthly installments for the~ first year of the term of this promissory note shall be $32,000.00 per month (subject to adjustment based upon adjustments to the principal balance from time to time). The monthly installments for the second through sixth years, inclusive, of the term of this promissory note shall be $38,400.00 per month (subject to adjustment based upon adjustments to the principal balance from time to time). LOAN FEE: The undersigned agrees to pay to BAR K, INC. a California corporation a loan fee of $192,000.00 which shall due and payable immediately after the proceeds of this loan are funded. Such fee may be deducted from the proceeds of this promissory note. Such fee is not a payment towards principal, interest or other amounts due under this promissory note. APPLICATION OF PAYMENT; COSTS OF COLLECTION: Each payment shall be credited first to interest then due and payable and the remainder on principal and interest shall thereupon cease upon the principal so credited. Upon default in any payment of any installment. then the balance of this obligation shall become due immediately at the option of the Lender hereof. All costs, expenses. advances and/or attorneys. fees incurred to protect the security of this Promissory Note shall be immediately owed from the Undersigned. whether or not suit has been filed. All such advances, expenses. advances and/or attorneys' fees shall accrue interest at the rate stated in this PROMISSORY NOTE (version 3/18/97) PAGE 1 NOTE SECURED BY DEED OF TRUST Promissory Note from the date incurred until paid. If any amounts which are payable under this Promissory Note are not paid when due, the undersigned promises to pay, in addition to the principal and interest due under this note, all costs of collection and any reasonable attorney's fees incurred by the Lender thereof on account of such collection, whether or not suit is filed or foreclosure is commenced. LATE CHARGE: If any installment due hereunder is delinquent more than 10 days. the undersigned agrees to pay a late charge on each such installment of 10% of the delinquent payment. All late payment charges are: to be paid immediately upon demand. In addition. if any balloon payment (defined as a payment which is greater than the largest single regular installment) is delinquent more than 10 days, the undersigned agrees to pay a late charge equivalent to the maximum late charge which could be assessed on the largest single regular installment due under this note. This late charge on the balloon payment is to continue to be assessed for each subsequent period of time equal to the regular installment period under this note until the balloon payment and other fees, interest and charges due under this note are paid in full. UNP AID CHECKS: The undersigned and Lender agree that it would be difficult to determine the~ actual damages to the Beneficiary or Beneficiaries agent for the return of an unpaid check provided by undersigned. It is hereby arced the Undcr5igned will pay four percent (4%) or $25.00, whichever is greater. Such amount is in addition to any late charge; or default interest which may be applicable. This amount is in lieu of any statutory monetary penalty, if any. However, Lender does not waive any other rights that may be awarded under any statute. PREPAYMENT: The principal and accrued interest on this may be prepaid in whole or in part at any time without penalty. ALIENATION OF TITLE TO THE SECURITY: The note is secured by a Deed of Trust of even date herewith which contains the following provision: If as to any or all of Trustor's interest in the Property, Trustor sells, transfers. contracts to sell. gives an option to purchase. conveys, leases for a term exceeding 10 years. encumbers. or alienates the Property; or causes or allows tl1e Property to be subject to a junior lien or encumbrance~ or if any or all of the title of the Trustor is impaired or divested. whether voluntarily or involuntarily; or if title to the Property be subject to any lien or charge, voluntary or involuntary, contractual 01" statutory, without the written consent of Beneficiary being first had and obtained; then Beneficial shall have the right of acceleration, at its option, to declare the Note secured by this Deed of Trust. irrespective of the maturity date expressed therein, and without demand or notice, immediately due and payable. No waiver of this right shall be effective unless it is in writing. Consent by Beneficiary to one such transaction shall not constitute waiver of the right to require such consent in succeeding transactions. REBATE: In the event this Note is paid in full within six (6) months of the date of funding set forth on page 1 hereof. the principal ba1an~ of this Note shall be automatically reduced by the amount of Thirty Eight Thousand Four Hundred Dollars ($38,400.00). Such reduction shall be considered a rebate in the commission fee of one point. PROMISSORY NOTE 50166 PAGE 2 NOTE SECURED BY DEED OF TRUST NOTICE OF BALLOON PAYMENT: THIS PROMISSORY NOTE IS PAYABLE IN FULL ON THE MATURITY DATE SHOWN ABOVE AT WHICH TIME THE ENTIRE PRINCIPAL BALANCE OF THIS PROMISSORY NOTE AND ANY INTEREST THEN DUE AND ANY ADVANCES MADE MUST BE PAID. THE PAYMENTS REQUIRED UNDER THIS PROMISSORY NOTE ARE NOT SUFFICIENT IN AMOUNT TO REDUCE THE PRINCIPAL TO RETIRE THIS PROMISSORY NOTE ON OR BEFORE SUCH DATE. THE OWNER OF THIS PROMISSORY NOTE IS NOT OBLIGATED TO REFINANCE 11iE LOAN EVIDENCED BY THIS PROMISSORY NOTE AT ANY TIME- ON SUCH DATE. REFINANCING OF THIS PROMISSORY NOTE MAYBE REQUIRED AND THE PREVAILING INTEREST RATE MAY BE CONSIDERABLY HIGHER THAN THE RATE UNDER THIS PROMISSORY NOTE YOU MAY BE REQUIRED TO PAY LOAN FEES AND COSTS UPON REFINANCE. THIS NOTE IS NOT SUBJECT TO SECTION 29241 NOR 2966 OF THE CIVIL CODE MISCELLANEOUS: Principal and interest is payable in lawful money of the United States of America. As an inducement to cause Lender to make this loan, the undersigned represents that the undersigned has the financial ability to make the payments stated herein. The undersigned consents to renewals, replacements and extensions of time for payment hereof before, at, or after maturity; consents to acceptance of security for this Note. UPON DEFAULT: ANY INTEREST WHICH BECOMES DUE UNDER THIS NOTE WHICH REMAINS DUE FOR MORE THAN ONE MONIH SHALL ACCRUE INTEREST AT THE SAME RATE AND UPON THE SAME TERMS AS THE PRINCIPAL UNDER THIS NOTE. IF THIS NOTE IS IN DEFAULT FOR MORE THAN ONE MONTH CONTINUOUSLY, THEN THE INTEREST RATE OF THIS NOTE DURING THE PERIOD IN WHICH SUCH DEFAULT REMAINS UNCURED SHALL BE INCREASED TO AN AMOUNT EQUAL TO THE INTEREST RATE THEN DUE AS STATED ON THE FIRST PAGE OF THIS NOTE PLUS FIVE PER CENT (5%). ANY PRINCIPAL BALANCE OUTSTANDING PAST THE DUE DATE OF THIS NOTE SHALL BEAR INTEREST EQUAL TO THE HIGHEST INTEREST RATE STATED IN THIS NOTE PLUS FIVE PER CENT (5%). Executed on by (the "Undersigned'~: ----------------------------------------- SACRAMENTO RESUL TS, INC., a CALIFORNIA CORPORATION By ---------------------------------------- Its: This Note is secured by a Deed of Trust PROMISSORY NOTE 50186 PAGE 3 EX-5.1 9 0009.txt TORYS CONSENT Exhibit 5.1 August 11, 2000 Talk Visual Corporation 3550 Biscayne Boulevard Suite 704 Miami, Florida 33137 Dear Sirs: We have acted as counsel for Talk Visual Corporation, a Nevada corporation (the "Company"), in connection with the registration statement on Form SB-2 (the "Registration Statement"), filed by the Company on this date under the Securities Act of 1933, as amended, with respect to 56,018,307 shares (the "Shares") of common stock, $.001 par value per share (the "Common Stock"), of the Company to be held by the Selling Security Holders named in the Registration Statement. In connection with the Registration Statement, we have examined such records and documents and such questions of law as we have deemed necessary or appropriate for the purposes of this opinion. On the basis of such examination, we advise you that in our opinion the Shares have been duly and validly authorized (assuming, to the extent that the number of shares to be issued in connection with the Registration Statement would exceed the unissued authorized Common Stock of the Company, the Company duly adopts an amendment to its Articles of Incorporation increasing such authorized Common Stock) and issued and are fully paid and non-assessable (or, when issued in accordance with the referenced in the Registration Statement, will be duly and validly issued and fully paid and non-assessable). We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the prospectus constituting a part of the Registration Statement. Very truly yours, Torys EX-10.1 10 0010.txt REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 27, 2000 between Evertrend Holdings Limited ("Purchaser") and Talk Visual Corporation (the "Company"). WHEREAS, simultaneously with the execution and delivery of this Agreement, pursuant to a Common Stock Purchase Agreement dated the date hereof (the "Purchase Agreement") the Purchaser has committed to purchase up to $15,000,000 worth of the Company's Common Stock (terms not defined herein shall have the meanings ascribed to them in the Purchase Agreement); and WHEREAS, the Company desires to grant to the Purchaser the registration rights set forth herein with respect to the Shares (collectively, the "Securities"). NOW, THEREFORE, the parties hereto mutually agree as follows: Section 1. Registrable Securities. As used herein the term "Registrable Security" means the Securities until (i) all Securities have been disposed of pursuant to the Registration Statement, (ii) all Securities have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) all Securities have been otherwise transferred to persons who may trade such Securities without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such Securities not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, all Securities may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security." In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be deemed to be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Agreement. Section 2. Restrictions on Transfer. The Purchaser acknowledges and understands that in the absence of an effective Registration Statement authorizing the resale of the Securities as provided herein, the Securities are "restricted securities" as defined in Rule 144 promulgated under the Act. The Purchaser understands that no disposition or transfer of the Securities may be made by Purchaser in the absence of (i) an opinion of counsel to the Purchaser, in form and substance reasonably satisfactory to the Company, that such transfer may be made without registration under the Securities Act or (ii) such registration. With a view to making available to the Purchaser the benefits of Rule 144, the Company agrees to: (a) comply with the provisions of paragraph (c)(1) of Rule 144; and (b) file with the Commission (as hereinafter defined) in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of the Purchaser, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144. Section 3. Registration Rights With Respect to the Securities. (a) The Company agrees that it will prepare and file with the Securities and Exchange Commission ("Commission"), within forty-five (45) days after the date hereof, a registration statement (on Form S-3 and/or S-1, or other appropriate form of registration statement) under the Securities Act (the "Registration Statement"), at the sole expense of the Company (except as provided in Section 3(c) hereof), in respect of Purchaser, so as to permit a public offering and resale of the Securities under the Securities Act by Purchaser. The Company shall use its best efforts to cause the Registration Statement to become effective within five (5) days of SEC clearance and will within said five (5) days request acceleration of effectiveness. If the Registration Statement is not declared effective by September 30, 2000 this Agreement and the Purchase Agreement shall terminate unless the failure of the Registration Statement to be declared effective by such date is due to the failure of the Purchaser to comply with its obligations pursuant to Section 4 of this Agreement. The Company will notify Purchaser of the effectiveness of the Registration Statement within one Trading Day of such event. (b) The Company will maintain the Registration Statement or post-effective amendment filed under this Section 3 hereof effective under the Securities Act until the earliest of (i) the date that none of the Securities are or may become issued and outstanding, (ii) the date that all of the Securities have been sold pursuant to the Registration Statement, (iii) the date the holders thereof receive an opinion of counsel to the Company reasonably acceptable to the Purchaser, that the Securities may be sold under the provisions of Rule 144 without limitation as to volume, (iv) all Securities have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend, or (v) all Securities may be sold without any time, volume or manner limitations pursuant to Rule 144(k) or any similar provision then in effect under the Securities Act in the opinion of counsel to the Company reasonably acceptable to the Purchaser (the "Effectiveness Period"). (c) All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement under subparagraph 3(a) and in complying with applicable securities and Blue Sky laws (including, without limitation, all attorneys' fees of the Company) shall be borne by the Company. The Purchaser shall bear the cost of underwriting and/or brokerage discounts, 2 fees and commissions, if any, applicable to the Securities being registered and the fees and expenses of its counsel. The Purchaser and its counsel shall have a reasonable period, not to exceed seven (7) Trading Days, to review the proposed Registration Statement or any amendment thereto, prior to filing with the Commission, and the Company shall provide the Purchaser with copies of any comment letters received from the Commission with respect thereto within two (2) Trading Days of receipt thereof. The Company shall make reasonably available for inspection by Purchaser, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by the Purchaser or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Purchaser or any such underwriter, attorney, accountant or agent in connection with the Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that all records, information and documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material non-public information shall be kept confidential by the Purchaser and any such underwriter, attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of the Purchaser or any such agent), unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality; and provided further that, if the foregoing inspection and information gathering would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum extent possible, be coordinated on behalf of the Purchaser and the other parties entitled thereto by one firm of counsel designed by and on behalf of the majority in interest of Purchaser and other parties. The Company shall qualify any of the securities for sale in such states as the Purchaser reasonably designates and shall furnish indemnification in the manner provided in Section 6 hereof. However, the Company shall not be required to qualify in any state which will require an escrow or other restriction relating to the Company and/or the sellers, or which will require the Company to qualify to do business in such state or require the Company to file therein any general consent to service of process. The Company at its expense will supply the Purchaser with copies of the Registration Statement and the prospectus included therein and other related documents in such quantities as may be reasonably requested by the Purchaser. (d) The Company shall not be required by this Section 3 to include the Purchaser's Securities in any Registration Statement which is to be filed if, in the opinion of counsel for both the Purchaser and the Company (or, should they not agree, in the opinion of another counsel experienced in securities law matters acceptable to counsel for the Purchaser and the Company) the proposed offering or other transfer as to which such registration is requested is exempt from applicable federal and state securities laws and would result in all purchasers or transferees obtaining securities which are not "restricted securities", as defined in Rule 144. (e) If at any time or from time to time after the effective date of the Registration Statement, the Company notifies the Purchaser in writing of the existence of a Potential Material Event (as defined in Section 3(f) below), the Purchaser shall not offer or sell any Securities or engage in 3 any other transaction involving or relating to Securities, from the time of the giving of notice with respect to a Potential Material Event until the Purchaser receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however, that if the Company so suspends the right to such holders of Securities for more than twenty (20) days in the aggregate during any twelve month period, during the periods the Registration Statement is required to be in effect then the Company must compensate the Purchaser for any decline in market value of the Securities held by Purchaser at the beginning of such suspension through the end of such suspension. If a Potential Material Event shall occur prior to the date the Registration Statement is filed, then the Company's obligation to file the Registration Statement shall be delayed without penalty for not more than thirty (30) days (and the September 30, 2000 deadline shall be commensurately extended). The Company must give Purchaser notice in writing at least two (2) Trading Days prior to the first day of the blackout period, if lawful to do so. (f) "Potential Material Event" means any of the following: (a) the possession by the Company of material information that is not ripe for disclosure in a registration statement, as determined in good faith by the Chief Executive Officer or the Board of Directors of the Company or that disclosure of such information in the Registration Statement would be detrimental to the business and affairs of the Company; or (b) any material engagement or activity by the Company which would, in the good faith determination of the Chief Executive Officer or the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Chief Executive Officer or the Board of Directors of the Company that the Registration Statement would be materially misleading absent the inclusion of such information. Section 4. Cooperation with Company. Purchaser will cooperate with the Company in all respects in connection with this Agreement, including timely supplying in writing all information reasonably requested by the Company (which shall include all information regarding the Purchaser and proposed manner of sale of the Registrable Securities required to be disclosed in the Registration Statement) and executing and returning all documents reasonably requested in connection with the registration and sale of the Registrable Securities and entering into and performing its obligations under any underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering. The Purchaser shall consent to be named as an underwriter in the Registration Statement. Purchaser acknowledges that in accordance with current Commission policy, the Purchaser will be named as the underwriter of the Securities in the Registration Statement. Section 5. Registration Procedures. If and whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Act, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible, subject to the Purchaser's assistance and cooperation as reasonably required: (a) (i) prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep such registration statement 4 effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Purchaser of such Registrable Securities shall desire to sell or otherwise dispose of the same (including prospectus supplements with respect to the sales of securities from time to time in connection with a registration statement pursuant to Rule 415 promulgated under the Securities Act) and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain 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, not misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period 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. (b) (i) prior to the filing with the Commission of any Registration Statement (including any amendments thereto) and the distribution or delivery of any prospectus (including any supplements thereto), provide draft copies thereof to the Purchaser and reflect in such documents all such comments as the Purchaser (and its counsel) reasonably may propose and (ii) furnish to the Purchaser such numbers of copies of a prospectus including a preliminary prospectus or any amendment or supplement to any prospectus, as applicable, in conformity with the requirements of the Act, and such other documents, as the Purchaser may reasonably request in order to facilitate the public sale or other disposition of the securities owned by the Purchaser; (c) register and qualify the Registrable Securities covered by the Registration Statement under New York blue sky laws (subject to the limitations set forth in Section 3(d) above), and do any and all other acts and things which may be reasonably necessary or advisable to enable the Purchaser to consummate the public sale or other disposition in such jurisdiction of the securities owned by the Purchaser, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (d) list such Registrable Securities on the Principal Market, and any other exchange on which the Common Stock of the Company is then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange or the Nasdaq Stock Market; (e) notify the Purchaser at any time when a prospectus relating thereto covered by the Registration Statement is required to be delivered under the Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and the Company shall prepare and file a curative amendment under Section 5(a) as quickly as commercially possible; (f) as promptly as practicable after becoming aware of such event, notify the Purchaser (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission or any state authority of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; 5 (g) cooperate with the Purchaser to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Purchaser reasonably may request and registered in such names as the Purchaser may request; and, within three (3) Trading Days after a Registration Statement which includes Registrable Securities is declared effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Purchaser) an appropriate instruction and, to the extent necessary, an opinion of such counsel; (h) take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Purchaser of its Registrable Securities in accordance with the intended methods therefor provided in the prospectus which are customary for issuers to perform under the circumstances; (i) in the event of an underwritten offering, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; and (j) maintain a transfer agent for its Common Stock. Section 6. Indemnification. (a) The Company agrees to indemnify and hold harmless the Purchaser and each person, if any, who controls the Purchaser within the meaning of the Securities Act ("Distributing Purchaser") against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), to which the Distributing Purchaser may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that 6 the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by the Distributing Purchaser, specifically for use in the preparation thereof. This Section 6(a) shall not inure to the benefit of any Distributing Purchaser with respect to any person asserting such loss, claim, damage or liability who purchased the Registrable Securities which are the subject thereof if the Distributing Purchaser failed to send or give (in violation of the Securities Act or the rules and regulations promulgated thereunder) a copy of the prospectus contained in such Registration Statement to such person at or prior to the written confirmation to such person of the sale of such Registrable Securities, where the Distributing Purchaser was obligated to do so under the Securities Act or the rules and regulations promulgated thereunder. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Distributing Purchaser agrees that it will indemnify and hold harmless the Company, and each officer, director of the Company or person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees) to which the Company or any such officer, director or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by such Distributing Purchaser, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Distributing Purchaser may otherwise have. Notwithstanding anything to the contrary herein, the Distributing Purchaser shall not be liable under this Section 6(b) for any amount in excess of the net proceeds to such Distributing Purchaser as a result of the sale of Registrable Securities pursuant to the Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party except to the extent of actual prejudice demonstrated by the indemnifying party. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion. The indemnified party 7 shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that if the indemnified party is the Distributing Purchaser, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party, or (ii) the named parties to any such action (including any impleaded parties) include both the Distributing Purchaser and the indemnifying party and the Distributing Purchaser shall have been advised by such counsel in writing that there may be one or more legal defenses available to the indemnifying party different from or in conflict with any legal defenses which may be available to the Distributing Purchaser (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Distributing Purchaser, it being understood, however, that the indemnifying party shall, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable only for the reasonable fees and expenses of one separate firm of attorneys for all parties who may be deemed to be a Distributing Purchaser, which firm shall be designated in writing by the Distributing Purchaser). No settlement of any action against an indemnified party shall be made without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. All fees and expenses of the indemnified party (including reasonable costs of defense and investigation in a manner not inconsistent with this Section and all reasonable attorneys' fees and expenses) shall be paid to the indemnified party, as incurred, within ten (10) Trading Days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder; provided, that the indemnifying party may require such indemnified party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such indemnified party is not entitled to indemnification hereunder). Section 7. Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) the indemnified party makes a claim for indemnification pursuant to Section 6 hereof but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 6 hereof provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party, then the Company and the applicable Distributing Purchaser shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable Distributing Purchaser on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Distributing Purchaser agree that it would not be just and 8 equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any other provision of this Section 7, in no event shall (i) the Purchaser be required to undertake liability to any person under this Section 7 for any amounts in excess of the dollar amount of the net proceeds to be received by the Purchaser from the sale of the Purchaser's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) any underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. Section 8. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be delivered as set forth in the Purchase Agreement. Section 9. Assignment. Neither this Agreement nor any rights of the Purchaser or the Company hereunder may be assigned by either party to any other person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of at least 250,000 shares of the Common Stock purchased by the Purchaser pursuant to the Purchase Agreement other than through open-market sales, and (b) upon the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed in the case of an assignment to an affiliate of the Purchaser, the Purchaser's interest in this Agreement may be assigned at any time, in whole or in part, to any other person or entity (including any affiliate of the Purchaser) who agrees to be bound hereby. Section 10. Counterparts/Facsimile. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when together shall constitute but one and the same instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. In lieu of the original, a facsimile transmission or copy of the original shall be as effective and enforceable as the original. Section 11. Remedies. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of 9 competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. Section 12. Conflicting Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise prevents the Company from complying with all of its obligations hereunder. Section 13. Headings. The headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made in New York by persons domiciled in New York City and without regard to its principles of conflicts of laws. Any action may be brought as set forth in the Purchase Agreement. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. Any dispute under this Agreement shall be submitted to arbitration under the American Arbitration Association (the "AAA") in New York City, New York, and shall be finally and conclusively determined by the decision of a board of arbitration consisting of three (3) members (hereinafter referred to as the "Board of Arbitration") selected as according to the rules governing the AAA. The Board of Arbitration shall meet on consecutive business days in New York City, New York, and shall reach and render a decision in writing (concurred in by a majority of the members of the Board of Arbitration) with respect to the amount, if any, which the losing party is required to pay to the other party in respect of a claim filed. In connection with rendering its decisions, the Board of Arbitration shall adopt and follow the laws of the State of New York. To the extent practical, decisions of the Board of Arbitration shall be rendered no more than thirty (30) calendar days following commencement of proceedings with respect thereto. The Board of Arbitration shall cause its written decision to be delivered to all parties involved in the dispute. The Board of Arbitration shall be authorized and is directed to enter a default judgment against any party refusing to participate in the arbitration proceeding within thirty days of any deadline for such participation. Any decision made by the Board of Arbitration (either prior to or after the expiration of such thirty (30) calendar day period) shall be final, binding and conclusive on the parties to the dispute, and entitled to be enforced to the fullest extent permitted by law and entered in any court of competent jurisdiction. The prevailing party shall be awarded its costs, including attorneys' fees, from the non-prevailing party as part of the arbitration award. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. The prevailing party in such injunctive action shall be awarded its costs, including attorney's fees, from the non-prevailing party. 10 Section 15. Severability. If any provision of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof and this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. Terms not otherwise defined herein shall be defined in accordance with the Purchase Agreement. 11 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, on this __ day of July, 2000. TALK VISUAL CORPORATION By: /s/ Eugene A. Rosov ----------------------------------- Eugene A. Rosov, President & CEO EVERTREND HOLDINGS LIMITED By: /s/ Hans Gassner ------------------------------------ Hans Gassner, Authorized Signatory 12 EX-10.2 11 0011.txt ESCROW AGREEMENT Exhibit 10.2 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is made as of July 27, 2000, by and among Talk Visual Corporation, a corporation incorporated under the laws of Nevada (the "Company"), Evertrend Holdings Limited ("Purchaser"), and Epstein Becker & Green, P.C., having an address at 250 Park Avenue, New York, NY 10177 (the "Escrow Agent"). Capitalized terms used but not defined herein shall have the meanings set forth in the Common Stock Purchase Agreement referred to in the first recital. WHEREAS, the Purchaser will from time to time as requested by the Company, purchase shares of the Company's Common Stock from the Company as set forth in that certain Common Stock Purchase Agreement (the "Purchase Agreement") dated the date hereof between the Purchaser and the Company, which will be issued as per the terms and conditions contained herein and in the Purchase Agreement; and WHEREAS, the Company and the Purchaser have requested that the Escrow Agent hold in escrow and then distribute the initial documents and certain funds which are conditions precedent to the effectiveness of the Purchase Agreement, and have further requested that upon each exercise of a Draw Down, the Escrow Agent hold the relevant documents and the applicable purchase price pending receipt by Purchaser of certificates representing the securities issuable upon such Draw Down; NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties agree as follows: ARTICLE I TERMS OF THE ESCROW FOR THE INITIAL CLOSING 1.1. The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the funds and documents which are referenced in Section 5.2 of the Purchase Agreement. 1.2. At the Closing, the Company shall deliver to the Escrow Agent: (i) the original executed Registration Rights Agreement in the form of Exhibit A to the Purchase Agreement; (ii) the original executed opinion of Torys, in the form of Exhibit C to the Purchase Agreement; (iii) the sum of $150,000 for the non-accountable expenses of Ladenburg Thalmann & Co. Inc. (iv) the sum of $35,000 for the fees and expenses of the Purchaser's counsel; (v) the original executed Company counterpart of this Escrow Agreement; (vi) the original executed Company counterpart of the Purchase Agreement; (vii) a warrant certificate issued to the Purchaser to purchase up to a number of shares of the Company's Common Stock equal to $750,000 divided by the closing bid price of the Common Stock on the Trading Day immediately preceding the date of the Closing issued to the Purchaser (the "Warrant"). The Warrant shall have an exercise price equal to 115% of the closing bid price of the Common Stock on the Trading Day immediately preceding the date of the Closing and a term of four (4) years; and (viii) a warrant certificate identical to that of the Warrant issued to Ladenburg Thalmann & Co. Inc. (the "LT Warrant"). 1.3. Upon receipt of the foregoing, and receipt of executed counterparts from Purchaser of the Purchase Agreement, the Warrant, the LT Warrant, the Registration Rights Agreement and this Escrow Agreement, the Escrow Agent shall calculate and enter the exercise price, number, the issuance date and termination date in accordance with the terms of the Purchase Agreement on the face of the Warrant and the LT Warrant and immediately transfer the sum of $35,000 to Epstein Becker & Green, P.C. ("EB&G"), 250 Park Avenue, New York, New York 10177 for the Purchaser's legal, administrative and escrow costs and the sum of $150,000 as a non-accountable expense allowance to Ladenburg Thalmann & Co. Inc. and the Escrow Agent shall then arrange to have the Purchase Agreement, this Escrow Agreement, the Registration Rights Agreement, the Warrant and the LT Warrant and the opinion of counsel delivered to the appropriate parties. ARTICLE II TERMS OF THE ESCROW FOR EACH DRAW DOWN 2.1. Each time the Company shall send a Draw Down Notice to the Purchaser as provided in the Purchase Agreement, it shall send a copy, by facsimile, to the Escrow Agent. 2.2. Each time the Purchaser shall purchase Shares pursuant to a Draw Down, the Purchaser shall send the applicable purchase price of the Draw Down Shares to the Escrow Agent, which shall advise the Company in writing that it has received the purchase price for such Draw Down Shares. The Company shall promptly, but no later than three (3) Trading Days after receipt of such funding notice from the Escrow Agent, cause its transfer agent to issue the Draw Down 2 Shares to the Purchaser via DTC deposit to the account specified by the Purchaser from time to time. Upon receipt of written confirmation from the transfer agent or from the Purchaser that such Draw Down Shares have been so deposited or have been so delivered, the Escrow Agent shall within one (1) Trading Day wire 92% of the purchase price per the written instructions of the Company, net of $1,500 as escrow expenses to the Escrow Agent, and the remaining 8% of the purchase price as directed by Ladenburg Thalmann & Co. Inc. ARTICLE III MISCELLANEOUS 3.1. No waiver of any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act. 3.2. All notices or other communications required or permitted hereunder shall be in writing, and shall be sent by fax, overnight courier, registered or certified mail, postage prepaid, return receipt requested, and shall be deemed received upon receipt thereof, as set forth in the Purchase Agreement. 3.3. This Escrow Agreement shall be binding upon and shall inure to the benefit of the permitted successors and permitted assigns of the parties hereto. 3.4. This Escrow Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Escrow Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the parties to be charged or by their respective agents duly authorized in writing or as otherwise expressly permitted herein. 3.5. Whenever required by the context of this Escrow Agreement, the singular shall include the plural and masculine shall include the feminine. This Escrow Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to Articles are to this Escrow Agreement. 3.6. The parties hereto expressly agree that this Escrow Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of New York. Except as expressly set forth herein, any action to enforce, arising out of, or relating in any way to, any provisions of this Escrow Agreement shall brought in the Federal or state courts of New York, New York as is more fully set forth in the Purchase Agreement. 3 3.7. The Escrow Agent's duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, Purchaser and the Escrow Agent. 3.8. The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith, excepting only its own gross negligence or willful misconduct, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at-law (other than Escrow Agent itself) shall be conclusive evidence of such good faith. 3.9. The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 3.10. The Escrow Agent shall not be liable in any respect on account of the identity, authorization or rights of the parties executing or delivering or purporting to execute or deliver the Purchase Agreement or any documents or papers deposited or called for thereunder or hereunder. 3.11. The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. THE ESCROW AGENT HAS ACTED AS LEGAL COUNSEL FOR THE PURCHASER, AND MAY CONTINUE TO ACT AS LEGAL COUNSEL FOR THE PURCHASER, FROM TIME TO TIME, NOTWITHSTANDING ITS DUTIES AS THE ESCROW AGENT HEREUNDER. THE COMPANY CONSENTS TO THE ESCROW AGENT IN SUCH CAPACITY AS LEGAL COUNSEL FOR THE PURCHASER AND WAIVES ANY CLAIM THAT SUCH REPRESENTATION REPRESENTS A CONFLICT OF INTEREST ON THE PART OF THE ESCROW AGENT. THE COMPANY UNDERSTANDS THAT THE PURCHASER AND THE ESCROW AGENT ARE RELYING EXPLICITLY ON THE FOREGOING PROVISION IN ENTERING INTO THIS ESCROW AGREEMENT. 3.12. The Escrow Agent's responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by written notice to the Company and the Purchaser. In the event of any such resignation, the Purchaser and the Company shall appoint a successor Escrow Agent. 3.13. If the Escrow Agent reasonably requires other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 4 3.14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the documents or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow Agent's possession without liability to anyone all or any part of said documents or the escrow funds until such disputes shall have been settled either by mutual written agreement of the parties concerned by a final order, decree or judgment or a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (2) to deliver the escrow funds and any other property and documents held by the Escrow Agent hereunder to a state or Federal court having competent subject matter jurisdiction and located in the State and City of New York in accordance with the applicable procedure therefor. 3.15. The Company and the Purchaser agree jointly and severally to indemnify and hold harmless the Escrow Agent and its partners, employees, agents and representatives from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder or the transactions contemplated hereby or by the Purchase Agreement other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Escrow Agent. IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of this __ day of July, 2000. TALK VISUAL CORPORATION By: /s/ Eugene A. Rosov ------------------------------------- Eugene A. Rosov, President & CEO EVERTREND HOLDINGS LIMITED By:/s/ Hans Gassner ------------------------------------- Hans Gassner, Authorized Signatory ESCROW AGENT: EPSTEIN BECKER & GREEN, P.C. By:/s/ Robert F. Charron ------------------------------------- Robert F. Charron, Authorized Signatory 5 EX-10.3 12 0012.txt OEM AGREEMENT MOTION MEDIA TECHNOLOGY LIMITED OEM AGREEMENT THIS AGREEMENT is made between: Motion Media Technology Limited of Horton Hall, Horton, Bristol BS37 6QN, England ("Motion Media") and Talk Visual Corporation with an office at 3550 Biscayne Blvd., Suite 704 , Miami, FL, 33137, USA ("Talk Visual Corporation") and shall be effective as of the date of second signature hereto. WHEREAS Motion Media develops, manufactures and sells a range of video telephony and video conferencing products, including related software, and WHEREAS Talk Visual Corporation desires to resell a rebranded variant of the mm225 videophone as supplied by Motion Media all in accordance with the terms of this Agreement. NOW THEREFORE it is hereby agreed as follows: 1. APPLICATION AND PRECEDENCE Schedules I to III as attached hereto shall be considered incorporated into this Agreement. Motion Media's Terms and Conditions of Sale shall apply to all purchases made by Talk Visual Corporation under this Agreement to the exclusion of any terms and conditions which may appear on any order or communication from Talk Visual Corporation. In the case of conflict between Motion Media's Terms and Conditions of Sale and the terms of this Agreement, the latter shall prevail. In the case of conflict between the terms in the body of this Agreement and anything in the Schedules, the latter shall prevail. 2. PRODUCTS The Motion Media product which forms the subject of this Agreement is a special variant of the mm225 videophone as described in Schedule 1, hereinafter called the Videophone. Motion Media reserves the right at any time and from time to time to modify the Videophone without obligation or liability to Talk Visual Corporation provided that the modification does not in any way adversely affect performance or functionality of the product. Motion Media shall provide Talk Visual Corporation with prior notice of any significant modifications. 1 Subject to the minimum term of this agreement arising from clause 5, and on giving Talk Visual Corporation 6 month's notice, Motion Media reserves the right at any time to discontinue the production of the Videophone. 3. TERRITORY Talk Visual Corporation's rights under this Agreement are non-exclusive and its resale rights are restricted to the Territory defined in Schedule II. 4. REGULATORY APPROVALS Talk Visual Corporation is solely responsible for obtaining any necessary regulatory or statutory approvals (e.g. in respect of electro-magnetic emissions or connection to the telecommunications system) required in the territory in which Talk Visual Corporation's products are to be supplied or used. On request, Motion Media will provide Talk Visual Corporation with a copy of any approval or 'sister' approval certificates which it may have obtained in respect of any product it supplies to Talk Visual Corporation hereunder. 5. TERM OF AGREEMENT This Agreement shall be effective as from the date of second signature hereto and shall continue thereafter unless terminated in accordance with clause 14 hereof or unless either party gives at least 6 months notice of termination to the other to take effect not before 18 months after the effective date. 6. PRODUCT PRICE The price to be paid by Talk Visual Corporation for the supply of Videophones shall be as set out in Schedule III. Motion Media reserves the right to review these prices should the exchange rate between the US Dollar and the UK Pound change by 5% or more. 7. PLACEMENT OF ORDERS On the commencement date of this Agreement Talk Visual Corporation shall deliver to Motion Media an order for 10,000 units of the Videophone for delivery no later than 1st June 2003. Within this order will be an irrevocable commitment to take delivery of the first 1,000 units by 1st June 2001. Also on the commencement date of this Agreement Talk Visual Corporation will provide Motion Media with a rolling 12 month schedule of delivery requirements of which the first three months shall be committed orders and the remaining nine months shall be a best estimate. Thereafter by the 25th day of each month, Talk Visual Corporation shall reissue the 12 month schedule so there is always a three month fixed order in place, and a further 9 month forecast. The forecast shall represent Talk Visual Corporation's best estimate but shall be non-binding. 2 All such orders shall comply with Motion Media's minimum shipping quantity set out in Schedule III. 8. PAYMENT TERMS Talk Visual Corporation shall pay for all product ordered from Motion Media in US Dollars. Payment shall be made by Letter of Credit. 9. DELIVERY AND SHIPPING Motion Media's product prices are ex-works (i.e. at Motion Media's premises or the premises of Motion Media's manufacturing sub-contractor). Talk Visual Corporation shall pay all onward carriage charges and all insurance charges and excise duties. 10. WARRANTY Motion Media warrants the Videophones supplied hereunder against defects in materials and workmanship for 15 months from the date of shipment by Motion Media or for 12 months from the date Talk Visual Corporation ships the Videophone to its customers, whichever is the shorter. Defective product must be returned carriage paid by Talk Visual Corporation and will be accepted by Motion Media only if identified by a returns authorisation number issued by Motion Media on request from Talk Visual Corporation and if Talk Visual Corporation conforms to Motion Media's product return procedures. Motion Media will, at its option, repair or replace a returned product found to be faulty. This warranty does not apply if the product has been installed or used other than strictly in accordance with operating and other instructions issued by Motion Media, nor if it has been misused, accidentally or wilfully damaged, modified in any way or repaired by other than Motion Media or its authorised agent. In particular, it does not apply if the product has been connected to an incorrect voltage supply or has been used in a country where any necessary telecommunications connection approval has not been granted. This warranty does not extend to any batteries in the product, nor to damage caused by leakage from batteries, nor to minor defects in any display screen. A minor defect shall mean one which exceeds a count of 9 as indicated within Section 2.9 of the Toshiba specification number G980016-5894. Talk Visual Corporation may not assign this warranty to any customer or other third party. Motion Media will not accept returns from anyone other than Talk Visual Corporation. 3 Motion Media also warrants that the Videophone is Year 2000 Compliant in accordance with the definition within the British Standards Institute (BSI) committee BDD/1/-/3 DISC PD2000-1 Year 2000 Conformance Requirements Report. The provisions of this clause 10 shall survive termination of this agreement. 11. SUPPORT SERVICE AND SPARES Motion Media will provide a telephone support service to assist Talk Visual Corporation, but not Talk Visual Corporation's customers, in resolving problems in installing or using products supplied hereunder. Such service shall be available from 10.00am to 5.00pm UK time, Monday to Friday, except for statutory UK public holidays. Motion Media will provide Talk Visual Corporation with standard test procedures for the Videophone, to help Talk Visual Corporation to identify any failing Videophones. Non-warranty Product Returns In the event of defects outside the warranty period, Motion Media will use reasonable efforts to provide to Talk Visual Corporation, but not to any of Talk Visual Corporation's customers, a product repair or replacement service. If considered practicable by Motion Media, spare parts may also be made available. Any such repair, replacement or spare part provision shall be subject to reasonable charges made by Motion Media. Where prices or charges have been identified at the date of this Agreement, they are included in Schedule III. Nevertheless, Motion Media reserves the right to vary such charges from time to time. All carriage, insurance and duty charges shall be paid by Talk Visual Corporation. New versions of Videophone software Motion Media may, from time to time, release new versions of the software that runs in the Videophone either to enhance the features of the Videophone, or to correct problems in the operation of the Videophone. Motion Media will inform Talk Visual Corporation upon the release of any such new version, explaining the purpose of such release, and provide a copy of the release in a format suitable for upgrading the Videophone. Talk Visual Corporation may at its own discretion and expense use this software to update any Videophones that it sees fit. 12. INTELLECTUAL PROPERTY RIGHTS All intellectual property rights, including patents, copyright, design rights (registered or unregistered) and chip topography rights, in the products supplied to Talk Visual Corporation hereunder shall remain with Motion Media or its supplier or licensor and no such right shall pass to Talk Visual Corporation. Talk Visual Corporation's only rights and licence are those expressly identified in this Agreement. 4 Subject to the restrictions set out below Talk Visual Corporation is authorised to copy and distribute, but only with Talk Visual Corporation's products, documentation which Motion Media supplies with the Videophone. Such authorisation excludes any and all parts of the documentation which are marked with the notation "Confidential" or with similar notation. Talk Visual Corporation's right to copy and distribute extends to modifications, adaptations and translations made by Talk Visual Corporation of the supplied documentation, subject to Talk Visual Corporation holding Motion Media harmless against any third party claim relating to such modification, adaptation or translation. All copies, whether in whole or in part and whether in original, modified, adapted or translated form, of the documentation supplied by Motion Media must include all copyright and other proprietary notices included in the supplied copy. Motion Media warrants that all products and documents furnished under this agreement to Talk Visual Corporation by Motion Media, so far as it is aware, do not infringe any patent, copyright or intellectual property rights of any third parties. 13. CONFIDENTIALITY Neither party shall without the express written authorisation of the other, disclose to any other person or use in any way except in exercising its rights under this Agreement, any confidential information of the other. Upon termination of this Agreement, the receiving party shall return to the other all documents and materials containing such confidential information including all copies thereof. The provisions of this clause 13 shall survive termination of this Agreement for three years. The term "confidential information" shall include any and all data, specifications, designs, plans, know-how, computer programs, customer names and requirements and other technical or business information which is known to one party and is not generally known to the public. 14. TERMINATION Either party may give notice in writing to the other terminating this Agreement with immediate effect if the other is in material breach of any of its obligations hereunder and fails to remedy such breach within thirty (30) days of notice in writing requiring such remedy. Either party may terminate this agreement by giving notice to the other forthwith if the other makes any composition with its creditors or has an administrative receiver appointed of any of its assets or if an order is made or a resolution is passed for its winding-up or an order is made for the appointment of an administrator or, being a natural person or partnership, becomes insolvent or enters into any arrangement with its creditors or has a bankruptcy petition presented against it or if it takes or suffers any action under any jurisdiction similar or analogous to any of the above. Neither party shall be relieved or discharged from any obligations which accrued prior to such termination and termination hereof shall not prejudice the effect of any of the provisions of this Agreement that expressly or by implication come into or continue in effect on or following termination hereof. 5 15. REPRESENTATION Talk Visual Corporation acknowledges that in entering into this Agreement it has not relied on any documentation, statement or representation given or made by or on behalf of Motion Media other than Motion Media's documentation provided hereunder. 16. FORCE MAJEURE Neither party shall be in breach of its obligations under this Agreement or under any liability for any delay, loss or damage due to any cause beyond its reasonable control, including but not limited to acts of nature, Government intervention, strikes and lockouts and delays by suppliers. 17. ASSIGNMENT Talk Visual Corporation may not assign or transfer this Agreement or any rights or claims thereunder. Motion Media shall have the right to assign its rights under this Agreement or to sub-contract any of its duties thereunder. 18. WAIVER Failure by either party to exercise or enforce any rights hereunder shall not be or be deemed to be a waiver of any such right nor prevent enforcement thereof thereafter. 19. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions which shall be construed in all respects as if such invalid or unenforceable provision had been omitted. 20. NOTICES Any notice to be given hereunder shall be given by personal delivery, post or facsimile transmissions to the address of the relevant party as set out in this Agreement or to such other address as a party may have notified the other in accordance herewith. Notice by facsimile transmission shall be confirmed by post. Notice shall be deemed to have been given when personally delivered, or on the third business day after posting, or on the next business day after facsimile transmission. 21. LAW This Agreement shall be governed and construed in accordance with the laws of England and the parties shall submit to the jurisdiction of the English courts. 6 IN WITNESS WHEREOF the parties have executed this Agreement. For Motion Media Technology Limited For Talk Visual Corporation Networks Ltd ..............................................signature .........................................signature ..............................................name .........................................name ..............................................title .........................................title .............................................date .........................................date
7 SCHEDULE I THE VIDEOPHONE The Videophone will be known as the XXX ( TBA) . This will be available in two version. a) North American Market Part No mm xxxxx b) Israeli Market Part No mm yyyyyy The Talk Visual Corporation variant of the mm225 will meet the specification as per Motion Media's brochure No MM/pro/99/00.10, with the exception that the Videophone does not support hands-free speaker phone operation or data sharing when in H.324 interoperation mode, and with the following components a) to f) changed: a) Polycarbonate display screen will have the Motion Media logo removed and replaced with the Talk Visual Corporation logo. b) Rear display label will have the Motion Media logo removed and replaced with the Talk Visual Corporation logo. c) The reference contained within the software to Motion Media's web site address will be deleted and replaced with the web site address of Talk Visual Corporation. d) The user guide will have both front and rear covers redesigned by Talk Visual Corporation. The text content will have, where applicable, the Motion Media detail removed and replaced with Talk Visual Corporation detail. All printing to be carried out by Motion Media. e) The warranty card for the North American market will be redesigned by Talk Visual Corporation. All printing to be carried out by Motion Media. f) The packaging will be a 'vanilla' box with separately applied labels detailing Talk Visual Corporation. Note: The above changes (a-f) will be covered by a once only charge shown in Schedule III. Any future agreed changes to the Videophone will be subject to an additional charge. 8 SCHEDULE II TERRITORY OEM's territory under this agreement shall be: North America Israel 9 SCHEDULE III PRICES The unit cost of the Videophone and out of warranty repairs are detailed below: THE VIDEOPHONE First 1000 units $US XXXX per unit 1001 to 5000 units $US XXXX per unit 5001 to 10,000 units $US XXX per unit Minimum ship quantity 100 units. All orders to be shipped as a single drop. OUT OF WARRANTY REPAIR COST All versions of mm225 $US XXX.00 per unit ONCE OFF CHARGE FOR PRIVATE LABELLING $US15,000 (as per Schedule 1) Prices are ex-works, Bristol, England. 10 EX-10.4 13 0013.txt JOINT VENTURE AGREEMENT EXHIBIT 10.4 THE TALK VISUAL CORPORATION -ENTERTECH MEDIA GROUP JOINT VENTURE This agreement is entered into today the ___________________February 2000, by and between: TALK VISUAL CORPORATION of, 3550 Biscayne Blvd, Miami Fl. 33137, (referred to hereinafter as "TVCP"), AND; ENTERTECH MEDIA GROUP of 50 West Liberty Street, suite 880, Reno, Nevada 89501 (hereinafter referred to as "EnterTech"). TVCP AND ENTERTECH MAY HEREINAFTER BE INDIVIDUALLY REFERRED TO as a "Party" and jointly REFERRED TO as THE "Parties" . Recitals: - --------- Whereby TVCP is in the business of video calling and videoconferencing, and the supplying to the US and Canadian market of a certain Video-telephone named the TV 225, And, Whereas EnterTech are in the business of the supply and distribution of Videos, Films, Movies and related entertainment product. and Whereas both TVCP and, EnterTech are eager to enter into an agreement to jointly provide entertainment related content to customers and subscribers of the new Video-telephone product and service, Now Therefore. - -------------- It is agreed that the Parties enter into this agreement to jointly develop the business of delivering feature films, video based entertainment and any other income producing visual content (the "Content") to users of the recently announced TVCP Video-telephone TV 225 units and its successors now starting to be marketed by TVCP as part of a service package (the "Service"). The following shall set forth the agreed basic terms, conditions and understanding of TVCP and EnterTech (hereinafter individually referred to as a "Party" and jointly referred to as the "'Parties") for this project. The following shall set forth the agreed basic terms, conditions and understanding of TVCP and EnterTech (hereinafter individually referred to as a "Party" and jointly referred to as the "Parties") for this project. 1 1. Exclusive Provider of all Video Based Third party Content: - ------------------------------------------------------------- 1. a) EnterTech shall be the exclusive North American (USA and Canada) provider to TVCP of feature films, video based entertainment and any other income producing visual content (the "Content"). It is intended to make the Content available to subscribers to the Service on a dial up basis thereby giving TVCP's TV225 / Video-telephone users immediate access to a library of feature films, short films and other related entertainment. I. b) It is further agreed that EnterTech shall be given the first right of refusal to become the TVCP Content provider for every other country worldwide. TVCP shall give to EnterTech a notice of first right of refusal on a country by country basis as and when it becomes applicable and EnterTech shall give their response within 30 days of receiving such notice. EnterTech's rights pursuant to this clause shall be granted for the full term of this Agreement and any applicable extension period. 2. Term of this agreement (the "Agreement") - ------------------------------------------- In recognition of the significant amount of preparatory work and commensurate commitment by both parties to this Agreement it is hereby agreed that the minimum duration of this agreement shall be five years from the date of execution. Unless terminated by either party the Agreement shall automatically renew for further periods of five years. The agreement shall only be determinable on written notice given in writing by either party to the other Party at their then registered address no less than twelve months prior to the next renewal date. 3. Licensing - ------------ 3. a) EnterTech warrants that has the right to operate and offer the services and content in all states in the USA and Canada, and shall maintain at all times valid and in effect such licensing as required by the relevant authorities. 3. b). In the event EnterTech is granted rights to other countries pursuant to paragraph 1. b) it undertakes to apply for all applicable licenses as required, and shall maintain at all times valid and in effect such licensing as properly required by the relevant authorities. 4. Availability of Content - -------------------------- EnterTech shall ensure that it shall offer a wide selection of content materials, including but not limited to latest releases movies, news programs, current affairs programs, documentaries, comedy films, dramas, action films, adult films and children's programming. 4 (a) Minimum availability of Content - ------------------------------------- Notwithstanding the undertaking of EnterTech to offer a wide selection of content as referenced in Section 4 above, EnterTech further undertakes to make available at the time of the launch of the provision of Content no less than; 2 of Movies - ------------------ of News Programs and Current Affair programs - ------------------ of Children's Programs - ------------------ of Documentaries - ------------------ 2 5. Pricing of Content - --------------------- Both parties shall mutually agree the pricing of the content provision to the consumer. EnterTech warrants that it has the wherewithal and abilities to, and will, acquire and offer Content at prices that shall allow it to offer the Content to the TVCP customers and subscribers and consumers at a reasonable cost. 6. Revenues: - ------------ The Parties hereby agree to mutually develop the principal aims of the Joint Venture on a best efforts basis and to share equally in all revenues directly generated by the Content. which shall be deemed to include all ancillary revenues and advertising income. The Parties agree herein to institute an appropriate accounting system to ensure that all revenues generated from the Content are accurately and promptly recorded in such a way as to make the division of revenues simple and expedient. 7. Mutual Consideration: - ------------------------ As an initial consideration for entering into this Agreement and for accepting the mutual covenants and undertakings therein and to help ensure the maximum mutual benefit the Parties have agreed to an exchange of common restricted shares in the amount of 1,500,000 (one million five hundred thousand). Each of the Parties therefore hereby undertakes to issue to the other Party a duly restricted stock certificate within seven working days from the execution of this agreement. 8. Validity of terms: - --------------------- If any part of this Agreement is declared invalid for any reason" this ruling shall not affect the validity of the rest of the Agreement. The other parts of the Agreement shall remain in effect as if the Agreement had been executed without the invalid part. The Parties hereby declare that they intend and desire that the remaining parts of the Agreement to 9. Binding Agreement: - --------------------- This Agreement and each of its provisions shall be binding on the heirs, executors, administrators, successors, and assigns of each of the parties hereto. 10. Full Agreement of the Parties: - ---------------------------------- The foregoing Agreement contains the basic terms and conditions of the Parties' agreement and supercedes all previous discussions, representations and agreements. Any and all Modifications or Amendments to this Agreement must be in writing and signed by both Parties. 3 11. Assignment - -------------- Both parties shall have the rights to assign their obligations and rights to a third party, subject to giving the other party a minimum of 30 days notice. The notified party shall have the rights to object to the assignment if it so deems the proposed transaction is detrimental to the ongoing business activities contemplated herein and would have negative effects on its own interests. Otherwise, permission to assign shall not be unreasonably withheld. 3 12. Joint Preparation of the Agreement: - --------------------------------------- Both Parties acknowledge and agree that they have obtained, or had the opportunity to obtain, the advice and counsel of their own respective attorneys and advisors with respect to the language, terms and conditions of this Agreement, and that the Parties are deemed the joint drafters of this Agreement for all purposes of construction and interpretation. 13. Notices - ----------- All notices shall be sent by registered mail to the following addresses of the parties. In the event there is a change of address of either party, the said party shall notify the other within 7 days of such change. TALK VISUAL CORPORATION: 3550 Biscayne Blvd, Miami, Florida 33137 ENTERTECH MEDIA GROUP: 50 West Liberty Street, suite 880, Reno, Nevada 89501 14. Jurisdiction: - ----------------- The validity of this Agreement and of any of its terms or provisions, as well as the rights and duties of the parties under this Agreement, shall be construed pursuant to and in accordance with the laws of the State of Nevada. Parties agree that the interpretation of the validity of this Agreement, as well as the rights and duties of the parties under this Agreement, shall be subject to the jurisdiction of Reno, Nevada. 15. Arbitration - --------------- Both parties agree that in the event of a dispute arising under the terms of this agreement they will submit their claims to the American Association of Arbitration., and agree to be bound by the decision of the arbitrator . The parties enter into this agreement on this day, the Day ----------------- of February, 2000 in Los Angeles County, Los Angeles California. EnterTech Media Group, Inc. Talk Visual Corporation. /S/ John Daly /S/ Michael Zewbne - ------------------------------ ---------------------------- By: John Daly, Chairman By: Michael Zewbner, Chairman 4 EX-10.5 14 0014.txt STANDARD OFFICE BUILDING LEASE EXHIBIT 10.5 Lucky Capital STANDARD OFFICE BUILDING LEASE This Lease Agreement (sometimes hereinafter referred to as the "Lease") made and entered into This 30, day of July 1999, by and between Lucky Capitals. lnc. (Hereinafter called "Landlord"), whose address for purposes hereof is 3550 Biscayne Blvd. Suite 404. Miami. FL 33137 and Talk Visual Corporation (hereinafter called "Tenant"), whose address for purposes hereof until the commencement of the Term of this Lease is One Canal Park. 3rd Floor. MA 02142 and after commencement of the Term of this Lease shall be the "Building" (hereinafter defined). WITNESSETH: LEASED PREMISES 1. Subject to and upon the terms, provisions, covenants and conditions hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, Landlord does hereby lease, demise and let to Tenant and Tenant does hereby lease, demise and let from Landlord those certain premises (hereinafter sometimes called the "Premises" or "Leased Premises") in the building known as Lucky Capital (hereinafter called the "Building") located at 3550 Biscayne Blvd. Suite 704/706. Miami, FL 33137, such Leased Premises being more particularly described as follows: approximately 3,143 SQ. ft. Net Rent able square feet of Net Rent able Area (hereinafter defined) located on the Suite 704/706, 7tb floor of the Building as reflected on the floor plan of such Leased Premises attached hereto as Exhibit" A " and made a part hereof, identified by the signatures or initials of Landlord and Tenant. The terms "Net Rent able Area", and "Proportionate Part" as used herein, shall refer to both sections one and two as follows: (i) in the case of a single tenancy floor, all space measured from the inside surface of the outer glass of the Building to the inside surface of the opposite outer wall, excluding only the areas ("Service Areas") within the outside walls used for building stairs, fire towers, elevator shafts, flues, vents, pipe shafts and vertical ducts, but including any such areas which are for the specific use of the particular tenant such as special stairs or elevators, and (ii) in the case of a multi-tenancy floor, all space within the inside surface of the outer glass enclosing the tenant occupied portion of the floor and measured to the midpoint of the walls separating areas leased by or held for lease to other tenants or from areas devoted to corridors, elevator foyers, rest rooms and other similar facilities for the use of all tenants, on the particular floor and in the Building (hereinafter sometimes called "Building Common Areas" and "Floor Common Areas"), but including a proportionate part of the Common Areas located on such floor and in the building. No deductions from Net Rent able Areas are made for columns necessary to the Building. The Net Rent able Areas in the Leased Premises and in the Building have been calculated on the basis of the foregoing definitions and are hereby stipulated above as to the Leased Premises, whether the same should be more or less as a result of minor variations resulting from actual construction and completion of the Leased Premises for occupancy so long as such work is done substantially in accordance with the approved plans, and 47.000 net rent able square feet as to the Building. TERMS 2. This Lease shall be for the term of Three (3) years with a $.50 increase each year commencing on the 1st of July 1999 and ending on the 30th of June 2002 (hereinafter sometimes referred to as the "Lease Term" or "Term"), unless sooner terminated or extended as provided herein. OPTION TERMS WHEN APPLICABLE Time is of the Essence and Tenant must exercise the Option, if at all, by delivering written notice 90 days prior to the Lease expiration. If notice is not given in the manner provided herein within the time specified, this option shall expire. Tenant's right to exercise the Option shall 1 be conditioned upon Tenant not being in default of the Lease at the time when the Notice of Exercise is delivered to the Landlord. Should Tenant be in default at the time when the Notice of Exercise is sent, Tenant's Notice of Exercise shall, at the sole option of the Landlord, be deemed null and void and of no force and effect. If the Landlord is unable to give possession of the Leased Premises on the date of the commencement of the aforesaid Lease Term by reason of the holding over of any prior tenant or tenants or for any other reasons, an abatement or diminution of the rent to be paid hereunder shall be allowed Tenant under such circumstances until possession is given to Tenant, but nothing herein shall operate to extend the initial Term of the Lease beyond the agreed expiration date, and said abatement in rent shall be the full extent of Landlord's liability to Tenant for any loss or damage to Tenant on account of said delay in obtaining possession of the Premises. There shall be no delay in the commencement of the Term of this Lease and/or payment of rent where Tenant fails to occupy premises when it are ready for occupancy, or when Landlord shall be delayed in substantially completing such Leased Premises as a result of: (a) Tenant's failure to promptly furnish working drawings and plans as required or (b) Tenant's failure to approve cost estimates within one (I) week or (c) Tenant's failure to promptly select materials, finishes, or installation or (d) Tenant's changes in plans (notwithstanding Landlord's approval of any such changes), (e) Any other act of omission by Tenant or its agents, or failure to promptly make other decisions, necessary to the preparation of the Leased Premises for occupancy. The commencement of the Term and the payment of rent shall not be affected, delayed or deferred on account of any of the foregoing. For the purposes of this paragraph, the Leased Premises shall be deemed substantially completed and ready for occupancy by Tenant when Landlord's Supervising Architect certifies that the work required of Landlord, if any, has been substantially completed in accordance with said approved plans and specifications. Taking possession of the Leased Premises by Tenant shall be conclusive evidence as against Tenant that the Leased Premises were in good and satisfactory condition when possession was so taken. This Lease does not grant any right to light or air over or about the Leased Premises or Building. If Tenant. with Landlord's consent. shall occupy the Leased Premises prior to the beginning of the Lease Term as specified hereinabove. all provisions of this Lease shall be in full force and effect commencing upon such occupancy, and rent for such period shall be paid by Tenant at the same rate herein specified. BASE RENT 3. Tenant agrees to pay Landlord a total "Base Rental" of One hundred twenty-seven thousand four hundred eighty dollars and eighty-five cents ($127,480.85) being an annual Base Rental of Year 1-$51,180.00, Year 2-$53,227.20, Year 3-$23,073.65 in equal monthly installments of Year 1-$4,265.00, Year 2-$4,435.60, Year 3-$4,614.73, which is computed at a Base Rental of N/A per rent able square foot per annum for each and every calendar month of the Term of this Lease, without any offset or deduction whatsoever, in lawful (legal tender for public or private debts) money of the United States of America, at the Management Office of the Building or elsewhere as designated from time to time by Landlord's written notice to Tenant. Landlord upon execution of this Lease by Landlord and Tenant shall hereby acknowledge payment by Tenant of the sum of $4.265.00 representing payment of rental for the first full calendar month of February for this Lease. The balance of the total Base Rental is payable in equal monthly installments as specified 2 above, on the first day of each month hereafter ensuing, the first of which shall be due and payable on the first of March. 2000. If the Term of this Lease commences on any day of a month excepting the first day, Tenant shall pay Landlord rental as provided for herein for such commencement month on a pro-rata bases {such peroration to be based on the actual number of days in the commencement month), and the first month's rent paid by Tenant. if any, upon execution of this Lease shall apply and be credited to the next full month's rent due hereunder. Rental for any partial month of occupancy at the end of the Term of this Lease will be prorated, such peroration to be based on the actual number of days in the partial month. In addition to Base Rental, Tenant shall and hereby agrees to pay to Landlord each month a sum equal to any sales tax, tax on rentals, and any other charges, taxes and/or impositions now in existence or hereafter imposed based upon the privilege of renting the space leased hereunder or upon the amount of rentals collected therefore. Nothing herein shall, however, be taken to require Tenant to pay any part of any Federal and State Taxes on income imposed upon Landlord. Tenant shall be required to pay Landlord a late fee of Twenty Five Dollars ($25.00) or interest on any rental due that remains unpaid for Five (5) days after its due date, whichever is greater. Said interest will be computed at the maximum legal rate from due date. Pay any part of any Federal and State Taxes on income imposed upon Landlord. Tenant shall be required to pay Landlord a late fee of Twenty Five Dollars ($25.00) or interest on any rental due that remains unpaid for Five (5) days after its due date, whichever is greater. Said interest will be computed at the maximum legal rate from due date. ADDITIONAL RENT 4. (a) In the event that the cost to the LANDLORD for the Operating Expenses of the Building, its appurtenances, and/or the land on which it is located, as hereinafter defined, during any calendar year of the Lease Term subsequent to the Base Year (which the parties hereto agree shall be calendar year 1999) shall exceed the cost to the LANDLORD for the Operating Expenses of the Building, its appurtenances, and/or the land on which it is located, during the Base Year, then TENANT shall pay to LANDLORD as additional rent TENANT's "proportionate share" (as such term is hereinafter defined) of the increase in such costs for each calendar year, if any. The proportionate share to be paid by the TENANT shall be the percentage which the Net Rent able Area then leased by the TENANT in the Building bears to the Total Net Rent able Area contained in the Building, which is ~ net rent able square feet. Based upon the Net Rent able Area of the Leased Premises, Tenant's "proportionate share" is Th. The amount of such additional rent due from Tenant, if any, shall be determined by multiplying Tenant's proportionate share by any increase in Operating Expenses over the Operating Expenses of the Base Year, except that such additional rent shall be prorated for any partial calendar year following the commencement of the Lease Tenn. (b) Tenant's obligation to pay Tenant's proportionate share of the Operating Expenses shall commence as of the beginning of the first full calendar year following the Base Year. (c) The term "Operating Expenses" as used herein shall mean the cost of all expenses, cost and disbursements of every kind and nature which LANDLORD shall pay or become obligated to pay because of or in connection with the ownership, maintenance and/or operation of the Building, its appurtenances, and/or the land on which it is located, computed on the accrual basis, but shall not include the replacement of capital investment items and new capital improvements, except capital improvements made to the Building subsequent to the commencement date of this Lease that will improve operating efficiency amortized on a straight-line basis over the useful life of the improvement. By way of explanation and clarification, but not by way of limitation, these Operating Expenses will include the following: 3 1. Wages and salaries of all employees engaged in operation, maintenance, and security of the Building, its appurtenances, and/or the land on which it is located, employer's social security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages and salaries; the cost of disability and hospitalization insurance, pension or retirement benefits, or any other fringe benefits for such employees. 2. All supplies and materials used in operation and maintenance of the Building, its appurtenances, and/or the land on which it is located. 3. Cost of all utilities including water, sewer, electricity, gas and fuel oil used by the Building, its appurtenances, and/or the land on which it is located. and not charged directly to another tenant. 4. Cost of customary Building management, including a reasonable management fee; janitorial services; trash and garbage removal; servicing and maintenance of all systems and equipment, including, but not limited to, elevators, plumbing, heating, air conditioning, ventilating, lighting, electrical, security and fire alarms, fire pumps, fire-extinguishers and hose cabinets, mail chute, and staging; security service; painting; window cleaning; landscaping and gardening. 5. Cost of all insurance, including, but not limited to, fire, casualty, liability, and rental abatement, insurance applicable to the Building, its appurtenances, and/or the land on which it is located, and LANDLORD's personal property used in connection therewith. 6. All real and personal property taxes (or payments in lieu of such taxes), excise taxes, levies and fees, and assessments and governmental charges whether federal, state, county or municipal, whether general or special, ordinary or extraordinary, unforeseen or foreseen, and whether they be taxing districts or authorities presently taxing the Leased Premises or by others, subsequently created or otherwise, and any other taxes and assessments attributable to the Building, its appurtenances, and/or the land on which it is located, or its operation excluding, however, federal and state taxes on income. 7. Cost of repairs, replacements and general maintenance- (d) In the event the Operating Expenses in any year after the Base Year are reduced because of a major capital improvement or by the use of automation, then the Operating Expenses for the Base Year shall be reduced for the purpose of determining additional rent as though such improvement or automation was in effect during the Base Year. LANDLORD shall notify TENANT within ninety (90) days after the end of the Base Year and each calendar year thereafter during the term hereof, of the amount which LANDLORD estimates (as evidenced by budgets prepared by or on behalf of LANDLORD) will be the amount of TENANTs proportionate share of increases in Operating Expenses for the then current calendar year and TENANT shall pay such sum in advance to LANDLORD in equal monthly installments, during the balance of said calendar year, on the first day of each remaining month in said calendar year commencing on the first day of the first month following TENANTs receipt of such notification. Within ninety (90) days following the end of each calendar year after the Base Year, LANDLORD shall submit to TENANT a statement showing the actual amount which should have been paid by TENANT with respect to increases in Operating Expenses for the past calendar year, the amount thereof actually paid during that year by TENANT and the amount of the resulting balance due thereon, or overpayment thereof, as the case may be. Within thirty (30) days after receipt by TENANT of said statement, TENANT shall have the right in person to inspect LANDLORD's books and records showing the Operating Expenses for the Building for the calendar year covered by said statement. Said statement shall become final and conclusive between the parties, their successors and assigns as to the matters set forth therein unless LANDLORD receives written objections with respect thereto within said thirty (30) day period. Any balance shown to be due pursuant to said statement shall be paid by TENANT to LANDLORD within thirty (30) days following TENANT's receipt thereof and any overpayment shall be immediately credited against TENANTs obligation to pay expected additional rent in connection with anticipated increases in Operating Expenses or, if by reason of any termination of the Lease no such future obligation exists, refunded to TENANT. Anything herein to the contrary notwithstanding, TENANT shall not delay or withhold payment of any balance shown to be due pursuant to a statement rendered by LANDLORD to TENANT, pursuant to the terms hereof, because of any objection which TENANT may raise with respect 4 thereto and LANDLORD shall immediately credit any overpayment found to be owing to TENANT against TENANTs proportionate share of increases in Operating Expenses for the then current calendar year (and future calendar years, if necessary) upon the resolution of said objection or, if at the time of the resolution of said objection the Lease Term has expired, immediately refund to TENANT any overpayment found to be owing to TENANT. (e) The covenant of Tenant to pay Tenant's proportionate share shall survive the termination of the Lease. TIME OF PAYMENT 6. Tenant agrees: that Tenant will promptly pay said rents (Base Rental as the same may be adjusted from time to time pursuant to paragraph 5 and Additional Rental), at the time and place stated above; that Tenant will pay charges for work performed on order of Tenant, and any other charges that accrue under this Lease; that, if any part of the rent or above mentioned charges shall remain due and unpaid for seven days next after the same shall become due' and payable. Landlord shall have the option (in addition to all other rights and remedies available to it by law and in equity) of declaring the balance of the entire rent for the entire Term of this Lease to be immediately due and payable, and Landlord may then proceed to collect all of the unpaid rent called for by this Lease by distress or otherwise. SECURITY DEPOSIT 7. Tenant, concurrently with the execution of this Lease, shall deposit with Landlord the sum of $3,666.83 the receipt of which is hereby acknowledged by Landlord, which sum shall be retained by Landlord as security for the payment by Tenant of the rents and all other payments herein agreed to be paid by Tenant, and for the faithful performance by Tenant of the terms, provisions, covenants and conditions of this Lease. It is agreed that Landlord, at Landlord's option, may at the time of any default by Tenant under any of the terms, provisions, covenants or conditions of the Lease apply said sum or any part thereof toward the payment of the rents and all other sums payable by Tenant under this Lease, and towards the performance of each and every one of Tenant's covenants under this Lease, but such covenants and Tenant's liability under this Lease shall thereby be discharged only pro tanto that Tenant shall remain liable for any amounts that such sum shall be insufficient to pay; that Landlord may exhaust any and all rights and remedies against Tenant before resorting to said sum, but nothing herein contained shall require or be deemed to require Landlord so to do; that, in the event this deposit shall not be utilized for any such purposes, then such deposit shall be returned by Landlord to Tenant within ten (10) business days next after the expiration of the Term of this Lease or the determination and payment of the amount due under paragraph 4 of this Lease, if any, which ever later occurs. Landlord shall not be required to pay Tenant any interest on said security deposit. USE 8. The Tenant will use & occupy the Lease Premises for the following use or purpose and for no other use or purpose: Administrative Offices. QUIET ENJOYMENT 9. Upon payment by Tenant of the rents herein provided, and upon the observance and performance offal terms, provisions, covenants and conditions on Tenant's part to be observed and performed, Tenant shall, subject to all of the terms, provisions, covenants and conditions of this Lease Agreement, peaceably and quietly hold and enjoy the Lease Premises for the Terms hereby demised. INSURANCE PREMIUMS 10. If the Landlord's insurance premiums exceed the standard premium rates because the nature of Tenant's operation results in extra hazardous exposure, the Tenant shall, upon receipt of appropriate invoices from Landlord, reimburse Landlord for such increase in premiums. It is understood and agreed between the parties hereto that any such increase in premiums shall be considered as rent due and shall be included in any lien for rent. 5 RULES AND REGULATIONS 11. Tenant agrees to comply with all rules and regulations Landlord may adopt from time to time for operation of the Building and Parking Facilities and protection and welfare of Building and Parking Facilities, its tenants, visitors and occupants. The present rules and regulations, which Tenant hereby agrees to comply with, entitled "Rules and Regulations" are attached hereto and are by this reference incorporated herein. Any future rules and regulations shall become a part of this Lease, and Tenant hereby agrees to comply with the same upon delivery of a copy thereof to Tenant, providing the same do not materially deprive Tenant of its rights established under this Lease. GOVERNMENTAL REQUIREMENTS 12. That the Tenant Talk Visual Corporation shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and City Government and of any and all their Departments and Bureaus applicable to said premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon, or connected with said premises during said term; and shall also promptly comply with and execute all rules, orders and regulations of the applicable fire prevention codes for the prevention of fires, at Tenant's own cost and expense, and Tenant will furnish Landlord with any and all documentation without demand. SERVICES 13. Landlord will furnish the following services to Tenant (A) Cleaning services, deemed by Landlord to be normal and usual in a first class office building, on Monday through Friday, except that shampooing and replacement of carpet as required by Tenant shall be Tenant's expense. (B) Automatically operated elevator service, public stairs, electrical current for lighting, incidentals, and normal office use, and water at those points of supply provided for general use of its Tenants at all times and on all days throughout the year. (C) Heat and air conditioning on Monday through Friday from 8:30 A.M. to 7:00 P.M. and Saturday from 8:30 am to 12:00 pm except Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, Christmas Day and New Year's Day. Landlord shall also furnish heat and air conditioning at such other times as are not provided for herein, provided Tenant gives written request to Landlord before 2:00 P.M. of the business day preceding the extra usage and if Tenant requires heat and air conditioning during such hours, Tenant shall be billed for such service at the rate of $15.00 per hour per unit turned on and said rate may be changed with thirty (30) days prior written notice. No electric current shall be used except that furnished or approved by Landlord, nor shall electric cable or wire be brought into the Leased Premises, except upon the written consent and approval of the Landlord which shall not be unreasonably withheld. Tenant shall use only office machines and equipment that operate on the Building's standard electric circuits, but which in no event shall overload the Building's standard electric circuits from which the Tenant obtains electric current. Any consumption of electric current in excess of that considered by Landlord to be used, normal and customary for all Tenants, or which require special circuits or equipment (the installation of which shall be at Tenant's expense after approval in writing by the Landlord), shall be paid for by the Tenant as additional rent paid to the Landlord in an amount to be determined by Landlord, based upon Landlord's estimated cost of such excess electric current consumption or based upon the actual cost thereof if such excess electric current consumption is separately metered. 6 Such services shall be provided as long as the Tenant is not in default under any of the terms, provisions, covenants and conditions of this Lease, subject to interruption caused by repairs, renewals, improvements, changes to service, alterations, strikes, lockouts, labor controversies, inability to obtain fuel or power, accidents, breakdowns, catastrophes, national or local emergencies, acts of God and conditions and causes beyond the control of Landlord, and upon such happening, no claim for damages or abatement of rent for failure to furnish any such services shall be made by the Tenant or allowed by the Landlord. TENANT WORK 14. It is understood and agreed between the parties hereto that any charges against Tenant by Landlord for services or for work done on the Leased Premises by order of Tenant, or otherwise accruing under this Lease, shall be considered as rent due and shall be included in any lien for rent. REPAIR OF LEASED PREMISES 15. Tenant will, at Tenant's own expense, keep the Leased Premises in good repair and tenantable condition during the Lease Term and will replace at its own expense any and all broken glass caused by Tenant in and about said Leased Premises. Tenant will make no alterations, additions or improvements in or to the Leased Premises without the written consent of Landlord, which shall not be unreasonably withheld, but may be predicated upon but not limited to Tenant's use of contractors who are acceptable to Landlord, and all additions, fixtures, carpet or improvements, except only office furniture and fixtures which shall be readily removable without injury to the Leased Premises, shall be and remain a part of the Leased Premises at the expiration of this Lease. It is further agreed that this Lease is made by the Landlord and accepted by the Tenant with the distinct understanding and agreement that the Landlord shall have the right and privilege to make and build additions to the Building of which the Leased Premises are a part, and make such alterations and repairs to said Building as it may deem wise and advisable without any liability to the Tenant therefore. INDEMNIFICATION 16. Tenant further agrees that Tenant will pay all liens of contractors, subcontractors, mechanics, laborers, material men, and other items of like character, and will indemnify Landlord against all expenses, costs and charges, including bond premiums for release of liens and attorneys' fees and costs reasonably incurred in and about the defense of any suit in discharging the said Premises or any part thereof from any liens, judgments, or encumbrances caused or suffered by Tenant. In the event any such lien shall be made or filed, Tenant shall bond against or discharge the same within ten (10) days after the same has been made or filed. It is understood and agreed between the parties hereto that the expenses, costs and charges above referred to shall be considered as rent due and shall be included in any lien for rent. The Tenant herein shall not have any authority to create any liens for labor or materials on the Landlord's interest in the Leased Premises and all persons contracting with the Tenant for the destruction or removal of any facilities or other improvements or for the erection, installation, alteration, or repair of any facilities or other improvements on or about the Leased Premises, and all material men, contractors. subcontractors, mechanics, and laborers are hereby charged with notice that they must look only to the Tenant and to the Tenant's interests in the Leased Premises to secure the payment of any bill for work done or material furnished at the request or instruction of Tenant. PARKING 17. Tenant is hereby granted the nonexclusive privilege to use Fifteen (15) Parking! spaces, unassigned parking spaces in the parking lot for use by itself and its agents. Tenant shall abide by all rules and regulations as concerns the use of the aforementioned parking area as may now exist or as may 7 hereinafter be promulgated by the Landlord, and a violation of this clause and or the rules referred to above shall constitute, upon reasonable notice to Tenant, at the option of Landlord, a default by the Tenant in the terms, conditions and covenants of this Lease or Landlord shall have the right to revoke Tenant's parking privileges provided by this paragraph and such revocation shall not affect any other rights, duties or obligations as provided for in this Lease. These parking spaces will be charged to the Tenant on a monthly basis according to the monthly rate in effect from time-to-time and are in addition to Base Rent or any other charges required to be made pursuant to the provisions of this Lease. The Landlord for the exclusive use of Tenant or other tenants subject to change by Landlord may designate parking spaces. Tenant agrees that any parking cards, stickers or related materials supplied by Landlord to Tenant shall remain the property of Landlord and, upon termination of this Lease or revocation of Tenant's Parking privileges, whichever shall first occur. Tenant shall promptly return such cards, stickers and related materials to Landlord. ESTOPPEL STATEMENT 18. Tenant agrees that from time to time, upon not less then ten (10) days prior request by Landlord, Tenant will deliver to Landlord a statement in writing certifying (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease as modified is in full force and effect and stating the modifications); (b) the dates to which the rent and other charges have been paid; and (c) that Landlord is not in default under any provisions of this Lease, or, if in default, the nature thereof in detail. SUBORDINATION 19. If the Building and/or Leased Premises are at any time subject to a mortgage and/or deed of trust. and Tenant has received written notice from Mortgagee of same, then in any instance in which Tenant gives notice to Landlord alleging default by Landlord hereunder, Tenant will also simultaneously give a copy of such notice to each Landlord's Mortgagee and each Landlord's Mortgagee shall have the right (but not the obligation) to cure or remedy such default during the period that is permitted to Landlord hereunder, plus an additional period of thirty (30) days, and Tenant will accept such curative or remedial action (if any) taken by Landlord's Mortgagee with the same effect as if such action had been taken by Landlord. This Lease shall at Landlord's option, which option may be exercised at any time during the Lease Term, be subject and subordinate to any first mortgage now or hereafter encumbering the Building. This provision shall be self-operative without the execution of any further instruments. Notwithstanding the foregoing, however, Tenant hereby agrees to execute any instrument(s) which Landlord may deem desirable to evidence the subordination of this Lease to any and all such mortgages. ATTORNMENT 20. If the interest of Landlord under this Lease shall be transferred voluntarily or by reason of foreclosure or other proceedings for enforcement of any first mortgage on the Leased Premises. Tenant shall be bound to such transferee (herein sometimes called the "Purchaser") for the balance of the Term hereof remaining, and any extensions or renewals thereof which may be effective in accordance with the terms and provisions hereof with the same force and effect as if the Purchaser were the Landlord under this Lease, and Tenant does hereby agree to attorn to the Purchaser, including the Mortgagee under any such mortgage if it be the Purchaser, as its Landlord, said atonement to be effective and self-operative without the execution of any further instruments upon the Purchaser succeeding to the interest of the Landlord under this Lease. The respective rights and obligations of Tenant and the Purchaser upon such atonement, to the extent of the remaining balance of the Term of this Lease and any such extensions and renewals, shall be and are the same as those set forth herein. In the event of such transfer of Landlord's interest. Landlord shall be released and relieved from all liability and responsibility thereafter accruing to Tenant under Lease or otherwise and Landlord's successor by acceptance of rent from Tenant hereunder shall become liable and responsible to Tenant in respect to all obligations of the Landlord under this Lease. 8 ASSIGNMENT 21. Without the written consent of Landlord first obtained in each case, which shall not be unreasonably withheld. Tenant shall not assign, transfer, mortgage, pledge, or otherwise encumber or dispose of this Lease or underlet the Leased Premises or any part thereof or permit the Leased premises to be occupied by other persons. In the case of a subletting, Landlord's consent may be predicated, among other things, upon Landlord becoming entitled to collect and retain all rentals payable under the sublease. If this Lease be assigned, or if the Leased Premises or any part thereof be underlet or occupied by anybody other than Tenant, the Landlord may, after default by the Tenant, collect or accept rent from the assignee, under tenant, or occupant and apply the net amount collected or accepted to the rent herein reserved, but no such collection or acceptance shall be deemed a waiver of this covenant or the acceptance of the assignee, under tenant, or occupant as Tenant, nor shall it be construed as or implied to be a release of the Tenant from the further observance and performance by the Tenant of the terms, provisions, covenants and conditions herein contained. In lieu of consenting or not consenting, Landlord may, at its option, (i) in the case of the proposed assignment or subletting of Tenant's entire leasehold interest, terminate this Lease in its entirety, or (ii) in the case of the proposed assignment or subletting of a portion of the Premises, terminate this Lease as to that portion of the Premises which Tenant has proposed to assign or sublet. In the event Landlord elects to terminate this Lease pursuant to clause (ii) of this paragraph. Tenant's obligations as to base Rental and Additional Rent shall be reduced in the same proportion that the Net Rent able Area of the portion of the Premises taken by the proposed assignee or subtenant bears to the total Net Rent able Area of the Premises. SUCCESSORS AND ASSIGNS 22. All terms, provisions, covenants and conditions to be observed and performed by Tenant shall be applicable to and binding upon Tenant's respective heirs, administrators, executors, successors and assigns, subject, however, to the restrictions as to assignment or subletting by Tenant as provided herein. All expressed covenants of this Lease shall be deemed to be covenants running with the land. HOLD HARMLESS OF LANDLORD 23. In consideration of said Premises being leased to Tenant for the above rental, Tenant agrees: that Tenant, at all times, will indemnify and keep Landlord handless from all losses, damages, liabilities and expenses, which may arise or be claimed against Landlord and be in favor of any persons, firms or corporations, consequent upon or arising from the use or occupancy of said Premises by Tenant, or consequent upon or arising from any acts, omissions, neglect or fault of Tenant, his agents, servants, employees, licensees, visitors, customers, patrons or invitee, or consequent upon or arising from Tenant's failure to comply with any laws, statutes, ordinances, codes or regulations as herein provided; that Landlord shall not be liable to Tenant for any damages, losses or injuries to the persons or property of Tenant which may be caused by the acts, neglect, omissions or faults of any persons, fines or corporations, except when such injury, loss or damage results from negligence of Landlord, his agents or employees, and that Tenant will indemnify and keep harmless Landlord from all damages, liabilities, losses, injuries, or expenses which may arise or be claimed against Landlord and be in favor of any person, fin11s or corporations, from any injuries or damages to the person or property of any persons, fines or corporations, where said injuries or damages arose about or upon said Premises, as a result of the negligence of Tenant, his agents, employees, servants, licensees, visitors, customers, patrons, and invitee. All personal property placed or moved into the Leased Premises or Building shall be at the risk of Tenant or the owner thereof, and Landlord shall not be liable to Tenant for any damage to said personal property. Tenant shall maintain at all times during the Term of this Lease an insurance policy or policies in an amount sufficient in Landlord's opinion, to indemnify Landlord or pay Landlord's damages, if any, resulting from any matters set forth hereinbefore in this paragraph 23. In case Landlord shall be made a party to any litigation commenced against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by Landlord in connection with such litigation and any appeal thereof. 9 AN ATTORNEYS' FEES 24. If either party defaults in the performance of any of the terms, provisions, covenants and conditions of this Lease and by reason thereof the other party employs the services of an attorney to enforce performance of the covenants, or to perform any service based upon defaults, then in any of said events the prevailing party shall be entitled to reasonable attorneys' fees and all expenses and costs incurred by the prevailing party pertaining thereto (including costs and fees relating to any appeal) and in enforcement of any remedy. DAMAGE OR DESTRUCTION 25. In the event the Leased Premises shall be destroyed or so damaged or injured by fire or other casualty, during the Term of this Lease, whereby the same shall be rendered untreatable, the Landlord shall have the right, but not the obligation, to render such Leased Premises tenantable by repairs within 180 days there from. Landlord agrees that, within 60 days following damage or destruction, it shall notify Tenant with respect to whether or not Landlord intends to restore the premises. If said Premises are not rendered tenantable within the aforesaid 180 days it shall be optional with either party hereto to cancel this Lease, and in the event of such cancellation the rent shall be paid only to the date of such fire and casualty. The cancellation herein mentioned shall be evidenced in writing. During any time that the Leased Premises are untreatable due to causes set forth in this paragraph, the rent or a just and fair proportion thereof shall be abated. Notwithstanding the foregoing, should damage, destruction or injury occur by reason of Tenant's negligence. Landlord shall have the right, but not the obligation, to render the Leased Premises tenantable within 360 days of the date of damage. destruction or injury and no abatement of rent shall occur. Notwithstanding the foregoing. should damage or destruction occur during the last twelve months of the Lease Term either Landlord or Tenant shall have the option to terminated this Lease. effective on the date of damage or destruction, provided notice to terminate is given within 30 days of the date of such damage or destruction. Notwithstanding the foregoing, should the damage or destruction occur by reason of Tenant's negligence, Tenant shall not have such option to terminate. EMINENT DOMAIN 26. If there shall be taken during the Term of this Lease any part of the Leased Premises, Parking Facilities or Building. other than a part not interfering with maintenance, operation or use of the Leased premises, Landlord may elect to terminate this Lease or to continue same in effect. If Landlord elects to continue the Lease. the rental shall be reduced in proportion to the area of the Leased Premises so taken and Landlord shall repair any damage to the Leased Premises, parking facilities, or Building resulting from such taking. If any part of the Leased Premises is taken by condemnation or Eminent Domain which renders the Premises unsuitable for its intended use. the Tenant may elect to terminate this Lease, or if any part of the Leased Premises is so taken which does not render the Premises unsuitable for its intended use, this Lease shall continue in effect and the rental shall be reduced in proportion to the area of the Leased Premises so taken and Landlord shall repair any damage to the Leased Premises resulting from such taking. If all of the Leased Premises is taken by condemnation or Eminent Domain. this Lease shall terminate on the date of the taking. All sums awarded (or agreed upon between Landlord and the condemning authority) for the taking of the interest of Landlord and/or Tenant. whether as damages or as compensation. and whether for partial or total condemnation, will be the property of Landlord. If this Lease should be terminated under any provisions of this paragraph, rental shall be payable up to the date that possessions is taken by the authority, and Landlord will refund to Tenant any prepaid unaccrued rent less any sum or amount than owing by Tenant to Landlord. ABANDONMENT 27. If, during the term of this Lease, Tenant shall abandon, vacate or remove from the Leased Premises the major portion of the goods, wares, equipment or furnishings usually kept on said Leased Premises, or shall cease doing business in said Leased Premises, or shall suffer the rent to be in arrears. Landlord may, at its option, cancel this Lease in the manner stated in paragraph 28 hereof, or Landlord may enter said Leased Premises as the agent of 10 Tenant by force or otherwise, without being liable in any way therefore and relit the Leased Premises with or without any furniture that may be therein, as the agent of Tenant, at such price and upon such terms and for such duration of time as Landlord may determine, and receive the rent therefore, applying the same to the payment of the rent due by these presents, and if the full rental herein provided shall not be realized by Landlord over above the expenses to Landlord of such relenting. Tenant shall pay any deficiency. UPON THE EXPIRATION OR TERMINATION OF THIS LEASE, OR IN THE EVENT THAT LESSEE ABANDONS THE PREMISES, ANY PERSONAL PROPERTY THAT LESSEE LEA VES A T THE DEMISED PREMISES SHALL BE DEEMED TO HAVE BEEN ABANDONED AND MA Y BE EITHER RETAINED BY LESSOR AS THE PROPERTY OF LESSOR OR MAYBE DISPOSED OF AS LESSOR SEES FIT. INSOLVENCY 28. It is agreed between the parties hereto that: if Tenant shall be adjudicated a bankrupt or an insolvent or take the benefit of any federal reorganization or composition proceeding or make a general assignment or take the benefit of any insolvency law, or if Tenant's leasehold interest under this Lease shall be sold under any execution or process of law, or if a trustee in bankruptcy or a receiver be appointed or elected or had for Tenant (whether under Federal or State laws), or if said Premises shall be abandoned or deserted; or if Tenant shall fail to perform any of the terms, provisions, covenants or conditions of this Lease on Tenant's part to be performed; or if this Lease or the Term thereof be transferred or pass to or devolve under any persons, firms, officers or corporations other than Tenant by death of the Tenant, operation of law or otherwise, than and in any such events, at the option of Landlord, the total remaining unpaid Base Rental for the Term of this Lease shall become due and payable or this Lease and the Term of this Lease shall expire and end five (5) days after Landlord has given Tenant written notice (in the manner hereinafter provided) of such act, condition or default and Tenant hereby agrees immediately then to pay said Base Rental or quit and surrender said Leased Premises to Landlord; but this shall not impair or affect Landlord's right to maintain summary proceedings for the recovery of the possession of the Leased Premises in all cases provided for by law. If the Term of this Lease shall be so terminated, Landlord may immediately, or at any time thereafter, re-enter or repossess the Leased Premises and remove all persons and property there from without being liable for trespass or damages. LIEN FOR PAYMENT OR RENT 29. Tenant hereby pledges and assigns to Landlord as security for the payment of any and all rental or other sums or amounts provided for herein, all of the furniture, fixtures, goods and chattels of Tenant which shall or may be brought or put on or into said Leased Premises, and Tenant agrees that said lien may be enforced by distress, foreclosure or otherwise, at the election of the Landlord. Tenant hereby expressly waives and renounces for himself and family any and all homestead and exemption rights he may now have or hereafter acquire under or by virtue of the constitution and laws of the State of Florida or of any other state, or of the United States, as against the payment of said rental or any other obligations or damage that may accrue under the Terms of this Lease. WANER OF DEFAULT 30. Failure of Landlord to declare any default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default, but Landlord shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, in law and/or in equity. No waiver by Landlord of a default by Tenant shall be implied, and no express waiver by Landlord shall affect any default other than the default specified in such waiver and that only for the time and extension therein stated. No waiver of any term, provision, condition or covenant of this Lease by Landlord shall be deemed to imply or constitute, a further waiver by Landlord of any other term, provision, condition or covenant of this Lease. In addition to any rights and remedies specifically granted Landlord herein. Landlord shall be entitled to all rights and remedies available at law and in equity in the event that Tenant shall fail to perform any of the terms, provisions, covenants or conditions of this Lease on Tenant's part to be performed or fails to pay Base Rental, Additional Rental or any other sums due Landlord hereunder when due. All rights and remedies specifically granted to Landlord herein by law and in equity shall be cumulative and not mutually exclusive. 11 RIGHT OF ENTRY 31. Landlord. or any of his agents. shall have the right to enter the Leased Premises during all reasonable hours to examine the same or to make such repairs. additions or alterations as may be deemed necessary for the safety. comfort. or preservation thereof. or to said Building. or to exhibit said Leased Premises at any time within one hundred eighty (180) days before expiration of this Lease. Said right of entry shall likewise exist for the purpose of removing placards. signs. fixtures, alterations, or additions which do not conform to this Lease. NOTICE 32. Any notice given Landlord as provided for in this Lease shall be sent to Landlord by registered mail addressed to Landlord at Landlord's Management Office in the Building. Any notice to be given Tenant under the terms of this Lease, unless otherwise stated herein, shall be in writing and shall be sent by certified mail to the office of Tenant in the Building either party, from time to time, by such notice, may specify another address to which subsequent notice shall be sent. LANDLORD CONTROLLED AREAS 33. All automobile parking areas, driveways, entrances and exits thereto, Common Areas, and other facilities furnished by Landlord, including all parking areas, truck way or ways, loading areas, pedestrian walk ways and ramps, landscaped areas, stairways, corridors, and other areas and improvements provided by Landlord for the general use, in common, of tenants, their officers, agents, employees, servants, invitees, licensees, visitors, patrons and customers, shall be at all times subject to the exclusive control and management of Landlord, and Landlord shall have the right &on time to time to establish, modify and enforce rules and regulations with respect to all facilities and areas and improvements; to police same, &on time to time to change the area, level and location and arrangement of parking areas and other facilities hereinabove referred to, to restrict parking by and enforce parking charges (by operation of meters or otherwise} to tenants, their officers, agents, invitees, employees, servants, licensees, visitors, patrons and customers; to close all or any portion of said areas or facilities to such extent as many in the opinion of Landlord's counsel be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein; to close temporarily all or any portion of the public area, Common Area or facilities; to discourage non-tenant parking; to charge a fee for visitor and/or customer parking; and to do and perform such other acts in and to said areas and improvements as, in the sole judgment of Landlord, the Landlord shall determine to be advisable with a view to the improvement of the convenience and use thereof by tenants, their officers, agents, employees, servants, invitees, visitors, patrons, licensees and customers. Landlord will operate and maintain the Common Areas and other facilities referred to in such reasonable manner as Landlord shall determine &on time to time. Without limiting the scope of such discretion, Landlord shall have the full right and authority to designate a manager of the parking facilities and/or Common Areas and other facilities who shall have the full authority to make and enforce rules and regulations regarding the use of the same or to employ all personnel and to make and enforce all rules and regulations pertaining to and necessary for the proper operation and maintenance of the parking areas and/or Common Areas and other facilities. Reference in this paragraph to parking areas and/or facilities shall in no way be construed as giving Tenant hereunder any rights and or privileges in connection with such parking areas and/or privileges are expressly set forth in paragraph 17 hereof. CONDITION OF PREMISES ON TERMINATION OF LEASE AND HOLDING OVER 34. Tenant agrees to surrender to Landlord, at the end of the Term of this Lease and/or upon any cancellation of this Lease, said Leased Premises in as good condition as said Leased Premises were at the beginning of the Term of this Lease, ordinary wear and tear, and damage by fire or other casualty not caused by Tenant's negligence excepted. Tenant agrees that if Tenant does not surrender said Leased Premises 12 to Landlord at the end of the Term of this Lease than Tenant will pay to Landlord double the amount of the current rental for each month or portion thereof that Tenant holds over plus all damages that Landlord may suffer on account of Tenant's failure to surrender to Landlord possession of said Leased Premises, and will indemnify and save Landlord harmless from and against all claims made by any succeeding Tenant of said Leased Premises against Landlord on account of delay of Landlord in delivering possession of said Leased Premises to said succeeding Tenant so far as such delay is occasioned by failure of Tenant to so surrender said Leased Premises in accordance herewith of otherwise. No receipt of money by Landlord from Tenant after termination of this Lease or the service of any notice of commencement of any suit or final judgment for possession shall reinstate, continue or extend the Term of this Lease or affect any such notice, demand, suit or judgment. No act or thing done by Landlord or its agents during the Term hereby granted shall be deemed an acceptance of a surrender of the Leased Premises, and no agreement to accept a surrender of the Leased Premises shall be valid unless it be made in writing and subscribed by a duly authorized officer or agent of Landlord. OCCUPANCY TAX 35. Tenant shall be responsible for and shall pay before delinquency all municipal, country or state taxes assesses during the Term of this Lease against any occupancy interest or personal property of any kind, owned by or placed in, upon or about the Leased Premises by the Tenant. SIGNS 36. Landlord shall have the right to install signs on the interior or exterior of the Building and Leased Premises and/or change the Building's name or street address. Subject to Landlord approval, the Tenant shall have the right to install signs in the common area and on the leased premises. TRIAL BY JURY 37. It is mutually agreed by and between Landlord and Tenant that the respective 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 arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or occupancy of the Premises. Tenant further agrees that it shall not interpose any counterclaim or counterclaims in a summary proceeding or in any action based upon non-payment of rent or any other payment required of Tenant hereunder. CROSS DEFAULT 39. If the term of any lease, other than this Lease, made by Tenant for any other space in the Building shall be terminated or terminable after the making of this Lease because of any default by Tenant under such other lease, such default shall, ipso facto constitute a default hereunder and empower Landlord at Landlord's sole option, to terminate this Lease as herein provided in the event of default. INVALIDITY OF PROVISION 40. If any term, provision, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term, provision, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term, provision, covenant or condition of this Lease shall be valid and be enforceable to the fullest extent permitted by law. This Lease shall be construed in accordance with the laws of the State of Florida. 13 TIME OF ESSENCE 41. It is understood and agreed between the parties hereto that time is of the essence of all the terms, provisions, covenants and conditions of this Lease. MISCELLANEOUS 42. The tens Landlord and Tenant as herein contained shall include singular and/or plural, masculine, feminine and/or neuter, heirs, successors, executors, administrators, personal representatives and/or assigns wherever the context so requires or admits. The terms, provisions, covenants and conditions of this Lease are expressed in the total language of this Lease Agreement and the paragraph headings are solely for the convenience of the reader and are not intended to be all inclusive. Any formally executed addendum to or modification of this Lease shall be expressly deemed incorporated by reference herein unless a contrary intention is clearly stated herein. EFFECTIVE DATE 43. Submission of this instrument for examination does not constitute an offer, right of first refusal, reservation of or option for the Leased Premises or any other space or premises in, on or about the Building. This instrument becomes effective at a Lease upon execution and delivery by both Landlord and Tenant. ENTIRE AGREEMENT44. This Lease contains the entire agreement between the parties hereto and all previous negotiations leading thereto, and it may be modified only by an agreement in writing signed by Landlord and Tenant. No surrender of the Leased Premises, or of the remainder of the terms of this Lease, shall be valid unless accepted by Landlord in writing. Tenant acknowledges and agrees that Tenant has not relied upon any statement, representation, prior written or contemporaneous oral promises, agreements or warranties except such as are expressed herein. BROKERAGE 45. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than Lucky Realty, Inc.(pound): (if the foregoing blank has not been completed, the word "None" shall be deemed to have been typed therein) and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. The provisions of this paragraph shall survive the termination of this Lease. FORCE MAJEURE 46. Neither Landlord nor Tenant shall be required to perform any term, condition, or covenant in this Lease so long as such performance is delayed or prevented by force majored, which shall mean acts of God, labor disputes (whether lawful or not), material or labor shortages, restrictions by any governmental authority, civil riots, floods, hurricanes, and any other cause not reasonably within the control of Landlord or Tenant and which by the exercise of due diligence Landlord or Tenant is unable, wholly or in part, to prevent or overcome. Lack of money shall not be deemed force majored. SECURITY 47. Landlord and Tenant hereby agree that Landlord does not assume and has no duty to provide security in and about the Leased Premises, the Building, common and recreation areas and parking areas for protection of Tenant, its employees, agents, visitors, invitees or licensees from foreseeable criminal acts or criminal activity of any kind or nature whatsoever. Tenant hereby assumes all responsibility to provide security to protect Tenant, its employees, agents, visitors, invitees or licensees from and against all such foreseen or unforeseen criminal acts. Landlord of any duty to provide security shall not construe any provisions of security services by Landlord as an assumption and Landlord, if at any time provided, may discontinue such services, at any time at Landlord's election without liability to Tenant or any third party. INSURANCE REQUIREMENTS 48. Tenant hereby agrees to indemnify and hold harmless Landlord, its subsidiaries, directors, officers, agents and employees &on and 14 against any and all damages, loss, liability or expense including but not limited to, attorney's fees and legal costs suffered by same directly or by reason of any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury, including death resulting anytime thereof, and property damage sustained by such person or persons which arises out of, is occasioned by or in any way attributable to the use or occupancy of the demised premises and adjacent areas by Tenant or otherwise, the acts or omissions of Tenant, its agents, employees or any contractors brought onto said premises by Tenant, except that caused by the sole negligence of Landlord or its employees, agents, customers and invitees. Such loss or damage shall include, but not limited to any injury or damage to Landlord's personnel (including death resulting anytime thereof) or premises. Tenant agrees that the obligations' assumed herein shall survive this Lease. Tenant hereby agrees to maintain in full force and effect at all times during the term of this Lease, at its own expense, for the protection of Tenant and Landlord, as their interest may appear, policies of insurance issued by a responsible carrier or carriers acceptable to Landlord which afford the following coverage's: (a) Comprehensive General Liability Insurance Not Less than $1,000,000 Combined Single Limit both bodily injury and property damage. (b) Fire and Extended Coverage, Vandalism and Malicious Mischief, Sprinkler Leakage (where applicable) insurance, to cover all of Tenant's stock in trade, fixtures, furniture, furnishings, removable floor coverings, trade equipment, signs and all other decorations placed by Tenant in or upon the Leased Premises. Worker's Compensation as required by Florida Statutes. Employer's Liability -Not less than $100,000. Tenant shall deliver to Landlord at least thirty (30) days prior to the time such insurance is first required to be carried by Tenant, and thereafter at least thirty (30) days prior to expiration of such policy, Certificates of Insurance evidencing the above coverage with limits no less than those specified above. Such Certificates, shall name Landlord, its subsidiaries, directors, agents and employees as additional insured and shall expressly provide that the interest of same therein shall not affected by any breach by Tenant of any policy provision for which such Certificates evidence coverage. Further, all Certificates shall expressly provide that no less than thirty (30) days prior written notice shall be given Landlord in the event of material alteration to, or cancellation of, the coverage's evidenced by such Certificates. A FAILURE TO PROVIDE SUCH INSURANCE COVERAGE SHALL BE DEEMED A DEFAULT IN THIS LEASE If, on account of the failure of Tenant to comply with the foregoing provisions, Landlord is adjudged a coinsurer by its insurance carrier, then any loss or damage Landlord shall sustain by reason thereof shall be borne by Tenant and shall be immediately paid by Tenant upon receipt of a bill thereof and evidence of such loss. Landlord makes no representation that the limits of liability specified to be carried by Tenant under the terms of this Lease are adequate to protect Tenant, and in the event Tenant believes that any such insurance coverage called for under this Lease is insufficient. Tenant shall provide at its own expense, such additional insurance, as Tenant deems adequate. Landlord shall at all times during the term of this Lease, at its expense, maintain a policy or policies of insurance, issued by and binding upon some solvent insurance company, insuring the building against loss or damage by fire, explosion or other hazards and contingencies for the full insurable value, provided that Landlord shall not be obligated to insure any furniture, equipment, machinery, goods or supplies not covered by this Lease which Tenant may bring or obtain upon Leased Premises, or any additional improvements which Tenant may construct on the premises. Landlord reserves the right to self-insure such building. 15 Anything in this Lease to the contrary notwithstanding, Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the Leased Premises, the Building, improvements to the Building of which Leased Premises are a part, personal property (building contents) within the Building, any furniture, equipment, machinery, goods or supplies not covered by this Lease which Tenant may bring or obtain upon the Leased Premises or any additional improvements which Tenant may construct on the Leased Premises, by reason of fire, the elements or any other cause which could be insured against under the terms of standard fire and extended coverage insurance policies, regardless of cause or origin, including negligence of Landlord or Tenant and their agents, officers and employees. LIMITATION OF LIABILITY: 49. The term Landlord as used in this Lease shall be limited to mean and include only the owner or owners at the time in question of the fee of the Leased Premises and in no event shall such term or any covenant be construed to impose a personal obligation upon the Property Manager and Leasing Agent who is an independent contractor authorized by the owner of the Leased Premises to secure leases and to manage the Leased Premises pursuant to a written Management Contract. Nothing herein shall be construed to imply or impose upon either the Property Manager and Leasing Agent or the owner of the Leased Premises, a general agency relationship. In the event of any transfer of title to such fee, the Landlord herein shall be automatically freed and relieved from all personal liability with respect to performance of any covenant or obligation on the part of Landlord, provided any security deposits or advance rents held by Landlord are turned over to the grantee and said grantee expressly assumes, subject to the limitations of this paragraph, all the tens, covenants and conditions of this Lease to be performed on the part of Landlord, it being intended hereby that the covenants and obligations contained in this Lease on the part of Landlord shall, subject as aforesaid, be binding on Landlord, its successors and assigns, only during their respective successive periods of ownership. Notwithstanding anything to the contrary contained in this Lease, it is agreed and understood that Tenant shall look solely to the estate and property of the Landlord in the land and buildings comprising the Building of which the Leased Premises is a part for the enforcement of any judgment (or other judicial decree) requiring the payment of money by Landlord to Tenant by reason of any default or breach by Landlord in the performance of its obligations under this Lease, it being intended hereby that no other assets of Landlord shall be subject to levy execution, attachment or other such legal process for the enforcement or satisfaction of the remedies pursued by Tenant in the event of such default or breach. FLOOR LOAD LIMITS: 50. Tenant shall not place a load upon any floor of the Leased Premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's judgment, to absorb and prevent vibration, noise and annoyance. RADON GAS 51. In accordance with the requirements of Florida Statutes Section 404.56(8) the following notice is hereby given: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your County Public Health Unit. 16 EFFECT OF SUBMISSION: 52. Submission of this instrument for examination and consideration does not constitute a reservation of or option for the Leased Premises. The instrument becomes effective as a lease only upon execution and delivery by both Landlord and Tenant. ACCEPTANCE 53. The prompt payment of the rent for said premises upon the dates names, and the faithful observance of the rules and regulations printed upon this lease, and which are hereby made a part of this covenant, and of such other and further rules or regulations as may be hereafter made by the LESSOR. are the conditions upon which the lease is made and accepted and any failure on the part of the LESSEE to comply with the terms of said lease, or any of said rules and regulations now in existence, or which the LESSOR may hereafter prescribe. shall at the option of the LESSOR. work a forfeiture of this contract, and all of the rights of the LESSEE hereunder. TENANT'S BREACH AND LANDLORD'S REMEDIES 54. A. DEFAULT During the term of this Lease, any of the following shall constitute an Event of Default (i) Tenant shall fail to make the payment of any rent or other sums due under the terms of this Lease for ten (10) calendar days after the due date thereof; or (ii) Tenant shall fail in the performance or observance of any of the other terms, covenants, conditions or agreements of this Lease other than payment of money for fifteen (15) days after written notice and demand, or (if such default shall be of such a nature that the same cannot practicably be cured within said fifteen ( 15) day period) Tenant shall not within said fifteen ( 15) day period commence the curing and performance of such default or fail to prosecute and complete with due diligence and the curing and performance of same; or (iii) Tenant shall make a general assignment for the benefit of its creditors; commence a voluntary case under the United States Bankruptcy Code; fail to have dismissed within sixty (60) days of filing, an involuntary case under the Bankruptcy Code. B. REMEDIES In the event of an occurrence of an Event of Default, Landlord, at Landlord's option, may elect to do any one or more of the following: (i) terminate this Lease or terminate Tenant's right of possession without terminating the Lease, and re-enter the Premises; and/or (ii) accelerate the rent that is due for the term of the Lease and all such rent shall be immediately due and payable; and/or under Florida law. (iii) exercise any and all remedies available. In case of any such re-entry, termination and/or dispossession by summary proceedings or otherwise as provided above: part thereof; (i) Landlord may relent the Premises or any (ii) Tenant also shall pay to Landlord the amount by which the rent reserved in this Lease and/or covenanted to be paid exceeds the net amount (after reduction of all costs and expenses reasonably incurred by Landlord in connection with relenting), if any, of the rents collected on account of Landlord's re-Letting. Landlords right to cure Tenants default. If Tenant shall fail or neglect to comply with and perform any term, covenant, condition or agreement hereunder, then, upon five (5) days' prior written notice to Tenant (or upon shorter notice, or with no notice at all, if necessary to meet an emergency situation or a governmental or municipal time limitation), Landlord, at Landlord's option, may perform such work and take such other steps as Landlord may deem advisable to comply with and perform any such term, covenant, condition or agreement which is in default. In such event Tenant shall reimburse Landlord upon demand for all costs and expenses incurred by Landlord. 17 IN WITNESS WHEREOF, the parties executed the foregoing hereto, on the date above first written. LANDLORD : Lucky Capital Inc. WITNESSES By: /s/ Margot Swan By: /s/ Anthony Carfagno - ----------------------------------------- --------------------------- Name: Anthony Carfagno ---------------- (Print or Type) Title: Associate --------- Name: -------------------- (Print or Type) TENANT: Talk Visual Corporation WITNESSES: By: Margot Swan By: /s/ Michael Zwebner - ----------------------------------------- --------------------------- Name: Michael Zwebner --------------- (Print or Type) Title: President --------- Name: ------------------- (Print or Type) RULES AND REGULATIONS Lucky Capital Lucky Capital, Inc. (LANDLORD) Talk Visual Corporation (TENANT) EX-10.6 15 0015.txt STANDARD OFFICE BUILDING LEASE EXHIBIT 10.6 STANDARD OFFICE BUILDING LEASE This Lease Agreement (sometimes hereinafter referred to as the "Lease") made and. entered into This by and between Lucky Capital Inc. (hereafter called "Landlord"), whose address for purposes hereof is 3550 Biscay e Blvd. Suite 404 Miami FL 33137 and Talk Visual Corporation (hereinafter called "Tenant"), whose address for purposes hereof until the commencement of the Term of this Lease is 3550 Biscayne Blvd. Suite 706 Miami. FL ~ and after commencement of the Term of this Lease shall be the "Building" (hereinafter defined). Witnesses: LEASED PREMISES 1. Subject to and upon the terms, provisions, covenants and conditions hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, Landlord does hereby lease, demise and let to Tenant and Tenant does hereby lease, demise and let from Landlord those certain premises (hereinafter sometimes called the "Premises" or "Leased Premises") in the building known as Lucky Capital (hereinafter called the "Building") located at 3550 Biscayne Blvd. Suite 705 Miami. FL 33137, such Leased Premises being more particularly described as follows: approximately ~Net Rent able square feet of Net Rent able Area (hereinafter defined) located on the Suite 705. Seventh (7) floor of the Building as reflected on the floor plan of such Leased Premises attached hereto as Exhibit "A" and made a part hereof, identified by the signatures or initials of Landlord and Tenant. The terms "Net Rent able Area", and "Proportionate Part" as used herein, shall refer to both sections one and two as follows: (i) in the case of a single tenancy floor, all space measured from the inside surface of the outer glass of the Building to the inside surface of the opposite outer wall, excluding only the areas ("Service Areas") within the outside walls used for building stairs, fire towers, elevator shafts, flues, vents, pipe shafts and vertical ducts, but including any such areas which are for the specific use of the particular tenant such as special stairs or elevators, and (ii) in the case of a multi-tenancy floor, all space within the inside surface of the outer glass enclosing the tenant occupied portion of the floor and measured to the midpoint of the walls separating areas leased by or held for lease to other tenants or from areas devoted to corridors, elevator foyers, rest rooms and other similar facilities for the use of all tenants, on the particular floor and in the building (hereinafter sometimes called "Building Common Areas" and "Floor Common Areas"), but including a proportionate part of the Common Areas located on such floor and in the building. No deductions from Net Rent able Areas are made for columns necessary to the Building. The Net Rent able Areas in the Leased Premises and in the Building have been calculated on the basis of the foregoing definitions and are hereby stipulated above as to the Leased Premises, whether the same should be more or less as a result of minor variations resulting from actual construction and completion of the Leased Premises for occupancy so long as such work is done substantially in accordance with the approved plans, and 47.000 net rent able square feet as to the Building. TERMS 2. This Lease shall be for the term of Two Years and Five Months with a 4% increase each year commencing on the lst of February. 2000 and ending on the 3Oth of June. 2002 (hereinafter sometimes referred to as the "Lease Term" or "Term"), unless sooner terminated or extended as provided herein. OPTION TERMS WHEN APPLICABLE Time is of the Essence and Tenant must exercise the Option, if at all, by delivering written notice 90 days prior to the Lease expiration. If notice is not given in the manner provided herein within the time specified, this option shall expire. Tenant's right to exercise the Option shall be conditioned upon Tenant not being in default of the Lease at the time when 1 the Notice of Exercise is delivered to the Landlord. Should Tenant be in default at the time when the Notice of Exercise is sent, Tenant's Notice of Exercise shall, at the sole option of the Landlord, be deemed null and void and of no force and effect. If the Landlord is unable to give possession of the Leased Premises on the date of the commencement of the aforesaid Lease Term by reason of the holding over of any prior tenant or tenants or for any other reasons, an abatement or diminution of the rent to be paid hereunder shall be allowed Tenant under such circumstances until possession is given to Tenant, but nothing herein shall operate to extend the initial Term of the Lease beyond the agreed expiration date, and said abatement in rent shall be the full extent of Landlord's liability to Tenant for any loss or damage to Tenant on account of said delay in obtaining possession of the Premises. There shall be no delay in the commencement of the Term of this Lease and/or payment of rent where Tenant fails to occupy premises when same are ready for occupancy, or when Landlord shall be delayed in substantially completing such Leased Premises as a result of: (a) Tenant's failure to promptly furnish working drawings and plans as required or (b) Tenant's failure to approve cost estimates within one (I) week or (c) Tenant's failure to promptly select materials, finishes, or installation or (d) Tenant's changes in plans (notwithstanding Landlord's approval of any such changes), (e) Any other act of omission by Tenant or its agents, or failure to promptly make other decisions, necessary to the preparation of the Leased Premises for occupancy. The commencement of the Term and the payment of rent shall not be affected, delayed or deferred on account of any of the foregoing. For the purposes of this paragraph, the Leased Premises shall be deemed substantially completed and ready for occupancy by Tenant when Landlord's Supervising Architect certifies that the work required of Landlord, if any, has been substantially completed in accordance with said approved plans and specifications. Taking possession of the Leased Premises by Tenant shall be conclusive evidence as against Tenant that the Leased Premises were in good and satisfactory condition when possession was so taken. This Lease does not grant any right to light or air over or about the Leased Premises or Building. If Tenant, with Landlord's consent, shall occupy the Leased Premises prior to the beginning of the Lease Term as specified hereinabove, all provisions of this Lease shall be in full force and effect commencing upon such occupancy, and Tenant shall pay rent for such period at the same rate herein specified. BASE RENT 3. Tenant agrees to pay Landlord a total "Base Rental" of One hundred twenty-seven thousand four hundred eighty dollars and eighty-five cents ($127,480.85) being an annual Base Rental of Year 1-$51,180.00, Year 2-$53,227.20, Year 3-$23,073.65 in equal monthly installments of Year 1-$4,265.00, Year 2-$4,435.60, Year 3-$4,614.73, which is computed at a Base Rental of N/A per rent able square foot per annum for each and every calendar month of the Term of this Lease, without any offset or deduction whatsoever, in lawful (legal tender for public or private debts) money of the United States of America, at the Management Office of the Building or elsewhere as designated from time to time by Landlord's written notice to Tenant. Landlord upon execution of this Lease by Landlord and Tenant shall hereby acknowledge payment by Tenant of the sum of $4.265.00 representing payment of rental for the first full calendar month of February for this Lease. The balance of the total Base Rental is payable in equal monthly installments as specified above, on the first day of each month hereafter ensuing, the first of which shall be due and payable on the first of March. 2000. 2 If the Term of this Lease commences on any day of a month excepting the first day, Tenant shall pay Landlord rental as provided for herein for such commencement month on a pro-rata bases (such proration to be based on the actual number of days in the commencement month), and the first month's rent paid by Tenant, if any, upon execution of this Lease shall apply and be credited to the next full month's rent due hereunder. Rental for any partial month of occupancy at the end of the Term of this Lease will be prorated, such proration to be based on the actual number of days in the partial month. In addition to Base Rental, Tenant shall and hereby agrees to pay to Landlord each month a sum equal to any sales tax, tax on rentals, and any other charges, taxes and/or impositions now in existence or hereafter imposed based upon the privilege of renting the space leased hereunder or upon the amount of rentals collected therefore. Nothing herein shall, however, be taken to require Tenant to pay any part of any Federal and State Taxes on income imposed upon Landlord. Tenant shall be required to pay Landlord a late fee of Twenty Five Dollars ($25.00) or interest on any rental due that remains unpaid for Five (5) days after its due date, whichever is greater. Said interest will be computed at the maximum legal rate from due date. ADDITIONAL RENT 4. (a) In the event that the cost to the LANDLORD for the Operating Expenses of the Building, its appurtenances, and/or the land on which it is located, as hereinafter defined, during any calendar year of the Lease Term subsequent to the Base Year (which the parties hereto agree shall be calendar year 2000) shall exceed the cost to the LANDLORD for the Operating Expenses of the Building, its appurtenances, and/or the land on which it is located, during the Base Year, then TENANT shall pay to LANDLORD as additional rent TENANTs "proportionate share" (as such term is hereinafter defined) of the increase in such costs for each calendar year, if any. The proportionate share to be paid by the TENANT shall be the percentage which the Net Rent able Area then leased by the TENANT in the Building bears to the Total Net Rent able Area contained in the Building, which is ~ net rent able square feet. Based upon the Net Rent able Area of the Leased Premises, Tenant's "proportionate share" is ~. The amount of such additional rent due from Tenant, if any, shall be determined by multiplying Tenant's proportionate share by any increase in Operating Expenses over the Operating Expenses of the Base Year, except that such additional rent shall be prorated for any partial calendar year following the commencement of the Lease Tenn. (b) Tenant's obligation to pay Tenant's proportionate share of the Operating Expenses shall commence as of the beginning of the first full calendar year following the Base Year. (c) The term "Operating Expenses" as used herein shall mean the cost of all expenses, cost and disbursements of every kind and nature which LANDLORD shall pay or become obligated to pay because of or in connection with the ownership, maintenance and/or operation of the Building, its appurtenances, and/or the land on which it is located, computed on the accrual basis, but shall not include the replacement of capital investment items and new capital improvements, except capital improvements made to the Building subsequent to the commencement date of this Lease that will improve operating efficiency amortized on a straight-Iine basis over the useful life of the improvement. By way of explanation and clarification, but not by way of limitation, these Operating Expenses will include the following: 1. Wages and salaries of all employees engaged in operation, maintenance, and security of the Building, its appurtenances, and/or the land on which it is located, employer's social security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages and salaries; the cost of disability and hospitalization insurance, pension or retirement benefits, or any other fringe benefits for such employees. 2. All supplies and materials used in operation and maintenance of the Building, its appurtenances, and/or the land on which it is located. 3 3. Cost of all utilities including water, sewer, electricity, gas and fuel oil used by the Building, its appurtenances, and/or the land on which it is located. and not charged directly to another tenant. 4. Cost of customary Building management, including a reasonable management fee; janitorial services; trash and garbage removal; servicing and maintenance of all systems and equipment, including, but not limited to, elevators, plumbing, heating, air conditioning, ventilating, lighting, electrical, security and fire alarms, fire pumps, fire-extinguishers and hose cabinets, mail chute, and staging; security service; painting; window cleaning; landscaping and gardening. 5. Cost of all insurance, including, but not limited to, fire, casualty, liability, and rental abatement, insurance applicable to the Building, its appurtenances, and/or the land on which it is located, and LANDLORD's personal property used in connection therewith. 6. All real and personal property taxes (or payments in lieu of such taxes), excise taxes, levies and fees, and assessments and governmental charges whether federal, state, county or municipal, whether general or special, ordinary or extraordinary, unforeseen or foreseen, and whether they be taxing districts or authorities presently taxing the Leased Premises or by others, subsequently created or otherwise, and any other taxes and assessments attributable to the Building, its appurtenances, and/or the land on which it is located, or its operation excluding, however, federal and state taxes on income. 7. Cost of repairs, replacements and general maintenance. (d) In the event the Operating Expenses in any year after the Base Year are reduced because of a major capital improvement or by the use of automation, then the Operating Expenses for the Base Year shall be reduced for the purpose of determining additional rent as though such improvement or automation was in effect during the Base Year. LANDLORD shall notify TENANT within ninety (90) days after the end of the Base Year and each calendar year thereafter during the term hereof. of the amount which LANDLORD estimates (as evidenced by budgets prepared by or on behalf of LANDLORD) will be the amount of TENANT's proportionate share of increases in Operating Expenses for the then current calendar year and TENANT shall pay such sum in advance to LANDLORD in equal monthly installments, during the balance of said calendar year, on the first day of each remaining month in said calendar year commencing on the first day of the first month following TENANT's receipt of such notification. Within ninety (90) days following the end of each calendar year after the Base Year, LANDLORD shall submit to TENANT a statement showing the actual amount which should have been paid by TENANT with respect to increases in Operating Expenses for the past calendar year, the amount thereof actually paid during that year by TENANT and the amount of the resulting balance due thereon, or overpayment thereof, as the case may be. Within thirty (30) days after receipt by TENANT of said statement, TENANT shall have the right in person to inspect LANDLORD's books and records showing the Operating Expenses for the Building for the calendar year covered by said statement. Said statement shall become final and conclusive between the parties, their successors and assigns as to the matters set forth therein unless LANDLORD receives written objections with respect thereto within said thirty (30) day period. Any balance shown to be due pursuant to said statement shall be paid by TENANT to LANDLORD within thirty (30) days following TENANTs receipt thereof and any overpayment shall be immediately credited against TENANT's obligation to pay expected additional rent in connection with anticipated increases in Operating Expenses or, if by reason of any termination of the Lease no such future obligation exists, refunded to TENANT. Anything herein to the contrary notwithstanding, TENANT shall not delay or withhold payment of any balance shown to be due pursuant to a statement rendered by LANDLORD to TENANT, pursuant to the terms hereof. because of any objection which TENANT may raise with respect thereto and LANDLORD shall immediately credit any overpayment found to be owing to TENANT against TENANT's proportionate share of increases in Operating Expenses for the then current calendar year (and future calendar years, if necessary) upon the resolution of said objection or, if at the time of the resolution of said objection the Lease Term has expired, immediately refund to TENANT any overpayment found to be owing to TENANT . 4 (e) The covenant of Tenant to pay Tenant's proportionate share shall survive the termination of the Lease. TIME OF PAYMENT 6. Tenant agrees: that Tenant will promptly pay said rents (Base Rental as the same may be adjusted from time to time pursuant to paragraph 5 and Additional Rental), at the time and place stated above; that Tenant will pay charges for work performed on order of Tenant, and any other charges that accrue under this Lease; that, if any part of the rent or above mentioned charges shall remain due and unpaid for seven days next after the same shall become due and payable. Landlord shall have the option (in addition to all other rights and remedies available to it by law and in equity) of declaring the balance of the entire rent for the entire Term of this Lease to be immediately due and payable, and Landlord may then proceed to collect all of the unpaid rent called for by this Lease by distress or otherwise. SECURITY DEPOSIT 7. Tenant, concurrently with the execution of this Lease, shall deposit with Landlord the sum of $4.265.00 the receipt of which is hereby acknowledged by Landlord, which sum shall be retained by Landlord as security for the payment by Tenant of the rents and all other payments herein agreed to be paid by Tenant, and for the faithful performance by Tenant of the terms, provisions, covenants and conditions of this Lease. It is agreed that Landlord, at Landlord's option, may at the time of any default by Tenant under any of the terms, provisions, covenants or conditions of the Lease apply said sum or any part thereof toward the payment of the rents and all other sums payable by Tenant under this Lease, and towards the performance of each and every one of Tenant's covenants under this Lease, but such covenants and Tenant's liability under this Lease shall thereby be discharged only pro tanto that Tenant shall remain liable for any amounts that such sum shall be insufficient to pay; that Landlord may exhaust any and all rights and remedies against Tenant before resorting to said sum, but nothing herein contained shall require or be deemed to require Landlord so to do; that, in the event this deposit shall not be utilized for any such purposes, then such deposit shall be returned by Landlord to Tenant within ten (10) business days next after the expiration of the Term of this Lease or the determination and payment of the amount due under paragraph 4 of this Lease, if any, which ever later occurs. Landlord shall not be required to pay Tenant any interest on said security deposit. USE 8. The Tenant will use & occupy the Lease Premises for the following use or purpose and for no other use or purpose: Administrative Offices. QUIET EMPLOYMENT 9. Upon payment by Tenant of the rents herein provided, and upon the observance and performance of all terms, provisions, covenants and conditions on Tenant's part to be observed and performed, Tenant shall, subject to all of the terms, provisions, covenants and conditions of this Lease Agreement, peaceably and quietly hold and enjoy the Lease Premises for the Terms hereby demised. INSURANCE PREMIUMS 10. If the Landlord's insurance premiums exceed the standard premium rates because the nature of Tenant's operation results in extra hazardous exposure, the Tenant shall, upon receipt of appropriate invoices from Landlord, reimburse Landlord for such increase in premiums. It is understood and agreed between the parties hereto that any such increase in premiums shall be considered as rent due and shall be included in any lien for rent. RULES AND REGULATIONS 11. Tenant agrees to comply with all rules and regulations Landlord may adopt from time to time for operation of the Building and Parking Facilities and protection and welfare of Building and Parking Facilities, its tenants, visitors and occupants. The present rules and regulations, which Tenant hereby agrees to comply with, entitled "Rules and Regulations" are attached hereto and are by this reference incorporated herein. Any future rules and regulations shall become a part of this Lease, and Tenant hereby agrees to comply with the same upon delivery of a copy thereof to Tenant, providing the same do not materially deprive Tenant of its rights established under this Lease. 5 GOVERNMENTAL REQUIREMENTS 12. That the Tenant Talk Visual Corporation shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and City Government and of any and all their Departments and Bureaus applicable to said premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon, or connected with said premises during said term; and shall also promptly comply with and execute all rules, orders and regulations of the applicable fire prevention codes for the prevention of fires, at Tenant's own cost and expense, and Tenant will furnish Landlord with any and all documentation without demand. SERVICES 13. Landlord will furnish the following services to Tenant: (A) Cleaning services, deemed by Landlord to be normal and usual in a first class office building, on Monday through Friday, except that shampooing and replacement of carpet as required by Tenant shall be Tenant's expense. (B) Automatically operated elevator service, public stairs, electrical current for lighting, incidentals, and normal office use, and water at those points of supply provided for general use of its Tenants at all times and on all days throughout the year . (C) Heat and air conditioning on Monday through Friday & on 8:30 A.M. to 7:00 p .M. and Saturday & on 8:30 am to 12:00 pm except Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, Christmas Day and New Year's Day. Landlord shall also furnish heat and air conditioning at such other times as are not provided for herein, provided Tenant gives written request to Landlord before 2:00 p .M. of the business day preceding the extra usage and if Tenant requires heat and air conditioning during such hours, Tenant shall be billed for such service at the rate of $15.00 per hour per unit turned on and said rate may be changed with thirty (30) days prior written notice. No electric current shall be used except that furnished or approved by Landlord, nor shall electric cable or wire be brought into the Leased Premises, except upon the written consent and approval of the Landlord. Tenant shall use only office machines and equipment that operate on the Building's standard electric circuits, but which in no event shall overload the Building's standard electric circuits & on which the Tenant obtains electric current. Any consumption of electric current in excess of that considered by Landlord to be used, normal and customary for all Tenants, or which require special circuits or equipment (the installation of which shall be at Tenant's expense after approval in writing by the Landlord), shall be paid for by the Tenant as additional rent paid to the Landlord in an amount to be determined by Landlord, based upon Landlord's estimated cost of such excess electric current consumption or based upon the actual cost thereof if such excess electric current consumption is separately metered. Such services shall be provided as long as the Tenant is not in default under any of the terms, provisions, covenants and conditions of this Lease, subject to interruption caused by repairs, renewals, improvements, changes to service, alterations, strikes, lockouts, labor controversies, inability to obtain fuel or power, accidents, breakdowns, catastrophes, national or local emergencies, acts of God and conditions and causes beyond the control of Landlord, and upon such happening, no claim for damages or abatement of rent for failure to furnish any such services shall be made by the Tenant or allowed by the Landlord. 6 TENANT WORK 14. It is understood and agreed between the parties hereto that any charges against Tenant by Landlord for services or for work done on the Leased Premises by order of Tenant, or otherwise accruing under this Lease, shall be considered as rent due and shall be included in any lien for rent. REPAIR OF LEASED PREMISES 15. Tenant will, at Tenant's own expense, keep the Leased Premises in good repair and tenantable condition during the Lease Term and will replace at its own expense any and all broken glass caused by Tenant in and about said Leased Premises. Tenant will make no alterations, additions or improvements in or to the Leased Premises without the written consent of Landlord, which shall not be unreasonably withheld, but may be predicated upon but not limited to Tenant's use of contractors who are acceptable to Landlord, and all additions, fixtures, carpet or improvements, except only office furniture and fixtures which shall be readily removable without injury to the Leased Premises, shall be and remain a part of the Leased Premises at the expiration of this Lease. It is further agreed that this Lease is made by the Landlord and accepted by the Tenant with the distinct understanding and agreement that the Landlord shall have the right and privilege to make and build additions to the Building of which the Leased Premises are a part, and make such alterations and repairs to said Building as it may deem wise and advisable without any liability to the Tenant therefore. INDEMNIFICATlON 16. Tenant further agrees that Tenant will pay all liens of contractors, subcontractors, mechanics, laborers, material men, and other items of like character, and will indemnify Landlord against all expenses, costs and charges, including bond premiums for release of liens and attorneys' fees and costs reasonably incurred in and about the defense of any suit in discharging the said Premises or any part thereof from any liens, judgments, or encumbrances caused or suffered by Tenant. In the event any such lien shall be made or filed, Tenant shall bond against or discharge the same within ten (10) days after the same has been made or filed. It is understood and agreed between the parties hereto that the expenses, costs and charges above referred to shall be considered as rent due and shall be included in any lien for rent. The Tenant herein shall not have any authority to create any liens for labor or materials on the Landlord's interest in the Leased Premises and all persons contracting with the Tenant for the destruction or removal of any facilities or other improvements or for the erection, installation, alteration, or repair of any facilities or other improvements on or about the Leased Premises, and all material men, contractors, subcontractors, mechanics, and laborers are hereby charged with notice that they must look only to the Tenant and to the Tenant's interests in the Leased Premises to secure the payment of any bill for work done or material furnished at the request or instruction of Tenant. PARKING 17. Tenant is hereby granted the nonexclusive privilege to use Five (5), unassigned parking spaces in the parking lot for use by itself and its agents. Tenant shall abide by all rules and regulations as concerns the use of the aforementioned parking area as may now exist or as may hereinafter be promulgated by the Landlord, and a violation of this clause and or the rules referred to above shall constitute, upon reasonable notice to Tenant, at the option of Landlord, a default by the Tenant in the terms, conditions and covenants of this Lease or Landlord shall have the right to revoke Tenant's parking privileges provided by this paragraph and such revocation shall not affect any other rights, duties or obligations as provided for in this Lease. These parking spaces will be charged to the Tenant on a monthly basis according to the monthly rate in effect from time-to-time and are in addition to Base Rent or any other charges required to be made pursuant to the provisions of this Lease. The Landlord for the exclusive use of Tenant or other tenants subject to change by Landlord may designate parking spaces. Tenant agrees that any parking 7 cards, stickers or related materials supplied by Landlord to Tenant shall remain the property of Landlord and, upon termination of this Lease or revocation of Tenant's Parking privileges, whichever shall first occur. Tenant shall promptly return such cards, stickers and related materials to Landlord. ESTOPPEL STATEMENT 18. Tenant agrees that from time to time, upon not less then ten (10) days prior request by Landlord, Tenant will deliver to Landlord a statement in writing certifying (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease as modified is in full force and effect and stating the modifications); (b) the dates to which the rent and other charges have been paid; and (c) that Landlord is not in default under any provisions of this Lease, or, if in default, the nature thereof in detail. SUBORDINATION 19. If the Building and/or Leased Premises are at any time subject to a mortgage and/or deed of trust, and Tenant has received written notice from Mortgagee of same, then in any instance in which Tenant gives notice to Landlord alleging default by Landlord hereunder, Tenant will also simultaneously give a copy of such notice to each Landlord's Mortgagee and each Landlord's Mortgagee shall have the right (but not the obligation) to cure or remedy such default during the period that is permitted to Landlord hereunder, plus an additional period of thirty (30) days, and Tenant will accept such curative or remedial action (if any) taken by Landlord's Mortgagee with the same effect as if such action had been taken by Landlord. This Lease shall at Landlord's option, which option may be exercised at any time during the Lease Term, be subject and subordinate to any first mortgage now or hereafter encumbering the Building. This provision shall be self-operative without the execution of any further instruments. Notwithstanding the foregoing, however, Tenant hereby agrees to execute any instrument(s) which Landlord may deem desirable to evidence the subordination of this Lease to any and all such mortgages. A ATORNMENT 20. If the interest of Landlord under this Lease shall be transferred voluntarily or by reason of foreclosure or other proceedings for enforcement of any first mortgage on the Leased Premises. Tenant shall be bound to such transferee (herein sometimes called the "Purchaser") for the balance of the Term hereof remaining, and any extensions or renewals thereof which may be effective in accordance with the terms and provisions hereof with the same force and effect as if the Purchaser were the Landlord under this Lease, and Tenant does hereby agree to attorn to the Purchaser, including the Mortgagee under any such mortgage if it be the Purchaser, as its Landlord, said attornment to be effective and self-operative without the execution of any further instruments upon the Purchaser succeeding to the interest of the Landlord under this Lease. The respective rights and obligations of Tenant and the Purchaser upon such attornment, to the extent of the remaining balance of the Term of this Lease and any such extensions and renewals, shall be and are the same as those set forth herein. In the event of such transfer of Landlord's interest. Landlord shall be released and relieved &on all liability and responsibility thereafter accruing to Tenant under Lease or otherwise and Landlord's successor by acceptance of rent &on Tenant hereunder shall become liable and responsible to Tenant in respect to all obligations of the Landlord under this Lease. ASSIGNMENT 21. Without the written consent of Landlord first obtained in each case. Tenant shall not assign, transfer, mortgage, pledge, or otherwise encumber or dispose of this Lease or underlet the Leased Premises or any part thereof or permit the Leased premises to be occupied by other persons. In the case of a subletting, Landlord's consent may be predicated, among other things, upon Landlord becoming entitled to collect and retain all rentals payable under the sublease. If this Lease be assigned, or if the Leased Premises or any part thereof be underlet or occupied by anybody other than Tenant, the Landlord may, after default by the Tenant, collect or accept rent from the assignee, under tenant, or occupant and apply the net amount collected or accepted to the rent herein reserved, but no such collection or acceptance shall be deemed a waiver of this covenant or the acceptance of the assignee, under tenant, or occupant as Tenant, nor shall it be construed as or implied to be a release of the Tenant from the further observance and performance by the Tenant of the terms, provisions, covenants and conditions herein contained. 8 In lieu of consenting or not consenting, Landlord may, at its option, (i) in the case of the proposed assignment or subletting of Tenant's entire leasehold interest, terminate this Lease in its entirety, or (ii) in the case of the proposed assignment or subletting of a portion of the Premises, terminate this Lease as to that portion of the Premises which Tenant has proposed to assign or sublet. In the event Landlord elects to terminate this Lease pursuant to clause (ii) of this paragraph. Tenant's obligations as to base Rental and Additional Rent shall be reduced in the same proportion that the Net Rent able Area of the portion of the Premises taken by the proposed assignee or subtenant bears to the total Net Rent able Area of the Premises. SUCCESSORS AND ASSIGNS 22. All terms, provisions, covenants and conditions to be observed and performed by Tenant shall be applicable to and binding upon Tenant's respective heirs, administrators, executors, successors and assigns, subject, however, to the restrictions as to assignment or subletting by Tenant as provided herein. All expressed covenants of this Lease shall be deemed to be covenants running with the land. HOLD HARMLESS OF LANDLORD 23. In consideration of said Premises being leased to Tenant for the above rental, Tenant agrees: that Tenant, at all times, will indemnify and keep Landlord harmless from all losses, damages, liabilities and expenses, which may arise or be claimed against Landlord and be in favor of any persons, firms or corporations, consequent upon or arising from the use or occupancy of said Premises by Tenant, or consequent upon or arising from any acts, omissions, neglect or fault of Tenant, his agents, servants, employees, licensees, visitors, customers, patrons or invitee, or consequent upon or arising from Tenant's failure to comply with any laws, statutes, ordinances, codes or regulations as herein provided; that Landlord shall not be liable to Tenant for any damages, losses or injuries to the persons or property of Tenant which may be caused by the acts, neglect, omissions or faults of any persons, firms or corporations, except when such injury, loss or damage results from negligence of Landlord, his agents or employees, and that Tenant will indemnify and keep harmless Landlord from all damages, liabilities, losses, injuries, or expenses which may arise or be claimed against Landlord and be in favor of any person, firms or corporations, from any injuries or damages to the person or property of any persons, firms or corporations, where said injuries or damages arose about or upon said Premises, as a result of the negligence of Tenant, his agents, employees, servants, licensees, visitors, customers, patrons, and invitee. All personal property placed or moved into the Leased Premises or Building shall be at the risk of Tenant or the owner thereof, and Landlord shall not be liable to Tenant for any damage to said personal property. Tenant shall maintain at all times during the Term of this Lease an insurance policy or policies in an amount sufficient in Landlord's opinion, to indemnify Landlord or pay Landlord's damages, if any, resulting from any matters set forth hereinbefore in this paragraph 23. In case Landlord shall be made a party to any litigation commenced against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by Landlord in connection with such litigation and any appeal thereof(pound) Attorneys' FEES 24. If either party defaults in the performance of any of the terms, provisions, covenants and conditions of this Lease and by reason thereof the other party employs the services of an attorney to enforce performance of the covenants, or to perform any service based upon defaults, then in any of said events the prevailing party shall be entitled to reasonable attorneys' fees and all expenses and costs incurred by the prevailing party pertaining thereto (including costs and fees relating to any appeal) and in enforcement of any remedy. 9 DAMAGE OR DESTRUCTION 25. In the event the Leased Premises shall be destroyed or so damaged or injured by fire or other casualty, during the Term of this Lease, whereby the same shall be rendered untreatable, the Landlord shall have the right, but not the obligation, to render such Leased Premises tenantable by repairs within 180 days there from. Landlord agrees that, within 60 days following damage or destruction, it shall notify Tenant with respect to whether or not Landlord intends to restore the premises. If said Premises are not rendered tenantable within the aforesaid 180 days it shall be optional with either party hereto to cancel this Lease, and in the event of such cancellation the rent shall be paid only to the date of such fire and casualty. The cancellation herein mentioned shall be evidenced in writing. During any time that the Leased Premises are untreatable due to causes set forth in this paragraph, the rent or a just and fair proportion thereof shall be abated. Notwithstanding the foregoing, should damage, destruction or injury occur by reason of Tenant's negligence. Landlord shall have the right, but not the obligation, to render the Leased Premises tenantable within 360 days of the date of damage, destruction or injury and no abatement of rent shall occur. Notwithstanding the foregoing, should damage or destruction occur during the last twelve months of the Lease Term either Landlord or Tenant shall have the option to terminated this Lease, effective on the date of damage or destruction, provided notice to terminate is given within 30 days of the date of such damage or destruction. Notwithstanding the foregoing, should the damage or destruction occur by reason of Tenant's negligence, Tenant shall not have such option to terminate. EMINENT DOMAIN 26. If there shall be taken during the Term of this Lease any part of the Leased Premises, Parking Facilities or Building, other than a part not interfering with maintenance, operation or use of the Leased premises, Landlord may elect to terminate this Lease or to continue same in effect. If Landlord elects to continue the Lease, the rental shall be reduced in proportion to the area of the Leased Premises so taken and Landlord shall repair any damage to the Leased Premises, parking facilities, or Building resulting from such taking. If any part of the Leased Premises is taken by condemnation or Eminent Domain which renders the Premises unsuitable for its intended use, the Tenant may elect to terminate this Lease, or if any part of the Leased Premises is so taken which does not render the Premises unsuitable for its intended use, this Lease shall continue in effect and the rental shall be reduced in proportion to the area of the Leased Premises so taken and Landlord shall repair any damage to the Leased Premises resulting from such taking. If all of the Leased Premises is taken by condemnation or Eminent Domain, this Lease shall terminate on the date of the taking. All sums awarded (or agreed upon between Landlord and the condemning authority) for the taking of the interest of Landlord and/or Tenant, whether as damages or as compensation, and whether for partial or total condemnation, will be the property of Landlord. If this Lease should be terminated under any provisions of this paragraph, rental shall be payable up to the date that possessions is taken by the authority, and Landlord will refund to Tenant any prepaid unaccrued rent less any sum or amount than owing by Tenant to Landlord. ABANDONMENT 27. If, during the term of this Lease, Tenant shall abandon, vacate or remove from the Leased Premises the major portion of the goods, wares, equipment or furnishings usually kept on said Leased Premises, or shall cease doing business in said Leased Premises, or shall suffer the rent to be in arrears. Landlord may, at its option, cancel this Lease in the manner stated in paragraph 28 hereof, or Landlord may enter said Leased Premises as the agent of Tenant by force or otherwise, without being liable in any way therefore and relent the Leased Premises with or without any furniture that may be therein, as the agent of Tenant, at such price and upon such terms and for such duration of time as Landlord may determine, and receive the rent therefore, applying the same to the payment of the rent due by these presents, and if the full rental herein provided shall not be realized by Landlord over above the expenses to Landlord of such relenting. Tenant shall pay any deficiency. UPON THE EXPIRATION OR TERMINATION OF THIS LEASE, OR IN THE EVENT THAT LESSEE ABANDONS THE PREMISES, ANY PERSONAL PROPERTY THAT LESSEE LEAVES AT THE DEMISED PREMISES SHALL BE DEEMED TO HA VE BEEN ABANDONED AND MAYBE EITHER RETAINED BY LESSOR AS THE PROPERTY OF LESSOR OR MAY BE DISPOSED OF AS LESSOR SEES FIT. 10 INSOLVENCY 28. It is agreed between the parties hereto that: if Tenant shall be adjudicated a bankrupt or an insolvent or take the benefit of any federal reorganization or composition proceeding or make a general assignment or take the benefit of any insolvency law, or if Tenant's leasehold interest under this Lease shall be sold under any execution or process of law, or if a trustee in bankruptcy or a receiver be appointed or elected or had for Tenant (whether under Federal or State laws), or if said Premises shall be abandoned or deserted; or if Tenant shall fail to perform any of the terms, provisions, covenants or conditions of this Lease on Tenant's part to be performed; or if this Lease or the Term thereof be transferred or pass to or devolve under any persons, firms, officers or corporations other than Tenant by death of the Tenant, operation of law or otherwise, than and in any such events, at the option of Landlord, the total remaining unpaid Base Rental for the Term of this Lease shall become due and payable or this Lease and the Term of this Lease shall expire and end five (5) days after Landlord has given Tenant written notice (in the manner hereinafter provided) of such act, condition or default and Tenant hereby agrees immediately then to pay said Base Rental or quit and surrender said Leased Premises to Landlord; but this shall not impair or affect Landlord's right to maintain summary proceedings for the recovery of the possession of the Leased Premises in all cases provided for by law. If the Term of this Lease shall be so terminated, Landlord may immediately, or at any time thereafter, re-enter or repossess the Leased Premises and remove all persons and property there from without being liable for trespass or damages. LIEN FOR PAYMENT OR RENT 29. Tenant hereby pledges and assigns to Landlord as security for the payment of any and all rental or other sums or amounts provided for herein, all of the furniture, fixtures, goods and chattels of Tenant which shall or may be brought or put on or into said Leased Premises, and Tenant agrees that said lien may be enforced by distress, foreclosure or otherwise, at the election of the Landlord. Tenant hereby expressly waives and renounces for himself and family any and all homestead and exemption rights he may now have or hereafter acquire under or by virtue of the constitution and laws of the State of Florida or of any other state, or of the United States, as against the payment of said rental or any other obligations or damage that may accrue under the Terms of this Lease. WAIVER OF DEFAULT 30. Failure of Landlord to declare any default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default, but Landlord shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, in law and/or in equity. No waiver by Landlord of a default by Tenant shall be implied, and no express waiver by Landlord shall affect any default other than the default specified in such waiver and that only for the time and extension therein stated. No waiver of any term, provision, condition or covenant of this Lease by Landlord shall be deemed to imply or constitute, a further waiver by Landlord of any other term, provision, condition or covenant of this Lease. In addition to any rights and remedies specifically granted Landlord herein. Landlord shall be entitled to all rights and remedies available at law and in equity in the event that Tenant shall fail to perform any of the terms, provisions, covenants or conditions of this Lease on Tenant's part to be performed or fails to pay Base Rental, Additional Rental or any other sums due Landlord hereunder when due. All rights and remedies specifically granted to Landlord herein by law and in equity shall be cumulative and not mutually exclusive. RIGHT OF ENTRY 31. Landlord, or any of his agents, shall have the right to enter the Leased Premises during all reasonable hours to examine the same or to make such repairs, additions or alterations as may be deemed necessary for the safety, comfort, or preservation thereof, or to said Building, or to exhibit said Leased Premises at any time within one hundred eighty (180) days before expiration of this Lease. Said right of entry shall likewise exist for the purpose of removing placards, signs, fixtures, alterations, or additions which do not conform to this Lease. 11 NOTICE 32. Any notice given Landlord as provided for in this Lease shall be sent to Landlord by registered mail addressed to Landlord at Landlord's Management Office in the Building. Any notice to be given Tenant under the terms of this Lease, unless otherwise stated herein, shall be in writing and shall be sent by certified mail to the office of Tenant in the Building either party, from time to time, by such notice, may specify another address to which subsequent notice shall be sent. LANDLORD CONTROLLED AREAS 33. All automobile parking areas, driveways, entrances and exits thereto, Common Areas, and other facilities furnished by Landlord, including all parking areas, truck way or ways, loading areas, pedestrian walk ways and ramps, landscaped areas, stairways, corridors, and other areas and improvements provided by Landlord for the general use, in common, of tenants, their officers, agents, employees, servants, invitees, licensees, visitors, patrons and customers, shall be at all times subject to the exclusive control and management of Landlord, and Landlord shall have the right &on time to time to establish, modify and enforce rules and regulations with respect to all facilities and areas and improvements; to police same, &on time to time to change the area, level and location and arrangement of parking areas and other facilities hereinabove referred to, to restrict parking by and enforce parking charges (by operation of meters or otherwise) to tenants, their officers, agents, invitees, employees, servants, licensees, visitors, patrons and customers; to close all or any portion of said areas or facilities to such extent as many in the opinion of Landlord's counsel be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein; to close temporarily all or any portion of the public area, Common Area or facilities; to discourage non-tenant parking; to charge a fee for visitor and/or customer parking; and to do and perform such other acts in and to said areas and improvements as, in the sole judgment of Landlord, the Landlord shall determine to be advisable with a view to the improvement of the convenience and use thereof by tenants, their officers, agents, employees, servants, invitees, visitors, patrons, licensees and customers. Landlord will operate and maintain the Common Areas and other facilities referred to in such reasonable manner as Landlord shall determine &on time to time. Without limiting the scope of such discretion, Landlord shall have the full right and authority to designate a manager of the parking facilities and/or Common Areas and other facilities who shall have the full authority to make and enforce rules and regulations regarding the use of the same or to employ all personnel and to make and enforce all rules and regulations pertaining to and necessary for the proper operation and maintenance of the parking areas and/or Common Areas and other facilities. Reference in this paragraph to parking areas and/or facilities shall in no way be construed as giving Tenant hereunder any rights and or privileges in connection with such parking areas and/or privileges are expressly set forth in paragraph 17 hereof. CONDTION OF PREMISES ON TERMINATION OF LEASE AND HOLDING OVER 34. Tenant agrees to surrender to Landlord, at the end of the Term of this Lease and/or upon any cancellation of this Lease, said Leased Premises in as good condition as said Leased Premises were at the beginning of the Term of this Lease, ordinary wear and tear, and damage by fire or other casualty not caused by Tenant's negligence excepted. Tenant agrees that if Tenant does not surrender said Leased Premises to Landlord at the end of the Term of this Lease than Tenant will pay to Landlord double the amount of the current rental for each month or portion thereof that Tenant holds over plus all damages that Landlord may suffer on account of Tenant's failure to surrender to Landlord possession of said Leased Premises, and will indemnify and save Landlord harmless from and against all claims made by any succeeding Tenant of said Leased Premises against Landlord on account of delay of Landlord in delivering possession of said Leased Premises to said succeeding Tenant so far as such delay is occasioned by failure of Tenant to so surrender said Leased Premises in accordance herewith of otherwise. No receipt of money by Landlord from Tenant after termination of this Lease or the service of any notice of commencement of any suit or final judgment for possession shall reinstate, continue or extend the Term of this Lease or affect any such notice, demand, suit or judgment. 12 No act or thing done by Landlord or its agents during the Term hereby granted shall be deemed an acceptance of a surrender of the Leased Premises, and no agreement to accept a surrender of the Leased Premises shall be valid unless it be made in writing and subscribed by a duly authorized officer or agent of Landlord. OCCUPANCY TAX 35. Tenant shall be responsible for and shall pay before delinquency all municipal, country or state taxes assesses during the Term of this Lease against any occupancy interest or personal property of any kind, owned by or placed in, upon or about the Leased Premises by the Tenant. SIGNS 36. Landlord shall have the right to install signs on the interior or exterior of the Building and Leased Premises and/or change the Building's naD1e or street address. TRIAL BY JURY 37. It is mutually agreed by and between Landlord and Tenant that the respective 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 arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or occupancy of the Premises. Tenant further agrees that it shall not interpose any counterclaim or counterclaims in a summary proceeding or in any action based upon non-payment of rent or any other payment required of Tenant hereunder. RELOCATION OF TENANT 38. Landlord expressly reserves the right at Landlord's sole cost and expense to remove Tenant from the Leased Premises and to relocate Tenant in some other space of Landlord's choosing of approximately the same dimensions and size within the Building, which other space shall be decorated by Landlord at Landlord's expense. Landlord shall have the right, in Landlord's sole discretion, to use such decorations and materials from the existing Premises, or other materials so that the space in which Tenant is relocated shall be comparable in its interior design and decorating to the Premises from which Tenant is removed. Nothing herein contained shall be construed to relieve Tenant or imply that Tenant is relieved of the liability for or obligation to pay any Additional Rent due by reason of the provisions of paragraph 4 of this Lease, the provisions of which paragraph shall be applied to the space in which Tenant is relocated on the same basis as said provisions were applied to the Premises from which Tenant is removed. Tenant agrees that landlords' exercise of its election to remove and relocate Tenant shall not terminate this Lease or release Tenant, in whole or in part, from Tenant's obligation to pay the rents and perform the covenants and agreements hereunder for the full Term of this Lease. CROSS DEFAULT 39. If the term of any lease, other than this Lease, made by Tenant for any other space in the Building shall be terminated or terminable after the making of this Lease because of any default by Tenant under such other lease, such default shall, ipso facto constitute a default hereunder and empower Landlord at Landlord's sole option, to terminate this Lease as herein provided in the event of default. INVALIDITY OF PROVISION 40. If any term, provision, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term, provision, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term, provision, covenant or condition of this Lease shall be valid and be enforceable to the fullest extent permitted by law. This Lease shall be construed in accordance with the laws of the State of Florida. TIME OF ESSENCE 41. It is understood and agreed between the parties hereto that time is of the essence of all the terms, provisions, covenants and conditions of this Lease. 13 MISCELLANEOUS 42. The terms Landlord and Tenant as herein contained shall include singular and/or plural, masculine, feminine and/or neuter, heirs, successors, executors, administrators, personal representatives and/or assigns wherever the context so requires or admits. The terms, provisions, covenants and conditions of this Lease are expressed in the total language of this Lease Agreement and the paragraph headings are solely for the convenience of the reader and are not intended to be all inclusive. Any formally executed addendum to or modification of this Lease shall be expressly deemed incorporated by reference herein unless a contrary intention is clearly stated herein. EFFECTIVE DATE 43. Submission of this instrument for examination does not constitute an offer, right of first refusal, reservation of or option for the Leased Premises or any other space or premises in, on or about the Building. This instrument becomes effective at a Lease upon execution and delivery by both Landlord and Tenant. ENTIRE AGREEMENT 44. This Lease contains the entire agreement between the parties hereto and all previous negotiations leading thereto, and it may be modified only by an agreement in writing signed by Landlord and Tenant. No surrender of the Leased Premises, or of the remainder of the terms of this Lease, shall be valid unless accepted by Landlord in writing. Tenant acknowledges and agrees that Tenant has not relied upon any statement, representation, prior written or contemporaneous oral promises, agreements or warranties except such as are expressed herein. BROKERAGE 45. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than (if the foregoing blank has not been completed, the word "None" shall be deemed to have been typed therein) and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. The provisions of this paragraph shall survive the termination of this Lease. FORCE MAJEURE 46. Neither Landlord nor Tenant shall be required to perform any term, condition, or covenant in this Lease so long as such performance is delayed or prevented by force majeure, which shall mean acts of God, labor disputes (whether lawful or not), material or labor shortages, restrictions by any governmental authority, civil riots, floods, hurricanes, and any other cause not reasonably within the control of Landlord or Tenant and which by the exercise of due diligence Landlord or Tenant is unable, wholly or in part, to prevent or overcome. Lack of money shall not be deemed force majeure. SECURITY 47. Landlord and Tenant hereby agree that Landlord does not assume and has no duty to provide security in and about the Leased Premises, the Building, common and recreation areas and parking areas for protection of Tenant, its employees, agents, visitors, invitees or licensees from foreseeable criminal acts or criminal activity of any kind or nature whatsoever. Tenant hereby assumes all responsibility to provide security to protect Tenant, its employees, agents, visitors, invitees or licensees from and against all such foreseen or unforeseen criminal acts. Landlord of any duty to provide security shall not construe any provisions of security services by Landlord as an assumption and Landlord, if at any time provided, may discontinue such services, at any time at Landlord's election without liability to Tenant or any third party. INSURANCE REQUIREMENTS 48. Tenant hereby agrees to indemnify and hold handless Landlord, its subsidiaries, directors, officers, agents and employees &on and against any and all damages, loss, liability or expense including but not limited to, attorney's fees and legal costs suffered by same directly or by reason of any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury, including death resulting anytime thereof, and property damage sustained by such person or persons which arises out of, is occasioned by or in any way attributable to the use or occupancy of the demised premises and adjacent areas by Tenant or otherwise, the acts or omissions of Tenant, its agents, employees or any contractors brought onto said premises by Tenant, except that caused by the sole negligence of Landlord or its employees, agents, customers and invitees. Such loss or damage shall include, but not limited to any injury or damage to Landlord's personnel (including death resulting anytime thereof) or premises. Tenant agrees that the obligations assumed herein shall survive this Lease. 14 Tenant hereby agrees to maintain in full force and effect at all times during the term of this Lease, at its own expense, for the protection of Tenant and Landlord. as their interest may appear, policies of insurance issued by a responsible carrier or carriers acceptable to Landlord which afford the following coverage's: (a) Damage. Comprehensive General Liability Insurance Not Less than $1,000,000 Combined Single Limit both bodily injury and property (b) Fire and Extended Coverage, Vandalism and Malicious Mischief, Sprinkler Leakage (where applicable) insurance, to cover all of Tenant's stock in trade, fixtures, furniture, furnishings, removable floor coverings, trade equipment, signs and all other decorations placed by Tenant in or upon the Leased Premises. Worker's Compensation as required by Florida Statutes. Employer's Liability -Not less than $100,000. Tenant shall deliver to Landlord at least thirty (30) days prior to the time such insurance is first required to be carried by Tenant, and thereafter at least thirty (30) days prior to expiration of such policy, Certificates of Insurance evidencing the above coverage with limits no less than those specified above. Such Certificates, shall name Landlord, its subsidiaries, directors, agents and employees as additional insured and shall expressly provide that the interest of same therein shall not affected by any breach by Tenant of any policy provision for which such Certificates evidence coverage. Further, all Certificates shall expressly provide that no less than thirty (30) days prior written notice shall be given Landlord in the event of material alteration to, or cancellation of, the coverage's evidenced by such Certificates. A FAILURE TO PROVIDE SUCH INSURANCE COVERAGE SHALL BE DEEMED A DEFAULT IN LEASE If, on account of the failure of Tenant to comply with the foregoing provisions, Landlord is adjudged a coinsurer by its insurance carrier, then any loss or damage Landlord shall sustain by reason thereof shall be borne by Tenant and shall be immediately paid by Tenant upon receipt of a bill thereof and evidence of such loss. Landlord makes no representation that the limits of liability specified to be carried by Tenant under the terms of this Lease are adequate to protect Tenant, and in the event Tenant believes that any such insurance coverage called for under this Lease is insufficient, Tenant shall provide at its own expense, such additional insurance as Tenant deems adequate. Landlord shall at all times during the term of this Lease, at its expense, maintain a policy or policies of insurance, issued by and binding upon some solvent insurance company, insuring the building against loss or damage by fire, explosion or other hazards and contingencies for the full insurable value, provided that Landlord shall not be obligated to insure any furniture, equipment, machinery, goods or supplies not covered by this Lease which Tenant may bring or obtain upon Leased Premises, or any additional improvements which Tenant may construct on the premises. Landlord reserves the right to self-insure such building. 15 Anything in this Lease to the contrary notwithstanding, Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the Leased Premises, the Building, improvements to the Building of which Leased Premises are a part, personal property {building contents) within the Building, any furniture, equipment, machinery, goods or supplies not covered by this Lease which Tenant may bring or obtain upon the Leased Premises or any additional improvements which Tenant may construct on the Leased Premises, by reason of fire, the elements or any other cause which could be insured against under the terms of standard fire and extended coverage insurance policies, regardless of cause or origin, including negligence of Landlord or Tenant and their agents, officers and employees. LIMITATION OF LIABILITY: 49. The term Landlord as used in this Lease shall be limited to mean and include only the owner or owners at the time in question of the fee of the Leased Premises and in no event shall such term or any covenant be construed to impose a personal obligation upon the Property Manager and Leasing Agent who is an independent contractor authorized by the owner of the Leased Premises to secure leases and to manage the Leased Premises pursuant to a written Management Contract. Nothing herein shall be construed to imply or impose upon either the Property Manager and Leasing Agent or the owner of the Leased Premises, a general agency relationship. In the event of any transfer of title to such fee, the Landlord herein shall be automatically freed and relieved from all personal liability with respect to performance of any covenant or obligation on the part of Landlord, provided any security deposits or advance rents held by Landlord are turned over to the grantee and said grantee expressly assumes, subject to the limitations of this paragraph, all the terms, covenants and conditions of this Lease to be performed on the part of Landlord, it being intended hereby that the covenants and obligations contained in this Lease on the part of Landlord shall, subject as aforesaid, be binding on Landlord, its successors and assigns, only during their respective successive periods of ownership. Notwithstanding anything to the contrary contained in this Lease. it is agreed and understood that Tenant shall look solely to the estate and property of the Landlord in the land and buildings comprising the Building of which the Leased Premises is a part for the enforcement of any judgment (or other judicial decree) requiring the payment of money by Landlord to Tenant by reason of any default or breach by Landlord in the performance of its obligations under this Lease. it being intended hereby that no other assets of Landlord shall be subject to levy execution. attachment or other such legal process for the enforcement or satisfaction of the remedies pursued by Tenant in the event of such default or breach. FLOOR LOAD LIMITS: 50. Tenant shall not place a load upon any floor of the Leased Premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's judgment, to absorb and prevent vibration, noise and annoyance. RADON GAS 51. In accordance with the requirements of Florida Statutes Section 404.56(8) the following notice is hereby given: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your County Public Health Unit. 16 EFFECT OF SUBMISSION: 52. Submission of this instrument for examination and consideration does not constitute a reservation of or option for the Leased Premises. The instrument becomes effective as a lease only upon execution and delivery by both Landlord and Tenant. ACCEPTANCE 53. The prompt payment of the rent for said premises upon the dates names, and the faithful observance of the rules and regulations printed upon this lease, and which are hereby made a part of this covenant, and of such other and further rules or regulations as may be hereafter made by the LESSOR, are the conditions upon which the lease is made and accepted and any failure on the part of the LESSEE to comply with the terms of said lease, or any of said rules and regulations now in existence, or which may be hereafter prescribed by the LESSOR, shall at the option of the LESSOR, work a forfeiture of this contract, and all of the rights of the LESSEE hereunder. TENANT'S BREACH AND LANDLORD'S REMEDIES 54. A. DEFAULT During the term of this Lease, any of the following shall constitute an Event of Default (i) Tenant shall fail to make the payment of any rent or other sums due under the terms of this Lease for ten (10) calendar days after the due date thereof; or (ii) Tenant shall fail in the performance or observance of any of the other terms, covenants, conditions or agreements of this Lease other than payment of money for fifteen (15) days after written notice and demand, or (if such default shall be of such a nature that the same cannot practicably be cured within said fifteen (15) day period) Tenant shall not within said fifteen (15) day period commence the curing and performance of such default or fail to prosecute and complete with due diligence and the curing and performance of same; or (iii) Tenant shall make a general assignment for the benefit of its creditors; commence a voluntary case under the United States Bankruptcy Code; fail to have dismissed within sixty (60) days of filing, an involuntary case under the Bankruptcy Code. B. REMEDIES In the event of an occurrence of an Event of Default, Landlord, at Landlord's option, may elect to do any one or more of the following: (i) terminate this Lease or terminate Tenant's right of possession without terminating the Lease, and re-enter the Premises; and/or (ii) accelerate the rent that is due for the term of the Lease and all such rent shall be immediately due and payable; and/or under Florida law. (iii) exercise any and all remedies available. In case of any such re-entry, termination and/or dispossession by summary proceedings or otherwise as provided above: part thereof; (i) Landlord may relent the Premises or any (ii) Tenant also shall pay to Landlord the amount by which the rent reserved in this Lease and/or covenanted to be paid exceeds the net amount (after reduction of all costs and expenses reasonably incurred by Landlord in connection with relenting), if any, of the rents collected on account of Landlord's re-letting. Landlords right to cure Tenants default. If Tenant shall fail or neglect to comply with and perform any term, covenant, condition or agreement hereunder, then, upon five (5) days' prior written notice to Tenant (or upon shorter notice, or with no notice at all, if necessary to meet an emergency situation or a governmental or municipal time limitation), Landlord, at Landlord's option, may perform such work and take such other steps as Landlord may deem advisable to comply with and perform any such term, covenant, condition or agreement which is in default. In such event Tenant shall reimburse Landlord upon demand for all costs and expenses incurred by Landlord. 17 IN WITNESS WHEREOF, the parties executed the foregoing hereto, on the date above first written. LANDLORD : Lucky Capital Inc. WITNESSES By: /s/ Margot Swan By: /s/ Sidney Dulman - --------------------------------------- ------------------------------ Name: Sidney Dulman ---------------- (Print or Type) Title: President --------- Name: -------------------- (Print or Type) TENANT: Talk Visual Corporation WITNESSES: By: /s/ Clint Snyder By: /s/ Eugene Rosov - --------------------------------------- ---------------------------- Name: Eugene Rosov --------------- (Print or Type) Title: President --------- Name: -------------------- (Print or Type) RULES AND REGULATIONS Lucky Capital Lucky Capital, Inc. (LANDLORD) Talk Visual Corporation (TENANT) EX-10.7 16 0016.txt AGREEMENT Exhibit 10.7 AGREEMENT This Agreement is made this 22nd day of June 2000, by and between Talk Visual Retail Acquisitions, Inc. ("TVRAI"), a Florida corporation with its principal business address at 3550 Biscayne Boulevard, Miami, Florida 33137, and Various Business Management ("VBM"), a New York corporation with its principal business address at 529 West 207th Street, 2nd Floor, New York, New York 10034. Whereas, VBM and/or its affiliates controls, leases, owns and/or operates eleven (11) telephone call centers/money transfer establishments (the "Stores") in the greater New York/New Jersey area, whose locations and lease terms are listed on Exhibit A to this Agreement; and Whereas, VBM represents that the total gross revenue from all eleven telephone calls shops is equal to or greater than two million dollars ($2,000,000.00) annually, based on the gross revenue for the calendar year 1999 (the "presumed gross revenue"); and Whereas, VBM represents that TVRAI may assume and/or be substituted for VBM and/or its affiliates with respect to any and all leases or similar agreements regarding the realty interests held by these stores for a period not less than three (3) years; and Whereas, TVRAI desires to acquire the rights to the leases to the Stores and all of the physical assets contained in each Store, but specifically is not purchasing the VBM corporation or acquiring any asset or liability of VBM not associated with the enumerated leases and the physical assets exiting in each store. NOW, THEREFORE, the parties agree to the following: 1. Pursuant to the terms set out here below, TVRAI hereby acquires all systems, physical assets and leases of VBM related to the eleven (11) telephone calls shops/money transfer operations described above. TVRAI is not purcchasing equities of any type from VBM, nor is TVRAI assuming any obligations, past, present or future related to VBM or any of these Stores unless specifically agreed. All obligations of VBM, which existed as of the date of this First Closing described below, shall remain exclusively the obligation of VBM. All obligations incurred by TVRAI after the date of the First Closing shall become the exclusive obligation of TVRAI. 2. VBM certifies it has full rights, authorization, and power-of-attorney to sell, transfer and dispose of the systems, assets, leases and any other elements related to the business of VBM; and VBM agrees that no continuing obligations, past obligations or future obligations, save those specifically agreed to by TVRAI at First Closing, will be in any way, manner, shape or form the obligations of TVRAI, and agrees to indemnify TVRAI for any claims brought against TVRAI, whether or not such claims become litigated, where the claimant asserts any claim arising out of a relationship with VBM arising prior to the date of Final Closing. Satisfaction of this indemnity shall come from and be limited to the stock of TVCP that is being delivered to VBM pursuant to this Agreement. 3. TVRAI shall transfer to VBM the following consideration for the acquisition of the Stores as described above: 3.1 A cash payment in the total amount of Three Hundred Fifty Thousand Dollars ($350,000.00) which shall be paid as set out below; and 3.2 Common stock of Talk Visual Corporation with a market value of Five Hundred Fifty Thousand Dollars ($550,000) to be paid and calculated as set out below. 4. An initial Closing (the "First Closing") of the transaction is being held today, June 26, 2000, at which time TVRAI is acquiring all systems, assets and leases of VBM (including assignments from the original lessees of the Stores) relating to the Stores. All documents relating to the purchase will be held in escrow until the Final Closing referred to in Paragraph 7 hereof. At the First Closing, TVRAI will pay VBM $50,000 by certified check or wire transfer. Up to an additional $100,000 will be used by TVRAI and VBM to extinguish certain obligations relating to the operation of some or all of the Stores, to ensure that the landlords for the Stores will consent to the assignment of the leases to TVRAI, and to provide that all of the leases for the Stores will have lease terms of at lease three (3) years. VBM acknowledges that the landlords' consent to the assignment of these leases and the minimum term of three years are each material terms of this Agreement and that failure to secure any of the consents or the minimum terms will result in a reduction of the purchase price as set forth in paragraph 7 below. 5. In the two weeks following the First Closing, VBM will take whatever steps are necessary to deliver to TVRAI leases that have the agreed upon lease terms of no less than three (3) years and the consent of each of the landlords to the assignment of the leases to TVRAI. Such consent shall be in the form attached hereto as Exhibit "B."VBM agrees to cooperate in every regard with TVRAI in all efforts to secure both the minimum terms for the leases and the landlords' consents. All funds so used shall be issued by TVRAI check directly to the creditor or lessor, unless expressly permitted, in writing, by TVRAI. In that same time period, VBM shall make available to TVRAI all carrier billings and money transfer records from the Stores so that TVRAI can conclude its due diligence of the represented gross revenues for the calendar year 1999. 6. Immediately following the First Closing, TVRAI may take control of any or all of the Stores in its sole discretion, and begin operations for and on behalf of TVRAI. None of those operations shall be, in any way, considered to be the operations of VBM or of any joint venture of VBM and Talk Visual. 7. A final Closing (the "Final Closing") will be held within ten (10) days following the conclusion of the two week period described in paragraph 5, or within ten (10) days of the fulfillment of the conditions of paragraph 5, whichever is earlier. At that time VBM will deliver to TVRAI documents sufficient to indicate that all of the leases for the Stores have terms of at least three (3) years from the date of the First Closing together with consent from each of the landlords for the assignment of these leases to TVRAI. At the Final Closing, TVRAI will deliver a certified check in the amount of $200,000 payable to VBM, dated not later than thirty (30) days from the date of the Final Closing; and, shares of stock registered on the books and records of TVCP as owned by VBM, or its assignee, equal in value to $550,000. For purposes of valuing the TVCP stock, the parties agree that the average closing stock price for the ten (10) days previous to the First Closing will be used. At this point, the documents and consideration will be released from escrow. VBM agrees that when the stock transferred to it becomes eligible for sale in the public market, it will not sell more than fifteen (15) percent of the shares it holds in any one month and that the certificates it receives shall be denominated in those allotments and stamped with a legend that conforms to this Agreement. In the event that in any future acquisition or transaction similar to the transaction herein, the recipient of any shares has a lesser restriction on the sale of shares than that imposed here, then VBM's restriction shall be reduced to be equal to that lesser restriction. Likewise, in the event a Tender is made for the shares of TVCP, which Tender has been approved by the TVCP Board of Directors, then VBM or its assignee may participate in such Tender without regard for the limitations in this Agreement subject to any limitations imposed by federal securities law. In the event that VBM is unable to obtain a lease for any Store that is at least three years, the parties will negotiate a reduction in the total purchase price of the Stores by mutual agreement. At that point, the agreed upon consideration shall be paid to VBM and the documents passing title to the stores shall be released from escrow to TVRAI. 8. It is understood by VBM and TVRAI that all obligations relating to the Stores that arise or exist prior to the date of the First Closing remain the obligation of VBM. Thereafter, all obligations incurred by TVRAI relating to the Stores are for the sole account of TVRAI. It is expressly understood that the operations of TVRAI are not a continuation of the business of VBM but the operation of a new and distinct entity. 9. TVRAI and VBM each represent and warrant that they are duly incorporated and authorized to do business in the states of their incorporation, that they are fully authorized to enter into this Agreement, and that the person signing the Agreement on their respective behalves has the power and authority to do so. Each further represent that they know of no law, government regulation or contractual obligation which would prevent them from entering into this Agreement. 10. VBM agrees to indemnify TVRAI from any and all claims brought by third parties against TVRAI arising out of the operation of the Stores prior to the date of the First Closing. Should such claims be brought, VBM will defend against such claims through counsel of its own choosing. This indemnification is valid only if TVRAI notifies VBM of such claims within ten (10) days of the date when the claim is made. 11. The laws of the State of Florida will govern this Agreement and all claims arising out of it, without reference to its choice of laws provisions. The parties agree that all disputes arising out of this Agreement shall be settled by arbitration pursuant to the Commercial Rules of the American Arbitration Association, and that any arbitration shall take place in Miami, Florida. Each party shall bear its own costs of the arbitration unless otherwise decided by the arbitrators. 12. Notices to the parties shall be deemed effective if mailed first class, postage pre-paid to the following addresses: If to TVRAI: Talk Visual Retail Acquisitions, Inc. 35550 Biscayne Boulevard Miami, Florida 33137 Attention: Eugene Rosov If to VBM: Various Business Management 529 West 207th Street, 2nd floor New York, New York 10034 Attention: Carlos Duran 13. The parties acknowledge that this Agreement is the entire Agreement between TVRAI and VBM, and that there are no other oral or written agreements, representations or warranties upon which they are relying in entering into this Agreement. TALK VISUAL RETAIL ACQUISITIONS, INC. By: /s/ Eugene Rosov ---------------- President VARIOUS BUSINESS MANAGEMENT By: /s/ Jeanette Polanco_ -------------------- President EX-21.1 17 0017.txt SUBSIDIARIES OF TALK VISUAL CORPORATION Exhibit 21.1 Subsidiaries of Talk Visual Corporation Jurisdiction Of Incorporation Name - ---------------- ---------------------------------------------- California Sacramento Results, Inc. Ontario, Canada The Ontario International Property Corporation Florida Visual Express Corporation Florida Videocall Miami, Inc. Florida Talk Visual Retail Acquisitions, Inc. New York Mundo Express of New York, Ltd. EX-23.1 18 0018.txt CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form SB-2, No. 333-_____) of our report dated March 30, 2000, with respect to the consolidated financial statements of Talk Visual Corporation, included in the Annual Report (Form 10-KSB) for the year ended December 31, 1999, filed with the Securities and Exchange Commission. Mayer Rispler & Company, P.C. Brooklyn, New York on March 30, 2000. -----END PRIVACY-ENHANCED MESSAGE-----