-----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, Lalvn6hnWTD06L9if31vuqpE6H8JVc/eXu9p3mP/3W5TOddRSSQANWJrLEb58TXr o8PLSyencws/rxZZ1e4C5Q== 0000950116-97-001932.txt : 19971024 0000950116-97-001932.hdr.sgml : 19971024 ACCESSION NUMBER: 0000950116-97-001932 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19971023 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD WIRELESS COMMUNICATIONS INC CENTRAL INDEX KEY: 0001031744 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-38567 FILM NUMBER: 97699722 BUSINESS ADDRESS: STREET 1: 150 WRIGHT BROS DR STREET 2: # 570 CITY: SALT LAKE CITY STATE: UT ZIP: 84116 BUSINESS PHONE: 8015756600 MAIL ADDRESS: STREET 1: 150 WRIGHT BROTHERS DR SUITE 570 CITY: SALT LAKE CITY STATE: UT ZIP: 84116 SB-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997 REGISTRATION NO. _______________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM SB-2 Registration Statement Under The Securities Act of 1933 --------------------- WORLD WIRELESS COMMUNICATIONS, INC. (Name of Small Business Issuer in Its Charter)
Nevada 8911 87-0549700 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
150 Wright Brothers Drive, Suite 560 Salt Lake City, Utah 84116 Telephone: 801/575-6600 Facsimile: 801/576-6621 David D. Singer, CEO and President 150 Wright Brothers Drive, Suite 560 Salt Lake City, Utah 84116 Telephone: 801/575-6600 Facsimile: 801/535-2450 (Name, address and telephone number of agent for service) --------------------- Copies to: Joseph Chicco, Esquire Connolly Epstein Chicco Foxman Engelmyer & Ewing 1515 Market Street - 9th Floor Philadelphia, PA 19102 Telephone: 215/851-8410 Facsimile: 215/851-8383 --------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. 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 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. / / --------------------- 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 the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================
CALCULATION OF REGISTRATION FEE ================================================================================================== Title of Each Class of Proposed Maximum Proposed Maximum Amount of Securities to Amount to be Offering Price Aggregate Offer- Registration be Registered Registered Per Share ing Price Fee - -------------------------------------------------------------------------------------------------- Common Stock, $.001 par value ...... 3,809,031(1) $ 11.625(2) $ 44,279,985(2) $ 13,417(2) - -------------------------------------------------------------------------------------------------- Common Stock, $.001 par value ...... 190,969(3) $ 2.00(4) $ 381,532 (5) $ 116.00 - -------------------------------------------------------------------------------------------------- Total ......... 4,000,000 $ 13,533(2) ==================================================================================================
(1) These shares are being offered by certain stockholders of the Company. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act of 1933. Pursuant to Rule 457(c), the proposed maximum offering price per share and registration fee are based upon the mean between the bid ($11.25) and asked ($12.00) prices of the Registrant's Common Stock on October 17, 1997, as reported on the OTC Electronic Bulletin Board. (3) These shares are issuable upon the exercise of outstanding stock options issued in connection with an acquisition. (4) 223 shares are issuable at an option exercise price of $0.18. The remaining shares are issuable at an exercise price of $2.00. (5) Based upon the exercise price of options. CROSS REFERENCE SHEET Pursuant to Item 502(f) of Regulation S-B Between Registration Statement and Form of Prospectus
Item Number and Heading Caption in Prospectus - ----------------------- --------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus .......................... Outside Front Cover of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus ......................................... Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors ............... Prospectus Summary -- The Company, -- Risk Factors, -- Summary Financial Information; Risk Factors 4. Use of Proceeds .................................... Use of Proceeds 5. Determination of Offering Price ..................... Not Applicable 6. Dilution .......................................... Dilution 7. Selling Security Holders ........................... Principal and Selling Stockholders 8. Plan of Distribution ................................. Inside Front Cover; Plan of Distribution 9. Legal Proceedings .................................... Business of the Company -- Legal Proceedings 10. Directors, Executive Officers, Promoters and Control Persons ...................................... Management 11. Security Ownership of Certain Beneficial Owners and Management ..................................... Management; Principal and Selling Stockholders 12. Description of Securities ........................... Description of Securities 13. Interests of Named Experts and Counsel ............... Not Applicable 14. Disclosure of Commission Position on Indemnification ...................................... Description of Securities 15. Organization With Last Five Years .................. Certain Relationships and Related Transactions 16. Description of Business .............................. Business of the Company 17. Management's Discussion and Analysis or Plan ......... Management's Discussion and Analysis 18. Description of Property .............................. Business of the Company -- Offices and Other Facilities 19. Certain Relationships and Related Transactions ...... Organization and Capital Transactions 20. Market for Common Equity and Related Stockholder Matters ................................ Outside Front Cover of Prospectus; Risk Factors; Market Information 21. Executive Compensation .............................. Management -- Executive Compensation 22. Financial Statements ................................. Financial Statements 23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .............. Not Applicable
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PROSPECTUS -- SUBJECT TO COMPLETION, DATED OCTOBER 23, 1997 WORLD WIRELESS COMMUNICATIONS, INC. 4,000,000 Shares Common Stock, $.001 Par Value This Prospectus relates to the public offering of 3,809,031 outstanding shares of Common Stock (the "Outstanding Shares") of World Wireless Communications, Inc. (the "Company") by certain shareholders of the Company (the "Selling Shareholders"). This Prospectus also relates to the offer and sale by the Company of up to 190,969 shares of Common Stock (the "Option Shares") presently reserved for issuance upon the exercise of outstanding stock options issued in connection with the Company's acquisition of Digital Radio Communications Corporation in February 1997, and may be used by persons who acquire Option Shares in the resale of such Option Shares. To that extent, such persons are included within the term "Selling Shareholders" as used herein. The Outstanding Shares and the Option Shares, to the extent offered for resale by persons acquiring them from the Company, are hereinafter referred to, collectively, as the "Shares". The Shares may be offered and sold by the Selling Shareholders from time to time as market conditions permit in transactions in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices relating to prevailing market prices or at negotiated prices. The Selling Shareholders may effect such transactions to or through broker/dealers, and such broker/dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers of the Shares for whom such broker/dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker/dealer might be in excess of customary commissions). To the extent required, information regarding the Shares to be offered and sold, the names of the Selling Shareholders, the public offering price, the names of any such broker/dealer or agent and any applicable commissions or discount with respect to any particular offer is set forth herein or will be set forth in an accompanying Prospectus supplement. See "Plan of Distribution". None of the proceeds from the sale of the Outstanding Shares by the Selling Shareholders will be received by the Company. Proceeds, if any, to the Company from the sale of Option Shares by the Company will be a maximum of $381,532 based upon an option exercise price of $0.18 with respect to 223 Option Shares, and $2.00 with respect to the remaining 190,746 Option Shares. The expenses of registering all Shares, estimated to be approximately $150,000, will be borne by the Company. THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. PURCHASERS OF SHARES SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER "RISK FACTORS" BEGINNING AT PAGE 5, AND "DILUTION". The Company's Common Stock is traded "over-the-counter". Dealer "bid" and "asked" prices for the Common Stock are quoted on the OTC Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc. (the "OTC Bulletin Board") under the symbol "WWWC". On October 17, 1997, the closing bid and asked prices for the Common Stock were $11.25 and $12.00, respectively. See "Market Information". The Company intends to apply to have the Common Stock approved for quotation on the SmallCap Market of The Nasdaq Stock Market, Inc. under the symbol "WWWC" following the date of this Prospectus. The date of this Prospectus is ------------ , 1997. PROSPECTUS SUMMARY This summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this Prospectus. Unless otherwise indicated, all references to and information concerning "the Company" includes World Wireless Communications, Inc. and its wholly-owned subsidiaries, and historical information, except for the financial statements, presents the operations of the Company and its subsidiaries on a combined basis, unless otherwise indicated. The Company World Wireless Communications, Inc. (the "Company") and its subsidiaries design, develop and manufacture wired and wireless communications products, systems and technology, and provide contract manufacturing services to the electronics industry. The Company's executive offices are located at 150 Wright Brothers Drive, Suite 560, Salt Lake City, Utah 84116, and its telephone number at that address is 801/575-6600. The Company was incorporated in Nevada on November 15, 1995, to acquire from an affiliated company certain assets which previously had been used in the business of Micro Security, Inc., a publicly traded company which had undergone reorganization, and eventually was liquidated, in bankruptcy court. The Company's acquisition of these assets, which related to a computer hardware device, the SecuriKey(R), that is used to prevent unauthorized duplication of software, was completed in March 1996. Until the last quarter of 1996, sales of this device represented a substantial majority of the Company's revenues. In October 1996, the Company began offering contract manufacturing services through a newly-formed subsidiary, ECA Electronic Contract Assembly, Inc. ("ECA"). On February 12, 1997, a majority of the shareholders of Digital Radio Communications Corporation ("DRCC") accepted an offer to merge DRCC into a newly-formed subsidiary of the Company. Upon consummation of this merger, DRCC shareholders exchanged each of their common shares for 0.557349 shares of the Company's Common Stock, which resulted in the Company issuing 1,798,100 shares, and options to purchase an additional 201,900 shares at a weighted-average price of $1.90 per share. Since its acquisition of DRCC, the Company's strategy has been to concentrate on the development, manufacture and sale of proprietary wireless technology and products. In the first half of 1997, the Company realized revenues from contract design and development services (43%), contract manufacturing and assembly services (37%), the sale of certain wireless technology (15%) and sales of SecuriKey(R) related products (5%). The Company's first sales of proprietary wireless products occurred in the third quarter of this year. The Offering The Shares being offered hereby consist of 3,809,031 Outstanding Shares which were acquired by the Selling Shareholders or their predecessors in interest either in direct private placements by the Company, in exchange for shares of DRCC in connection with the Company's acquisition of DRCC in February 1997, or upon the exercise of options granted in connection with the DRCC acquisition in exchange for previously outstanding DRCC options (hereinafter sometimes referred to as "DRCC Conversion Options"), and 190,969 shares reserved for issuance upon the exercise of outstanding DRCC Conversion Options. The Outstanding Shares are being offered and will be sold for the accounts of Selling Shareholders, and the Company will not receive any proceeds from sales of the Outstanding Shares. All expenses of registering the Shares will be paid by the Company. See "Plan of Distribution". 3 Summary Consolidated Historical and Pro Forma Financial Information The following table sets forth summary historical financial data of the Company for the period indicated and summary pro forma financial data giving effect to the acquisition of DRCC for the period indicated. This information should be read in conjunction with the consolidated financial statements of the Company and notes thereto and the pro forma consolidated financial statements and notes thereto contained elsewhere in this Prospectus. Historical Operating Data:
Cumulative Six Months From Incep- Ended June 30, Year Ended December 31, tion Through 1997 1996 1996 1995 June 30, 1997 -------------- ------------ ------------ ------------ -------------- Sales ..................... $ 1,875,494 $ 339,283 $ 618,505 $ 426,825 $ 2,920,824 Gross profit ............... 805,397 20,179 (43,679) (189,469) 951,187 Net loss .................. (1,562,697) (288,049) (899,924) (88,668) (2,551,289) Loss per common share ...... $ (0.19) $ (0.09) $ (0.25) $ (0.10) $ (0.30) Shares used in per share calculations ............ 8,421,370 3,049,484 3,601,750 854,640 8,421,370
Pro forma Operating Data: For the Six For the Year Months Ended Ended December June 30, 1997 31, 1996 --------------- --------------- Sales ..................... $ 2,010,079 $ 2,004,983 Gross profit ............... 851,777 336,433 Net loss .................. (1,790,337) (2,826,035) Loss per common share ...... $ (0.21) $ (0.52) Shares used in per share calculations ............ 8,330,116 5,399,850 Balance Sheet Data: June 30, 1997 -------------- Working capital ............ $ 1,050,582 Total assets ............... 6,654,713 Long-term liabilities ...... 600,549 Stockholders' equity ...... 5,150,784 Risk Factors Purchase of the Company's Common Stock involves a high degree of risk. Persons considering a purchase of Shares should carefully consider all of the information contained in this Prospectus and, in particular, the facts set forth under the caption "Risk Factors" below. 4 RISK FACTORS Prospective investors should carefully consider all of the information contained in this Prospectus before deciding whether to purchase Shares and, in particular, the factors set forth below. Information contained in this Prospectus contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "should" or "anticipates" or the negative thereof or other variations thereon or comparable terminology or by discussions of strategy. No assurance can be given that the future results covered by the forward-looking statements will be achieved. The following factors include, among other things, cautionary statements with respect to certain forward-looking statements, including statements of certain risks and uncertainties that could cause actual results to vary materially from the future results referred to in such forward-looking statements. Limited Operating History; History of Operating Losses. The Company has had a limited operating history, and has a cumulative net operating deficit of approximately $2,551,289 from inception through June 30, 1997. In the first six months of 1997, the Company incurred a net operating loss, on a pro forma basis, of $1,790,337, and the Company anticipates reporting a loss from operations in the second half of the year. As a new enterprise, the Company is likely to remain subject to risks and occurrences which management is unable to predict with any degree of certainty, and for which it is unable to fully prepare. While the Company expects its revenues to increase as new products are introduced and contract design and development services are expanded, significant additional expenses will be incurred in developing and marketing its products and in providing its contract services. Growth in the Company's business could be expected to be accompanied by strains on the Company's administrative, financial and operating resources. The Company's ability to manage growth effectively will require it to continue to expand and improve its operational, financial and management controls, and to train, motivate and manage its employees. In any event, there is no assurance that the Company will achieve revenue growth sufficient to offset anticipated increases in costs, nor is there any assurance that the Company will be successful in overcoming problems associated with unforeseen costs and competition, technical problems associated with new products and technology, and other risks which all business ventures face and which could be especially acute for a relatively new company attempting to establish and expand its business in a highly competitive industry characterized by rapid technological development and change. For all of the foregoing reasons, as well as the factors described below, any purchase of Shares should be considered a speculative investment involving a significant risk of loss. Need for Additional Capital. The Company has been dependent on equity funding from outside investors to allow it to conduct operations, and may require additional funding in the future. Unless the Company is able to continue to raise funds through such equity or other financing until such time, if ever, as it is able to operate profitability, the Company could be required to curtail or cease operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". There is no assurance that the Company will be able to obtain additional financing which may be required in the future, or as to the terms of any financing which is obtained. In this regard, prospective purchasers of Shares should note that as recently as August 1997, the Company sold 500,000 shares of "restricted" (i.e., unregistered) Common Stock at a price of $2.00 per share, which was substantially below the "bid" and "asked" prices quoted for the Common Stock in the over-the-counter market at the time of such sale. See "Organizational and Other Transactions -- Principal Capital Transactions". Dependence on New Products and Technology. A substantial majority of the Company's revenues through June 30, 1997, on a pro-forma consolidated basis, have resulted from contract manufacturing services and design and development engineering services performed for other companies. Revenues from product sales during this period (approximately 5% of total sales) were derived from a hardware device, the SecuriKey(R), which is not in a product category which fits the Company's present long term strategy of focusing on technology and products relating to wireless transmission of voice, video and data. A substantial portion of the Company's research, development, engineering and marketing effort in the first half of 1997 was devoted to the development of proprietary wireless products, including a line of products that are designed for use in short and long distance telemetry, remote data collection, wireless security and similar applications. The first commercial sales of products in this line occurred in September 1997. The Company's investment in, and expectations for, 5 this product line are large relative to the Company's existing resources and prior revenues, but there is no assurance that the Company will be able to recoup its investment or generate any profits from this line of products, or any of its existing or proposed products. See "Business -- Existing Products" and "-- Proposed Products". In particular, prospective purchasers of Shares should understand that total sales of the products described under the caption "Business -- Existing Products" have been very limited to date, and that the products described under the caption "Business -- Proposed Products" are still in development and testing stages and are not available for sale commercially. The Company has received only limited indications that any of its proposed products will be commercially acceptable and, even if one or more of such products are offered for sale and achieve a degree of commercial success, there is no assurance that this will result in the Company operating profitably. Major Customers; Non-Recurring Sales. For the year ended December 31, 1996, on a pro forma basis, 52.8% of the sales of the Company, or $1,058,398, were to three customers, each of which accounted for 10% or more of total sales. In the six month period ended June 30, 1997, also on a pro forma basis, $1,164,000 (57.9%) of sales were to Kyushu Matsushita Electric Co., including a technology transfer ($300,000) and contract design and development services ($864,000), both of which are non-recurring items. Sales to Alton Dean, Inc., for contract manufacturing services, represented an additional 12.7% of sales ($255,322) in the first half of 1997. See "Business -- Contract Design and Development". The loss of either of these customers or failure to replace contract work which is being completed with new contract work from these or other customers would have a material impact on the Company's business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". Competition. The market for wireless communications products is intensely competitive, with many providers who have greater technical, financial and marketing resources than the Company, and certain of whom are among the premier, "high tech" leaders of the industrial world. The Company's strategy includes entering into license agreements or other forms of "strategic partnership" arrangements with larger companies in order to exploit their strengths, rather than to confront them in the marketplace. There is no assurance that this strategy will succeed, or that the Company will be able to overcome the competitive disadvantages it faces as a small company with limited capital and without a history of successfully developing and marketing proprietary wireless technology, devices or products. In addition to present "mainstream" competitors, the Company anticipates that numerous potential competitors with high levels of technical and financial resources are, like the Company, constantly searching for market niches and specialty products in the communications industry. See "Business of the Company -- Competition". Possible Loss of Services of Officers and Key Employees. The ability of the Company to successfully conduct its business affairs is dependent upon the capabilities of current officers and key employees. At the present time, however, only one executive officer and/or key employee of the Company, Philip Bunker, who is President of DRCC and a director of the Company, has a fixed term employment agreement with the Company, and his contract is scheduled to expire on November 1, 1997. If the Company is unable to retain the services of its key executive and technical employees, its operations could be adversely affected. There is no assurance that the Company will retain the services of its key employees, or, if so, as to the terms on which it may be able to do so. The Company does not presently carry any "key man" insurance on any employee, and none of its present executive officers or key employees is subject to any "restrictive covenants" that would prevent such employee from joining a competitor after leaving the Company's employ. See "Management -- Directors and Executive Officers". Intellectual Property Rights. The Company is the assignee of a patent application on technology relating to, among other technical matters, a method and apparatus for de-modulating "spread spectrum" wireless signals. At the present time, the Company has no other patent applications pending, and owns no patents. The Company uses confidentiality agreements with its customers and other parties to protect trade secrets and other proprietary data, and claims copyrights on circuit boards and software used in its products. The use of such agreements and other measures employed by the Company to protect sensitive information may not be sufficient, however, to prevent other persons from obtaining and using the Company's technology or developing other technology which embodies the companies' technology. To the extent the Company does not have patents on its products, there can be no assurance that another company will not replicate one or more of the Company's products, nor is there any assurance that any patents 6 that are obtained will provide meaningful protection or significant competitive advantages over competing products. There can be no assurance that any patent rights that the Company has or may obtain in the future will provide the Company with competitive advantages or will not be challenged by other companies or individuals. Furthermore, there can be no assurance that other companies or individuals will not independently develop similar products, duplicate the Company's products or design around any of the Company's patents. The Company's spread spectrum de-modulation technology patent application is the subject of litigation now pending in the State of Utah, Salt Lake County Court, in which a former joint venturer with the Company has claimed, among other things, an ownership interest in the technology. See "Business -- Legal Proceedings". The Company presently holds a number of trademarks and/or services marks relating to the SecuriKey(R) product line. The Company intends to pursue registration of trademarks associated with its key products as they are developed and become available for commercial use, and to protect its legal rights concerning the use of its trademarks. The Company intends to rely upon common law trademark rights to protect any unregistered trademarks. Common law trademark rights, however, do not provide the Company with the same level of protection afforded by a United States federal registration of a trademark. For example, unlike a registered trademark, common law trademark rights are limited to the geographic area in which the trademark is actually used. Product Liability and Other Possible Future Claims. The Company may be subject to substantial product liability costs if claims arise out of problems associated with the products which it manufactures. The Company is insured against such contingencies, but there can be no assurance that the coverage provided by such policies ($1 million per occurrence, $2 million total) would be adequate to cover all potential product liability claims and costs in the future. In addition, in providing its contract design and development services, the Company typically is required to warrant that the technology that it develops under contract will not infringe upon the intellectual property rights of third parties, and to indemnify its customers from any loss or exposure arising from any such infringement. Since the technology developed under the Company's design and development contracts could be incorporated into products which are mass produced and distributed, the potential loss in the event of an infringement could be very high, and the Company has no insurance which would cover any such loss or damages. The Company has not had an indemnification claim made against it under any of these contracts, but there is no assurance that such a claim will not be made in the future. Government Regulations. The Company's wireless communications products are subject to compliance with regulations pertaining to transmission as adopted by the Federal Communications Commission ("FCC"). Currently, the Company's product line operates under Part 15 of the FCC Telecommunications Code, which allows companies to transmit data without a license in certain radio frequencies, or an exemption granted by the FCC. None of the products that the Company presently offers or is in the process of developing would require a user of the product to obtain a license from the FCC. The availability of Part 15 to wireless communications products requires that the product undergo testing by an independent laboratory for such criteria as non-interference with other communications products, physical antennae hook-up, non-intentional radiation and transmission power, a process that can be expected to take 30 to 60 days and cost approximately $20,000. At the present time, none of the Company's radios has been tested by an independent laboratory for compliance with Part 15. See "Business -- Regulation". Possible Delisting -- Penny Stock Regulations. At the present time, the Company's Common Stock is not listed on The Nasdaq Stock Market, Inc. or on any exchange. Although dealer prices for the Company's Common Stock are listed on the OTC Bulletin Board, trading has been limited since such quotations first appeared in October 1996. See "Market Information". The Company intends to apply to have its Common Stock approved for quotation on the Nasdaq SmallCap Market effective on or about the date of this Prospectus. There is no assurance, however, that approval will be received or, if received, that the Company will meet the requirements for continued listing on the SmallCap Market. Under Nasdaq rules, in order to maintain a listing on the Nasdaq SmallCap Market, a company must have, among other things, either $2,000,000 in net tangible assets, a market capitalization of $35,000,000 or more, or $500,000 net income in its last fiscal year or two of its last three fiscal years. In addition, the listed security must have a minimum bid price of $1.00 per share. Further, Nasdaq reserves the right to withdraw or terminate a listing on the Nasdaq SmallCap Market at any time and for any reason in its discretion. If the Company were unable to obtain or to maintain a listing on the Nasdaq SmallCap Market, quotations, if any, for "bid" and "asked" prices of the Common Stock would in the "pink sheets" 7 published by the National Quotation Bureau, Inc. or on the NASD's OTC Electronic Bulletin Board where the Common Stock has been quoted prior to the date of this Prospectus. In such event, an investor could find it more difficult to dispose of or to obtain accurate quotations of prices for the Common Stock than would be the case if the Common Stock were quoted on the Nasdaq SmallCap Market. Irrespective of whether or not the Common Stock is included in the Nasdaq system, there is no assurance that the public market for the Common Stock will become more active or liquid in the future. In that regard, prospective purchasers should consider that this offering is being made without underwriting arrangements typically found in an initial public offering of securities. Such arrangements generally provide for the issuer of the securities to sell the securities to an underwriter which, in turn, sells the securities to its customers and other members of the public at a fixed offering price, with the result that the underwriter has a continuing interest in the market for such securities following the offering. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a "penny stock". Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share and is not listed on The Nasdaq Stock Market, Inc. or a major stock exchange. The regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. The Company now anticipates that, following the offering, the Common Stock will meet one or both of the principal exceptions to "penny stock" classification, i.e., the exceptions applicable to Nasdaq-listed securities and to securities with a bid price in excess of $5.00. If the Common Stock does not meet an exception to these regulations, i.e., if the Common Stock should fail to qualify for quotation on Nasdaq and fail to maintain a price of $5.00 or more per share, the Company's securities would become subject to Rule 15g-9 promulgated under the Securities Exchange Act of 1934. Under such rule, broker/dealers who recommend such securities to persons other than established customers and accredited investors (generally, individuals with net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together with their spouses) must take a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. In such event, the market liquidity for the Shares could be adversely affected because the regulations on penny stocks could limit the ability of broker/dealers to sell the Company's securities and thus the ability of purchasers of the Company's securities to sell their securities in the secondary market. Market Overhang. As of October 15, 1997, the Company had 10,035,518 shares of Common Stock outstanding, of which approximately 7,489,758 shares, or approximately 75% of the total outstanding, were "restricted securities" which had not been registered with the Securities and Exchange Commission or any state securities agency and as to which future sales were restricted. The remaining shares of the Company's outstanding Common Stock are not restricted and, with the exception of 710,000 shares owned by persons who may be deemed "affiliates" of the Company, are immediately saleable, without restriction, by their owners and constitute the "public float" for the Common Stock. The sale of Shares offered hereby will increase, and if all Shares were sold would increase dramatically (i.e., from 1,835,760 shares to 5,038,316 shares), the "public float" of Common Stock, i.e., the number of shares available for immediate and unrestricted resale. A substantial increase in the public float could negatively impact the market price for the Company's Common Stock. In addition to the possible sale of shares in this offering, a substantial portion of the Company's restricted securities are saleable under Rule 144, promulgated by the Securities Exchange Commission under the Securities Act of 1933, upon the seller's compliance with the holding period, manner of sale and other conditions and limitations of that Rule. Rule 144 also requires that specified information concerning the Company must be available at the time any such sale is made. Following this offering, the Company will be subject to reporting requirements of the Securities Exchange Act of 1934, compliance with which also will satisfy Rule 144 "public information" requirements. See "Market Information -- Shares Saleable Under Rule 144". Increases in Operating Costs: Availability of Supplies. An increase in operating costs could adversely affect the ability of the Company to achieve profitability. Factors such as inflation, increased labor and employee benefit costs and the availability of qualified management and hourly employees may adversely affect operation costs. Many of these costs are beyond the control of the Company. In addition, the dependence on frequent deliveries of materials, such as electronic component pieces, could subject the Company to shortages or interruptions, which could adversely affect its business. See "Business -- Raw Material and Supplies". 8 NASD Inquiry. On August 5, 1997, the Company was notified by NASD Regulation, Inc., the market regulation arm of the National Association of Securities Dealers, Inc. (the "NASD"), that it was reviewing trading activity in the Company's Common Stock. Based upon the information which NASD Regulation has requested, and conversations between the Company's counsel and NASD Regulation's representatives, the Company believes that the NASD review relates to trading in the Company's Common Stock in the first quarter of 1997, and that the principal purpose of the review is to determine whether any of such trading involved purchases or sales of Common Stock by persons who, at that time, had material, non-public information. The Company is cooperating with NASD Regulation in its inquiry. At this point, the Company cannot determine what effect, if any, this inquiry will have on the Company or the market for its Common Stock. Control of DRCC's Board of Directors under Shareholders Agreement. In connection with its acquisition of DRCC, the Company and DRCC entered into a Shareholders Agreement with Philip Bunker, Jeffrey G. Ballif and William E. Chipman, Sr., who at that time were executive officers, substantial shareholders and, in the case of Messrs. Chipman and Bunker, directors of DRCC. That agreement provided, among other things, for the registration under the Act of all shares of Common Stock issued to former DRCC shareholders, or issuable upon exercise of DRCC Conversion Options which were granted, in connection with the DRCC acquisition. That registration is being effected by the registration statement of which this Prospectus is a part. The Shareholders Agreement also provided for the election of David Singer and Messrs. Bunker and Chipman (or, alternatively, of designees selected by Messrs. Bunker and Chipman) as directors of DRCC, to constitute a majority of its Board of Directors, so long as the Company owns any capital stock of DRCC. As a result of this Shareholders Agreement, control of the composition of the Board of Directors of DRCC is, for all practical purposes, permanently subject to the control of Messrs. Bunker or Chipman, and the Company's Board of Directors, elected by its stockholders, has no ability to control the composition of DRCC's Board of Directors, notwithstanding the fact that DRCC is a wholly-owned subsidiary of the Company. Limited Liability of Officers and Directors. The Articles of Incorporation and the Bylaws of the Company limit a director's personal liability to the Company or its shareholders for monetary damages for any actions taken or any failure to take action to the fullest extent permitted by Nevada law or any other applicable law as now in effect or as it may hereafter be amended. Furthermore, the Company is obligated under its Articles of Incorporation and Bylaws to indemnify its directors, officers' employees, agents or fiduciaries to the fullest extent permitted or required by Nevada law. Each of these provisions could reduce the legal remedies available to the Company and its shareholders against such individuals. See "Disclosure of Commission Position on Indemnification for Securities Act Liabilities". Future Issuance of Stock by the Company. The Company has 50,000,000 shares of Common Stock authorized, of which 10,035,518 shares were outstanding at October 15, 1997, and an additional 598,969 shares have been reserved for issuance upon the exercise of outstanding options. The Company also has authorized 1,000,000 shares of Preferred Stock, none of which are presently outstanding. Although the Board of Directors of the Company has no present intention to do so, it has the authority, without action by the shareholders, to issue authorized and unissued shares of Common Stock or Preferred Stock. Preferred Stock, if and when issued, could have rights superior to those of the Common Stock, particularly in regard to voting, the payment of dividends and upon liquidation of the Company. See "Description of Capital Stock". Factors Inhibiting Takeover. Certain provisions of the Company's Articles of Incorporation and the Nevada General Corporation Law may be deemed to have "anti-takeover" effects in that they could delay, defer or prevent a takeover attempt that a shareholder might consider to be in the Company's or the shareholder's best interests. For example, the ability of the Company's Board of Directors to designate series of Preferred Stock without any vote or action by the Company's stockholders could be considered an "anti-takeover" device, since the terms of Preferred Stock which might be issued could contain terms which could contain special voting rights or increase the costs of acquiring the Company. See "Description of Capital Stock -- Anti-Takeover Provisions". 9 DILUTION At June 30, 1997, after giving retroactive effect to (a) the sale of 500,000 shares of Common Stock at a price of $2.00 per share in August 1997 and (b) the sale after June 30, 1997, of 10,931 shares of Common Stock at prices from $.09 to $2.00 per share upon the exercise of DRCC Conversion Options, but to no other post June 30, 1997 transactions, the net tangible book value of the Company's Common Stock was approximately $.26 per share. To the extent that a purchaser pays more than $0.26 per share of Common Stock, the purchaser will incur dilution in the net tangible book value of his/her investment. For example, if Shares were purchased at the "asked" price quoted for the Company's Common Stock on October 17, 1997 (i.e., $12.00), the dilution in the purchaser's investment would be approximately $11.74 or approximately 98%. Similarly, purchasers of Option Shares from the Company will incur dilution in their investment equal to the difference between their DRCC Conversion Option exercise price and $0.26 per share. USE OF PROCEEDS The Company will not receive any proceeds from the sale of Outstanding Shares. If all Option Shares are sold, the Company will receive total proceeds of $381,532 (average price of $2.00 per share). Such proceeds, if received, would be added to the Company's general corporate funds. 10 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF WORLD WIRELESS COMMUNICATIONS, INC. AND PRO FORMA FINANCIAL DATA The following table sets forth selected consolidated historical financial data of the Company and selected consolidated pro forma financial data giving effect to the acquisition of DRCC. The selected historical financial data for the years ended December 31, 1996 and 1995 are derived from audited consolidated financial statements of the Company. The historical data presented for the six months ended June 30, 1997 and 1996 are derived from unaudited financial statements and include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for the period. The results of operations for the six months ended June 30, 1997 are not necessarily indicative of the results to be expected for the entire year. This data should be read in conjunction with the consolidated financial statements and notes thereto and other financial information which are included elsewhere in this Prospectus. The unaudited pro forma consolidated financial statements present the acquisition of DRCC by the Company using the purchase method of accounting as if the acquisition had been consummated at January 1, 1996. Such information is derived from, and should be read in conjunction with, the separate historical consolidated financial statements of the Company and DRCC and notes thereto and other financial information appearing elsewhere herein. The unaudited pro forma consolidated statements of operations have been included for comparative purposes only and do not purport to be indicative of the results of operations which actually would have been obtained if the acquisition had been consummated at January 1, 1996 or the results of operations which may be obtained in the future. In addition, future results may vary significantly from the results reflected in these pro forma statements of operations due to normal market and industry activities. Historical Operating Data:
Six Months Year Ended Cumulative Ended June 30, December 31, From Inception ---------------------------------- -------------------------------- Through June 1997 1996 1996 1995 30,1997 ---------------- --------------- --------------- -------------- --------------- Sales ........................... $ 1,875,494 $ 339,283 $ 618,505 $ 426,825 $ 2,920,824 Cost of sales ..................... 1,070,097 319,104 662,184 237,356 1,969,637 ------------ ----------- ----------- ---------- ------------ Gross profit ..................... 805,397 20,179 (43,679) 189,469 951,187 Research and development ......... 588,938 -- 92,932 -- 681,870 General and administrative ...... 1,476,596 294,992 732,636 278,137 2,487,369 Amortization of goodwill ......... 279,963 -- -- -- 279,963 Interest expense .................. 22,597 13,236 30,677 -- 53,274 ------------ ----------- ----------- ---------- ------------ Total expenses .................. 2,368,094 308,228 856,245 278,137 3,502,476 ------------ ----------- ----------- ---------- ------------ Net loss ........................ $ (1,562,697) $ (288,049) $ (899,924) $ (88,668) $ (2,551,289) ============ =========== =========== ========== ============ Loss per common share ............ $ (0.19) $ (0.09) $ (0.25) $ (0.10) $ (0.30) ============ =========== =========== ========== ============ Shares used in per share calculations .................. 8,421,370 3,049,484 3,601,750 854,640 8,421,370 ============ =========== =========== ========== ============
11 Pro Forma Operating Data:
For the Six For the Months Ended Year Ended June 30, December 31, 1997 1996 -------------- -------------- Sales ....................................... $ 2,010,079 $ 2,004,983 Cost of sales .............................. 1,158,302 1,668,550 ------------ ------------ Gross profit .............................. 851,777 336,433 Research and development .................. 682,205 533,057 General and administrative ............... 1,568,569 1,822,457 Amortization of goodwill .................. 368,743 753,598 Interest expense ........................... 22,597 67,074 ------------ ------------ Total expenses ........................... 2,642,114 3,176,186 ------------ ------------ Loss before income taxes .................. (1,790,337) (2,839,753) Benefit from income taxes .................. -- (13,718) ------------ ------------ Net loss .................................... $(1,790,337) $(2,826,035) ============ ============ Loss per common share ..................... $ (0.21) $ (0.52) ============ ============ Shares used in per share calculations ...... 8,330,116 5,399,850 ============ ============
Historical Balance Sheet Data:
December 31, -------------------------- June 30, 1997 1996 1995 --------------- ------------ ----------- Cash ............................................. $ 707,120 $ 37,278 $ 29,682 Receivables .................................... 824,636 130,509 30,621 Inventory ....................................... 422,206 159,881 60,656 ------------ ---------- --------- Current Assets ................................. 1,953,962 327,668 120,959 Equipment, net .................................... 1,067,069 327,022 300,840 Goodwill, net .................................... 3,488,028 -- -- Other assets .................................... 145,654 8,352 4,141 ------------ ---------- --------- Total Assets ................................. $ 6,654,713 $ 663,042 $ 425,940 ============ ========== ========= Trade accounts payable ........................... $ 355,899 $ 61,997 $ 31,256 Accrued liabilities .............................. 146,925 55,788 827 Notes payable and capital lease obligation, current portion ....................................... 137,952 85,566 284,000 Non-compete obligation ........................... 102,604 -- -- Accrued settlement obligation ..................... 160,000 -- -- ------------ ---------- --------- Current Liabilities ........................... 903,380 203,351 316,083 Notes payable and capital lease obligation ...... 54,084 44,808 44,500 Deferred taxes ................................. 546,465 -- -- Common stock .................................... 9,525 5,663 1,132 Additional paid-in capital ........................ 7,692,548 1,397,812 152,893 Deficit accumulated during the development stage .......................................... (2,551,289) (988,592) (88,668) ------------ ---------- --------- Total Liabilities and Stockholders' Equity ........................ $ 6,654,713 $ 663,042 $ 425,940 ============ ========== =========
12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS When used in this discussion, the words "expect(s)", "feel(s)", "believe(s)", "will", "may", "anticipate(s)" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are also urged to carefully review and consider the various disclosures elsewhere in this Prospectus which discuss factors which affect the Company's business, including the discussion under the caption "Risk Factors". This discussion should be read in conjunction with the Company's Consolidated Financial Statements, respective notes and Selected Consolidated Financial Data included elsewhere in this prospectus. This discussion contains both historical and forward looking-statements. The Company commenced contract manufacturing operations during October 1996 and acquired Digital Radio Communications Corporation ("DRCC") during February 1997. Accordingly, the six month period ended June 30, 1997 includes the results of operations from these sources while the comparable period ended June 30, 1996 does not. Results of Operations Six months ended June 30, 1997 and 1996 Net sales of $1,875,494, increased by $1,536,211 for the six months ended June 30, 1997 compared to June 30, 1996. The increase was primarily attributable to a $300,000 one time sale of technology, a $864,000 partial fulfillment of a non-recurring technology development contract by DRCC and contract assembly work of approximately $493,079. The non-recurring sale of technology and technology development contract involved one customer, and accounted for 62% of the Company's sales in the six months ended June 30, 1997. Had the acquisition of DRCC occurred on January 1, 1996, pro forma sales for the six months ended June 30, 1997 would have been $2,010,079. With the acquisition of DRCC, the marketing and operating focus of the Company shifted to sales from design and development contracts, and away from security key product sales. Sales of security key products (the only product or service offered for sale as of June 30, 1996) actually declined by $239,006, to $100,277 for the period ended June 30, 1997 when compared to the period ended June 30, 1996. Cost of sales increased by $750,993 for the six months ended June 30, 1997 compared to June 30, 1996. The increase was largely due to engineering costs associated with the non-recurring technology sale discussed above and to direct costs of manufacturing. Gross profit increased by $785,218 for the six months ended June 30, 1997 compared to June 30, 1996, from $319,104 to $1,070,097, primarily due to the one time sale of technology and the partial fulfillment of the non-recurring technology development contract discussed above. Pro forma gross profit for the six months ending June 30, 1997 would have been $851,777. The Company's net loss of $(1,562,697) reflects an increase in net loss of $(1,274,648) for the six months ended June 30, 1997 compared to June 30, 1996. The increase was due primarily to $588,938 in research and development costs in the six months ended June 30, 1997, and a $1,181,604 increase in selling, general and administrative expense from $294,992 to $1,476,596. The increase in general and administrative expense was attributable to the additional overhead associated with DRCC's operations, staffing of the Company's contract manufacuring operations and, at the corporate level, the hiring of a chief executive officer, chief financial officer, controller and sales personnel. Amortization of goodwill added $279,963 to the Company's net loss for the six months ended June 30, 1997. This represents goodwill of $3,767,991 recorded as a result of the DRCC acquisition, which is being amortized over sixty months. Interest expense of $22,597 increased by $9,361 for the six months ended June 30, 1997 compared to June 30, 1996. The increase resulted from equipment related long-term debt, capital lease obligations incurred in starting contract manufacturing operations and DRCC indebtedness. 13 Total expenses in the six months ended June 30, 1997 increased to $2,368,094 from $308,228 in the year earlier period. Pro forma general and administrative expenses for the six months ended June 30, 1997 would have been $2,642,114. Years Ended December 31, 1996 and 1995 The Company's sales of $618,505 for the year ended December 31, 1996, represented an increase of $191,680 over sales in the prior year. The increase was primarily due to 1996 being a full twelve month operating year and the commencement of contract manufacturing services in 1996. Pro forma sales for the year ended December 31, 1996 would have been $2,004,983, reflecting the impact of DRCC's sales for that period. Pro forma gross profit for the same period would have been $336,433 compared with a historical gross loss of $(43,679), reflecting the impact of DRCC's $380,112 contribution to gross profit on a pro forma basis. Operating expenses in the year ended December 31, 1996, increased to $856,245 from $278,137 for 1995, primarily from costs associated with the hiring of a full time CEO and the beginning of building a sales and management team, including managers for the Company's contract manufacturing operations The above factors also were the principal cause of the increase in the Company's 1996 operating loss to $(899,924) compared to a loss of $(88,668) during 1995. For the year ended December 31, 1996, pro forma expenses would have been $3,176,186 compared to historical expenses of $856,245 for the same period. Of total pro forma expenses, $753,598 is the result of a single pro forma adjustment, the amortization of goodwill, which would have been recorded in 1996 had DRCC been acquired by the Company effective January 1, 1996. Liquidity and Capital Resources The Company's financial condition though improved is still tentative. The improvement is a result of the Company's issuance of Common Stock for approximately $3,195,250 during the six months ended June 30, 1997, which accounts for the $669,842 increase in cash. The Company raised an additional $1,000,000 from the sale of Common Stock during August 1997. At this time, the Company's sales and profitability are not at a level which will provide the funds necessary for its operations, capital expenditures and anticipated growth. Consequently, additional financing probably will be needed during the next two to six months. In manangement's opinion, it will be necessary for the Company to satisfy this need by raising additional equity capital. The Company does not have any commitment for equity or any other financing at the present time, and there is no assurance that management will be able to obtain the required capital. Of the $3,195,250 raised from the issuance of Common Stock during the first six months of 1997, approximately $1,899,478 was used for operations, $131,157 for the DRCC acquisition, $404,382 for equipment purchases and net debt and capital lease reductions of $90,391. The net of the above items comprises the net cash increase of $669,842 compared to a net cash decrease of $22,550 for the same period during 1996. Receivables have increased by $694,127 to $824,636. Approximately 52%, or $432,000, of the increase is due to the technology development contract discussed above, another 8.5% or $70,000 is from development services, with the balance primarily coming from contract manufacturing customers. Inventories have increased by $262,325 to $422,206 as of June 30, 1997, compared to $159,881 for the same period June 30, 1996. The increase is due to the acquisition of inventory for the contract manufacturing business and the building of some of the Company's new radio products. The increase in equipment of $740,047 reflects purchases of $404,382 during the six months ended June 30, 1997, and $427,006 of DRCC equipment recorded as part of the DRCC acquisition, less depreciation of approximately $91,341. Amortization of goodwill increased the Company's net loss by $279,963 during the first six months of 1997, representing amortization of goodwill of $3,767,991 booked in the DRCC acquisition, which is being amortized over sixty months. 14 Most of the $700,029 increase in current liabilities to $903,380 from $203,351 is due to the acquisition of DRCC. The non-compete obligation of $102,604 represents the present value of four monthly payments of $27,500 commencing September 15, 1997. This obligation stems from DRCC. The $160,000 increase in other long-term obligations represents the proposed settlement of a lawsuit over certain technology. This lawsuit and settlement also are from DRCC. Deferred income taxes of $546,465 are a result of the acquisition of DRCC. The combined increase in Common Stock and Additional Paid in Capital of $6,298,598 is due to the issuance of common stock for $3,195,250 in cash and the booking of the DRCC acquisition in the amount of $3,103,348. Outlook The statements contained in this Outlook are based on current expectations. These statements are forward looking and actual results may differ materially. Management believes that, as deregulation of natural gas and other utilities continues, multiple utility suppliers will be serving a given city or neighborhood. Consequently, it will become more difficult and time consuming for utility companies to read meters as they will generally not be the provider to every user in the city or neighborhood which will increase the cost effectiveness of reading utility meters remotely. Management believes that the Williams Telemetry Network, described elsewhere in this Prospectus, is a viable alternative to the current practice of manually reading meters. Additionally, management believes that William's position as an affiliate of a major transporter of natural gas in the United States positions it to successfully market its telemetry network, which currently is designed to use collector and repeater radios supplied by the Company to gather and transmit data. Management believes that the Company's relationship with Williams will result in significant increases in sales of its radio products for use in the Williams Telemetry Network. Significant increases in sales, however, would lead to working capital requirements which would not be provided for from funds generated by the initial sales of the products. The Company is currently investigating the prospects of a private placement and ultimately a secondary public offering to meet its working capital and operating needs. However, there is no assurance that sufficient capital or any capital will be raised from such endeavors. Additionally, management estimates the Company's current manufacturing facilities would not be adequate to handle substantial increases in demand for its products. Management is currently looking into two solutions: (1) out-sourcing a portion of the manufacturing overload or, (2) expanding its in-house manufacturing capacity through leasing or purchasing additional building space and equipment. If a portion of manufacturing is out-sourced the Company may lose some control over the following areas; cost, timeliness of deliveries and quality. However, by out-sourcing a portion of its manufacturing, the Company could avoid delays and expense associated with the expansion of its own facilities. The magnitude of any expansion of the Company's manufacturing capabilities that is required would be a direct function of the sales increase and manufacturing overload, both of which are unknown at this time. However, management estimates that between $2 million and $5 million may be required for this purpose. At the present time, the Company does not have any commitment for or source of these funds. The Company anticipates an increase in revenues from additional contracts for design and development services, although no new contracts have been signed. It is management's intent to model such contracts after the KME contract, discussed elsewhere in this Prospectus, whereby the Company receives fees during the early stages of the agreement and is entitled to royalties or gross profit splits based upon its customer's sales of products into which the technology has been incorporated. It is management's intent that the fees received will cover the Company's costs. However, these fixed fee arrangements may not cover all of the Company's costs incurred in fulfilling any such contract. Royalties or gross profit splits resulting from sales of products using the technology developed under the contract would enhance the Company's profitability if and when received. 15 In anticipation of obtaining additional design and development contracts, management must continually recruit and hire additional RF (radio frequency), software, firmware and digital engineers. It is extremely difficult, time-consuming and expensive to find engineers qualified in those fields. There is no assurance the Company will be able to locate and hire such qualified engineers. Associated with the hiring of each engineer is the need for test and development equipment, software and work stations, which increases the Company's cash requirements. In summary, while management is cautiously optimistic about the Company's future, it is fully aware that anticipated revenue increases from product sales, design and development contracts and royalty income are by no means assured, and that if such increases do materialize, the requirements for capital are substantial, for which there is no present commitment. 16 BUSINESS Background The Company and its subsidiaries are principally engaged in the design, development and manufacture of wireless communications technology, systems and products. The Company also provides contract manufacturing services to the electronics and wireless communications industry. Prior to its acquisition of DRCC in February 1997, a substantial majority of the Company's revenues were derived from sales of SecuriKey(R), a small hardware device that prevents the unauthorized use of software protected by a SecuriKey system, and related software products. At the time of its acquisition by the Company, DRCC was in the process of developing a number of proprietary wireless communications products, and provided wireless design, development and manufacturing services on a contract basis. With the acquisition of DRCC, the Company's business focus shifted to the design, development and manufacture of wireless communication technology, systems and products, although the Company continues to provide contract manufacturing services. Sales of SecuriKey products did not contribute materially to revenues in the first half of 1997 (approximately 5%) and are not expected to contribute materially to revenues in the future. Wireless Communications Products Electronic communications devices take many forms, including mobile telephone, broadcast television and radio products. The central problem in modern communications is developing the means to transmit large volumes of data over long distances without losing or distorting the information in the most cost effective manner. Wireless communications, using radio transmission rather than transmission over a wire or cable, is an increasingly important segment of the communications industry. As illustrated below, wireless communication devices fall under various names (television, radio, cellular, microwave, among others), but all utilize the electromagnetic spectrum. This spectrum is the range of all electromagnetic waves differentiated according to the frequency of the particular wave. An electronic communication device is usually named according to the wave frequency at which the device operates. Frequency is the number of cycles per second in a wave and is measured in hertz (Hz). One hertz is one cycle per second. The radiowave spectrum ranges from a few kilohertz (Khz) to 40 gigahertz (Ghz), or 40,000 megahertz (Mhz). Portions of the radiowave spectrum are dedicated to specific uses, as follows: Wireless Device Frequency - --------------- --------- AM radio 535 - 1635 Khz Analog cordless phones 44 - 49 MHz TV channels (VHF) 54 - 88 MHz FM radio 88 - 108 MHz TV channels (VHF) 174 - 216 MHz TV channels (UHF) 470 - 806 MHz RF wireless modems 800 MHz Cellular phones 806 - 890 MHz Digital cordless phones 900 MHz Personal communication services 900 - 929 MHz Nationwide pagers 929 - 932 MHz Two-way pagers 932 - 940 MHz Satellite phones uplink 1610 - 1626.5 MHz Satellite phones downlink 2483.5 - 2500 MHz Satellite TV, large dish 4 - 6 GHz Satellite TV, small dish 11.7 - 12.7 GHz Wireless "cable" TV 28 - 29 GHz Existing Products The Company's wireless communications products are designed to transmit and receive voice, video and data in applications where a hard-wired system is cost prohibitive or simply more expensive. The Company's 17 principal line of existing products is a series of low speed digital radios (LSDRs) and related devices. These products are suitable for use in a telemetry network which has been developed by Williams Wireless, Inc., doing business as "Williams Telemetry Services" (hereinafter "Williams"), a subsidiary of The Williams Companies, Inc. The initial sales of products in this line were made to Williams in September 1997. The Williams Telemetry Network is a fixed wireless network intended by Williams principally for use by utility companies to collect gas, water and electric usage data, and to closely monitor usage on a "real time" basis when required. A wireless monitoring unit mounted on a meter or other device to be monitored gathers data and transmits it to a local WinGate(TM) collection point, which then relays the data to a centralized operating center. While automated meter reading is the most immediate potential application for the Williams Telemetry Network, its possible uses also include alarm monitoring, a reliable back up to telephone reporting and other, similar applications. As described elsewhere in this Prospectus, the Company's initial sales of wireless communications products occurred in September 1997, and sales to date have been extremely limited. A number of the Company's wireless communications products were introduced as part of the Williams Telemetry Network for the first time in mid-September 1997 at the Automated Meter Reading Association Trade Show in Chicago. At the present time, Williams is conducting Beta tests of its telemetry system with a number of national companies, and the Company has been advised that Williams intends to launch commercial operations of the service in the third quarter of 1998. Products which the Company has developed for use in this system, and which currently are being used and/or tested by Williams, include devices called Telemetry Interface Modules, or TIM(TM)s, which operate at the point of data origination. For example, in the Williams Telemetry Network the TIM(TM)s units are designed to be mounted on meters and other devices to be monitored. The function of these TIM(TM)s is to gather and transmit data to a data collection and forwarding point called a WinGate(TM) unit, which includes a wireless receiver/transmitter. The WinGate(TM) unit forwards the data to an operating center via a wide area network. Once the data arrives at the operating center, it is recorded and stored in a computer system. The TIM(TM)s are short range (up to 800 feet) transmitters which transfer data at rates up to 9600 bits per second, and function over the entire industrial temperature range (-40oF to 185oF). The Company has two TIM(TM)s models available, which differ primarily in frequency coverage, modulation type and power. The WinGate(TM) units utilize Low Speed Digital Radio ("LSDRs") which are matched to the TIM(TM)s units from which they receive data. In this context, "low speed" refers to speed of transmission which, for the Company's LSDRs, ranges from 1200 to 9600 bits per second ("bps"). By contrast, the Company's High Speed Digital Radio (HSDR) now under development, which is discussed below under "Proposed Products", transmits at speeds between 2 million and 4 million bps (2Mbps to 4Mbps). The Company presently has a number of LSDR models available, two of which (the LSDR 100 and the LSDR 300) have been sold to Williams for use and/or testing in the Williams Telemetry Network. Like the TIM(TM)s units, the various LSDR models differ primarily in frequency coverage, modulation type, range and power. The Company's LSDRs are designed to provide a wireless communication link for multiple locations, with a range of up to 35 miles under "unobstructed" line of sight conditions. The products are intended for use primarily in remote monitoring systems in which data must be transmitted from multiple locations and collected at one central location, e.g., to monitor data such as capacity, temperatures and flow rates from underground or above ground fuel tanks and oil and gas pipeline meters. Radios can be spread out over numerous locations to transmit data large distances within a line of sight and the data will be collected and processed in one central location for processing. Data and power requirements for the radios are low, allowing the radios to run on battery or solar energy. LSDR communications do not require a license from the FCC and there is no FCC restriction on the type of data being transmitted. An important feature of certain of the Company's LSDR products involves the use of spread spectrum (meaning a wide frequency bandwidth) solutions to facilitate the wireless transmission of data. Spread spectrum wireless devices are required to modulate and demodulate a signal that is "spread" across a wide bandwidth to reduce interference and provide enhanced security. "High power" systems (from 0.10 to 1.0 watts) which operate in the ISM (Industrial, Scientific and Medical) bands (902 - 928 MHz, 2400 - 2483.5 MHz, and 5725 - 5850 MHz) can only use spread spectrum techniques. Under Part 15 of the FCC Telecommunications Code, these ISM 18 bands do not require the customer to pursue costly and time consuming FCC licensing approval and eliminate usage charges involved with transmitting data via cellular networks. Thus, they are desirable for many wireless applications, including telemetry systems for use in data collection, high-speed wireless communication links between buildings on corporate and other campuses, wireless speaker connections and other peripheral applications. Other Existing Products. The Company also continues to market its SecuriKey(R) line of products. See "Organizational and Capital Transactions -- Purchase of Assets of Micro Security, Inc." These sales represented less than 5% of revenues in the first half of 1997, and are not expected to be material in the future. Proposed Products The Company currently has a number of products in various stages of development, the two most significant of which are a High Speed Digital Radio and a Low Cost Spread Spectrum Radio. High Speed Digital Radio (HSDR): The Company has developed a pre-production working prototype High Speed Digital Radio. HSDR can be used as a wireless link to transmit digitized information (data, voice or video) to and from locations within a "line of sight" at high speeds (i.e., up to 2.048Mbps). This transmission rate is faster than "T1" wired lines at the present time. T1 is a data transmission standard at which 1.544 megabits are transmitted per second. Furthermore, HSDR is a private network so users avoid the access delays caused by excessive traffic and high costs of using T1 lines. HSDR technology can be adapted to a variety of applications, depending upon the user's communication requirements. One HSDR application for data sensitive companies is to set up data links to off-site data storage and back-up facilities which are capable of handling large volumes of information. This application provides a user with an inexpensive real time back-up system in the event of a disaster or other malfunction to the main or primary line of transmission. HSDR also can be used as a "short hop" teleconferencing and/or video-conferencing system. The private network can connect two or more line of sight locations with telephone service and/or video service allowing unlimited access and usage with the cost of local and long distance telephone charges. The installation of a private communication link is very cost effective because of the low installation cost and lack of additional usage charges. Moreover, HSDR can be used to establish a wireless Local Access Network (LAN) to interconnect multiple computers that need to share information. HSDR operates at frequencies classified under Part 15 of the Federal Communications Commission ("FCC") Telecommunication Code, and, as a result of this classification, no license is required nor is there any restriction on the type of data being transmitted. Low Cost Spread Spectrum Radio (LCSSR): The Company has developed proprietary technology for a low cost, spread spectrum radio which the Company believes can be sold in quantity for less than $20 per radio. As a result, the LCSSR has the potential of substantially reducing the cost of such consumer products as cordless telephones, wireless speakers, wireless telephone jack extensions, wireless keyboards, wireless printer connections, security devices and wireless toys. An LCSSR device was the principal product involved in the Company's design and development contract with Kyushu Matsushita Electric Co., discussed below under the caption "Contract Design and Development". Contract Design and Development The Company's business has included providing engineering, design and development services to client specifications on a fee for services basis. At the present time, the Company is not seeking design and development service contracts except in "partnering" situations in which the Company would have an ownership interest in the products and/or technology which are the subject of the contract. The two most significant such contracts, entered into in 1997 with Kyushu Matsushita Electric Co. and Williams Wireless, Inc., are described below. Kyushu Matsushita Electric Co. Contract: In April 1997, DRCC entered into a contract with Kyushu Matsushita Electric Co., Ltd. ("KME") to develop low cost spread spectrum radio technology for use in certain 19 KME products. Under the terms of the contract, KME agreed to pay the Company $1,296,000 for its services in three installments of $432,000, subject to the Company's satisfaction of certain performance goals. The Company received the initial installment in May 1997, and the second installment and one-half of the third installment in September 1997, following KME's evaluation of certain prototypes furnished by the Company. The Company expects to receive the second half of the third installment in the fourth quarter of 1997, following KME's evaluation of final working samples. As part of its development contract with KME, the Company granted KME a world-wide, non-exclusive license to use or authorize the use of any patents, copyrights, technical know-how and other intellectual property rights embodied in the Company's LCSSR technology in the manufacture of KME products, and agreed not to license others to use technology which is developed under its contract with KME in connection with any telephone-related products for a period of two years from the first shipment of KME products using the technology. In consideration for these rights and the Company's services, KME agreed to pay royalties to the Company on sales of KME products using the technology above a prescribed minimum amount of sales for a period of two years from the initial shipments of any such products. The Company is unable to predict the amount of any royalties which it may receive under this license, or whether it will receive any royalties. Williams Wireless, Inc. Contract: In September 1997, the Company entered into a Technical Development and Marketing Alliance Agreement (the "TDMA Agreement") with Williams Wireless, Inc., pursuant to which the Company has agreed to assist and cooperate with Williams in developing and manufacturing "Telemetry Radio Products", which are generally defined in the agreement as wireless radios for transmitting and/or receiving data as part of the Williams Telemetry Network. The TDMA Agreement followed a letter of understanding entered into by the parties in June 1997, and a relationship between the companies which pre-dated the letter of understanding in the course of which the Company developed a "proof of concept" radio for use in Williams' information gathering network. Under the TDMA Agreement, Williams may, but is not required to, contract with the Company for specific system engineering and design services to create Telemetry Radio Products. The Company would have the exclusive right to manufacture any Telemetry Radio Products which were designed exclusively for use in Williams' network, so long as the Company met prescribed quality and other performance criteria. Williams would "own" such products, but the technology used in creating the products (including components that the Company has patented or for which it holds a copyright, and all drawings, specifications, prototypes and circuit boards relating thereto) would remain the property of the Company. The Company also has a non-exclusive right to market Williams' information gathering service on terms mutually agreeable to the parties, based upon a "standard" Williams marketing agreement which is in the process of development. As indicated above under the caption "Existing Products", the Company has designed and developed a number of LSDR products and related devices that have been sold to Williams for use in the Williams Telemetry Network. While these products meet the definitions of "Telemetry Radio Products" used in the TDMA Agreement, since they were developed outside the Agreement, the Company retains all property rights to such products. Sales prices to Williams for existing products were negotiated between the Company and Williams. Such terms relating to further products which Williams may call upon the Company to develop under the TDMA Agreement would be negotiated at that time. Contract Manufacture and Assembly The Company performs assembly and manufacturing services for other manufacturers and vendors of medical, communications, computer graphics and consumer electronic products at its Salt Lake City manufacturing facility. In the current fiscal year, the Company has provided manufacturing and assembly services for such customers as Alton Dean, Infinity Group, Evans & Sutherland, Wavephore and TSI. Markets and Distribution The principal markets for the Company's wireless communications products are original equipment manufacturers ("OEM's") which utilize the Company's products and technology in their own equipment and products, and value added resellers and systems integrators ("VAR/Integrators") which use the Company's products, along with hardware and software from other vendors, in systems which they design and sell to meet their customers' data processing, transmission, collection, storage, security and other related needs. 20 Marketing to OEM's and VAR/Integrators involves establishing and increasing prospective customers' awareness of the Company's products and technology. This is accomplished through direct mail and print advertising, and through promotional activities which include direct contacts with trade journal editors, industry analysts and other opinion makers. More direct sales activity includes research to identify specific OEM's and VAR/Integrators whose products and services make them potential buyers of the Company's products and technology, and direct sales efforts to introduce the Company to the potential customers. Early contacts, if successful, are likely to involve very detailed technical discussions between the Company's and the prospective customer's engineers and researchers. The Company's objective at this stage is to demonstrate how its existing products and technology and/or its capacity to custom design and develop products can benefit the customer. The prospective customer's objective, of course, is to find sources of such products and technology. The Company also markets its wireless products through a manufacturer's representative. This is a relatively new phenomenon for the Company since it only recently reached the point at which it has had fully developed products commercially available. Although it has only one representative at the present time, the Company expects to add additional representatives as its product line expands. The Company's contract design and development capabilities are an integral part of its overall product and technology marketing effort. All of the Company's design and development contract revenues in 1997 have resulted from contracts in which technology was customized and/or further developed to meet its client's specific product needs, with the Company generally retaining ownership or partial ownership of technology developed under the Contract and the right to manufacture and sell to others products which employ that technology but which are outside the client's applications. As indicated above, the Company is not seeking design and development contracts on a purely "fee for services" basis at the present time. The Company's marketing activities as relate to its contract manufacturing and assembly capabilities have been limited, and consist primarily of direct selling efforts directed to past and existing customers, and to prospective customers who contact the Company or are located in the Company's immediate geographic area. In the foreseeable future, the Company expects to concentrate its available marketing resources in the marketing of proprietary products and technology, rather than its contract manufacturing and assembly service capabilities. Competition The Company has a number of current competitors in all aspects of its business, many of which competitors have substantially greater financial, marketing and technological resources than the Company, and which include such industrial giants as Panasonic, Motorola, Sony and AT&T. The Company intends to compete with these companies by concentrating on certain product or service niches within the overall market. However, most of the Company's competitors offer products which have one or more features or functions similar to those offered by the Company, and many have the resources available to develop products with features and functions, competitive with or superior to those offered by the Company. There can be no assurance that such competitors will not develop superior features or functions in their products or that the Company will be able to maintain a lower cost advantage for its products. A key element of the Company's competitive strategy is to align itself with major manufacturers by developing proprietary products or technology that can be incorporated into its "partner manufacturers'" products. In addition to being compensated for its services relative to the development of the partners' products, the Company would share in the success of products which used the Company's component or technology through a royalty or similar arrangement. The Company believes that its agreements with KME and Williams, described above under the caption "-- Contract Design and Development", illustrate the manner in which the Company can "partner" with much larger, established companies to access mass markets for its proprietary wireless communications products and technology. Facilities The Company's executive offices and principal administrative offices and manufacturing facilities are located in approximately 20,079 square feet of space at 150 Wright Brothers Drive in Salt Lake City, Utah, which is leased at a monthly cost of $11,266 for base rental and allocable common area maintenance charges. The Company also pays for certain utility expenses. The lease for these premises expires May 31, 1998. 21 The Company's principal engineering facility is located in the Utah Valley Business Park, American Fork City, Utah. This facility is leased at a monthly cost of $9,849 for base rental and allocable common area maintenance charges. The Company also pays for certain utility expenses. The Company's lease for the facility expires June 30, 1998. This facility, which occupies approximately 9,685 square feet, was leased by DRCC prior to the Company's acquisition of DRCC, and housed DRCC's manufacturing facilities. After the acquisition, the Company consolidated DRCC's manufacturing operations with those of the Company at the Company's Salt Lake City facility. The Company owns most of its manufacturing equipment, although a portion is leased. The aggregate lease payments for leased equipment in 1997 are expected to be approximately $143,375. The Company believes that its facilities are satisfactory for its present scale of operations. The Company presently is considering a number of options to increase its manufacturing capacity, including, at a minimum, consolidating its existing manufacturing and engineering facilities into a single larger facility during 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Outlook". Employees As of October 10, 1997, the Company had 67 employees, of whom one was part-time. Of these employees, 16 were classified as executive or administrative personnel; 17 engineering; 24 production and manufacturing, including contract manufacturing; and 10 sales and marketing. The Company's employees do not belong to a collective bargaining unit, and the Company is not aware of any labor union organizing activity. The Company considers its employee relations to be satisfactory. Patents and Intellectual Property The Company believes that reliance upon trade secrets, copyrights and unpatented proprietary know-how in conjunction with the development of new products is at least as important as patent protection in its business since most patents provide fairly narrow protection, and are of limited value in areas of rapid technological change. Further, patents require public disclosure of information which may otherwise be subject to trade secret protection. The Company has no patents or patents pending on existing or proposed products or technology, except for its spread spectrum demodulation technology. Generally, the Company enters into confidentiality and invention assignment agreements with its employees, and includes provisions in contracts with its development contract customers intended to protect its proprietary technology, "know how" and other trade secrets. The Company also claims copyright protection for its circuit boards and software. However, there can be no assurance that the Company's proprietary technology will be protected or remain a trade secret, or that others will not develop or propose similar technology. See "Risk Factors -- Intellectual Property Rights". Certain aspects of the Company's spread spectrum demodulation technology and the related patent application were developed by DRCC at a time when DRCC was party to a joint venture agreement with Digital Scientific, Inc. ("DSI"), an otherwise unrelated party. This joint venture was formed in October 1995 to further develop, commercialize and market an original and proprietary method of demodulating a spread spectrum signal. Under the terms of the agreement, each party owned fifty (50%) percent of the joint venture. The Company has terminated the joint venture, and DSI has initiated litigation claiming that the Company's termination of the joint venture was invalid, and that it is entitled to certain rights in the Company's spread spectrum technology and to damages. See "Legal Proceedings" below. The Company has registered the trademarks SECURIKEY(R), SECURIDATA(R) and SECURIMAC(R). The Company intends to pursue registration on all trademarks associated with its key products, and to protect its legal rights concerning the use of its trademarks. See "Risk Factors -- Intellectual Property Rights". Legal Proceedings Pending Litigation: DRCC is a defendant in civil action commenced by Digital Scientific Inc. in the Third Judicial Court, Division I, in and for Salt Lake County, Utah, on July 2, 1997. DSI's Complaint alleges that DRCC breached its joint venture agreement with DSI, described above under the caption "Patents and Intellectual Property", and related duties to DSI arising out of the joint venture agreement and a related marketing 22 agreement. The Complaint also alleges that Matsushita Electric Corporation of America ("MEC"), Recoton Corporation ("Recoton") and an employee of MEC, who also are named as defendants in the action, interfered with DSI's contract with DRCC and that MEC and Recoton converted to their own use and profit certain technology that was the property of the DRCC/DSI joint venture. The Complaint seeks unspecified money damages against all defendants, and punitive damages against DRCC. Among other items of damage, DSI claims that it is entitled to participate in revenues, profits, etc. derived from sales or licenses involving the Company's spread spectrum demodulation technology. The Company has not filed an Answer to the Complaint, as settlement discussions between DRCC and DSI commenced shortly after the Complaint was served, and have resulted in a tentative agreement to settle the litigation on terms which provide that DRCC and DSI would acknowledge termination of the joint venture effective December 31, 1996; DRCC and DSI each would have a right in the Company's spread spectrum demodulation technology as disclosed in the Company's pending patent application and incorporated in certain prototypes developed by DRCC prior to the termination of the joint venture; the Company would issue 40,000 shares of Common Stock to DSI and grant DSI the right to sell the shares back to the Company for a limited period of time at a price of $4.00 per share; and DSI would release DRCC and the other defendants from all claims. While the settlement has not been finalized, the Company believes that agreement has been reached on all essential points, and that the litigation will be settled on the basis described above. The Company has accrued a $160,000 charge to cover its potential obligation arising from DSI's right to sell back to the Company the 40,000 shares of Common Stock that the Company would issue as part of the settlement. Unasserted Claim: Although action has not been initiated, the Company's former Chief Financial Officer has threatened litigation against the Company following his resignation from that office and as a director of the Company in October 1997. The resignation was the result of a dispute over compensation involving, among other things, a claim by the former officer and director that the Company had agreed to grant him options to purchase 275,000 shares of the Company's Common Stock at a price of $2.00 per share in connection with his employment, and had later disaffirmed such obligation. Because of the number of shares involved in this unasserted claim, and the difference between the current market price for the Company's Common Stock and the exercise price of the options claimed, the expense to the Company for financial reporting purposes would be material if the former officer should initiate and prevail in litigation over these claims. The Company intends to vigorously defend any such action. 23 MANAGEMENT Executive Officers and Directors The current executive officers and directors of the Company are as follows:
Name Age Position ---- --- -------- David D. Singer ............... 48 Chairman of the Board of Directors, President, Chief Executive Officer and a Director William E. Chipman, Sr. ...... 51 Chief Financial Officer and Director of Mergers and Acquisitions Brian W. Pettersen ............ 40 Executive Vice President and a Director Jonathan D. Rahn ............ 53 Secretary and a Director Philip A. Bunker ............ 45 President of DRCC and a Director David Andrus .................. 44 Director of Development Engineering
David D. Singer - Mr. Singer was appointed President of the Company in November 1996, and became a Director in February 1997. From 1977 to 1983, Mr. Singer was President of CSL Energy Controls, Inc., a company specializing in third party energy conservation. From 1983 to 1985, Mr. Singer was a special consultant to the General President of the Sheetmetal Workers Association. From 1985 to 1988, Mr. Singer was Vice President First Municipal Division, Bank One Leasing Corporation. From 1988 to 1991, Mr. Singer was President of Highland Energy Group. From 1991 to 1996, Mr. Singer was President and Chief Operation Officer of Navtech Industries, Inc., an electronic assembly company. Mr. Singer holds a Bachelor's Degree in Electrical Engineering from the Lawrence Institute of Technology. William E. Chipman, Sr. - Mr. Chipman has served as Director of Mergers and Acquisitions for the Company, with the primary responsibility for seeking acquisition opportunities, and negotiating and implementing acquisitions by the Company, since the DRCC acquisition, and has served as acting Chief Financial Officer of the Company since October 22, 1997. Mr. Chipman was the Chief Financial Officer and a director of DRCC from August 1994 to February 1997 when the Company acquired DRCC. From 1992 to 1994, Mr. Chipman served as CFO of MHB Technology, Inc., a technology holding company specializing in contract manufacturing, security access products and high speed modems. Mr. Chipman received a Bachelor's Degree in Business Administration from Merrimac College. Brian W. Pettersen - Mr. Pettersen has served as Executive Vice President and Director of the Company since February 1997. From 1980 to 1992, Mr. Petersen served as Trading Manager for Covey & Co., a retail full service securities brokerage firm. From 1992 to 1995, Mr. Pettersen served as a Wholesale Trader for the Paulson Investment Company. From 1995 to the present, Mr. Pettersen has served as President of Utah Internet Services, a full service Internet provider. Mr. Pettersen received a Bachelor's Degree in Marketing from the University of Utah in 1979. Jonathan D. Rahn - Mr. Rahn has served as Secretary and a Director of the Company since its inception. From July 1996 to the present, Mr. Rahn has served as Executive Vice President and a Director for PacificHealth Laboratories, Inc. He is also the President and sole stockholder of J.R. Consultants, Inc., an independent consulting firm. Mr. Rahn has over 30 years experience in accounting and financial analysis. Mr. Rahn is a licensed Certified Public Accountant in the Commonwealth of Pennsylvania, and received a Bachelor's Degree in Economics from The Wharton School of Business of the University of Pennsylvania. Philip A. Bunker - Mr. Bunker was a co-founder, and is President and Chief Executive Officer, of DRCC, and has served as a Director of the Company since its acquisition of DRCC. From 1982 to 1986, Mr. Bunker was Vice President of CAECO, Inc. ("CAECO"), a semiconductor circuit design software company. While at CAECO, Mr. Bunker and his engineering team developed a computer-aided program used in advanced integrated 24 circuit design programs such as Motorola's 68020 and 68030 and National's 32000 microprocessors. CAECO was subsequently sold to Mentor Graphics. From 1986 to 1991, Mr. Bunker was the President of Desert Digital, a company that was acquired by DRCC in 1992. Mr. Bunker received a Bachelor's Degree in Electrical Engineering from the University of Utah. David Andrus - Mr. Andrus joined the Company has Director of Development Engineering in April 1997. Prior to joining the Company, Mr. Andrus owned and operated Innovatronics Engineering, a Radio Frequency and Data Communications Consulting Firm which he formed in 1987. Mr. Andrus received a Bachelor's Degree in Electrical Engineering from California State Polytechnic Institute. Other Significant Employees In addition to its Executive Officers and Employees, the Company believes that the following employees will make significant contributions to the Company: Jeffrey G. Ballif ...... 31 Manager of Digital and Software Services Stuart Biddulph ......... 59 Director of Engineering Lance King ............ 36 Director of Marketing Jeffrey G. Ballif - Mr. Ballif was a co-founder of DRCC and, since 1992, has been one of its principal project leaders. He has directed and/or participated in a variety of embedded system hardware and software design projects for the DRCC and, since the Company's acquisition of DRCC in February 1997, for the Company. Projects and responsibilities have included: modem firmware modifications, fax modem debugging, telephone line switching product design, digital modem design and firmware data modems to meet European requirements. Prior to 1992, Mr. Ballif was an engineer at Desert Digital. Mr. Ballif received a Bachelor's Degree in Electrical Engineering from Brigham Young University. Stuart Biddulph - Mr. Biddulph is the Company's Director of Research and Engineering. He was Vice President of Engineering of DRCC prior to its acquisition by the Company. Prior to joining DRCC in June 1996, Mr. Biddulph was Director of Engineering at Comsat RSI Plexus Corporation, a position held since 1995. From 1989 to 1995, Mr. Biddulph was a Project Manager for Sattel Technologies, Inc. Mr. Biddulph is responsible for the day-to-day engineering operations of the Company. He received a Bachelor's Degree in Physics degree from Brigham Young University. Lance King - Mr. King is the Company's Director of Marketing, and was the Director of Marketing of DRCC prior to its acquisition by the Company. Mr. King served as Director of Marketing of MHB Technology, Inc. from 1992 to 1994, prior to which he was Vice President of Sales and Marketing for Intelligent Modem Corp. Corporate Governance Standards The Company intends to apply to have its Common Stock approved for quotation on The Nasdaq Stock Market, Inc. SmallCap Market. Issuers whose securities are quoted on the SmallCap Market are required to comply with certain corporate governance standards, including a requirement that at least two directors of the issuer be "independent" directors, and that the issuer have an audit committee, a majority of the members of which are "independent" directors. The Company expects to be in compliance with these requirements prior to the effective date of the registration statement of which this Prospectus is a part. Compensation of Executive Officers David D. Singer, the Company's Chairman, President and Chief Executive Officer, has been functionally employed in those positions since October 1996, although he was not formally appointed to those positions by the Board of Directors until February 1997. Mr. Singer's current annual salary is $120,000. He does not have a fixed term employment contract with the Company. 25 The table below sets forth information concerning compensation paid in 1996 to Mr. Singer and to Gary Peterson, who served as the Company's President and Chief Executive Officer until October 28, 1996. Except as indicated in the table below, no executive officer of the Company received compensation of $100,000 or more in 1996. Summary Compensation Table
Annual Compensation ----------------------------------------- Other Annual Compensation Name and Principal Positi Year Salary ($) Bonus ($) ($) - ------------------------- ------ ------------ ----------- -------------- Gary Peterson, ......... 1996 $29,047 -0- (2) President(1) David D. Singer, ...... 1996 $27,512 -0- (2) President(1) Long Term Compensation ------------------------------------------------------------- Awards Payouts ----------------------------------- ------------------------ All Restricted Securities Other Stock Underlying LTIP Compen- Name and Principal Positi Award(s)($) Options/SARS(#) Payouts($) sation($) - ------------------------- ---------------- ----------------- ------------ ---------- Gary Peterson, ......... -0- 54,000 -0- -0- President(1) David D. Singer, ...... 156,750(3) -0- -0- -0- President(1)
- ------------ (1) Mr. Peterson was President and Chief Executive Officer of the Company through October 28, 1996. Mr. Singer was acting President and Chief Executive Officer of the Company from October 1996 to February 3, 1997, when he was formally appointed President, Chief Executive Officer and Chairman of the Board of Directors. (2) Neither of the executive officers named received compensation reportable as "Other Compensation" in 1996 which exceeded 10% of such officer's salary. (3) Mr. Singer received 475,000 shares of Common Stock, valued at the time of issuance at $.33 per share, in connection with his employment as President and Chief Executive Officer of the Company. These shares vested immediately, and Mr. Singer is entitled to all rights as a stockholder with respect to these shares. The following tables set forth certain information regarding options granted to Mr. Peterson in 1996, and options owned by Mr. Peterson at December 31, 1996: Option/SAR Grants in Last Fiscal Year
Number of Percent of Total Securities Options/SARs Exercise Underlying Granted to or Base Options/SARs Employees in Price Expiration Name Granted (#) Fiscal Year ($/Sh) Date - ---------------------- -------------- ----------------- --------- ----------- Gary Peterson ...... 54,000 26% $.33 6/30/98
Aggregated Option/SAR Exercises in 1996 Last Fiscal Year and Option/SAR Values at 12/31/96
Number of Securities Underlying Unexercised Value of Unexercised Shares Options/SARs at Fiscal Year-End In-The-Money Options/SARs at Acquired (#)(1) December 31, 1996 ($) on ------------------------------ ----------------------------- Exercise Value Name (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable - ---------------------- ---------- ------------- ------------- --------------- ------------- -------------- Gary Peterson ...... -0- -0- 54,000 -0- 1,080 -0-
For the purpose of computing the value of "in-the-money" options at December 31, 1996, in the above table, the fair market value of the Common Stock at December 31, 1996, is deemed to be $.35 per share, which was the fair market value of such shares as determined by the Board of Directors. Mr. Singer held no options at December 31, 1996. Directors' Compensation None of the Company's directors received compensation for their services as directors in 1996, and the Company has no formal plan to compensate directors for their services. 26 PRINCIPAL AND SELLING SHAREHOLDERS The Company had 10,035,518 shares of Common Stock outstanding at October 15, 1997. The following table sets forth certain information regarding the ownership of the Company's Common Stock as of October 15, 1997, and adjusted, assuming the sale of all Shares, to reflect such ownership by (i) each of the Company's executive officers and directors, (ii) all executive officers and directors as a group; and (iii) each other person known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock.
Amount and Nature of Beneficial Ownership Adjustments for Offering -------------------------------- -------------------------------------------------- Ownership As of Shares Assuming the Sale Name and Address of October 15, Percent Registered of All Shares Beneficial Owner 1997(1) of Class(2) for Sale No. of Shares(1) Percentage(2) - -------------------------------------- ---------------- ------------- ------------------ ---------------- ------------- (i) Directors and Executive Officers David D. Singer, President, Chief..... 475,000 4.7% -0- 475,000 4.7% Executive Officer and Director 2873 South Ursula Court Aurora, CO 80014 William E. Chipman, Sr., Chief ...... 480,345(3) 4.8% 480,345 -0- -0- Financial Officer and Director of Mergers and Acquisitions 150 Wright Brothers Drive Suite 560 Salt Lake City, UT 84116 Brian W. Pettersen, Executive Vice 314,000(4) 3.1% -0- 314,000 3.1% President and Director 2025 East Lincoln Circle Holladay, UT 84124 Jonathan D. Rahn, Director ......... 360,500(5) 3.6% -0- 360,500 3.6% 413 Gatewood Road Cherry Hill, NJ 08003 Philip A. Bunker, Secretary ......... 317,099(6) 3.2% 317,099 -0- -0- and Director 946 East 880 North Orem, UT 84057 David Andrus, Director of ......... -0- -0- -0- -0- -0- Development Engineering 212 North 2520 West Provo, UT 84601 (ii) All Directors and Executive . 1,946,944(7) 19.4% 797,444 1,149,500 11.5% Officers as a Group (6 Persons) (iii) Other 5% Beneficial Owners Michael Lauer ........................ 2,538,000(8) 25.3% 1,967,500(3) 570,500 5.7% 200 Park Avenue Suite 3900 New York, NY 10166 ..................
27
Amount and Nature of Beneficial Ownership Adjustments for Offering -------------------------------- -------------------------------------------------- Ownership As of Shares Assuming the Sale Name and Address of October 15, Percent Registered of All Shares Beneficial Owner 1997(1) of Class(2) for Sale No. of Shares(1) Percentage(2) - -------------------------------------- ---------------- ------------- ------------------ ---------------- ------------- Lancer Partners LP ............... 1,095,650(9) 10.9% 1,043,750 51,900 * 200 Park Avenue Suite 3900 New York, NY 10166 Lancer Offshore, LP ............ 873,750(9) 8.7% 773,500 100,000 * 200 Park Avenue Suite 3900 New York, NY 10166 Abraham J. Salaman ............ 638,250(10) 6.4% -0- 638,250 6.4% c/o Trinity American Corp. 800 Kings Highway North Suite 500 Cherry Hill, NJ 08034 Daniel and Roslyn Maxwell ...... 520,000(11) 5.1% -0- 520,000 5.1% 5970 Cilma Drive West Valley City, UT 84128
- ------------ * Less than one percent. (1) Unless otherwise indicated, this column reflects shares owned beneficially and of record and as to which the named party has sole voting power and sole investment power. This column also includes shares issuable upon the exercise of options or similar rights which are exercisable within 60 days from the date of this Prospectus. (2) In computing the percentage of shares beneficially owned by any person, shares which the person has the right to acquire upon the exercise of options or other rights held by such person within 60 days from the date of this Prospectus are deemed outstanding. Such shares are not deemed to be outstanding in computing the percentage ownership of any other person. (3) Includes 17,316 shares issuable upon the exercise of DRCC Conversion Options. (4) Includes 95,000 shares owned jointly with his wife and 204,000 shares issuable upon the exercise of options granted in December 1996 and January 1997 in recognition of past services. (5) These shares are held directly and of record or in brokerage accounts by JR Consultants, Inc., a company controlled by Mr. Rahn. (6) Includes 283,052 shares owned jointly with his wife, a total of 16,731 shares owned of record by his wife for his minor children under the Utah Uniform Gift to Minors Act, as to which Mr. Bunker disclaims beneficial ownership, and 17,316 shares issuable upon the exercise of options received in conversion of DRCC options in connection with the Company's acquisition of DRCC ("DRCC Conversion Options"). (7) Includes 34,712 shares issuable upon the exercise of DRCC Conversion Options, and 204,000 shares issuable upon other options granted by the Company. (8) Of these shares, 400,000 are owned by Mr. Lauer in street name; 873,750 are held directly and of record by Lancer Offshore, Inc.; 1,095,650 are held directly and of record by Lancer Partners, LP; and 168,600 are held directly and of record by Lancer Voyager. Mr. Lauer is believed to control the voting and disposition of these shares by virtue of being the investment manager for these entities. He is also the general partner of Lancer Partners LP. (9) Michael Lauer is deemed to be an indirect beneficial owner of these shares. 28 (10) Includes 363,250 shares owned directly and of record by Trinity American Corp. (113,250 shares) and Cherry Hill, Inc. (250,000 shares). Also includes 275,000 shares owned of record by Robsal, Inc. which Mr. Salaman has the right to vote, but as to which he disclaims any other beneficial interest. (11) Includes 370,000 shares owned directly and of record by Roslyn Maxwell, Daniel Maxwell's wife, and 150,000 shares issuable upon the exercise of options granted to Mr. Maxwell in December 1996 in recognition of past services. Selling Shareholders not named above, and the number of shares of Outstanding Shares owned by each such Selling Shareholder prior to the offering, is set forth in the table below. Unless otherwise indicated, all shares owned by the Selling Shareholders listed are being registered for sale and, if sold, would reduce the Selling shareholder's ownership interest in the Company to zero.
NO. OF NAME OUTSTANDING SHARES ---- ------------------ Jeffrey G. Ballif .......................................... 222,419(1) Robert Kresge ............................................. 5,460 Robert Short ............................................. 36,982 Penny Warr & Dorothy Warr ................................. 1,394 Albert Walla ............................................. 2,231 Smith Barney, Inc. custodian FBO Robert K. Beardall ...... 5,460 Russell J. Verducci ....................................... 2,231 Dennis A. Joaquin & Jeff M. Joaquin ..................... 1,673 Vito Catalano ............................................. 1,115 Ronald Z. Plotkin and Kenneth Mendelson .................. 1,115 Hans Rech & Rose Marie Rech .............................. 3,346 Salvatore J. Galletto .................................... 4,462 Patricia A. McDonald ....................................... 1,115 Michael McGlone .......................................... 1,115 Xiaoming Xiong ............................................. 558 Yixing Qi ................................................ 558 William Hungerville ....................................... 10,039 Timothy Alsdorf .......................................... 1,115 Frank Michel ............................................. 4,462 Michael Plaza & Carol Plaza .............................. 2,231 Barbara A. Schwartz & John H. Rech JTWROS ............... 1,115 Thomas D. Rech & Valerie Rech ........................... 1,115 Jerald W. Davidson & Marian Davidson ..................... 2,231 Louis H. Merzario ....................................... 1,115 Jose D. Clemente, Jr. .................................... 1,115 Andreas F. Pozzi .......................................... 1,004 Maurice Shmueli .......................................... 112 Ronald L. Piasecki ....................................... 40,000 Jeff Walker ................................................ 558 Richard T. Mallen ....................................... 11,154 Tony Mei ................................................ 558 Nelson Wai ................................................ 558 Winn B. Pierce & Janet Pierce .............................. 167 Lon R. Hunsaker Trust .................................... 167 Mike Woodard & Debbie Woodard ........................... 558 Russell Woodard & Jana Lee Woodard ........................ 335 Halina Mjerezjewska ....................................... 2,231 Howard A. Berger & Dorothy G. Berger, JTWROS ............ 1,115 XLCR, Inc. ................................................ 2,625 Gail Isaksen ............................................. 1,115
29
NO. OF NAME OUTSTANDING SHARES ---- ------------------ Vito Catalano, C/F Matthew Healy ................................. 557 Vito Catalano, C/F Joseph Healy ................................. 558 Ronald T. Steinberg, Robert Steinberg, Arthur Steinberg & Mitchell Steinberg, JTWROS .................................... 1,115 Bill B. Cowser ................................................... 1,701 Craig Wise C/F Kyle Chipman ....................................... 1,115 Craig A. Wise ................................................... 5,577 Loomis J. Grossman, Jr. .......................................... 6,065 Joyce A. Demorest ................................................ 2,231 Henry P. Juco ................................................... 1,115 Bruce Ender ...................................................... 558 Rodney M. Juco ................................................... 1,115 Pensco Pension Service for Aileen Belarmino ..................... 558 Vincent P. Sharrock ............................................. 558 John F. Folan ................................................... 2,231 Paul J. Fiorello ................................................ 1,115 Pensco Pension Service for Johannes C. Kaashoek .................. 1,115 Richard A. Grossman ............................................. 6,065 Harald Justnes, Jr. ............................................. 2,231 Russel J. Redgate ................................................ 2,500 Robert L. Weeks ................................................ 217,516 Charter Small Business Network .................................... 26,771 Stephen R. Field ................................................ 1,115 William G. Schwartz ............................................. 6,065 Robert Beyersdorier, Jean Beyersdorier ........................... 223 Daniel B. French ................................................ 18,195 Douserv Group Holdings Co. ....................................... 12,129 Stephen C. Sadtler ............................................. 35,695 John C. Decas ................................................... 4,462 Decas Companies Pension Plan .................................... 3,346 Martin H. Garvey ................................................ 30,000 Craig Wise C/F Ryan Chipman .................................... 1,115 Kent Huff ...................................................... 5,577 Dianne Gill ...................................................... 1,115 Gibbs V. Bray ................................................... 4,183 Paine Webber CF Domina H. Suprenant .............................. 1,115 Vera Rose Burd ................................................... 2,231 Robert Abreu ................................................... 1,115 James Hurley ................................................... 1,115 Dennis Saluti ................................................... 2,231 Thomas R. Reilly ................................................ 2,231 Herbert T. Etzold ................................................ 1,115 Edward Turi & Lisa Turi .......................................... 6,693 J. P. Ranch ...................................................... 71,526 Capital Holdings Partnership .................................... 86,132 Prudential Securities Agreement CF SRF ........................... 120 Robert L. Field & Stephen R. Field, Ttees ........................ 22,586 SRF TTEE of the Profit Sharing Plan of the Law Office of SRF ... 1,360 Michael S. Davis ................................................ 5,577 W. H. Highleyman TTEE Sombers Assoc., Inc. Profit Sharing Plan ... 1,115 Alix Michel ...................................................... 2,231 Jay Rosenberg ................................................... 5,577
30
NO. OF NAME OUTSTANDING SHARES ---- ------------------ James A. Burke .......................................... 1,115 Nava Sarver ............................................. 4,462 Donald Lyman & Gloria Lyman .............................. 3,718 Karen McGuire ............................................. 112 Robert J. Witt .......................................... 2,231 Chris Watkins ............................................. 3,000 Kim D. Isaacson .......................................... 3,135 David Politis ............................................. 10,513 Stephen Cowser .......................................... 139 Jack Berg ................................................ 279 George Denny ............................................. 40,000 Houise Trader Investments ................................. 6,163 Kevin & Tracey Tolbert .................................... 3,083 Stan & Beth Tolbert ....................................... 3,083 ---------- TOTAL .............................................. 1,078,719
- ------------ (1) Does not include Option shares, as set forth in the table below. Holders of DRCC Conversion Options, and the number of Option Shares which has the right to purchase upon the exercise of such options, are as follows:
NO. OF NAME OUTSTANDING SHARES ---- ------------------ Jeffrey G. Ballif ........................................... 13,943 Stuart Biddlph .............................................. 39,041 Lance King ................................................. 37,926 David Politis .............................................. 8,366 Arthur Larsen .............................................. 334 Bob Kresge ................................................. 1,116 Charlotte Hankins ........................................... 781 Christina Piep .............................................. 112 Floyd Bailey ................................................. 112 Glade Johnson .............................................. 10,597 Judy Harris ................................................. 558 Judy Sperry ................................................. 10,039 Lesie Carter ................................................. 112 Megan Green ................................................. 112 Nancy Croft ................................................. 224 Rich Sawyer ................................................. 3,012 Rob Carrier ................................................. 223 Shayne Miller .............................................. 893 Solomone Liukaina ........................................... 502 Stephen Cowser .............................................. 27,887 Thu Lam .................................................... 112 Tondra Duran ................................................. 335 -------- TOTAL ....................................................... 156,337 --------
31 PLAN OF DISTRIBUTION Outstanding Shares will be sold for the account of Selling Shareholders, and none of the proceeds from the sale of Outstanding Shares will be received by the Company. Option Shares will be sold by the Company upon the exercise of DRCC Conversion Options. If all DRCC Conversion Options were exercised, the Company would receive $381,532 in payment for Option Shares. Outstanding Shares may be offered and sold, and Option Shares acquired by holders of DRCC Conversion Options may be resold, from time to time as market conditions permit in transactions that may take place in the over-the-counter market, including block trades, ordinary brokers' transactions, privately negotiated transactions or through sales to one or more broker/dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by these holders in connection with such sales. The Company will bear all expenses (other than underwriting discounts and selling commissions, state and local transfer taxes, and fees and expenses of counsel or other advisors to the Selling Stockholders) in connection with the registration of the Shares. With limited exceptions in the case of resales of Option Shares, the registration statement of which this Prospectus forms a part must be current at any time during which a Selling Stockholder sells any Shares. Any material changes which the Company, in its sole discretion, determines should be disclosed prior to the sale of Shares will be set forth in an accompanying supplement to this Prospectus (the "Prospectus Supplement"). The names of any participating brokers or dealers, any applicable commissions or discounts and the net proceeds to the Selling Stockholders from such sale will be set forth in the applicable Prospectus Supplement as required. In connection with sales of Shares pursuant to the Registration Statement of which this Prospectus is a part, a Selling Shareholder offering such Shares and brokers and dealers who participate in the offer and sale of the Shares may be deemed "underwriters" as such term is defined in the Securities Act. In addition, persons using this Prospectus in the offer and sale of the Shares will be deemed to be engaged in a "distribution" of the Shares as such term is defined in Regulation M under the Exchange Act, and will be required to comply with Regulation M with respect to contemporaneous market activity and other provisions of such Regulation. 32 MARKET INFORMATION "Bid" and "asked" prices for the Company's Common Stock have been quoted on the Nasdaq OTC Electronic Bulletin Board since October 4, 1996, prior to which there was no public market for the Common Stock. Since October 4, 1996, actual trading of the Common Stock has been limited and, based upon sales figures furnished to the NASD by broker dealers who have quoted prices for the Company's Common Stock, the total trading volume between October 4, 1996, and October 15, 1997, was 843,100 shares. The table below sets forth for the periods indicated the high and low bid quotations as furnished by the NASD. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not necessarily represent transactions. The bid and asked prices for the Common Stock on October 17, 1997, were $11.25 and $12.00, respectively. High Low -------- --------- 1996 ---- Fourth quarter ......... $ 2.00 $ 2.00 (beginning 10/4/96) 1997 ---- First quarter ......... $11.00 $ 2.00 Second quarter ......... $11.00 $ 9.00 Third quarter ......... $12.25 $ 8.125 Fourth quarter ......... $12.00 $11.00 (through October 17, 1997) At October 15, 1997, the Company had 194 holders of record of its Common Stock. Outstanding Options The Company has outstanding options to purchase a total of 598,969 shares of Common Stock at prices ranging from $0.18 to $ 2.00 per share, and expiring between June 30, 1998, and December 20, 2001. See "Description of Securities -- Other Outstanding Options". Shares Saleable Under Rule 144 At October 15, 1997, the Company had outstanding 7,489,758 shares that were "restricted securities" as defined in Rule 144, promulgated by the Securities and Exchange Commission. Of these shares, 1,022,140 shares currently are saleable, and the balance will become saleable prior to August 8, 1998, under Rule 144, upon the seller's compliance with the manner of sale and other conditions and limitations of that Rule. Rule 144 also requires that specified information concerning the Company must be available at the time any such sale is made. Following this offering, the Company will be subject to reporting requirements of the Securities Exchange Act of 1934, compliance with which also will satisfy Rule 144 "public information" requirements. Shares registered for sale by Selling stockholders are restricted securities which are not currently saleable under Rule 144, but which would become saleable under that Rule by the holders of such securities in 1998. ORGANIZATIONAL AND OTHER TRANSACTIONS Organization, Initial Capitalization and Purchase of Assets of Micro Security, Inc. The Company was formed in November 1995 to acquire certain assets that had been used in the business of Micro Security, Inc. ("Micro"). Contemporaneously with its organization, the Company entered into an agreement to acquire the Micro assets from Chocolate Leasing LLC ("Chocolate"), a limited liability company that had previously acquired those assets. The individuals principally responsible for organizing the Company were Abraham Salaman and Lynn Dixon, and the organizers of Chocolate were Gary Christensen, Gary Peterson, Dan Maxwell and Brian Pettersen. Messrs. Christensen, Peterson, Maxwell, Pettersen, Salaman and Dixon all may be considered "founders" or "promoters" of the Company. 33 In connection with the purchase and sale of Micro assets, Mr. Christensen received $269,000 in redemption of his interest, and Messrs. Maxwell, Peterson and Pettersen received shares of the Company's Common Stock (450,000, 105,000 and 105,000 shares, respectively) in consideration for their interests, through Chocolate, in the Micro assets, which assets had been acquired by them at a net cash cost of $122,000 during 1995. Also in connection with the Company's organization and initial capitalization, and the purchase of Micro assets, the Company issued 132,140 shares of Common Stock to Robsal, Inc. and Elvena, Inc., corporations controlled by or otherwise associated with Messrs. Salaman and Dixon, for cash (107,140 shares) and for services (25,000 shares) at a price of $.047 per share. The Company also issued 320,000 shares of Common Stock to Jonathan D. Rahn, who also may be considered a founder or promoter of the Company, for services at a price of $.047 per share, and borrowed $275,000 from Robsal, Inc., Elvena, Inc., three other corporations controlled by Messrs. Salaman and Dixon and/or their adult children (Cherry Hill, Inc., BRRD, Inc. and Stamatt, Inc.), Mr. Salaman's nephew and three other investors. These short term borrowings and accrued interest thereon were converted into 1,892,860 shares of Common Stock (an effective price of approximately $.15 per share) in March 1996. Mr. Dixon served as the initial President and sole director of the Company until Mr. Peterson became a director, President and Chief Executive Officer, and Mr. Rahn became Secretary/Treasurer and a director, of the Company on November 16, 1995. Mr. Peterson remained President and a director of the Company until October 28, 1996. Mr. Maxwell presently is employed by the Company in a supervisory engineering and manufacturing position. Mr. Pettersen serves as Executive Vice President of the Company and is a Director. Mr. Rahn serves as Secretary of the Company and is a Director. None of the Company's other founders/ promoters is or has been employed by the Company. Employment of David Singer In October 1996, the Company entered into an agreement with David Singer in connection with which Mr. Singer assumed the duties of Chief Executive Officer of the Company, and the Company agreed to acquire a corporation which had been organized by Mr. Singer and a business associate of his to engage in the contract manufacturing and assembly in exchange for 500,000 shares of Common Stock. Since the corporation formed by Mr. Singer did not have assets or operations at the time of the agreement, the shares acquired by Mr. Singer in this transaction (475,000 shares) were treated, for accounting purposes, as being issued for services, and were valued at approximately $.33 per share. Principal Capital Transactions In October 1996 through January 1997, the Company sold 2,357,857 shares of Common Stock to a total of 33 investors for cash (1,800,000 shares at $.33 per share, and 557,857 shares at $.35 per share), 11,000 shares in payment of accrued interest on a note at a price of $.45, and 5,629 shares in conversion of a note at $.35 per share. Purchasers included Lynn Dixon and Elvena, Inc. (245,629 shares); Trinity American Corp., a corporation owned and controlled by Mr. Salaman (113,250 shares), J.R. Consultants, Inc., a corporation owned and controlled by Mr. Rahn (75,500 shares), a number of other entities and individuals related to Messrs. Salaman and Dixon and other investors. During 1997, the Company issued a total of 2,000,000 shares of Common Stock raising a total of $4,000,000 (average cost of $2.00 per share) in direct private placements of Common Stock or units of securities consisting of Common Stock and Warrants, all of which were subsequently exercised. Michael Lauer, certain of his associates, and a number of institutional investors for which Mr. Lauer is the investment manager and/or general partner, were the purchasers of these securities. Mr. Lauer also purchased 400,000 shares of Common Stock in the financing transactions described in the preceding paragraph. DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 50,000,000 shares of Common Stock, $.001 par value, of which 10,035,518 shares were outstanding as of October 15, 1997, and 1,000,000 shares of Preferred Stock, $.001 par value, of which no shares are outstanding. 34 Common Stock Holders of Common Stock are entitled to one vote for each share of Common Stock owned of record on all matters to be voted on by stockholders, including the election of directors. Holders of Common Stock do not have cumulative voting rights and, accordingly, the holders of more than 50% of the outstanding shares can elect the entire Board of Directors. The holders of Common Stock are entitled, upon liquidation or dissolution of the Company, to receive pro rata all assets remaining available for distribution to stockholders. The Common Stock has no preemptive or other subscription rights, and there are no conversion rights or redemption provisions. All outstanding shares of Common Stock are validly issued, fully paid, and nonassessable. Preferred Stock The Company's Board of Directors has the authority by resolution to issue up to 1,000,000 shares of preferred stock in one or more series and fix the number of shares constituting any such series, the voting powers, designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rights, dividend rate, terms of redemption (including sinking fund provisions), redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series, without any further vote or action by the stockholders. For example, the Board of Directors is authorized to issue a series of preferred stock that would have the right to vote, separately or with any other series of preferred stock, on any proposed amendment to the Company's Articles of Incorporation or on any other proposed corporate action, including business combinations and other transactions. 1997 Stock Option Plan On October 1, 1997, the Company's Board of Directors approved the 1997 Stock Option Plan (the "Plan"), subject to shareholder approval of the Plan, and reserved 1,500,000 shares of Common Stock for issuance upon options granted under the Plan. As of the date of this Prospectus, no options had been granted under the 1997 Plan. The purposes of the Plan are to provide incentives and rewards to those employees who are in a position to contribute to the long-term growth and profitability of the Company; to assist the Company to attract, retain and motivate personnel with experience and ability; and to make the Company's compensation program more competitive with those of other employers. The Company anticipates it will benefit from the added interest which such personnel will have in the success of the Company as a result of their proprietary interest. The Plan presently is administered by the Board of Directors, but the Board may establish a Stock Option Committee (the "Committee"), which consists of at least three directors, to administer the Plan. References to the "Committee" herein include the Board of Directors so long as it continues to administer the Plan directly. The Committee is authorized to select from among eligible employees, directors, advisors and consultants those individuals to whom options are to be granted and to determine the number of shares to be subject to, and the terms and conditions of, the options. The Committee also is authorized to prescribe, amend and rescind terms relating to options granted under the Plan and the interpretation of options. Generally, the interpretation and construction of any provision of the Plan or any options granted thereunder is within the discretion of the Committee. The Plan provides that options may or may not be Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code ("ISOs"). Only employees of the Company are eligible to receive ISOs, while employees and non-employee directors, advisors and consultants are eligible to receive options which are not ISOs, i.e. "Non-Qualified Options." The acquisition of shares upon exercise of an ISO will not result in recognition of income at the time. However, the excess of the fair market value of the shares acquired over the exercise price will constitute an item of tax preference, to be included in the optionee's computation of his "alternative minimum tax" for federal income tax purposes. If the optionee does not dispose of the shares issued to him upon the exercise of an ISO within one years of such issuance or within two years from the date of the grant of the ISO, whichever is later, any gain or loss realized by the optionee on a later sale or exchange of such shares generally will be a 35 long-term capital gain or long-term capital loss. If the optionee sells the shares during such period, the optionee will recognize ordinary income for the year in which disposition occurs equal to the amount, if any, by which the lesser of the fair market value of such shares on the date of exercise of such ISO or the amount realized from such sale exceeded the amount paid for such shares. In the case of Non-Qualified Options, the optionee generally will recognize ordinary income upon exercise of the Non-Qualified Option in an amount equal to the difference between the option price, assuming that the option price equaled the fair market value of the Company's Common Stock at the time of grant, and the fair market value of the shares on the date of exercise. When the shares are sold, the grantee will generally recognize capital gain or loss equal to the difference between (i) the selling price of the shares, and (ii) the sum of the option price and the amount included in his income when the option is exercised. The terms of options granted under the Plan are determined by the Committee at the time the option is granted. Each option is evidenced by a written option document, which, together with the provisions of the Plan itself determines such terms as: when options under the Plan become exercisable; the exercise price of options granted under the Plan, which may not be less than 100% of the fair market value of the Common Stock on the date of the grant in the case of ISOs (110% in the case of optionees who own 10% or more of the Company's Common Stock on the date of grant); the term of the option; vesting provisions; and special termination provisions. An option is not transferrable by the optionee, other than by will or the laws of descent and distribution, and is exercisable only by the optionee during his lifetime or, in the event of his death, by a person who acquires the right to exercise the option by bequest or inheritance or by reason of the optionee's death. Other Options The Company has outstanding options to purchase 190,969 shares of Common Stock at prices ranging from $0.18 per share to $2.00 per share (average exercise price of $2.00 per share) issued in connection with the DRCC acquisition in order to convert DRCC options granted prior to the Company's acquisition of DRCC. The DRCC "conversion options" are subject to the terms and conditions of DRCC's Omnibus Stock Option Plan (the "DRCC Plan") pursuant to which the options originally were granted. The terms of the DRCC Plan are substantially the same as the Company's 1997 Stock Option Plan. The Company also has outstanding options to purchase 258,000 shares at a price of $.33 per share, and 150,000 shares at a price of $.35 per share, which were granted to the former President and CEO (Gary Peterson) and other members of management of the Company (Brian Pettersen and Dan Maxwell) in late 1996 and early 1997 in recognition of their prior service. The options described above are fully vested, or will vest prior to December 20, 1997, and expire between February 1, 1999 and December 20, 2001 in the case of the DRCC conversion options, and on June 30, 1998, in the case of the 408,000 options granted in December 1996 and January 1997. "Anti-Takeover" Provisions Although the Board of Directors is not presently aware of any takeover attempt or interest involving the Company, the Articles of Incorporation and Bylaws of the Company and the Nevada General Corporation Law (the "NGCL") contain certain provisions which may be deemed to be "anti-takeover" in nature in that such provisions may deter, discourage or make more difficult the assumption of control of the Company by another corporation or person through a tender offer, merger, proxy contest or similar transaction or series of transactions. Authorized but Unissued Shares: The authorized capital stock of the Company is 50,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. These shares of capital stock were authorized for the purpose of providing the Board of Directors of the Company with as much flexibility as possible to issue additional shares for proper corporate purposes, including equity financing, acquisitions, stock dividends, stock splits, employee stock option plans, and other similar purposes which could include public offerings or private placements. Other than with respect to shares of Common Stock reserved for issuance upon the exercise of options, as described above, the Company has no agreements, commitments or immediate plans for the sale or issuance 36 of the additional shares of Common Stock or Preferred Stock at this time. However, shares of Preferred Stock could be issued quickly with terms calculated to delay or prevent a change in control of the Company without any further action by the stockholders. Stockholders of the Company do not have preemptive rights with respect to the purchase of these shares. Therefore, such issuance could result in a dilution of voting rights and book value per share of the Common Stock of the Company. No shares of Preferred Stock have been issued, and the Company has no present plan to issue any such shares. No Cumulative Voting: Neither the Company's Articles of Incorporation nor its Bylaws contain provisions for cumulative voting. Cumulative voting entitles each stockholder to as many votes as equal the number of shares owned by him multiplied by the number of directors to be elected. A stockholder may cast all these votes for one candidate or distribute them among any two or more candidates. Thus, cumulative voting for the election of directors allows a stockholder or group of stockholders who hold less than 50% of the outstanding shares voting to elect one or more members of a board of directors. Without cumulative voting for the election of directors, the vote of holders of a plurality of the shares voting is required to elect any member of a board of directors and present stockholders would be able to elect all of the members of the board of directors. The Company's founders did not provide for cumulative voting in the Articles of Incorporation of the Company because of a belief that each director should represent and act in the interest of all stockholders and not any special group of stockholders. Control Share Acquisitions: Sections 78.378 et seq. of the NGCL provide for notice to shareholders of a "control share acquisition", which is defined as the acquisition of 20% of the voting power of a Nevada corporation, or of voting power exceeding one-third of such total voting power by a person who owns 20% or more of such voting power prior to the acquisition, or a majority or more of such voting power by a person who already owns one-third or more of the voting power. Shareholders have the right to demand "fair value" for their shares if a control share acquisition occurs. The "control share" provisions limit the voting power of the acquiror in a control share acquisition, and permit a corporation to recover profits resulting from the sale of control shares in certain situations. The control share acquisition provisions of the NGCL apply only to Nevada corporations with a minimum of 100 shareholders of record who reside in Nevada and, for that reason, do not now apply to the Company. General Effect of Anti-Takeover Provisions: The overall effect of these provisions may be to deter a future tender offer or other takeover attempt that some stockholders might view to be in their best interests at that time. In addition, these provisions may have the effect of assisting the Company's current management in retaining its position and place it in a better position to resist changes which some stockholders may want to make if dissatisfied with the conduct of the Company's business. Provisions Relating to Officers and Directors The Company's Articles of Incorporation contain a provision permitted by Nevada law which eliminates the personal liability of the Company's directors for monetary damages for breach or alleged breach of their fiduciary duty of care which arises under state law. Although this does not change the directors' duty of care, it limits legal remedies which are available for breach of that duty to equitable remedies, such as an injunction or rescission. This provision of the Company's Articles of Incorporation has no effect on directors' liability for: (1) breach of the directors' duty of loyalty; (2) acts or omissions not in good faith or involving intentional misconduct or known violations of law; and (3) approval of any transactions from which the directors derive an improper personal benefit. The Company's Articles of Incorporation also contain a provision providing for the indemnification of directors and officers to the fullest extent permitted under the NGCL. Dividend Policy The Company has never paid and does not presently anticipate paying dividends on its Common Stock. Transfer Agent Interwest Transfer Co., Inc., Suite 100, 1901 E. 4000 South, Salt Lake City, UT 84117, is the transfer agent and registrar for the Company's Common Stock. 37 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Section 78.751 of the NGCL, as amended, authorizes the Company to indemnify any director or officer under certain prescribed circumstances and subject to certain limitations against certain costs and expenses, including attorneys' fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which such person is a party by reason of being a director of officer of the Company if it is determined that such person acted in accordance with the applicable standard of conduct set forth in such statutory provisions. The Company may also purchase and maintain insurance for the benefit of any director or officer which may cover claims for which the Company could not indemnify such person. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company 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. LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered hereby will be passed upon for the Company by Connolly Epstein Chicco Foxman Engelmyer & Ewing. EXPERTS The consolidated financial statements of World Wireless Communications, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the years ended December 31, 1996 and 1995, included in this Prospectus have been so included in reliance on the report of Hansen, Barnett & Maxwell, independent accountants, given on the authority of said firm as experts in auditing and accounting. The consolidated financial statements of Digital Radio Communications Corporation and subsidiaries as of December 31, 1996 and 1995, and for the years ended December 31, 1996 and 1995, included in this Prospectus have been so included in reliance upon the report of Hansen, Barnett & Maxwell, independent accountants, given on the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION The Company has filed a registration statement on Form SB-2 (including all amendments and supplements thereto, the "Registration Statement") with the Commission under the Securities Act with respect to the Shares offered hereby. This Prospectus, which forms a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the Exhibits filed therewith, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. Statements contained herein concerning the provisions of such documents are not necessarily complete and, in each instance, reference is made to the Registration Statement or to the copy of such document filed as an Exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. Copies of the Registration Statement and Exhibits thereto can be obtained upon payment of a fee prescribed by the Commission or may be inspected free of charge at the public reference facilities and regional offices referred to below. Additional information with respect to this offering may be provided in the future by means of supplements or "stickers" to the Prospectus. Prior to the date of this Prospectus, the Company has not been subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Following the date of this Prospectus, the Company will be subject to Exchange Act reporting requirements and, in accordance therewith, will file reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed with the Commission by the Company may be inspected and copied at the public reference facilities maintained by the Commission at its principal offices at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 38 World Trade Center, Suite 1300, New York, New York 10048. Such reports, proxy statements and other information may also be obtained from the web site that the Commission maintains at http://www.sec.gov. Copies of these materials can also be obtained at prescribed rates from the Public Reference Section of the Commission at its principal offices in Washington, D.C., set forth above. 39 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
Page ----- PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF WORLD WIRELESS COMMUNICATIONS, INC. AND DIGITAL RADIO COMMUNICATIONS CORPORATION Pro Forma Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 1997 ....................................................................................... F-2 Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December 31, 1996 ........................................................................................ F-2 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES Report of Independent Certified Public Accountants ............................................. F-3 Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1997 (Unaudited), and December 31, 1996 and 1995 .... F-4 Consolidated Statements of Operations for the Six Months Ended June 30, 1997 and 1996 (Unaudited), for the Year Ended December 31, 1996, for the Period from April 10, 1995 (Date of Inception) through December 31, 1995, for the Cumulative Period From April 10, 1995 through June 30, 1997 (Unaudited), and for the Cumulative Period from April 10, 1995 through December 31, 1996 .................................................................... F-6 Consolidated Statements of Stockholders' Equity for the Period from April 10, 1995 (Date of Inception) through December 31, 1995, for the Year Ended December 31, 1996, and for the Six Months Ended June 30, 1997 (Unaudited) ............................................. F-7 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 (Unaudited), for the Year Ended December 31, 1996, for the Period from April 10, 1995 (Date of Inception) through December 31, 1995, for the Cumulative Period From April 10, 1995 through June 30, 1997 (Unaudited), and for the Cumulative Period from April 10, 1995 through December 31, 1996 .................................................................... F-9 Notes to Consolidated Financial Statements ...................................................... F-10 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES Report of Independent Certified Public Accountants ............................................. F-19 Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 1996 and 1995 ................................. F-20 Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1995............ F-21 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1995 and 1996 .......................................................................... F-22 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1995............ F-23 Notes to Consolidated Financial Statements ................................................... F-24
F-1 WORLD WIRELESS COMMUNICATIONS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS The unaudited pro forma consolidated financial statements present the acquisition of DRCC by the Company using the purchase method of accounting as if the acquisition had been consummated at January 1, 1996. Such information is derived from, and should be read in conjunction with, the separate historical consolidated financial statements of the Company and DRCC and notes thereto and other financial information appearing elsewhere herein. The unaudited pro forma consolidated statements of operations have been included for comparative purposes only and do not purport to be indicative of the results of operations which actually would have been obtained if the acquisition had been consummated at January 1, 1996 or the results of operations which may be obtained in the future. In addition, future results may vary significantly from the results reflected in these pro forma statements of operations due to normal market and industry activities.
FOR THE SIX MONTHS ENDED JUNE 30, 1997 World Digital Pro Forma Pro Forma Wireless Radio Adjustments Results ---------------- ----------------- ------------- ---------------- Sales ....................................... $ 1,875,494 $ 134,585 $ 2,010,079 Cost of sales .............................. 1,070,097 88,205 1,158,302 ------------ ------------- ------------ Gross profit .............................. 805,397 46,380 851,777 ------------ ------------- ------------ Research and development expense ............ 588,938 93,267 682,205 General and administrative expense ......... 1,476,596 91,973 1,568,569 Amortization of Goodwill .................. 279,963 --(A) $ 88,780 368,743 Interest expense ........................... 22,597 -- 22,597 ------------ ------------- ---------- ------------ Total expenses .............................. 2,368,094 185,240 88,780 2,642,114 ------------ ------------- ---------- ------------ Net loss .................................... $ (1,562,697) $ (138,860) $ (88,780) $ (1,790,337) ============ ============= ========== ============ Net loss per common share .................. $ (0.19) $ (0.21) ============ ============ Weighted average number of common shares used in per share calculation ...... 8,421,370 8,330,116 ============ ============ FOR THE YEAR ENDED DECEMBER 31, 1996 Sales ....................................... $ 618,505 $ 1,386,478 $ 2,004,983 Cost of sales .............................. 662,184 1,006,366 1,668,550 ------------ ------------- ------------ Gross profit .............................. (43,679) 380,112 336,433 ------------ ------------- ------------ Research and development expense ............ 92,932 440,125 533,057 General and administrative expense ......... 732,636 1,089,821 1,822,457 Amortization of Goodwill .................. -- --(A) $ 753,598 753,598 Interest expense ........................... 30,677 36,397 67,074 ------------ ------------- ---------- ------------ Total expenses .............................. 856,245 1,566,343 753,598 3,176,186 ------------ ------------- ---------- ------------ Loss from operations ........................ (899,924) (1,186,231) (753,598) (2,839,753) Benefit from income tax ..................... -- (13,718) -- (13,718) ------------ ------------- ---------- ------------ Net loss .................................... $ (899,924) $ (1,172,513) $ (753,598) $ (2,826,035) ============ ============= ========== ============ Net loss per common share .................. $ (0.25) $ (0.52) ============ ============ Weighted average number of common shares used in per share calculation ...... 3,601,750 5,399,850 ============ ============
- ------------ (A) To record the pro forma goodwill amortization adjustment to reflect the Company's amortization expense as if the acquisition had occurred on January 1, 1996. Goodwill is amortized over five years by the straight-line method. F-2 HANSEN, BARNETT & MAXWELL A Professional Corporation CERTIFIED PUBLIC ACCOUNTANTS (801) 532-2200 Member of AICPA Division of Firms Fax (801) 532-7944 Member of SECPS 345 East Broadway, Suite 200 Member of Summit International Associates Salt Lake City, Utah 84111-2693 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders World Wireless Communications, Inc. We have audited the accompanying consolidated balance sheets of World Wireless Communications, Inc. and subsidiaries (a development stage enterprise) as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 1996, for the period from April 10, 1995 (date of inception) through December 31, 1995, and for the cumulative period from April 10, 1995 through December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of World Wireless Communications, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the year ended December 31, 1996, for the period from April 10, 1995 (date of inception) through December 31, 1995, and for the cumulative period from April 10, 1995 through December 31, 1996, in conformity with generally accepted accounting principles. HANSEN, BARNETT & MAXWELL Salt Lake City, Utah March 7, 1997 F-3 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED BALANCE SHEETS ASSETS
December 31, June 30, ---------------------------- 1997 1996 1995 ------------- ------------- ------------ (Unaudited) Current Assets Cash ....................................... $ 707,120 $ 37,278 $ 29,682 Trade accounts receivables .................. 704,247 130,509 30,621 Other receivables (net of allowance) ...... 120,389 -- -- Inventory ................................. 422,206 159,881 60,656 Other assets .............................. -- 883 -- ----------- ---------- --------- Total Current Assets ..................... 1,953,962 328,551 120,959 ----------- ---------- --------- Equipment .................................... 1,279,625 448,237 339,693 Less accumulated depreciation ............ (212,556) (121,215) (38,853) ----------- ---------- --------- Net Equipment .............................. 1,067,069 327,022 300,840 ----------- ---------- --------- Other Assets Goodwill -- net ........................... 3,488,028 -- -- Non-compete agreement -- net ............... 72,112 -- -- Security deposit and other ............... 20,194 7,469 4,141 Organization costs, net ..................... 3,328 -- -- Investment in joint venture ............... 13,520 -- -- Investment in securities .................. 36,500 -- -- ----------- ---------- --------- Total Other Assets ........................ 3,633,682 7,469 4,141 ----------- ---------- --------- Total Assets ................................. $ 6,654,713 $ 663,042 $ 425,940 =========== ========== ========= (continued)
The accompanying notes are an integral part of these financial statements. F-4 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30, --------------------------- 1997 1996 1995 --------------- ------------ ------------ (Unaudited) Current Liabilities Trade accounts payable ................................. $ 355,899 $ 61,997 $ 31,256 Accrued liabilities .................................... 146,925 55,788 827 Notes payable and capital lease obligation -- current portion ............................................. 137,952 85,566 284,000 Non-compete obligation ................................. 102,604 -- -- Accrued settlement obligation ........................... 160,000 -- -- ------------ ---------- --------- Total Current Liabilities .............................. 903,380 203,351 316,083 Long-Term Liabilities Notes payable and capital lease obligation ............ 54,084 44,808 44,500 Deferred income taxes ................................. 546,465 -- -- ------------ ---------- --------- Total Liabilities .................................... 1,503,929 248,159 360,583 ------------ ---------- --------- Stockholders' Equity Preferred stock -- $0.001 par value; 1,000,000 shares authorized; no shares issued or outstanding ......... -- -- -- Common stock -- $0.001 par value; 50,000,000 shares authorized; 9,524,587, 5,663,000 and 1,132,140 shares issued and outstanding, respectively ......... 9,525 5,663 1,132 Additional paid-in capital ........................... 7,692,548 1,397,812 152,893 Deficit accumulated during the development stage ...... (2,551,289) (988,592) (88,668) ------------ ---------- --------- Total Stockholders' Equity ........................... 5,150,784 414,883 65,357 ------------ ---------- --------- Total Liabilities and Stockholders' Equity ............... $ 6,654,713 $ 663,042 $ 425,940 ============ ========== =========
The accompanying notes are an integral part of these financial statements. F-5 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months For the Ended June 30, Year Ended ------------------------------- December 31, 1997 1996 1996 ---------------- ------------- -------------- (Unaudited) (Unaudited) Sales ................................. $ 1,875,494 $ 339,283 $ 618,505 Cost of Sales ........................ 1,070,097 319,104 662,184 ------------ ---------- ----------- Gross Profit ........................... 805,397 20,179 (43,679) ------------ ---------- ----------- Expenses Research and development expense ...... 588,938 -- 92,932 General and administrative expense ... 1,476,596 294,992 732,636 Amortization of goodwill ............ 279,963 -- -- Interest expense ..................... 22,597 13,236 30,677 ------------ ---------- ----------- Total Expenses ..................... 2,368,094 308,228 856,245 ------------ ---------- ----------- Net Loss .............................. $ (1,562,697) $ (288,049) $ (899,924) ============ ========== =========== Net Loss Per Common Share ............ $ (0.19) $ (0.09) $ (0.25) ============ ========== =========== Weighted Average Number of Common Shares Used in Per Share Calculation ......... 8,421,370 3,049,484 3,601,750 ============ ========== =========== For the Period For the From April 10, Cumulative Periods 1995 (Date of From April 10, 1995 Inception) (Date of Inception) Through Through ------------------------------- December 31, June 30, December 31, 1995 1997 1996 ---------------- ---------------- ------------- (Unaudited) Sales ................................. $ 426,825 $ 2,920,824 $1,045,330 Cost of Sales ........................ 237,356 1,969,637 899,540 ---------- ------------ ----------- Gross Profit ........................... 189,469 951,187 145,790 ---------- ------------ ----------- Expenses Research and development expense ...... -- 681,870 92,932 General and administrative expense ... 278,137 2,487,369 1,010,773 Amortization of goodwill ............ -- 279,963 -- Interest expense ..................... -- 53,274 30,677 ---------- ------------ ----------- Total Expenses ..................... 278,137 3,502,476 1,134,382 ---------- ------------ ----------- Net Loss .............................. $ (88,668) $ (2,551,289) $ (988,592) ========== ============ =========== Net Loss Per Common Share ............ $ (0.10) $ (0.30) $ (0.31) ========== ============ =========== Weighted Average Number of Common Shares Used in Per Share Calculation ......... 854,640 8,421,370 3,209,306 ========== ============ ===========
The accompanying notes are an integral part of these financial statements. F-6 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit Accumulated Common Stock Additional During the Total ------------------------ Paid-in Development Stockholders' Shares Amount Capital Stage Equity ------------ --------- ------------ ------------- -------------- BALANCE -- APRIL 10, 1995 (Date of Inception) ........................... -- $ -- $ -- $ -- $ -- Shares issued for cash, April 10, 1995, $0.18 per share ........................... 1,020,000 1,020 338,980 -- 340,000 Shares issued for cash, June through November 1995, $0.05 to $0.23 per share .................................... 306,395 306 55,694 -- 56,000 Redemption of shares for $60,000 cash and a $209,000 promissory note, May through November 1995, $0.18 per share .................................... (600,000) (600) (268,400) -- (269,000) Shares issued for services, November 1995, $0.05 to $0.24 per share ............ 405,745 406 26,619 -- 27,025 Net Loss ................................. -- -- -- (88,668) (88,668) --------- ------- ---------- ----------- ---------- BALANCE -- DECEMBER 31, 1995................ 1,132,140 1,132 152,893 (88,668) 65,357 Shares issued upon conversion of notes payable, January 1996, $0.15 per share 1,892,860 1,893 273,107 -- 275,000 Shares issued for cash, less $12,000 in offering costs, March 1996, $0.70 per share .................................... 300,000 300 197,700 -- 198,000 Shares issued for services, March 1996, $0.70 per share ........................... 7,000 7 4,893 -- 4,900 Shares issued for cash, less $5,000 in offering costs, October to December 1996, $0.33 per share ..................... 1,800,000 1,800 593,200 -- 595,000 Shares issued for services October through November $0.33 per share ......... 520,000 520 171,080 -- 171,600 Shares issued for interest due on convert- ible debentures, December 1996, $0.45 per share ................................. 11,000 11 4,939 -- 4,950 Net loss ................................. -- -- -- (899,924) (899,924) --------- ------- ---------- ----------- ---------- BALANCE -- DECEMBER 31, 1996 ............... 5,663,000 $5,663 $1,397,812 $ (988,592) $ 414,883 ========= ======= ========== =========== ========== (Continued)
The accompanying notes are an integral part of these financial statements. F-7 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Deficit Accumulated Common Stock Additional During the Total ---------------------- Paid-in Development Stockholders' Shares Amount Capital Stage Equity ----------- --------- ------------ ---------------- -------------- BALANCE -- DECEMBER 31, 1996 ........................ 5,663,000 $ 5,663 $1,397,812 $ (988,592) $ 414,883 Shares issued for cash, January 15, 1997, $0.35 per share (unaudited) ................................. 557,857 558 194,692 -- 195,250 Shares issued upon conversion of note payable, January 15, 1997, $0.35 per share (unaudited) ...... 5,629 6 1,964 -- 1,970 Shares and 500,000 warrants (exercisable at $2.00 per share) issued for cash, February 12, 1997, $1.69 per share and $0.31 per warrant (unaudited) ....................................... 500,000 500 999,500 -- 1,000,000 Shares issued and 201,900 stock options granted in acquisition of Digital Radio Communications Corporation, February 12, 1997, $1.69 per share and $0.31 per option (unaudited) .................. 1,798,100 1,798 3,099,580 -- 3,101,378 Shares issued for cash upon exercise of warrants, March 6, 1997, $2.00 per share (unaudited) ......... 500,000 500 999,500 -- 1,000,000 Shares issued for cash, April 23, 1997, $2.00 per share (unaudited) ................................. 500,000 500 999,500 -- 1,000,000 Net loss (unaudited) .............................. -- -- -- (1,562,697) (1,562,697) ---------- -------- ----------- ------------ ------------ BALANCE -- JUNE 30, 1997 (Unaudited) ............... 9,524,587 $ 9,525 $7,692,548 $ (2,551,289) $ 5,150,784 ========== ======== =========== ============ ============
The accompanying notes are an integral part of these financial statements. F-8 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months For the Ended June 30, Year Ended ------------------------------- December 31, 1997 1996 1996 ---------------- ------------- -------------- (Unaudited) (Unaudited) Cash Flows From Operating Activities Net loss ................................. $ (1,562,697) $ (288,050) $ (899,924) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization ......... 371,304 40,155 83,094 Allowance provided on other receivables ........................... 35,000 -- -- Provision for settlement liability ...... 160,000 -- -- Stock issued for services ............... -- 4,900 176,500 Stock issued for interest ............ -- -- 4,950 Changes in operating assets and liabilities, net of effects of businesses acquired: Accounts receivable .................. (262,110) (34,521) (99,888) Other receivable ..................... (152,898) -- -- Other assets ........................... 2,896 (16,776) (883) Inventory .............................. (5,840) (12,617) (99,225) Accounts payable ..................... (80,016) 18,959 30,741 Accrued liabilities .................. (405,117) 39,390 54,965 ------------ ---------- ----------- Net Cash Used By Operating Activities .............................. (1,899,478) (248,560) (749,670) ------------ ---------- ----------- Cash Flows From Investing Activities Payment for acquisition of subsidiaries net of cash received -- net ............ (131,157) -- -- Payments for the purchase of property and equipment ........................ (404,382) (77,327) (90,544) Payment for other assets ............... -- -- (4,060) ------------ ---------- ----------- Net Cash Used By Investing Activities .... (535,539) (77,327) (94,604) ------------ ---------- ----------- Cash Flows From Financing Activities Redemption of common stock ............... -- -- -- Proceeds from issuance of common stock ................................. 3,195,250 116,500 171,500 Offering costs paid ..................... -- (12,000) (17,000) Proceeds from borrowings ............... 50,000 320,500 805,470 Proceeds from sale and lease back of equipment .............................. -- 80,500 80,500 Principal payments of debt ............... (120,752) (202,163) (188,600) Principal payments on capital lease obligations ........................... (19,639) -- -- ------------ ---------- ----------- Net Cash Provided By Financing Activities .............................. 3,104,859 303,337 851,870 ------------ ---------- ----------- Net Increase In Cash ..................... 669,842 (22,550) 7,596 Cash -- Beginning of Period ............ 37,278 29,682 29,682 ------------ ---------- ----------- Cash -- End of Period ..................... $ 707,120 $ 7,132 $ 37,278 ============ ========== ===========
For the Period From April 10, For the 1995 (Date of Cumulative Period Inception) From April 10, 1995 Through Date of Inception) Through December 31, June 30, December 31, 1995 1997 1996 ---------------- ---------------- ------------- (Unaudited) (Unaudited) Cash Flows From Operating Activities Net loss ................................. $ (88,668) $ (2,551,289) $ (988,592) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization ......... 38,853 493,251 121,947 Allowance provided on other receivables ........................... -- 35,000 -- Provision for settlement liability ...... -- 160,000 -- Stock issued for services ............... 27,025 203,525 203,525 Stock issued for interest ............ -- 4,950 4,950 Changes in operating assets and liabilities, net of effects of businesses acquired: Accounts receivable .................. (30,621) (392,619) (130,509) Other receivable ..................... -- (152,898) -- Other assets ........................... -- 2,013 (883) Inventory .............................. (14,799) (119,864) (114,024) Accounts payable ..................... 31,256 (18,019) 61,997 Accrued liabilities .................. 827 (349,325) 55,792 ---------- ------------ ----------- Net Cash Used By Operating Activities .............................. (36,127) (2,685,275) (785,797) ---------- ------------ ----------- Cash Flows From Investing Activities Payment for acquisition of subsidiaries net of cash received -- net ............ (340,000) (471,157) (340,000) Payments for the purchase of property and equipment ........................ (49,691) (544,617) (140,235) Payment for other assets ............... -- (4,060) (4,060) ---------- ------------ ----------- Net Cash Used By Investing Activities..... (389,691) (1,019,834) (484,295) ---------- ------------ ----------- Cash Flows From Financing Activities Redemption of common stock ............... (60,000) (60,000) (60,000) Proceeds from issuance of common stock ................................. 396,000 3,762,750 567,500 Offering costs paid ..................... -- (17,000) (17,000) Proceeds from borrowings ............... 125,000 980,470 930,470 Proceeds from sale and lease back of equipment .............................. 44,500 125,000 125,000 Principal payments of debt ............... (50,000) (359,352) (238,600) Principal payments on capital lease obligations ........................... -- (19,639) -- ---------- ------------ ----------- Net Cash Provided By Financing Activities .............................. 455,500 4,412,229 1,307,370 ---------- ------------ ----------- Net Increase In Cash ..................... 29,682 707,120 37,278 Cash -- Beginning of Period ............ -- -- -- ---------- ------------ ----------- Cash -- End of Period ..................... $ 29,682 $ 707,120 $ 37,278 ========== ============ ===========
Supplemental cash flow information and noncash investing and financing activities -- Note 6 The accompanying notes are an integral part of these financial statements. F-9 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information With Respect to June 30, 1997 and For the Six Months ended June 30, 1997 and 1996 is Unaudited) NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization -- On April 10, 1995 a group of investors contributed $340,000 in cash to form a joint venture (the Joint Venture). On the same day, the Joint Venture acquired substantially all of the assets and operations of Micro Security Systems, Inc. (Micro), a bankrupt company, at a sheriff's auction for $340,000 cash. The acquisition was accounted for by the purchase method of accounting. The purchase price was allocated to the assets acquired based upon their fair value: $45,857 to current assets and $294,143 to equipment and other long-term assets. The operations of the acquired business are included in the accompanying financial statements from the date of acquisition. Due to circumstances beyond the control of the Joint Venture, Micro continued to operate under the direction of the court-appointed trustee, using the Joint Venture's assets, until approximately November 1995. These operations, as far as they could be identified, have been included in the accompanying financial statements. Data Security Corporation (Data Security) was formed on November 15, 1995 under the laws of the State of Nevada. The Joint Venture was reorganized into Data Security in November 1995 by Data Security issuing 470,000 shares of common stock and agreeing to pay $269,000 to the owners of the Joint Venture. The transfer of the net assets and operations to Data Security was a transfer between enterprises under common control and has been accounted for at historical cost in a manner similar to that in pooling-of-interests accounting. The accompanying financial statements have been restated to reflect the common stock equivalents that would have been issued and redeemed from the dates of the original transactions with the owners of the Joint Venture based upon the shares that were exchanged in the transfer. Principles of Consolidation -- The consolidated financial statements include the accounts of World Wireless Communication, Inc. and its wholly owned subsidiaries, ECA Electronic Contract Assembly, Inc. (ECA), and Digital Radio Communications Corporation, which has subsidiaries, from the date of its acquisition. Intercompany accounts and transactions have been eliminated in consolidation. The consolidated entities are collectively referred to herein as "the Company". Nature of Business -- The Company and its subsidiaries design, develop and manufacture wired and wireless communications technology, systems and products, and provide contract manufacturing services to the electronics and wireless communications industry. Prior to the acquisition of Digital Radio the primary operations of the Company were centered around the design and manufacture of computer security products, which constituted most of the Company's sales for 1996 and 1995. Sales of these products were insignificant during 1997 and are not expected to be significant in the future. Name Change -- By shareholder action on January 15, 1997, the Company's name was changed from Data Security Corporation to World Wireless Communications, Inc. Business Condition -- The Company is in the development stage with its primary efforts being spent raising capital and developing markets. It has not had sales sufficient to meet its operating expenses and to generate income. It has sustained operating losses in the six months ended June 30, 1997, and for the years ended December 31, 1996 and 1995, and may require additional capital to continue operations. Management intends to obtain additional capital through issuance of common stock and has done so subsequent to both December 31, 1996 and June 30, 1997. During February 1997 the Company acquired Digital Radio. Management expects the acquisition will enhance the Company's profitability from operations. However, there is no assurance that profitable operations can be obtained or sustained. F-10 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued) Long-Lived Assets -- Effective January 1, 1996, the company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121). SFAS 121 requires that impairment losses be recorded when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The adoption of this standard in 1996 did not have a material impact on the Company's operating results, cash flows or financial position. Segment Information and Concentration of Risk -- Prior to 1997, the Company operated solely in the electronics industry primarily in the Western United States. Accordingly, segment information relating to operations in different industries or geographic areas is not presented in these financial statements. Beginning in 1997 the Company expanded its operations to include significant sales nationally and internationally. The concentration of business in one industry and one geographic area subjects the Company to a concentration of credit risk relating to trade accounts receivable. The Company generally does not require collateral from its customers with respect to the Company's trade receivables. Accounts Receivable and Major Customers -- A significant portion of the 1996 net sales were concentrated in a few significant customers. Thirty- four percent of sales in 1996, or $218,269, were to four customers. For the six months ended June 30, 1997, seventy and six tenths percent of sales, or $1,419,327 were to two customers under contracts which submit the Company to the risk that the Company may not be able to continue the current level of revenue due to loss of contracts. Due to the actual write off of accounts that were uncollectible at December 31, 1996 and 1995 and at June 30, 1997, an allowance for doubtful accounts was not required. Management estimates that the remaining balance of accounts receivable at December 31, 1996 and at June 30, 1997 will be collected. Inventory -- Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Research and Development Expense -- Current operations are charged with all research, engineering and product development expenses. Equipment -- Equipment is stated at cost. Depreciation, including amortization of leased assets, is computed using the straight-line method over the estimated useful lives of the equipment, which are five to seven years. Depreciation expense was $82,362 and $38,853 for the year ended December 31, 1996 and for the period from April 10, 1995 through December 31, 1995, respectively. Depreciation expense for the six months ended June 30, 1997 was $91,340. Maintenance and repairs of equipment are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of equipment, the cost and accumulated depreciation are eliminated from the accounts, and gain or loss is included in operations. Sales Recognition -- Sales are recognized upon delivery of products or services and acceptance by the customer. As a result of design and technology contracts the Comapny has a right to receive royalties which will be recognized upon the related sales by customers. Net Loss Per Common Share -- Net loss per common share is computed using the weighted average number of common shares outstanding. Stock options were-antidilutive at December 31, 1996 and at June 30, 1997, and were not included in the calculation of net loss per common share. 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 in these financial statements and accompanying notes. Actual results could differ from those estimates. F-11 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued) Stock Based Compensation -- During 1996, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation. Under the provisions of SFAS 123, the Company can elect to account for stock-based compensation plans and options using a fair-value-based method, or it can continue to measure compensation costs for those plans using the intrinsic method prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees. The Company has elected to continue to account for such plans under the provisions of APB No. 25. Interim Condensed Financial Statements -- The accompanying consolidated financial statements at June 30, 1997 and for the periods ended June 30, 1997 and 1996 are unaudited. In the opinion of management, all necessary adjustments (which include only normal recurring adjustments) have been made to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the six month period ended June 30, 1997 are not necessarily indicative of the operating results to be expected for the full year. NOTE 2 -- BUSINESS COMBINATION AND ACQUISITION ECA was incorporated on October 24, 1996 under the laws of the State of Nevada. ECA had no operations or assets and had made efforts toward the development of business relating to the assembly of printed circuit boards and wire/cable harnesses. Effective October 28, 1996, the Company acquired all of ECA's outstanding common stock and employed two ECA officers, by issuing 500,000 shares of common stock. This business combination was accounted for using the purchase method of accounting. However, the Company received no assets from the ECA acquisition. Accordingly, the shares issued were deemed to represent compensation to the two new officers in the amount of $165,000, or $0.33 per share, based on prices for which shares of common stock were issued for cash during the same time period. ECA did not have any operations prior to the acquisition. Its operations have been included in the accompanying financial statements from the date of acquisition. On February 12, 1997, a majority of the shareholders of Digital Radio Communications Corporation (Digital Radio) accepted an offer from the Company (World Wireless) to merge Digital Radio into a newly-formed subsidiary of World Wireless. The Digital Radio shareholders agreed to exchange each of their common shares for 0.5577349 common shares of World Wireless, which resulted in World Wireless issuing 1,798,000 shares of common stock. In addition, holders of Digital Radio stock options exchanged each of their options for 0.5577349 of World Wireless stock options, which resulted in World Wireless issuing options to purchase 201,900 shares of common stock exercisable at $2.00 per share. The merger has been accounted for using the purchase method of accounting. The purchase price, based upon the fair value of the common shares and stock options issued, was $3,101,378. Goodwill in the amount of $3,766,175 was recognized from the acquisition and is being amortized over five years by the straight-line method. F-12 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 2 -- BUSINESS COMBINATION AND ACQUISITION -- (Continued) Although the merger agreement was not executed until May 21, 1997, the acquisition was effective for financial reporting purposes on February 12, 1997, which was the date of approval by the World Wireless Board of Directors and by a majority of the Digital Radio shareholders. The accompanying condensed consolidated financial statements include the accounts and operations of Digital Radio from February 12, 1997, and includes the shares to be issued at the closing of the acquisition as though such shares had been issued on that date. Pro forma results of operations, had the acquisition occurred January 1, 1996, are as follows: For the Six Months For the Ended Year Ended June 30, December 31, 1997 1996 -------------- -------------- (Unaudited) (Unaudited) Sales ........................... $ 2,010,079 $ 2,016,805 Net Loss ........................ (1,790,337) (2,832,443) Net Loss per Common Share ...... (0.21) (0.52) NOTE 3 -- INVENTORY Inventory consists of the following: December 31, June 30, ----------------------- 1997 1996 1995 ----------- ----------- --------- Materials ............ $ 180,716 $ 20,935 $ -- Work in process ...... 241,940 138,946 60,656 ---------- ---------- --------- Total ............... $ 422,206 $ 159,881 $ 60,656 ========== ========== ========= NOTE 4 -- EQUIPMENT Equipment consists of the following: December 31, June 30, ---------------------- 1997 1996 1995 ------------ ----------- -------- Computer equipment .......$ 174,123 $ 68,440 $ 55,216 Telephone equipment .... 91,786 31,273 22,873 Office equipment ....... 54,364 29,995 26,042 Manufacturing equipment . 852,436 308,458 225,491 Furniture and fixtures . 16,906 10,071 10,071 Software ................ 90,010 -- -- ----------- ---------- --------- Total ...................$1,279,625 $ 448,237 $339,693 =========== ========== ========= NOTE 5 -- OBLIGATION UNDER NON-COMPETE AGREEMENT In connection with Digital Radio's acquisition of a subsidiary, Dem-Tronics, in 1995, Digital Radio entered into a non-compete agreement with the seller. The agreement originally called for a series of yearly minimum payments to be increased by a contingent amount based on Dem-Tronics' sales volume. The payment plan was accelerated through a renegotiated agreement in September 1997 whereby the contingent payments were eliminated and the minimum payments increased in both amount and frequency of payment. The new agreement is for $110,000 to be paid in four monthly payments beginning September 15, 1997 of $27,500 each. Interest on the minimum obligation has been imputed at 10 percent, resulting in a total present value at June 30, 1997 of $102,604. F-13 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 6 -- ACCRUED SETTLEMENT OBLIGATION Subsequent to June 30, 1997 the Company reached an informal settlement with an otherwise unrelated joint venture partner over a suit filed by the partner against the Digital Radio and its major customers. The suit asserted claims that the joint venture had an interest in the technology which Digital Radio used in products sold to those customers. Digital Radio strongly disputed the partners interest in the technology at issue. The settlement offer was made in an effort to minimize the time and expense of protracted litigation, as well as to maintain its good customer relations. The Company has recorded a current liability of $160,000 as a preliminary estimate for the costs associated with the proposed settlement. The proposed settlement would release all claims against the Company and allow the Company unlimited use of the technology. NOTE 7 -- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
December 31, June 30, ---------------------------- 1997 1996 1995 ------------- ------------ ------------- Payable to stockholders for working capital; no stated interest; amount was converted to stock in 1996 ................................................ $ -- $ -- $ 125,000 Promissory note incurred in connection with stock redemption; paid in 1996; interest at 10% per annum ............................................. -- -- 159,000 Notes payable for equipment; interest at 10%; collateralized by equipment; paid during 1997 ...... -- 3,404 -- Payable due to shareholder for working capital; no stated interest; the note was converted to stock in January 1997 ....................................... -- 1,970 -- Capital lease obligations for equipment purchases, with various interests rates ranging from 7 to 21 percent. Minimum monthly payments are $4,560 ......... 105,639 -- -- Note payable to a shareholder for equipment; interest at 15%; due in payments of $7,798 through September 1998; secured by equipment and personally guaranteed by two stockholders ...... 86,397 125,000 44,500 ---------- --------- ---------- Total Notes Payable and Capital Lease Obligations .......................................... 192,036 130,374 328,500 Less: Current Portion .............................. (137,952) (85,566) (284,000) ---------- --------- ---------- Long-Term Notes Payable and Capital Lease Obligations ....................................... $ 54,084 $ 44,808 $ 44,500 ========== ========= ==========
F-14 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 7 -- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS -- (Continued) The annual maturities of the notes payable at June 30, 1997 and December 31, 1996 were as follows: June 30, December 31, 1997 1996 ---------- ------------- Year Ending: 1997 ...... $ 41,589 $ 85,566 1998 ...... 44,808 44,808 The following is a schedule by years of the future minimum payments required under capital leases together with the present value of the net minimum lease payments. There were no future minimum lease payments as of December 31, 1996, future minimum lease payments as of June 30, 1995 were: Years Ending December 31: 1997 .......................................... $ 27,357 1998 .......................................... 54,714 1999 .......................................... 45,830 2000 .......................................... 9,021 2001 .......................................... 696 --------- Total minimum lease payments ..................... 137,618 Less: Amount representing interest ............... (31,979) --------- Present value of net minimum lease payments ...... $ 105,639 ========= NOTE 8 -- INCOME TAXES There was no provision for or benefit from income tax for any period. The components of the deferred tax asset are shown below: December 31, --------------------------- 1996 1995 ------------ ------------ Operating Loss Carryforwards ...... $ 302,167 $ 22,372 Compensated absences ............... 3,807 -- ---------- --------- Total Deferred Tax Assets ......... 305,974 22,372 Valuation Allowance ............... (305,974) (22,372) ---------- --------- Net Deferred Tax Asset ............ $ -- $ -- ========== ========= The Company had operating loss carry forwards at December 31, 1996 of $965,725 which expire in 2010 through 2011, if unused. F-15 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 9 -- SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND FINANCING ACTIVITIES For the Year Ended For the Six December 31, Months Ended ------------------ June 30, 1997 1996 1995 --------------- --------- ----- Taxes Paid ......... $ -- $ -- $ -- Interest Paid ...... $ 8,186 $ 30,677 $ -- Supplemental Disclosure of Noncash Investing and Financing Activities -- For the period from April 10, 1995, through December 31, 1995, 1,494,444 shares of common stock were redeemed for $60,000 in cash and a $209,000 note payable. Also, 405,575 shares of common stock valued at $27,025 were issued for services. For the year ended December 31, 1996, $143,000 of debt was issued, of which $125,000 was to a stockholder, to acquire equipment. Notes payable in the amount of $275,000 were converted to stock. Stock valued at $176,500 was issued for services and stock valued at $4,950 was issued for interest due on debentures. During January, 1997 the Company converted $1,907 in long-term debt into 5,629 shares of common stock at $0.35 per share. During February 1997, the Company issued 1,798,100 shares of common stock and 201,900 stock options in exchange for all of the issued and outstanding common stock of Digital Radio Communications Corporation and Subsidiaries. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired .................. $ 5,719,387 Common stock issued and acquisition costs incurred (3,101,378) ------------ Liabilities Assumed ........................... $ 2,618,009 ============ During June 1997, the Company accrued a $160,000 obligation to a joint venture partner in connection with the settlement of a dispute. In exchange the Company would receive a release of certain claims asserted by the joint venture partner against the Company. NOTE 10 -- STOCKHOLDERS' EQUITY On February 12, 1997 the Company issued 500,000 units at $2.00 per unit in a private placement offering with each unit consisting of one share of common stock and one warrant. Each warrant entitled the holder to purchase one share of common stock at $2.00 per share. The 500,000 warrants were exercised on March 6, 1997 and resulted in proceeds of $1,000,000. NOTE 11 -- STOCK OPTIONS In December 1996, the Company granted options to an employee, a former member of the Board of Directors and a consultant to purchase 258,000 shares of restricted common stock at $0.33 per share. In January 1997, the consultant was granted an additional option to purchase 150,000 shares at $0.35 per share. The options may be exercised until June 30, 1998. The exercise price approximated the market value of the stock at the date of grant. In connection with the acquisition of Digital Radio, the Company assumed Digital Radio's stock option plans and granted options to the former shareholders and employees of Digital Radio to purchase 201,900 shares of common stock at a weighted average price of $1.90 per share through December 20, 2001. F-16 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 11 -- STOCK OPTIONS -- (Continued) The Board of Directors have approved the 1997 Stock Option Plan, subject to shareholder approval, which authorizes the issuance of 1,500,000 options. No options have been issued under the plan. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997 and 1996, respectively: dividend yield of 0.0 percent for both periods; expected volatility of 121.1 and 173.1 percent; risk-free interest rates of 5.2 and 5.0 percent; and expected lives of 2.4 and 1.5 years. A summary of the status of the Company's stock options as of June 30, 1997 and December 31, 1996, and changes during the periods then ended is presented below:
June 30, 1997 December 31, 1996 ------------------------------ ------------------------------ Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price --------- ------------------ ---------- ----------------- Outstanding at beginning of period ............... 258,000 $ 0.33 -- Granted .......................................... 351,900 1.30 258,000 $ 0.33 -------- --------- Outstanding at end of period ..................... 609,900 0.89 258,000 0.33 ======== ========= Options exercisable at period-end ............... 550,650 $ 0.91 258,000 $ 0.33 ======== ========= Weighted-average fair value of options granted dur- ing the period $ 0.28 $ 0.24 ======== =========
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its options and plans. Accordingly, no compensation cost has been recognized from the stock options granted. Had compensation costs for the Company's options been determined based on the fair value at the grant dates consistent with the method of SFAS 123, net loss and loss per share would have increased to the pro forma amounts indicated below: Year Ended Six Months December 31, Ended June ------------------------------ 30, 1997 1996 1995 ---------------- -------------- ------------- Net loss: As reported ...... $ (1,562,697) $ (899,924) $ (88,668) Pro forma ......... (1,661,229) (961,354) (88,668) Loss per share: As reported ...... $ (0.19) $ (0.25) $ (0.10) Pro forma ......... (0.20) (0.26) (0.10) NOTE 12 -- SUBSEQUENT EVENTS On August 8, 1997, 500,000 shares of common stock were issued for $1,000,000, or $2.00 per share. The Board of Directors approved a stock option plan in October 1997. Options to purchase 1,500,000 shares of common stock are authorized under the plan, subject to shareholders' approval. No options have yet been granted under the plan, but such is anticipated prior to December 31, 1997. Subsequent to June 30, 1997, option holders exercised options to purchase 10,931 shares of common stock at a weighted average exercise price of $0.14 per share. F-17 WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES (A Development Stage Enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 13 -- COMMITMENTS AND CONTINGENCIES The Company leases office and production facilities in Salt Lake City and American Fork, Utah. The leases are accounted for as operating leases. Lease expense under these agreements for 1996 and 1995 were $123,779 and $59,096, respectively. These lease terms end in May and June 1998. The Company also assumed lease commitments in the merger with Digital Radio for three vehicles under operating lease agreements. Future minimum rental payment commitments under facility and vehicle leases by years as of December 31, 1996 are as follows: Facilities Vehicles ------------ --------- Year Ending December 31: 1997 ........................... $ 253,380 $ 19,238 1998 ........................... 115,424 9,096 ---------- --------- Total Minimum Payments Required ...... $ 368,804 $ 28,334 ========== ========= Although action has not been initiated, the Company's former Chief Financial Officer has threatened litigation against the Company following his resignation from that office and as a director of the Company in October 1997. The resignation was the result of a dispute over compensation involving, among other things, a claim by the former officer and director that the Company had agreed to grant him options to purchase 275,000 shares of the Company's Common Stock at a price of $2.00 per share in connection with his employment, and had later disaffirmed such obligation. Because of the number of shares involved in this unasserted claim, and the difference between the current market price for the Company's Common Stock and the exercise price of the options claimed, the expense to the Company for financial reporting purposes would be material if the former officer should initiate and prevail in litigation over these claims. The Company intends to vigorously defend any such action. F-18 HANSEN, BARNETT & MAXWELL A Professional Corporation CERTIFIED PUBLIC ACCOUNTANTS (801) 532-2200 Member of AICPA Division of Firms Fax (801) 532-7944 Member of SECPS 345 East Broadway, Suite 200 Member of Summit International Associates Salt Lake City, Utah 84111-2693 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders Digital Radio Communications Corporation We have audited the accompanying consolidated balance sheets of Digital Radio Communications Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Digital Radio Communications Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a working capital deficiency and a net capital deficiency at December 31, 1996, and has incurred a loss from operations and negative cash flows from operating activities during the year ended December 31, 1996. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans and subsequent events regarding those matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. HANSEN, BARNETT & MAXWELL Salt Lake City, Utah March 4, 1997, except for the second paragraph of Note 2, as to which the dateis September 15, 1997 F-19 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
December 31, ------------------------------ 1996 1995 -------------- ------------- Current assets Cash ..................................................................... $ 1,854 $ 4,981 Trade accounts receivables ............................................. 258,016 290,460 Other accounts receivable ................................................ 82,340 160,000 Inventory ............................................................... 308,496 175,043 Prepaid expenses ......................................................... 15,328 11,748 Deferred income taxes ................................................... 69,738 41,316 ------------ ---------- Total current assets ................................................ 735,772 683,548 ------------ ---------- Property and equipment ................................................... 611,422 485,642 Less accumulated depreciation .......................................... (192,964) (76,297) ------------ ---------- Net property and equipment .......................................... 418,458 409,345 ------------ ---------- Other assets Capitalized financing costs ............................................. 18,000 -- Purchased technology, net of accumulated amortization .................. -- 9,230 Investment in joint venture, which principally owns a patent, net of amortization ......................................................... 13,520 16,900 Investment in securities ................................................ 36,500 30,000 Goodwill, net of amortization .......................................... 72,112 33,985 ------------ ---------- Total other assets ................................................... 140,132 90,115 ------------ ---------- Total Assets ............................................................ $ 1,294,362 $1,183,008 ============ ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Checks written in excess of cash in bank ................................. $ 2,921 $ 12,992 Trade accounts payable ................................................... 447,612 207,195 Accrued liabilities ...................................................... 430,824 229,921 Accrued income taxes ................................................... 722 16,967 Notes payable ............................................................ 3,405 66,624 Notes payable to related parties ....................................... 162,540 119,503 Obligation under capital leases -- current portion ..................... 73,902 72,753 Obligation under non-compete agreement ................................. 101,475 71,571 ------------ ---------- Total current liabilities ............................................. 1,223,401 797,526 ------------ ---------- Long-term liabilities Obligation under capital leases .......................................... 73,562 75,306 Deferred income taxes ................................................... 43,801 39,731 Convertible debentures ................................................... 100,000 -- ------------ ---------- Total long-term liabilities .......................................... 217,363 115,037 ------------ ---------- Stockholders' equity (deficit) Preferred stock -- $0.01 par value; 2,000,000 shares authorized; no shares issued ............................................................... -- -- Common stock -- $0.01 par value; 10,000,000 shares authorized; 3,049,814 shares and 2,550,000 shares issued and outstanding ......... 30,498 25,500 Additional paid-in capital ............................................. 1,028,500 505,672 Receivable from shareholders ............................................. -- (151,000) Deferred offering costs ................................................ -- (76,840) Accumulated deficit ...................................................... (1,205,400) (32,887) ------------ ---------- Total stockholders' equity (deficit) ................................. (146,402) 270,445 ------------ ---------- Total Liabilities and Stockholders' Equity (Deficit) ..................... $ 1,294,362 $1,183,008 ============ ==========
The accompanying notes are an integral part of these financial statements. F-20 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---------------- ------------ Sales ................................................... $ 1,386,478 $ 1,638,559 Cost of sales .......................................... 1,006,366 1,120,293 ------------ ------------ Gross profit ............................................. 380,112 518,266 ------------ ------------ Expenses Research and development expense ........................ 440,125 117,081 General and administrative expenses ..................... 1,089,821 341,427 Interest expense ....................................... 36,397 20,301 ------------ ------------ Total expenses ....................................... 1,566,343 478,809 ------------ ------------ Income (loss) before income taxes ........................ (1,186,231) 39,457 Provision for (benefit from) income taxes ............... (13,718) 8,669 ------------ ------------ Net Income (Loss) ....................................... $ (1,172,513) $ 30,788 ============ ============ Net Income (Loss) Per Common Share ..................... $ (0.42) $ 0.01 ============ ============ Weighted average number of common shares used in per share calculation ............................................. 2,818,250 2,212,884 ============ ============
The accompanying notes are an integral part of these financial statements. F-21 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Total Common Stock Additional Stockholders' ----------------------- Paid-In Accumulated Equity Shares Amount Capital Deficit Other (Deficit) ----------- ---------- ------------- ---------------- ------------- -------------- Balance -- December 31, 1994 ......... 2,200,000 $ 22,000 $ (19,010) $ (63,675) $ -- $ (60,685) Issuance to acquire EMA Inc., $3.12 per share, April 1, 1995 ...... 11,000 110 17,072 -- -- 17,182 Issuance of shares, at $4.00 per share, December 29, 1995 ............ 5,000 50 9,950 -- -- 10,000 Issuance of shares, at $3.00 per share, December 30, 1995 and subscription receivable ............ 334,000 3,340 497,660 -- (151,000) 350,000 Deferred offering costs incurred ... -- -- -- -- (76,840) (76,840) Net income for year ending December 31, 1995 .................. -- -- -- 30,788 -- 30,788 ---------- --------- ----------- ------------ ---------- ------------ Balance -- December 31, 1995 ......... 2,550,000 25,500 505,672 (32,887) (227,840) 270,445 Issuance for cash, $1.53 per share, January through April 1996 ......... 71,666 717 109,283 -- -- 110,000 Collection of subscription receivable ........................ -- -- -- -- 151,000 151,000 Issuance upon exercise of options .... 191,000 1,910 7,335 -- -- 9,245 Issuance for services ............... 20,000 200 27,400 -- -- 27,600 Issuance of shares upon conversion of debentures ..................... 21,748 217 49,783 -- -- 50,000 Issuance of shares for cash in private placement offering, net of $147,519 offering costs ......... 195,400 1,954 329,027 -- 76,840 407,821 Net loss for the year ended December 31, 1996 .................. -- -- -- (1,172,513) -- (1,172,513) ---------- --------- ----------- ------------ ---------- ------------ Balance -- December 31, 1996 ......... 3,049,814 $ 30,498 $ 1,028,500 $ (1,205,400) $ -- $ (146,402) ========== ========= =========== ============ ========== ============
The accompanying notes are an integral part of these financial statements. F-22 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995
1996 1995 ---------------- ------------ Cash Flows From Operating Activities Net income (loss) ................................................ $ (1,172,513) $ 30,788 Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization ................................. 144,697 67,135 Compensation paid with common shares ........................... 27,600 -- Compensation paid with notes payable ........................... 43,037 -- Trade receivable collected with investment securities ............ (6,500) (30,000) Changes in operating assets and liabilities, net of effects of businesses acquired: Accounts receivable .......................................... 32,444 (211,568) Other accounts receivable .................................... (82,340) -- Inventory ................................................... (133,453) (110,501) Accounts payable ............................................. 240,417 98,186 Accrued liabilities .......................................... 174,966 129,789 Accrued income taxes .......................................... (16,245) 10,100 Other ......................................................... 1,385 2,096 ------------ ---------- Net cash used by operating activities ........................... (746,505) (13,975) ------------ ---------- Cash flows from investing activities Payments for the purchase of property and equipment ............... (62,980) (53,846) Increase in deposits ............................................. -- (4,090) Investment in patent ............................................. -- (16,900) Cash received in acquisitions .................................... -- 60,417 ------------ ---------- Net cash used by investing activities .............................. (62,980) (14,419) ------------ ---------- Cash flows from financing activities Proceeds from issuance of common stock ........................... 527,066 200,000 Collection of receivables from shareholders for common stock ...... 311,000 -- Proceeds from issuance of convertible debentures, net of $18,000 in financing costs paid ............................................. 132,000 -- Net payment on short-term obligations ........................... (10,071) (26,787) Principal payments on notes payable .............................. (71,160) (33,150) Principal payments on obligation under capital lease ............... (55,454) (40,615) Payments on non-compete obligation ................................. (27,023) (28,800) Payment of deferred offering costs ................................. -- (76,840) ------------ ---------- Net cash provided by (used in) financing activities ............... 806,358 (6,192) ------------ ---------- Net decrease in cash ................................................ (3,127) (34,586) Cash -- beginning of year .......................................... 4,981 39,567 ------------ ---------- Cash -- end of year ................................................ $ 1,854 $ 4,981 ============ ==========
Supplemental cash flow information and noncash investing and financing activities -- Note 11 The accompanying notes are an integral part of these financial statements. F-23 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Digital Radio Communications Corporation and subsidiaries (the Company), began business in 1992. On March 15, 1996, its name was changed from Electronic Technology Corp. It designs and manufactures electronic products, including radio frequency and infrared systems, embedded control, low power FM transceivers and antenna technologies. It provides research and design services on a contract basis for others and it is also engaged in contract manufacture of electronic components. Principles of Consolidation The consolidated financial statements include the accounts of Digital Radio Communications Corporation and its wholly owned subsidiaries, EMA Inc. and Dem-Tronics, Inc., since the date of their respective acquisitions, after elimination of intercompany accounts and transactions. Investments in unconsolidated joint ventures, which relate primarily to research and development ventures, are accounted for using the equity method. The Company's share of losses from its equity investments are included in "Research and development expense" in the consolidated statements of operations. Business Condition The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company sustained a substantial operating loss during the year ended December 31, 1996. Further, at December 31, 1996 current liabilities exceeded current assets by $494,037 and total liabilities exceeded total assets by $152,810. These matters raise substantial doubt about the Company's ability to continue as a going concern; however the financial statements do not include any adjustments that might result from the outcome of this uncertainty. To mitigate these factors, in 1997, the Company obtained $1,380,000 of short-term debt financing under a bridge loan from World Wireless Communications, Inc. and obtained additional capital financing by merging with World Wireless Communications, Inc. Also in the first four months of 1997, approximately $2,000,000 of revenue was earned or was committed under short-term contracts with customers. However, there is no assurance that this additional capital and future revenues can meet the Company's obligations and its production and operating expenses as they become due. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Segment Information and Concentration of Risk Through 1996, the Company operated solely in the electronics industry primarily in the Western United States. Accordingly, segment information relating to operations in different industries or geographic areas is not presented in these financial statements. The concentration of business in one industry and one geographic area subjects the Company to a concentration of credit risk relating to trade accounts receivable. The Company generally does not require collateral from its customers with respect to the Company's trade receivables. Beginning in 1997, the Company has expanded its operations to include significant sales nationally and internationally. F-24 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued) Major Customers Sales to two customers were each in excess of 10% of total sales during 1996 and 1995. Sales to the first customer were $249,123 and $121,635 in 1996 and 1995, respectively, and were $591,000 and $324,000, respectively, to the second customer. In 1997, contracts with several additional significant customers have been signed. Accounts Receivable Due to the actual write off of accounts that were uncollectible at December 31, 1996 and 1995, an allowance for doubtful accounts was not required. Management believes that the remaining accounts receivable are fully collectible. Trade accounts receivable included $95,000 at December 31, 1996, which was subsequently collected by receiving shares of customers' common stock, as prescribed in the related performance contracts. Inventory Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Long-Lived Assets Beginning in 1996, the Company adopted Statement of Financial Accounting Standard 121 (SFAS 121) which requires Management to review long-lived assets and the related intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability is determined by an analysis of undiscounted future cash flows from operations related to those assets. If the related operations are determined to be unable to recover the carrying amount of its assets, then the assets are written down to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. The adoption of SFAS 121 did not result in an adjustment to the carrying amount of assets during 1996. Equipment Property and equipment are stated at cost. Depreciation, including amortization of leased assets, is computed using the straight-line method over the estimated useful lives of the equipment, which is five years. Maintenance and repairs of equipment are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of equipment, the cost and accumulated depreciation are eliminated from the accounts, and gain or loss is included in operations. Investments Investments in equity securities for which the Company cannot sell those securities for a period in excess of one year, due to restrictions from securities regulation, are carried at historical cost and are classified as non-current assets. Sales Recognition Sales are recognized upon delivery of products or services and acceptance by the customer. Research and Development Expense Current operations are charged with all research, engineering and product development expenses. F-25 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued) Net Income (Loss) Per Common Share Net income (loss) per share is computed using the weighted average number of common shares outstanding during each period. NOTE 2 -- ACQUISITIONS On April 1, 1995, the outstanding common stock of EMA Inc. (EMA), an electronic component assembler, was purchased for $30,430. The Company paid $13,258 in cash (including acquisition costs) and issued 5,500 shares of common stock valued at $17,172. The owner of EMA did not own a controlling interest in the Company; accordingly, the acquisition has been accounted for using the purchase method of accounting. Assets were recorded at fair value. The results of operations of EMA are included in the consolidated financial statements from the date of acquisition. On August 1, 1995 the Company acquired the net assets of Dem-Tronics, Inc., an electronic component assembler, for $175,328. The Company executed a non-interest bearing promissory note to the seller for $62,724 payable in January 1996. Additionally, the Company executed a non-compete agreement which initially required a series of yearly minimum payments, to be increased by a contingent amount based on Dem-Tronics sales volume. The payment plan was accelerated through a subsequently re-negotiated agreement whereby the contingent payments were replaced with higher minimum payments due in entirety by December 15, 1997. The new payments total $137,023. With imputed interest at 10%, the resulting present value of the obligation was $128,498 at the date of acquisition. Since the owners of Dem-Tronics did not receive a controlling interest in the Company, the acquisition was accounted for using the purchase method of accounting. The results of operations of Dem-Tronics are included in the consolidated financial statements from the date of acquisition. The fair value of the net assets acquired was $72,724 which is net of liabilities incurred and assumed of $101,743. The excess of the purchase price over the fair value of the identifiable assets was $94,001 and was allocated to goodwill. Goodwill is being amortized over five years on a straight-line basis. Goodwill amortization expense was $18,800 and $3,089 for the years ended December 31, 1996 and 1995, respectively. Pro forma results of operations for the year ended December 31, 1995, as if the acquisitions were effective January 1, 1995, are as follows (unaudited): Revenue ..................... $1,998,021 Net Income .................. 39,888 Income Per Common Share ...... 0.02 NOTE 3 -- OTHER RECEIVABLES AND RECEIVABLE FROM SHAREHOLDER In 1996, other receivables included loans to employees of $7,768 for payroll advances and a receivable from a partner in a joint venture for engineering services under the joint venture agreement. These amounts were received subsequent to year end. Other receivables also included a receivable from a customer which retained $35,000 for a project that is pending completion, once a third party provides necessary software. Other receivables at December 31, 1995 consist of subscriptions for the Company's common shares subscribed for during 1995. Total subscriptions at December 31, 1995 were $311,000, of which $160,000 was received by April 8, 1996, and was recorded as a current asset. The balance of $151,000 was recorded as an offset against additional paid-in capital on the balance sheet and was collected in 1996. F-26 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 4 -- INVENTORY Inventory consists of the following at December 31: 1996 1995 ----------- --------- Materials .................... $ 131,983 $ 84,403 Work in process .............. 176,513 90,640 ---------- --------- Total ....................... $ 308,496 $175,043 ========== ========= NOTE 5 -- PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31: 1996 1995 ----------- --------- Computer equipment ............ $ 32,102 $ 26,526 Electronic equipment ......... 131,977 125,117 Office equipment ............... 7,955 6,313 Manufacturing equipment ...... 373,832 295,447 Furniture and fixtures ......... 13,738 13,738 Software ..................... 51,818 18,501 ---------- --------- Total ........................ $ 611,422 $485,642 ========== ========= Depreciation expense, which includes amortization of assets under capital lease, was $116,667 and $42,900 for the years ended December 31, 1996 and 1995, respectively. NOTE 6 -- RELATED PARTIES TRANSACTIONS Notes payable to related parties consisted of the following:
1996 1995 ----------- ---------- Payable to officers for deferred compensation, no terms for repayment, unsecured ............................................. $ 124,962 $ 61,370 Notes payable to shareholders, no terms for repayment, no stated interest rate at December 31, 1996 ................................. 8,828 10,863 Loan payable to an officer, no terms for repayment, unsecured ...... 28,750 27,000 Loans payable to employees, unsecured, paid during 1996 ............ -- 20,270 ---------- ---------- Total ............................................................... $ 162,540 $ 119,503 ========== ==========
The Company has entered into a line of credit agreement with AAH Development Company, Inc. The maximum amount available under the line of credit was $200,000 with $5,000 borrowed at December 31, 1995, and included above in notes payable to shareholders. The note had a 10% annual interest rate. The note was repaid January 1996. F-27 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 7 -- NOTES PAYABLE Notes payable consisted of the following:
1996 1995 ----------- --------- Note payable to an individual, secured by Dem-Tronics common stock, paid in 1996 ....................................... $ -- $ 62,724 Other notes payable, various terms ........................ 3,405 3,900 Convertible debentures payable, interest at 12%, due September 1998, unsecured ............................................. 100,000 -- ---------- --------- Total notes payable .......................................... 103,405 66,624 Less current portion ....................................... 3,405 66,624 ---------- --------- Convertible Debentures - Long-Term ........................... $ 100,000 $ -- ========== =========
During 1996, the Company issued notes payable in the amount of $150,000; these notes were convertible into common stock at a ratio of 289.96 shares per $1,000 principal amount of notes. On December 6, 1996, $50,000 of these notes were converted to common stock for 14,498 shares, leaving a remaining balance of $100,000 of notes payable. Interest is due at 12%, and the notes are due September 1998. Subsequent to year end, the Company issued additional convertible notes payable for $75,000. All of the outstanding debentures were converted to common stock, although the Company amended the terms of its notes to increase the conversion ratio to 434.94 shares per $1,000 of principal amount. In 1997, the Company converted $175,000 of debt into 83,369 shares of common stock (including 7,249 shares for notes converted prior to the 1997 amendment). NOTE 8 -- OBLIGATION UNDER NON-COMPETE AGREEMENT In connection with the acquisition of Dem-Tronics (see Note 2) the Company entered into a non-compete agreement with the seller. The remaining liability on the agreement is $110,000, imputed interest at 10 percent is $7,936 for a carrying amount of $102,604, payable in four monthly payments beginning September 15, 1997 of $27,500 each. NOTE 9 -- LEASE COMMITMENTS Capital Leases The Company has leased equipment under capital lease agreements, and has capitalized lease equipment of $268,847 and $214,151 as of December 31, 1996 and 1995, respectively. During 1996, the Company leased additional equipment with a capitalized value of $54,696. During 1995, the Company received capital lease equipment capitalized in the amount of $55,562 in connection with the acquisitions described in Note 2, and leased additional equipment with a capitalized value of $126,669. Accumulated amortization on all leased equipment was $55,935 and $18,400 at December 31, 1996 and 1995, respectively. Amortization of leased equipment is included with depreciation expense. F-28 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 9 -- LEASE COMMITMENTS -- (Continued) The following is a schedule by years of the future minimum lease payments required under capital leases together with the present value of the net minimum lease payments as of December 31, 1996: Years Ending December 31: - ------------------------- 1997 .......................................... $ 102,038 1998 .......................................... 49,870 1999 .......................................... 41,985 2000 .......................................... 9,021 2001 .......................................... 695 --------- Total Minimum Lease Payments ..................... 203,609 Less amount representing interest .................. (56,145) --------- Present Value of Net Minimum Lease Payments ...... 147,464 Less Current Portion .............................. (73,902) --------- Capital lease - Long-Term ........................ $ 73,562 ========= Operating Leases The Company leases office space under operating lease agreements. Lease expense for the year ended December 31, 1996 was $117,518. The future obligations under these operating leases are $95,456 and $53,109 for the years ending December 31, 1997 and 1998, respectively. During 1996, the Company began leasing three automobiles under operating lease agreements. Lease expense was $14,258 for the year ended December 31, 1996 for these auto leases. The future obligations for the leases are $19,238 and $9,096 for the years ending December 31, 1997 and 1998, respectively. NOTE 10 -- INCOME TAXES Digital Radio Communications Corporation files a consolidated tax return with it's two wholly-owned subsidiaries, EMA Inc., and Dem-Tronics, Inc. The components of the provision for income taxes were as follows at December 31: 1996 1995 ------------- ------------ Current: Federal ......................... $ (10,550) $ 13,147 State .............................. (4,753) 3,820 Deferred: Federal ........................ 1,309 (6,855) State .............................. 276 (1,443) --------- -------- Provision for (benefit from) income taxes.. $ (13,718) $ 8,669 ========= ======== The net deferred tax assets consisted of the following at December 31: 1996 1995 ----------- ------------ Deferred Tax Assets: Compensated absences ............ $ 12,933 $ 10,895 Deferred compensation ............ 30,421 30,421 Net Operating Loss Tax Benefit ...... 447 -- --------- --------- 43,801 41,316 --------- --------- Deferred Tax Liability: Depreciation ..................... (32,804) (29,494) Amortization of Goodwill ......... (10,997) (10,237) --------- --------- (43,801) (39,731) --------- --------- Net deferred tax asset ............... $ -- $ 1,585 ========= ========= F-29 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 10 -- INCOME TAXES -- (Continued) The following is a reconciliation of the amount of tax (benefit) that would result from applying the federal statutory rate to pretax income (loss) with the provision for income taxes at December 31:
1996 1995 -------------- ------------ Tax at statutory rate (34%) ........................ $ (403,319) $ 13,416 Non-deductible expenses ........................... 8,357 2,750 Benefit of operating loss not recognized ............ 362,032 -- State tax benefit, net of Federal tax effect ...... (2,955) 2,377 Effect of lower tax rates ........................... 22,167 (9,874) ---------- -------- Provision for (benefit from) income taxes ......... $ (13,718) $ 8,669 ========== ========
For tax reporting purposes, the Company has a net operating loss carry forward in the amount of $1,214,514 that will expire in the year 2011. NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND FINANCING ACTIVITIES Supplemental Cash Flow Information 1996 1995 --------- -------- Taxes Paid ....................... $ 7,479 $ 100 Interest Paid .................... 32,634 22,154 Supplemental Information of Noncash Investing and Financing Activities During 1996, equipment was leased under a capital lease obligation in the amount of $54,859. Equipment was purchased by a note payable in the amount of $7,941. Additional goodwill was recognized in connection with the renegotiation of, and the increase in, the non-compete obligation related to the acquisition of Dem-Tronics in the amount of $56,927. Also, $50,000 of convertible debentures were converted into common stock. During 1995, equipment was leased under a capital lease obligation in the amount of $126,669. Equipment was purchased for $31,334 for which liabilities were assumed in the same amount. The Company contributed a patent with a cost of $16,900 to a joint venture and recorded an investment in the joint venture of $16,900. Common stock was issued to investors for notes receivable of $311,000. In 1995, the Company purchased the common stock of EMA Inc. for $30,430. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired ........................... $ 131,727 Common stock issued and acquisition costs incurred ...... (30,430) --------- Liabilities assumed ....................................... $ 101,297 ========= In 1995, the Company purchased the common stock of Dem-Tronics, Inc. by assuming and incurring liabilities in the amount of $231,395. NOTE 12 -- STOCKHOLDERS' EQUITY On December 11, 1995, the shareholders of the Company agreed to a 5.5-for-1 stock split of the Company's common stock. On March 15, 1996, the shareholders approved an increase of the authorized common stock F-30 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 12 -- STOCKHOLDERS' EQUITY -- (Continued) from 500,000 shares to 5,000,000 shares. On August 31,1996, the shareholders approved a 2-for-1 stock split and also approved increasing the authorized common stock to 10,000,000 shares. The accompanying financial statements have been restated for the effects of the changes in capital structure and for the stock splits for all periods presented. On March 15, 1996, the shareholders authorized 2,000,000 shares of nonvoting preferred stock, $0.01 par value. The preferred stock has been designated for issuance in connection with purchases of other companies. The Board of Directors is authorized to designate classes of preferred stock with various rights and preferences as to dividends and liquidation. No preferred stock has been issued. NOTE 13 -- STOCK OPTIONS On October 1, 1995, the Company adopted the Omnibus Stock Option Plan, which authorized incentive and non-qualified stock options to be granted. 291,000 shares of common stock have been reserved for issuance under the Plan. On May 17, 1996, the Company adopted the 1996 Stock Option Plan and authorized 200,000 options for granting to employees and consultants. Incentive stock options must be granted with an exercise price at least equal to the market value of the common stock on the date of grant, as determined by the Company's Board of Directors. The options generally become exercisable upon being granted and are exercisable for a period of five years. In the event of a dissolution or liquidation of the Company, any options outstanding under the Plan will terminate. Options were granted under the Plans with exercise prices equal to the market value of the common stock on the dates granted. During 1995, the company granted options to investors to purchase 94,000 shares of common stock at $0.01 to $0.02 per share. Those options were exercised during 1996. In addition, during 1996, options for 96,000 shares of common stock were granted to an investor. The investor paid the Company $4,800 of the exercise price during 1996 with services and exercised the options in February 1997 with a payment of $100 in cash. The Company has elected to continue to account for stock-based compensation under the provisions of APB Opinion No. 25 rather than Statement of Financial Accounting Standards (SFAS) No. 123. However, net loss and net loss per share would not have changed had SFAS No. 123 been adopted. The following table presents the status of stock options: Weighted Average Options Exercise Price ------------- --------------- Outstanding, December 31, 1994 ......... -- -- Granted .............................. 209,850 $ 0.02 --------- Outstanding, December 31, 1995 ......... 209,850 0.02 Granted .............................. 241,150 1.34 Exercised ........................... (191,000) 0.02 Canceled ........................... (400) 2.50 --------- Outstanding, December 31, 1996 ......... 259,600 1.25 ========= Exercisable, December 31, 1996 ...... 200,350 1.05 ========= Options at December 31, 1996 had exercise prices ranging from $0.02 to $2.50. NOTE 14 -- SUBSEQUENT EVENTS In February 1997, the Company borrowed $97,093 under the terms of an 8% promissory note payable to a customer to finance the purchase of certain radio receivers from the customer. Payments are due monthly and will begin upon signing an additional contract with the customer and are only payable out of the revenue from the potential contract. The note is secured by the investment in common stock of the customer held by the Company. F-31 DIGITAL RADIO COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) NOTE 14 -- SUBSEQUENT EVENTS -- (Continued) An investor exercised options for 96,000 shares of common stock for $100 on February 22, 1997. The Company granted options to purchase 200,000 shares of common stock on February 12, 1997 to employees and consultants under the 1996 Stock Option Plan. The options are exercisable at $1.84 per share. On February 12, 1997, the Board of Directors and a majority of the shareholders approved a merger of the Company into a wholly-owned subsidiary of World Wireless Communications, Inc. (WWCI), subject to approval of a definitive agreement. The terms of the agreement presently provide that each outstanding share of common stock will be exchanged for 0.5577349 shares of WWCI common stock. All outstanding options will be converted at the same ratio into WWCI options exercisable at $2.00 per share. The Board also authorized borrowing up to $1,000,000 under a promissory note payable to WWCI for monies advanced to the Company. The note is due February 1998, with interest payable semi-annually commencing on August 12, 1997. Through May 15, 1997, the Company has borrowed approximately $1,380,000 under this note and additional notes (unaudited). F-32 ================================================================================ The Selling Shareholders and any broker/dealers or agents that participate with the Selling Shareholders in the distribution of the Shares may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), and any commissions received by them and any profit on the resale of the Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Persons who are deemed to be underwriters may be subject to statutory liabilities if the registration statement of which this Prospectus is a part contains a material misstatement or omits to disclose any information necessary to make statements which are made not misleading. The Company has not agreed to indemnify any of the Selling Stockholders regarding such potential liabilities. See "Plan of Distribution". No dealer, salesperson or other person has been authorized by the Company or the selling shareholders to give any information or to make any representations other than those contained in this prospectus in connection with the offering made hereby, and, if given or made, such information or representations must not be relied upon as having been authorized. The delivery of this Prospectus shall not, under any circumstances, create any implication that information herein is correct as of any time subsequent to the date of the Prospectus. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the shares to any person or by anyone in any jurisdiction in which such offer or solicitation may not lawfully be made. -------------------------- TABLE OF CONTENTS Page ----- PROSPECTUS SUMMARY ..................... 3 RISK FACTORS ........................... 5 DILUTION .............................. 10 USE OF PROCEEDS ........................ 10 SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA ............... 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................... 13 BUSINESS .............................. 14 MANAGEMENT ........................... 21 PRINCIPAL AND SELLING SHAREHOLDERS ........................ 25 PLAN OF DISTRIBUTION .................. 30 MARKET INFORMATION ..................... 31 ORGANIZATIONAL AND OTHER TRANSACTIONS . 31 DESCRIPTION OF CAPITAL STOCK ............ 32 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ........................ 36 LEGAL MATTERS ........................ 36 EXPERTS .............................. 36 AVAILABLE INFORMATION .................. 36 Until ________, 1997, all dealers effecting transactions in the Common Stock, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ WORLD WIRELESS COMMUNICATIONS, INC. 4,000,000 Shares Common Stock, $.001 Par Value --------------- PROSPECTUS --------------- ______________ , 1997. ================================================================================ PART II - INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officer. The Bylaws of the Registrant provide for indemnification of directors and officers of the Registrant in accordance with the indemnification of the Nevada General Corporation Law. The Nevada statute permits indemnification of directors and employees of a corporation under certain conditions and subject to certain limitations. The Registrant's Articles of Incorporation provide that, subject to certain limitations, no director shall be personally liable to the Registrant or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Item 25. Other Expenses of Issuance and Distribution The following table sets forth the estimated amount of various expenses in connection with the sale and distribution of the securities being registered: SEC registration fee ........................... $ 13,533 Printing and engraving expenses ............... 20,000 Legal fees an expense (including blue sky fees and expenses) ...... 60,000 Accounting fees and expenses .................. 50,000 Miscellaneous ................................. 6,467 ---------- Total ....................................... $ 150,000 ========== Item 26. Recent Sales of Unregistered Securities. Since its inception, the Company has sold Common Stock and other securities in reliance upon exemptions from the registration requirements of the Securities Act of 1933 (the "Securities Act") in the following transactions: a. Upon incorporation of the Company in November 1995, the Company issued 107,140 shares of Common Stock to Elvena, Inc. (53,570 shares), a corporation controlled by Lynn Dixon, and to Robsal, Inc. (53,570 shares). Abraham J. Salaman holds the power to vote the shares of the Company owned by Robsal, Inc. These shares were issued for cash at a price of $.047 per share in reliance upon Section 4(2) of the Securities Act of 1933 (the "Act") and are restricted as to resales. Also in connection with the Company's organization, the Company issued 320,000 shares to J.R. Consultants, Inc., a corporation controlled by Jonathan D. Rahn, and 25,000 shares to Robsal, Inc., for services valued at $16,215 ($.047 per share) in reliance on Rule 504, Regulation D. b. In connection with the acquisition of assets with which the Company commenced business operations, the Company issued 680,000 shares of Common Stock to equity owners (Roslyn Maxwell, Gary B. Peterson, Betty A. Peterson, Brian Pettersen and Ann Marie Pettersen) of Chocolate Leasing LLC, a limited liability company which then owned the assets, and to Data Growth, Inc., an unaffiliated corporation which then held an option to acquire the assets from Chocolate Leasing. Based upon their net equity contributions to Chocolate Leasing, the cash cost of these shares to the former Chocolate Leasing equity holders was approximately $122,000. A portion of the Shares were issued for services valued at $10,810. These shares were issued in reliance upon Section 4(2) of the Securities Act and restricted as to resales. c. In connection with the Company's acquisition of assets from Chocolate Leasing and its commencement of operations, the Company raised a total of $275,000 in short term debt financing. The debt financing was placed with nine investors (Elvena, Inc., Cherry Hill, Inc., Robsal, Inc., Research Net Services, Consolidated Capital, Cow Bell, Inc., BRRD, Inc., Mitchell Salaman and Stamatt, Inc.). This indebtedness and interest accrued thereon was converted into 1,892,860 shares of Common Stock at a price of approximately $.15 per share in connection with the Regulation D, Rule 504 offering described in the following paragraph. II-1 d. In March 1996, the Company sold 300,000 shares of Common Stock at a price of $.70 per share ($210,000) to a total of 64 investors in reliance upon Rule 504, Regulation D. In connection with this offering, the Company solicited and obtained the conversion of debt referred to in the preceding paragraph, also in reliance upon Rule 504, Regulation D. e. In March 1996, the Company issued 7,000 shares, restricted as to resales, to an employee, Paul K. Jensen, for services valued at $4,900 in reliance upon Section 4(2) of the Act. f. In the period October 1996 through January 1997, the Company sold 2,357,857 shares to a total of 33 investors for cash (1,800,000 shares at a price of $.33 per share and 557,857 shares at a price of $.35 per share), 5,629 shares in conversion of a note at $.35 per share, and 11,000 shares in payment of accrued interest on a note at $.45 per share. The investors in such offering, and the number of shares purchased by each, were as follows: Investor No. of Shares -------- ------------- Capco Nominees Limited Partnership 654,000 Michael Lauer 400,000 Lynn Dixon/Elvena, Inc. 245,629 Melissa D. Epperson 181,200 T. Kent Rainey 180,600 Trinity American Corp. 113,250 Turan M. Itil 85,000 J.R. Consultants, Inc. 75,500 SRS Partners, Ltd. 60,400 BRRD, Inc. 60,400 Thornhill, Ltd. 60,400 Heather Hanby 50,000 Philip C. Bohm 42,858 Michael Williamson 21,750 Jeffrey G. Shields 20,200 Cartwright Holdings, Inc. 20,000 Rona Dixon 20,000 Alan Dabrow 15,000 Alan Robbins and Judie Robbins 15,000 Brenda Hubrich 10,000 Alisa Pace, individually and as Custodian under UT UGMA 8,000 Joni Dixon 5,000 Lynda Whitehead 5,000 Allen Dixon 5,000 Norene Dixon 5,000 Charlie Schwab and Dorothy Hanby 5,000 Laina Egan 5,000 Peter Gordon 3,300 Justin Moeller, custodian under UGMA 1,000 Lori Gunter, custodian under UGMA 1,000 ------------- Total 2,374,487
These shares were issued in reliance upon Section 4(2) of the Act, and Rule 506, Regulation D, promulgated thereunder, and restricted as to resales. g. In November 1996, the Company issued 520,000 shares of Common Stock to Hyrum Taylor (25,000 shares), David D. Singer (475,000 shares) and Raymond Scharp (20,000 shares) in connection with their employment by the Company. The shares were valued, for tax and accounting purposes, at $.33 per share, and were issued in reliance upon Section 4(2) of the Act, and restricted as to resales. II-2 h. In the period March 1997 and through August 1997, the Company sold a total of 2,000,000 shares of Common Stock at a price of $2.00 per share (including the allocable cost of warrants to purchase Common Stock exercised by these purchasers, as described below) to investment funds under the control of Michael Lauer, and certain business associates of Mr. Lauer, in reliance upon Section 4(2) of the Act and/or Rule 506 thereunder, and restricted as to resales, as follows: Investor No. of Shares -------- ------------- Lancer Partners, LP 1,043,750 Lancer Offshore, Inc. 773,750 Lancer Voyager 150,000 Martin H. Garvey 30,000 Russel J. Redgate 2,500 ------------- 2,000,000 A portion of these shares were issued upon the exercise of warrants which were issued in units with shares of Common Stock. All such warrants were exercisable at a price of $2.00 per share, and all have now been exercised. i. In July 1997, the Company issued a total of 1,798,100 shares of Common Stock, and options to purchase 201,900 shares of Common Stock, to former shareholders and employees (a total of 98 persons, of whom 80 were "accredited" investors) of Digital Radio Communications Corporation ("DRCC") in exchange for shares and options of DRCC. These shares and options were issued in reliance upon Rule 506, Regulation D, and restricted as to resales. j. In September and October 1997, the Company issued a total of 10,931 shares of Common Stock to former employees and directors of DRCC, David Politis, Stephen Cowser and Jack Berg, at prices of $0.09 (10,513 shares), $0.18 (139 shares) and $2.00 (239 shares), respectively. The shares were issued in reliance upon Section 4(2) of the Act, and restricted as to resales. Item 27. Exhibits (a) Exhibits Exhibit No. - -------- 3.1 Articles of Incorporation of the Company and all amendments thereto 3.2 Bylaws of the Company 4.1 Form of Common Stock Certificate* 5 Opinion of Connolly Epstein Chicco Foxman Engelmyer & Ewing regarding the legality of securities being registered* 10.1 1997 Stock Option Plan 10.2 DRCC Omnibus Stock Option Plan 10.3 Development and License Agreement dated April 4, 1997, between DRCC and Kyushu Matsushita Electric Co., Ltd. 10.4 Technical Development and Marketing Alliance Agreement dated September 15, 1997, between the Company and Williams Telemetry Services, Inc. 10.5 Lease Agreement dated May 17, 1995, between DRCC and Pracvest Partnership relating to the Company's American Fork City offices and facility 10.6 Lease Agreement dated February 12, 1996, between the Company the Green/Praver, et al., relating to the Company's Salt Lake City offices II-3 10.7 Shareholders Agreement dated May 21, 1997 between the Company, DRCC, Philip A. Bunker and William E. Chipman, Sr. 21 Subsidiaries of the Company 23.1 Consent of Hansen, Barnett & Maxwell, independent certified public accountants 23.2 Consent of Connolly Epstein Chicco Foxman Engelmyer & Ewing (included in Exhibit 5) 27 Financial Data Schedules - ------------ * To be filed by amendment. Item 27. Undertakings. The undersigned Registrant hereby undertakes to: 1. File, during any period in which it offers or sells securities, a post-effective amendment to this Registration Statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the Prospectus any facts or events which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) Include any additional or changed material information on the Plan of Distribution described in the Registration Statement. 2. For the purpose of determining any liability under the Securities Act, treat each post-effective amendment as a new registration of the securities offered, and the offering of the securities at that time to be the initial bona fide offering thereof. 3. To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities 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 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 Securities 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 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. The undersigned small business issuer hereby undertakes that: For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the small business issuer pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this Registration Statement as of the time the Commission declared it effective. For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in this Registration Statement, and the offering of the securities at that time, shall be deemed to be the initial bona fide offering of those securities. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in Salt Lake City, Utah, on the 23rd day of October, 1997. WORLD WIRELESS COMMUNICATIONS, INC. By: /s/ David D. Singer ---------------------------------------------- David D. Singer, President and Chief Executive Officer By: /s/ William E. Chipman, Sr. ---------------------------------------------- William E. Chipman, Sr., Chief Financial Officer SIGNATURES In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates stated. Signatures Title Date ---------- ----- ---- /s/ Brian W. Pettersen - ------------------------- Director Oct. 23, 1997 Brian W. Pettersen /s/ Jonathan D. Rahn - ------------------------- Director Oct. 23, 1997 Jonathan D. Rahn /s/ Philip A. Bunker - ------------------------- Director Oct. 23, 1997 Philip A. Bunker II-5 EXHIBIT INDEX
No. Description Page - ------ ----------- ----- 3.1 Articles of Incorporation of the Company and all amendments thereto 3.2 Bylaws of the Company 4.1 Form of Common Stock Certificate* 5 Opinion of Connolly Epstein Chicco Foxman Engelmyer & Ewing regarding the legality of securities being registered* 10.1 1997 Stock Option Plan 10.2 DRCC Omnibus Stock Option Plan 10.3 Development and License Agreement dated April 4, 1997, between DRCC and Kyushu Matsushita Electric Co., Ltd. 10.4 Technical Development and Marketing Alliance Agreement dated September 15, 1997, between the Company and Williams Telemetry Services, Inc. 10.5 Lease Agreement dated May 17, 1995 between DRCC and Pracvest Partnership relating to the Company's American Fork City offices and facility 10.6 Lease Agreement dated February 12, 1996, between the Company the Green/Praver, et al., relating to the Company's Salt Lake City offices 10.7 Shareholders Agreement dated May 21, 1997 between the Company, DRCC, Philip A. Bunker and William E. Chipman, Sr. 21 Subsidiaries of the Company 23.1 Consent of Hansen, Barnett & Maxwell, independent certified public accountants 23.2 Consent of Connolly Epstein Chicco Foxman Engelmyer & Ewing (included in Exhibit 5) 27 Financial Data Schedule
- ------------ * To be filed by amendment EX-3 2 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF DATA SECURITY CORPORATION THE UNDERSIGNED natural person of the age of eighteen (18) years or more, acting as incorporator of a corporation under the Nevada Business Corporation Act, adopts the following Articles of Incorporation for such corporation. ARTICLE I - NAME The name of the corporation is Data Security Corporation ARTICLE II - DURATION The duration of the corporation is perpetual. ARTICLE III - PURPOSES The purpose or purposes for which this corporation is engaged are: (a) To engage in the specific business of providing security equipment and consulting services to the computer industry. Also, the business of making investments, including investments in, purchase and ownership of any and all kinds of property, assets or business, whether alone or in conjunction with others. Also, to acquire, develop, explore and otherwise deal in and with all kinds of real and personal property and all related activities, and for any and all other lawful purposes. (b) To acquire by purchase, exchange, gift, bequest, subscription, or otherwise; and to hold, own, mortgage, pledge, hypothecate, sell, assign, transfer, exchange, or otherwise dispose of or deal in or with its own corporate securities or other securities including, without limitations, any shares of stock, bonds, debentures, notes, mortgages, or other obligations, and any certificates, receipts or other instrumentalities representing rights or interests therein on any property or assets created or issued by any person, firm, associate, or corporation, or instrument thereof; to make payment therefor in any lawful manner or to issue in exchange therefor its unreserved earned surplus for the purchase of its own shares, and to exercise as owner or holder of any securities, any and all rights, powers, and privileges in respect thereof. (c) To do each and everything necessary, suitable, or proper for the accomplishment of any of the purposes or the attainment of any one or more of the subjects herein enumerated, or which may, at any time, appear conducive to or expedient for the protection or benefit of this corporation, and to do said acts as fully and to the same extent as natural persons might, or could do in any part of the world as principals, agents, partners, trustees, or otherwise, either alone or in conjunction with any other person, association, or corporation. (d) The foregoing clauses shall be construed both as purposes and powers and shall not be held to limit or restrict in any manner the general powers of the corporation, and the enjoyment and exercise thereof, as conferred by the laws of the State of Nevada; and it is the intention that the purposes and powers specified in each of the paragraphs of this Article III shall be regarded as independent purposes and powers. 2 ARTICLE IV - STOCK The aggregate number of shares which this corporation shall have authority to issue is 50,000,000 shares of Common Stock having a par value of $.001 per share. All common stock of the corporation shall be of the same class, common, and shall have the same rights and preferences. Fully-paid stock of this corporation shall not be liable to any further call or assessment. The corporation shall also have authority to issue 1,000,000 shares of Preferred Stock having a par value of $.001 per share and to be issued with such rights, preferences and designations and in such series as determined by the Board of Directors of the corporation. ARTICLE V - AMENDMENT These Articles of Incorporation may be amended by the affirmative vote of "a majority" of the shares entitled to vote on each such amendment. ARTICLE VI - SHAREHOLDERS' RIGHTS The authorized and treasury stock of this corporation may be issued at such time, upon such terms and conditions and for such consideration as the Board of Directors shall determine. Shareholders shall not have pre-emptive rights to acquire unissued shares of the stock of this corporation. ARTICLE VII- INITIAL OFFICE AND AGENT The Corporate Trust Company of Nevada One East First Street Reno, Nevada 89501 3 ARTICLE VIII - DIRECTORS The directors are hereby given the authority to do any act on behalf of the corporation by law and in each instance where the Business Corporation Act provides that the directors may act in certain instances where the Articles of Incorporation authorized such action by the directors, the directors are hereby given authority to act in such instances without specifically numerating such potential action or instance herein. The directors are specifically given the authority to mortgage or pledge any or all assets of the business without stockholders' approval. The number of directors constituting the initial Board of Directors of this corporation is one. The name and address of the person who is to serve as Director until the first annual meeting of stockholders or until his successor is elected, is: NAME ADDRESS P. Lynn Dixon 311 South State, Suite 460 Salt Lake City, Utah 84111 ARTICLE IX - INCORPORATORS The name and address of each incorporator is: NAME ADDRESS Leon W. Crockett 311 South State, Suite 440 Salt Lake City, Utah 84111 ARTICLE X COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS No contract or other transaction between this corporation and any one or more of its 4 directors or officers or any other corporation, firm, association, or entity in which one or more of its directors or officers are financially interested, shall be either void or voidable because of such relationship or interest, or because such person is present at the meeting of the Board of Directors, or a committee thereof, which authorizes, approves, or ratifies such contract or transaction, or because his or their votes are counted for such purpose if: (a) the fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves, or ratifies the contract or transaction in good faith by vote or consent sufficient for the purpose without counting the votes or consents of such interested director; or (b) the fact of such relationship or interest is disclosed or known to the stockholders entitled to vote and they authorize, approve, or ratify such contract or transaction by vote or written consent, (c) the fact of the common directorship, office or financial interest is not disclosed or known to the director or officer at the time the transaction is brought before the board of directors of the corporation for action; or (d) the contract or transaction is fair and reasonable to the corporation at the time it is approved. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or committee thereof which authorizes, approves, or ratifies such contract or transaction. ARTICLE XI LIABILITY OF DIRECTORS AND OFFICERS No director or officer shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such person as a director or 5 officer. Notwithstanding the foregoing sentence, a director or officer shall be liable to the extent provided by applicable law, (I) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) for the payment of dividends in violation of NRS 78.300. The provisions hereof shall not apply to or have any effect on the liability or alleged liability of any officer or director of the Corporation for or with respect to any acts or omissions of such person occurring prior to such amendment. Under penalties of perjury, I declare that these Articles of Incorporation have been examined by me and are, to the best of my knowledge and belief, true, correct and complete. DATED this 14th day of November, 1995. Leon W. Crockett --------------------------------- Incorporator STATE OF UTAH ) : ss: COUNTY OF SALT LAKE ) On the 14th day of November, 1995, personally appeared before me, Leon W. Crockett, who duly acknowledged to me that he signed the foregoing Articles of Incorporation. [NOTARY SEAL] 6 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF DATA SECURITY CORPORATION The Undersigned, constituting the President and Secretary of Data Security Corporation, hereby certify that pursuant to the provisions of NRS 78.385 the following action was taken: 1. That the Board of Directors of said corporation by unanimous consent dated January 15, 1997, adopted a resolution to amend Article I of the original Articles of Incorporation to read as follows: "The name of the Corporation is "World Wireless Communications, Inc. 2. The number of shares of the corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation was 3,901,200; that the said change(s) and amendment has been consented to and approved by a majority vote of the stockholders holding at least a majority of each class of stock outstanding and entitled to vote thereon. Dated this 15th day of January 1997. /s/ David D. Singer -------------------------- David D. Singer, President Attest: /s Jonathan D. Rahn - -------------------------------- Jonathan D. Rahn, Secretary State of Utah ) ) ss County of Salt Lake ) On the 15th day of January 1997, personally appeared before me, a Notary public, who acknowledged that David D. Singer, the President of Data Security Corporation executed the foregoing Certificate of Amendment to the Articles of Incorporation of Data Security Corporation. /s/ Josephine Rudd -------------------------- Notary Public State of New Jersey ) ) ss County of Middlesex ) On the 16th day of January 1997, personally appeared before me, a Notary public, who acknowledged that Jonathan D. Rahn, the Secretary of Data Security Corporation executed the foregoing Certificate of Amendment to the Articles of Incorporation of Data Security Corporation. /s/ Michele A. Ott -------------------------- Notary Public EX-3.2 3 EXHIBIT 3.2 BY-LAWS OF DATA SECURITY CORPORATION ARTICLE I - OFFICES The principal office of the corporation in the State of Nevada shall be located in the City of Reno, County of Washoe. The corporation may have such other offices, either within or without the State of incorporation as the board of directors may designate or as the business of the corporation may from time to time require. ARTICLE II - STOCKHOLDERS 1. ANNUAL MEETING. The annual meeting of the stockholders shall be held on such date as is determined by the Board of Directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. 2. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or by the directors, and shall be called by the president at the request of the holders of not less than ten per cent of all the outstanding shares of the corporation entitled to vote at the meeting. 3. PLACE OF MEETING. The directors may designate any place, either within or without the State unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the directors. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate any place, either within or without the state unless otherwise prescribed by statute, as the place for holding such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation. 4. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than thirty days before the date of the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon pre-paid. 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, thirty days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than thirty days and, in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof. BY- LAWS Page 2 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal office of the corporation or transfer agent and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at the meeting of stockholders. 7. QUORUM. Unless otherwise provided by law, at any meeting of stockholders one-third of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than said number of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 8. PROXIES. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. 9. VOTING. Each stockholder entitled to vote in accordance with the terms and provisions of the certificate of incorporation and these by-laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholders. Upon the demand of any stockholder, the vote for directors and upon any question before the meeting shall be by ballot. All elections for BY-LAWS Page 3 directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of this State. 10. ORDER OF BUSINESS The order of business at all meetings of the stockholders, shall be as follows: 1. Roll Call. 2. Proof of notice of meeting or waiver of notice. 3. Reading of minutes of preceding meeting. 4. Reports of Officers. 5. Reports of Committees. 6. Election of Directors 7. Unfinished Business. 8. New Business. 11. INFORMAL ACTION BY STOCKHOLDERS. Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the same percentage of all of the shareholders entitled to vote with respect to the subject matter thereof as would be required to take such action at a meeting. ARTICLE III - BOARD OF DIRECTORS 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its board of directors. The directors shall in all cases act as a board, and they may adopt such rules and regulations for the conduct of their meetings and the management BY - LAWS Page 4 of the corporation, as they may deem proper, not inconsistent with these by-laws and the laws of this State. 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall as established by the board of directors, but shall be no less than one. Each director shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and qualified. 3. REGULAR MEETINGS. A regular meeting of the directors, shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders. The directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. 4. SPECIAL MEETINGS. Special meetings of the directors may be called by or at the request of the president or any director. The person or persons authorized to call special meetings of the directors may fix the place for holding any special meeting of the directors called by them. A director may attend any meeting by telephonic participation at the meeting. 5. NOTICE. Notice of any special meeting shall be given at least two days previously thereto by written notice delivered personally, or by telegram or mailed to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. 6. QUORUM. At any meeting of the directors a majority shall constitute a quorum for the transaction of business, but if less than said number is present at a meeting, a BY - LAWS Page 5 majority of the directors present may adjourn the meeting from time to time without further notice. 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the directors. 8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason except the removal of directors without cause may be filled by a vote of a majority of the directors then in office, although less than a quorum exists. Vacancies occurring by reason of the removal of directors without cause shall be filled by vote of the stockholders. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office for the unexpired term of his predecessor. 9. REMOVAL OF DIRECTORS. Any or all of the directors may be removed for cause by vote of the stockholders or by action of the board. Directors may be removed without cause only by vote of the stockholders. 10. RESIGNATION. A director may resign at any time by giving written notice to the board, the president or the secretary of the corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board or such officer, and the acceptance of the resignation shall not be necessary to make it effective. 11. COMPENSATION. No compensation shall be paid to directors, as such, for their services, but by resolution of the board a fixed sum and expenses for actual attendance at each regular or special meeting of the board may be authorized. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. BY - LAWS Page 6 12. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. 13. EXECUTIVE AND OTHER COMMITTEES. The board, by resolution, may designate from among its members an executive committee and other committees, each consisting of three or more directors. Each such committee shall serve at the pleasure of the board. ARTICLE IV - OFFICERS 1. NUMBER. The officers shall be a president, a secretary and a treasurer, each of whom shall be elected by the directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the directors. 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the directors shall be elected annually at the first meeting of the directors held after each annual meeting of the stockholders. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. 3. REMOVAL. Any officer or agent elected or appointed by the directors may be removed by the directors whenever in their judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. BY- LAWS Page 7 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the directors for the unexpired portion of the term. 5. PRESIDENT. The president shall be the principal executive officer of the corporation and, subject to the control of the directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the stockholders and of the directors. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the directors or by these by-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time. 6. VICE-PRESIDENT. In the absence of the president or in event of his death, inability or refusal to act, a vice-president may perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. A vice-president shall perform such other duties as from time to time may be assigned to him by the President or by the directors. 7. SECRETARY. The secretary shall keep the minutes of the stockholders' and of the directors' meetings in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these by-laws or as required, be custodian of the corporate records and of the seal of the corporation and keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder, have general charge of the stock transfer books of the corporation and in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the directors. BY- LAWS Page 8 8. TREASURER. If required by the directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with these by-laws and in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the directors. 9. SALARIES. The salaries of the officers shall be fixed from time to time by the directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS 1. CONTRACTS. The directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the directors. Such authority may be general or confined to specific instances. 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the directors. BY- LAWS Page 9 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the directors may select. ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as shall be determined by the directors. Such certificates shall be signed by the president and by the secretary or by such other officers authorized by law and by the directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the stockholders, the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the directors may prescribe. 2. TRANSFERS OF SHARES. (a) Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the corporation which shall be kept at its principal office. (b) The corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of this state. ARTICLE VII - FISCAL YEAR The fiscal year of the corporation shall end on the last day of such month in each year as the directors may prescribe. BY- LAWS Page 10 ARTICLE VIII - DIVIDENDS The directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. ARTICLE IX - SEAL The directors may, in their discretion, provide a corporate seal which shall have inscribed thereon the name of the corporation, the state of incorporation, and the words, "Corporate Seal". ARTICLE X - WAIVER OF NOTICE Unless otherwise provided by law, whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these by-laws or under the provisions of the articles of incorporation, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI - AMENDMENTS These by-laws may be altered, amended or repealed and new by-laws may be adopted by action of the Board of Directors. November 16, 1995 /s/ P. Lynn Dixon Date: -------------------------- P. Lynn Dixon, Director BY - LAWS Page 11 EX-10 4 EXHIBIT 10.1 WORLD WIRELESS COMMUNICATIONS, INC. 1997 STOCK OPTION PLAN 1. Purpose. The Plan is intended as an additional incentive to key employees, consultants, advisors and members of the Board of Directors (together, the "Optionees") to enter into or remain in the service or employ of World Wireless Communications, Inc., a Nevada corporation (the "Company"), or any Affiliate (as defined below) of the Company, and to devote themselves to the Company's success by providing them with an opportunity to acquire or increase their proprietary interest in the Company through receipt of rights (the "Options") to acquire the Company's Common Stock, par value $.001 per share (the "Common Stock"). Each Option granted under the Plan to a person who is employed by the Company or an Affiliate is intended to be an incentive stock option ("ISO") within the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), for federal income tax purposes, except to the extent (i) any such ISO grant would exceed the limitation of subsection 6(a) below, or (ii) any Option is specifically designated at the time of grant (the "Grant Date") as not being an ISO. No Option granted to a person who is not an employee of the Company or any Affiliate on the Grant Date, or is not identified as an ISO in the Option Documents (as hereinafter defined), shall be an ISO. For purposes of the Plan, the term "Affiliate" shall mean a corporation which is a parent corporation or a subsidiary corporation with respect to the Company within the meaning of section 424(e) or (f) of the Code. 2. Administration. The Plan shall be administered by the Board of Directors of the Company, without participation by any director on any matter pertaining to him, provided that any director may join in a written consent to action signed by all directors notwithstanding that such action pertains to such director, in whole or in part. The Board of Directors may appoint a Stock Option Committee composed of three or more of its members to operate and administer the Plan in its stead. The Stock Option Committee or the Board of Directors in its administrative capacity with respect to the Plan is referred to herein as the "Committee." The Committee shall hold meetings at such times and places as it may determine. Acts approved at a meeting by a majority of the members of the Committee or acts approved in writing by the unanimous consent of the members of the Committee shall be the valid acts of the Committee. The Committee shall from time to time at its discretion grant Options pursuant to the terms of the Plan. The Committee shall have plenary authority to determine the Optionees to whom and the times at which Options shall be granted, the number of Option Shares (as defined in Section 4 below) to be covered by such Options and the price and other terms and conditions thereof, including a specification with respect to whether an Option is intended to be an ISO, subject, however, to the express provisions of the Plan. In making such determinations the Committee may take into account the nature of the Optionee's services and responsibilities, the Optionee's present and potential contribution to the Company's success and such other factors as it may deem relevant. The interpretation and construction by the Committee of any provision of the Plan or of any Option granted under it shall be final, binding and conclusive. No member of the Board of Directors or the Committee shall be personally liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. No member of the Committee shall be liable for any act or omission of any other member of the Committee or for any act or omission on his own part, including but not limited to the exercise of any power and discretion given to him under the Plan, except those resulting from (i) any breach of such member's duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, (iii) acts or omissions that would result in liability under Section 78.300 of the General Corporation Law of Nevada, as amended, and (iv) any transaction from which the member derived an improper personal benefit. In addition to such other rights of indemnification as he may have as a member of the Board of Directors or the Committee, and with respect to the administration of the Plan and the granting of Options under it, each member of the Board of Directors and of the Committee shall be entitled without further action on his part to indemnity from the Company for all expenses (including the amount of judgment and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of any action, suit or proceeding with respect to the administration of the Plan or the granting of Options under it in which he may be involved by reason of his being or having been a member of the Board of Directors or the Committee, whether or not he continues to be such member of the Committee at the time of the incurring of such expenses; provided, however, that such indemnity shall not include any expenses incurred by such member of the Board of Directors or Committee: (i) in respect of matters as to which he shall be finally adjudged in such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duties as a member of the Board of Directors or the Committee; or (ii) in respect of any settlement amount in excess of an amount approved by the Company on the advice of its legal counsel; and provided further that no right of indemnification hereunder shall be available to or accessible by any such member of the Committee unless within a reasonable time -2- after institution of any such action, suit or proceeding (which shall be no later than the earlier of ten (10) days prior to the date that any responsive pleading or other action in response to the institution of any such proceeding is due, or ten (10) days after he has actual notice of the institution of such proceeding) he shall have offered the Company in writing the opportunity to handle and defend such action, suit or proceeding at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Board of Directors or the Committee and shall be in addition to all other rights to which such member of the Board of Directors or the Committee would be entitled to as a matter of law, contract or otherwise. 3. Eligibility. All key employees of the Company or its Affiliates (who may also be directors of the Company or its Affiliates) shall be eligible to receive Options hereunder, and such Options may be either ISOs or Options which are not ISOs (hereinafter, "Nonqualified Options"). Consultants, advisors and directors of the Company shall be eligible to receive Nonqualified Options hereunder. The Committee, in its sole discretion, shall determine whether an individual qualifies as an employee or an Optionee. An Optionee may receive more than one Option. 4. Option Shares. The aggregate maximum number of shares of the Common Stock for which Options may be granted under the Plan is One Million Five Hundred Thousand (1,500,000) shares (the "Option Shares"), which number is subject to adjustment as provided in Section 8(b). Option Shares shall be issued from authorized and unissued Common Stock or Common Stock held in or hereafter acquired for the treasury of the Company. If any outstanding Option granted under the Plan expires, lapses or is terminated for any reason, the Option Shares allocable to the unexercised portion of such Option may again be the subject of an Option granted pursuant to the Plan. 5. Term of Plan. The Plan is adopted by the Board of Directors effective on October 1, 1997, but shall terminate (a) on the first anniversary of the Effective Date unless the Plan is approved by the stockholders of the Company as set forth in section 422(b)(1) of the Code, and (b) if the Plan is so approved, on the tenth anniversary of the Effective Date. 6. Terms and Conditions of Options. Options granted pursuant to the Plan shall be evidenced by written documents (the "Option Documents") in such form as the Committee shall from time to time approve, which Option Documents shall comply with and be subject to the following terms and conditions and with any other terms and conditions (including vesting schedules for the exercisability of Options) which the Committee shall from time to time provide which are not inconsistent with the terms of the Plan. -3- a. Number of Option Shares. Each Option Document shall state the number of Option Shares to which it pertains. In no event shall the aggregate fair market value, as of the Grant Date, of Option Shares with respect to which an ISO is exercisable for the first time by the Optionee during any calendar year (under all incentive stock option plans of the Company or its Affiliates) exceed $100,000. b. Option Price. Each Option Document shall state the price at which Option Shares may be purchased (the "Option Price"), which, for any ISO, shall be at least 100% of the fair market value of the Common Stock on the date the option is granted as determined by the Committee; provided, however, that if an ISO is granted to an Optionee who then owns, directly or by attribution under section 424(b) of the Code, shares possessing more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate, then the ISO Option Price shall be at least 110% of the fair market value of the Option Shares on the Grant Date. The Option Price of Nonqualified Options may be below 100% of the fair market value of the Common Stock on the Grant Date. The fair market value of the Common Stock shall be as determined by the Committee, provided that the fair market value of the Common Stock on the Grant Date in respect of the grant of an ISO shall be determined in accordance with Section 422(b)(4) of the Code and Regulations hereunder. c. Medium of Payment. An Optionee shall pay for Options Shares (i) in cash, (ii) by certified check payable to the order of the Company, (iii) in whole or in part in shares of Common Stock, including shares of Common Stock acquired upon the contemporaneous exercise of Options, or (iv) by such other mode of payment as the Committee may approve, including payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board. If payment is made in whole or in part in shares of Common Stock acquired upon exercise of an Option, the value of the Common Stock for such purpose shall be the fair market value of the shares so applied as of the date of exercise of the Option. The Committee may set forth in the Option Documents at the time of Grant, and thereby impose, such limitations or prohibitions on the use of shares of Common Stock to exercise an Option as it deems appropriate. d. Termination of Options. No Option shall be exercisable after the first to occur of the following: (i) Expiration of the Option term specified in the Option Document, which shall not exceed ten years from the date of grant (or five years from the date of grant in the case of an ISO if, on such date the Optionee owns, directly or by attribution under section 424(b) of the Code, shares possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate); -4- (ii) Expiration of three months (or such shorter period as the Committee may select) from the date the Optionee's employment with the Company or its Affiliates terminates for any reason other than (a) disability (within the meaning of section 22(e)(3) of the Code) or death, or (b) circumstances described by subsection (d)(vi), below; (iii) Expiration of one year from the date the Optionee's employment with the Company or its Affiliates terminates for any reason of the Optionee's disability (within the meaning of section 22(e)(3) of the Code) or death; (iv) The date, if any, fixed by the Committee as an accelerated expiration date in the event of a "Change in Control" described in sub-Section 6(e)(i) and (ii) below, provided an Optionee who holds an Option affected by such acceleration of expiration date is given written notice at least sixty (60) days before the date so fixed; (v) The date set by the Committee to be an accelerated expiration date after a finding by the Committee that a change in the financial accounting treatment for Options from that in effect on the date the Plan was adopted adversely affects or, in the determination of the Committee, may adversely affect in the foreseeable future, the Company, provided that (x) an Optionee who holds an Option affected by such acceleration of expiration date is given written notice at least sixty (60) days before the date so fixed, and (y) the Committee may take whatever other action, including acceleration of any exercise provisions, it deems necessary or appropriate should it make the determination referred to hereinabove; or (vi) A finding by the Committee, after full consideration of the facts presented on behalf of both the Company and the Optionee, that the Optionee has been discharged from employment or service with the Company or an Affiliate for Cause. For purposes of this Section, "Cause" shall mean: (A) a breach by Optionee of his employment or service agreement with the Company or an Affiliate, (B) a breach of Optionee's duty of loyalty to the Company or an Affiliate, including without limitation any act of dishonesty, embezzlement or fraud with respect to the Company or an Affiliate, (C) the commission by Optionee of a felony, a crime involving moral turpitude or other act causing material harm to the Company's or an Affiliate's standing and reputation, (D) Optionee's continued failure to perform his duties to the Company or an Affiliate or (E) unauthorized disclosure of trade secrets or other confidential information belonging to the Company or an Affiliate. In the event of a finding that the Optionee has been discharged for Cause, in addition to immediate termination of the Option, the Optionee shall automatically forfeit all Option Shares for which the Company has not yet delivered the share certificates upon refund of the Option Price; provided, however, that, with respect -5- to any Non-Qualified Option, the Committee may provide other and additional terms and conditions in the Option Document which are expressly or by implication at variance with the above terms and conditions, in which case the terms and conditions set forth in the Option Documents shall be controlling. e. Change of Control. In the event of a Change in Control (as defined below), the Committee may take whatever action with respect to the Options outstanding it deems necessary or desirable, including, without limitation, accelerating the vesting, expiration or termination dates in the respective Option Documents to a date no earlier than thirty (30) days after notice of such acceleration is given to the Optionee; provided, however, that (x) the Committee shall not accelerate the expiration or termination date of any outstanding option except in the case of a Change in Control as described in sub-Sections (i) or (ii) below, and (y) the Committee may provide in the Option Documents other and additional terms and conditions of such Option which are applicable if a Change of Control occurs, including terms and conditions which limit the Committee's discretion under this section. A Change of Control shall be deemed to have occurred upon the earliest to occur of the following events: (i) the date the stockholders of the Company (or the Board of Directors, if stockholder action is not required) approve a plan or other arrangement pursuant to which the Company will be dissolved or liquidated; (ii) the date the stockholders of the Company (or the Board of Directors, if stockholder action is not required) approve a definitive agreement to sell or otherwise dispose of substantially all of the assets of the Company; (iii) the date the stockholders of the Company (or the Board of Directors, if stockholder action is not required) and the stockholders of the other constituent corporation (or its board of directors if stockholder action is not required) have approved a definitive agreement to merge or consolidate the Company with or into such other corporation, other than, in either case, a merger or consolidation of the Company in which holders of shares of the Common Stock immediately prior to the merger or consolidation will hold at least a majority of the ownership of common stock of the surviving corporation (and, if one class of common stock is not the only class of voting securities entitled to vote on the election of directors of the surviving corporation, a majority of the voting power of the surviving corporation's voting securities) immediately after the merger or consolidation, which common stock (and, if applicable, voting securities) is to be held in the same proportion as such holders' ownership of Common Stock immediately before the merger or consolidation; -6- (iv) the date any entity, person or group, (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than (A) the Company or any of its subsidiaries or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (B) any person who, on the date the Plan is effective, shall have been the beneficial owner of at least twenty percent (20%) of the outstanding Common Stock, shall have become the beneficial owner of, or shall have obtained voting control over, more than fifty percent (50%) of the outstanding shares of the Common Stock; or (v) the first day after the first anniversary of the adoption of this Plan by the Board of Directors a majority of the directors comprising the Board of Directors shall have been members of the Board of Directors for less than twenty-four (24) months, unless each director who was not a director at the beginning of such twenty-four (24) month period was either appointed or nominated for election with the approval of at least two-thirds of the directors then still in office who were directors at the beginning of such period. f. Transfers. No Option granted under the Plan may be transferred, except by will or by the laws of descent and distribution and, in the case of a Non-Qualified Option, as expressly set forth in the Option Documents. During the lifetime of the person to whom an Option is granted, such Option may be exercised only by the Optionee. g. Other Provisions. The Option Documents shall contain such other provisions including, without limitation, additional restrictions upon the exercise of the Option or additional limitations upon the term of the Option, as the Committee shall deem advisable. h. Amendment. Subject to the provisions of the Plan, the Committee shall have the right to amend Option Documents issued to such Optionee, subject to the Optionee's consent if such amendment is not favorable to the Optionee except that the consent of the Optionee shall not be required for any amendment made under subsection 6(e) above. 7. Exercise. No Option shall be deemed to have been exercised prior to the receipt by the Company of written notice of such exercise and of payment in full of the Option Price for the Option Shares to be purchased. Each such notice shall specify the number of Option Shares to be purchased and shall satisfy the securities law requirements set forth in this Section 7. Each exercise notice shall (unless the Option Shares are covered by a then current registration statement or a Notification under Regulation A under the Securities Act of 1933 (the "Act")), -7- contain the Optionee's acknowledgment in form and substance satisfactory to the Company that (i) such Option Shares are being purchased for investment and not for distribution or resale (other than a distribution or resale which, in the opinion of counsel satisfactory to the Company, may be made without violating the registration provisions of the Act), (ii) the Optionee has been advised and understands that (A) the Option Shares have not been registered under the Act and are "restricted securities" within the meaning of Rule 144 under the Act and are subject to restrictions on transfer and (B) the Company is under no obligation to register the Option Shares under the Act or to take any action which would make available to the Optionee any exemption from such registration, (iii) such Option Shares may not be transferred without compliance with all applicable federal and state securities laws, and (iv) an appropriate legend referring to the foregoing restrictions on transfer and any other restrictions imposed under the Option Documents may be endorsed on the certificates. Notwithstanding the above, should the Company be advised by counsel that the issuance of Option Shares upon the exercise of an Option should be delayed pending (A) registration under federal or state securities laws or (B) the receipt of an opinion that an appropriate exemption therefrom is available, (C) the listing or inclusion of the shares on any securities exchange or in an automated quotation system or (D) the consent or approval of any governmental regulatory body whose consent or approval is necessary in connection with the issuance of such Option Shares, the Company may defer the exercise of any Option granted hereunder until either such event in A, B, C or D has occurred. 8. Adjustments on Changes in Common Stock. a. In case the Company shall (i) declare a dividend or make a distribution on outstanding shares of its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of its Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of its Common Stock into a lesser number of shares, the number of Option Shares subject to outstanding Options shall be increased or decreased in proportion to the increase or decrease, as the case may be, in the total number of outstanding shares of Common Stock of the Company as a result of such subdivision, combination or reclassification. Such adjustment shall be effective as of the record date of such subdivision, combination or reclassification. Adjustments hereunder shall be made successively whenever any event specified above shall occur. b. The aggregate number of shares of Common Stock as to which Options may be granted hereunder shall be adjusted in proportion to any adjustment made in the number of Option Shares covered by outstanding Options pursuant to Section 8(a) above. -8- c. In case of any reclassification, recapitalization or other change in the capital structure of the Company affecting its Common Stock, other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in the Common Stock into two or more classes or series of shares), the Optionee shall have the right thereafter to receive upon exercise of this Option solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable in connection with such reclassification, recapitalization or other change by a holder of a number of shares of Common Stock equal to the number of Option Shares for which this Option might have been exercised immediately prior to such event. d. In case of a Change of Control of the Company involving a consolidation with or merger of the Company into another corporation (other than a merger of consolidation in which the Company is the continuing or surviving corporation), the Optionee shall have the right thereafter to receive upon exercise of the Option solely the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such consolidation, merger, sale, lease or conveyance by a holder of a number of shares of Common Stock equal to the number of Option Shares for which this Option might have been exercised immediately prior to such consolidation or merger. 9. Amendment of the Plan. The Board of Directors may amend the Plan from time to time in such manner as it may deem advisable, subject to compliance with applicable corporate laws, securities laws and exchange requirements. Notwithstanding the foregoing, any amendment which would change the class of individuals eligible to receive an ISO, extend the expiration date of the Plan, decrease the Option Price of an ISO granted under the Plan or increase the maximum number of shares as to which Options may be granted will only be effective if such action is approved by a majority of the outstanding voting stock of the Company within twelve months before or after such action. 10. Continued Employment. The grant of an Option pursuant to the Plan shall not be construed to imply or to constitute evidence of any agreement, express or implied, on the part of the Company or any Affiliate to retain the Optionee in the employ of the Company or an Affiliate, as a member of the Board of Directors, as an independent contractor or in any other capacity. 11. Withholding of Taxes. Whenever the Company proposes or is required to issue or transfer Option Shares, the Company shall have the right to (a) require the recipient or transferee to remit to the Company an amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery or transfer of any certificate or certificates for such Option Shares -9- or (b) take whatever action it deems necessary to protect its interests. 12. Assumption by Successors. Any agreement providing for a Change of Control involving a consolidation with or merger into another corporation (other than a merger or consolidation in which the Company is the continuing or surviving corporation) shall make express, effective provisions for the assumption of the Company's obligations under this Plan by the surviving or continuing corporation, and/or by the parent of the surviving or continuing corporation in the case of a "triangular" merger in which holders of the Company's Common Stock receive securities of such parent corporation in exchange for or in conversion of the Company's Common Stock. -10- EX-10 5 EXHIBIT 10.2 DIGITAL RADIO COMMUNICATIONS CORPORATION OMNIBUS STOCK OPTION PLAN -1996 ARTICLE 1 Purpose The purpose of this Omnibus Stock Option Plan (the "Plan") is to enable Digital Radio Communications Corporation (the "Company") to offer key employees and directors of the Company as well as non-employee advisors and consultants equity interests in the Company, thereby attracting, retaining and rewarding such persons, and strengthening the mutuality of interests between such persons and the Company's shareholders. ARTICLE II Definitions For the purposes of this Plan, the following terms shall have the following meanings: 2.1 "Award" shall mean an award under this Plan of any Stock Option or Restricted Stock. 2.2 "Board" shall mean the Board of Directors of the Company. 2.3 "Change of Control" shall mean the occurrence of any one of the following, other than in a transaction that has been approved by the Board: (i) the Company enters into an agreement of reorganization, merger or consolidation pursuant to which the Company is not the surviving corporation, (ii) the company sells substantially all its assets, or (iii) in excess of 50% of the outstanding shares of stock of the Company are acquired, in one transaction or a series of transactions, by a single purchaser or group of related purchasers. 2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.5 "Committee" shall mean the Committee of the Board, consisting of two or more Directors, charged with the supervision of the Plan. If the Board has not established a Committee, the Committee shall consist of the Board. 2.6 "Common Stock" shall mean the Common Shares, $.01 par value per share, of the Company. 1 2.7 "Company" shall mean Digital Radio Communications Corporation, a Utah Corporation. 2.8 "Disability" shall mean a mental or physical impairment that results in the inability of an employee to perform his or her material duties for a period of one hundred eighty (l80) days or, in the reasonable judgment of a qualified medical professional, the substantial likelihood that an employee will be unable to perform his or her material duties for a period of one hundred eighty (180) days or more due to a mental or physical impairment. 2.9 "Fair Market Value" for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, shall mean, as of any date, (it if the shares of the Company are publicly traded, the weighted average of the published prices of a share of Common Stock for the 30-day period ending at the close of trading on the preceding trading day, or (ii) if the shares of the Company are not publicly traded or if such information is not otherwise available, the fair market value as reasonably determined by the Board, in good faith, which determination shall be conclusive. 2.10 "Incentive Stock Option" shall mean any Stock Option awarded under this Plan intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code or any successor section. 2.11 "Non-Qualified Stock Option" shall mean any Stock Option awarded under this Plan that is not an Incentive Stock Option. 2.12 "Participant" shall mean a person to whom an Award has been made pursuant to this Plan. 2. l3 "Restricted Stock" shall mean an Award of shares of Common Stock under this Plan that is subject to restrictions under Article VII. 2.14 "Restriction Period" shall have the meaning set forth in Section 7.3(a). 2.15 "Stock Option" or "Option" shall mean any option to purchase shares of Common Stock granted pursuant to Article VI. 2.16 "Termination of Employment" shall mean a termination of employment with the Company for reasons other than a military or personal leave of absence granted by the Company. In the case of a Director who is not an employee of the Company, "Termination of Employment" shall mean termination of service as a director of the Company. 2 ARTICLE III Administration 3.1 The Committee. The Plan shall be administered and interpreted by the Committee. 3.2 Awards. The Committee shall have full authority to grant Stock Options and Restricted Stock, pursuant to the terms of this Plan, to persons eligible under Article V. In particular, the Committee shall have the authority: (a) to select the persons to whom Stock Options and Restricted Stock may from time to time be granted hereunder; (b) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock Options and Restricted Stock, or any combination thereof, are to be granted hereunder to one or more persons eligible to receive Awards under Article V; (c) to determine the number of shares of Common Stock to be covered by each such Award granted hereunder; and (d) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, the option price, the term of the option, any restriction or limitation affecting the exercisability or delivery thereof, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver thereof, regarding any Award and the shares of Common Stock relating thereto). 3.3 Guidelines. Subject to Article VIII hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, Sidelines and practices governing this Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of this Plan and any Award issued under this Plan (and any agreements relating thereto); and to otherwise supervise the administration of this Plan. The committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any Award granted in the manner and to the extent it shall deem necessary to carry this Plan into effect. Notwithstanding the foregoing, no action of the Committee under this Section 3.3 shall impair the rights of any Participant without the Participant's consent. 3.4 Decisions Final. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company, all employees and Participants and their respective heirs, executors, administrators, successors and assigns. 3 ARTICLE IV Share Limitation 4.1 Shares. The maximum aggregate number of shares of Common Stock which may be issued under this Plan shall be Two Hundred Thousand (200,000) (adjusted as of August 30, 1996 for a 2 to 1 stock split) (subject to any increase or decrease pursuant to Section 4.2), which may be either authorized and unissued Common Stock or issued Common Stock reacquired by the Company. If any Option granted under this Plan shall expire, terminate or be canceled for any reason without having been exercised in full, the number of unpurchased shares shall again be available for the purposes of the Plan. 4.2 Changes. In the event of any merger, reorganization, consolidation, recapitalization, dividend (other than a dividend or its equivalent which is credited to a Plan Participant or a regular cash dividend), stock split, or other change in corporate structure affecting the Common Stock, such substitution or adjustment shall be made in the maximum aggregate number of shares which may be issued under this Plan, in the number and option price of shares subject to outstanding Options granted under this Plan, and in the number of shares subject to other outstanding Awards granted under this Plan, as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any Award shall always be a whole number. ARTICLE V Eligibility 5.1 Employees. Officers and other key employees of the Company (including Directors of the Company who are also employees of the Company) are eligible to be granted Awards under this Plan. 5.2 Directors, Consultants and Advisors. Directors of the Company, consultants, advisors or any other person who is performing services of special importance to the management, operation or development of the Company are eligible to be granted Non-Qualified Stock Options and Restricted Stock under this Plan, but may not be granted Incentive Stock Options. 4 ARTICLE VI Stock Options 6.l Options. Each Stock Option granted under this Plan shall be either an Incentive Stock Option or a Non-Qualified Stock Option. 6.2 Grants. The Committee shall have the authority to grant to any person eligible under Article V one or more Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options. To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or the portion thereof which does not qualify as an Incentive Stock Option shall constitute a separate Non-Qualified ed Stock Option. 6.3 Incentive Stock Options. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan, under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Stock Option under such Section 422. 6.4 Terms of Options. Options granted under this Plan shalt be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem desirable: (a) Stock Option Contract. Each Stock Option shall be evidenced by, and subject to the terms of, a Stock Option Contract executed by the Company and the Participant. The Stock Option Contract shall specify whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option, the number of shares of Common Stock subject to the Stock Option, the option price, the option term, and the other terms and conditions applicable to the Stock Option. (b) Options Price. Subject to section (k) below, the option price per share of Common Stock purchasable upon exercise of a Stock Option shall be determined by the Committee at the time of grant but shall be not less than 100% of the Fair Market Value of the Common Stock on the date of grant if the Stock Option is intended to be an Incentive Stock Option. (c) Option Term. Subject to section (k) below, the term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than five years after the date it is granted. 5 (d) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant; provided, however, that the Committee may waive any installment exercise or waiting period provisions, in whole or in part, at any time after the date of grant, based on such factors as the Committee shall deem appropriate in its sole discretion. (e) Assignability. Except by will or the laws of descent and distribution, no right or interest in any Stock Option granted under the Plan shall be assignable or transferable, and no right or interest of any Optionee shall be liable for, or subject to, any lien, obligation or liability of the Participant. Stock Options shall be exercisable during the Optionee's lifetime only by the Optionee or the duly appointed legal representative of an incompetent Optionee. (f) Method of Exercise. Subject to such installment exercise and waiting period provisions as may be imposed by the Committee, Stock Options may be exercised in whole or in part at any time during the option term, by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased and the option price therefor. The notice of exercise shall be accompanied by payment in full of the option price in cash and, unless waived by the committee, by the representation described in Section 10.2. The Committee may, in its sole discretion at or after the grant, determine that payment in full or in part may be made in the form of Common Stock duly owned by the Participant (and for which the Participant has good title free and clear of any liens and encumbrances), based on the Fair Market Value of the Common Stock on the last trading date preceding payment. Upon payment in full of the option price, as provided herein, a stock certificate or stock certificates representing the number of shares of Common Stock to which the Participant is entitled shall be issued and delivered to the Participant. A Participant shall not be deemed to be the holder of Common Stock, or to have the rights of a holder of Common Stock, with respect to shares subject to the Option' unless and until a stock certificate or stock certificates representing such shares of Common Stock are issued to such Participant. (g) Death. Except for Incentive Stock Options subject to subsection (i) below, if a Participant's employment by the Company terminates by reason of death or if a Participant possessing a Non-Qualified Stock Option dies, any Stock Option held by such Participant which was exercisable at the date of death may be exercised by the legal representative of the Participant's estate at any time or times during the period beginning on the date of death and ending ninety (90) days after the date of death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. Nothing in this paragraph is intended to affect the rights of the Company under any separate agreement between the Company and a participant. (h) Disability. Except for Incentive Stock Options subject to subsection (i) below, if a Participant's employment by the Company terminates by reason of Disability, any Incentive Stock Option held by such Participant which was exercisable on 6 the date of such termination of employment may thereafter be exercised by the Participant at any time or times during the period beginning on the date of such termination and ending ninety (90) days after the date of such termination or until the expiration of the stated term of such Stock Option, whichever period is the shorter. If an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option. Nothing in this paragraph is intended to affect the rights of a Participant possessing a Non-Qualified Stock Option or to affect the rights of the Company under any separate agreement between the Company and a participant. (i) Termination of Employment. If a Participant's employment by the Company terminates for any reason other than Death or Disability, any Incentive Stock Option held by such Participant on the date of such termination of employment will terminate thirty (30) days after such date of termination, or on the expiration of the stated term of such Incentive Stock Option if earlier, and may not be exercised thereafter. Nothing in this paragraph shall affect the rights of a Participant possessing a NonQualified Stock Option or the rights of the Company under any separate agreement between the Company and a Participant. (j) Change of Control. In the event of a Change of Control, all outstanding Stock Options shall immediately become fully exercisable, and upon payment by the Participant of the option price (and, unless waived, delivery of the representation described in Section 10.2), a stock certificate or certificates representing the Common Stock covered thereby shall be issued and delivered to the Participant. (k) Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year under the Plan and/or any other stock option plan of the Company or any subsidiary or parent corporation (within the meaning of Section 424 of the Code) exceeds $100,000, such Options shall be treated as Options which are not Incentive Stock Options. Should the foregoing provisions not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should an additional provisions be required, the Board may amend this Plan accordingly, without the necessity of obtaining the approval of the shareholders of the Company. (l) Ten-Percent Shareholder Rule. Notwithstanding any other provision of this Plan to the contrary, no Incentive Stock Option shall be granted to any person who, immediately prior to the grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company, unless the option price is at least 1 10% of the Fair Market Value of the Common Stock on the date of grant and the Option, by its terms, expires no later than five years after the date of grant. 7 ARTICLE VII Restricted Stock 7.1 Awards of Restricted Stock. The Committee shall determine the eligible person to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the time or times within which such Restricted Stock may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and the other terms and conditions of the Awards in addition to those set forth in Section 7.2 and 7.3. The provisions of Restricted Stock Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years. 7.2 Agreements and Certificates. Restricted Stock awarded pursuant to this Article VII shall be subject to the following terms and conditions: (a) Restricted Stock Agreement. Each Restricted Stock Award shall be evidenced by, and subject to the terms of, a Restricted Stock Agreement executed by the Company. The Restricted Stock Agreement shall specify the number of shares of Common Stock subject to the Award, the time or times within which such Restricted Stock is subject to forfeiture and the other terms, conditions and restrictions applicable to such Award. (b) Stock Certificate. When a Participant receives a Restricted Stock Award, a stock certificate or stock certificates representing the number of shares of Common Stock covered by such Award shall be issued and registered in the name of the Participant. A Participant shall have all of the rights of a holder of Common Stock with respect to such shares of Restricted Stock, including the right to vote such shares and to receive dividends thereon, except that the Participant shall not be permitted to sell, transfer, pledge or assign such shares of Restricted Stock. (c) Custody. All stock certificates representing shares of Restricted Stock shall be held in custody by the Company until such Restricted Stock is no longer subject to forfeiture. When the restrictions applicable to a Restricted Stock Award, or any portion thereof, lapse, the stock certificate or stock certificates representing such shares shall be released from custody and delivered to the Participant. (d) Distributions. In the event of a dividend or distribution payable in stock or a reclassification, stock split or split-up, the shares issued or declared on account of Restricted Stock shall be subject to the same terms and conditions relating to forfeiture as the Restricted Stock to which they relate. 8 7.3 Restrictions and Conditions. The shares of Restricted Stock awarded pursuant to this Plan shall be subject to the following restrictions and conditions and such other terms and conditions, not inconsistent with the terms of this Plan, as the committee shall deem desirable. (a) Restriction Period. Subject to the provisions of this Plan and the Restricted Stock Agreement, shares of Restricted Stock will be forfeited to the Company if the Participant ceases to be an employee of the Company or a Director of the Company during a period (not to exceed five years) set by the Committee commencing with the date of such Award (the "Restriction Period"). Subject to the provisions of this Plan, the Committee may provide for the lapse of such restrictions in installments and may waive such restrictions, in whole or in part, at any time after the date of grant, based on such factors as the Committee shall deem appropriate in its sole discretion. Change of Control. In the event of a Change of Control, all Restricted Stock remaining subject to forfeiture shall immediately cease to be subject to forfeiture and the stock certificate or certificates representing such shares of Common Stock shall be released from custody and delivered to the Participant. ARTICLE VIII Termination or Amendment 8.1 Termination or Amendment of the Plan. The Board may at any time amend, discontinue or terminate this Plan or any part thereof (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article X); provided, however, that, unless otherwise required by law, the rights of a Participant with respect to Awards granted prior to such amendment, discontinuance or termination, may not be impaired without the consent of such Participant and, provided further, without the approval of the Company's shareholders, no amendment may be made that would (1) materially increase the aggregate number of shares of Common Stock that may be issued under this Plan (except by operation of Section 4.2); (ii) materially modify the requirements as to eligibility to participate in the Plan; or (iii) materially increase the benefits accruing to Participants. 8.2 Amendment of Awards. The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Article IV, no such amendment or other action by the Committee shall impair the rights of any holder without the holder's consent. The Committee may also substitute new Stock Options for previously granted Stock Options having higher option prices. 9 ARTICLE IX Unfunded Plan 9.1 Unfunded Status of Plan. This Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payment not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. ARTICLE X General Provisions 10.1 Nonassignment. Except as otherwise provided in this Plan, Awards made hereunder and the rights and privileges conferred thereby shall not be sold, transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such Award, right or privilege contrary to the provisions hereof, or upon the levy of any attachment or similar process thereon, such Award and the rights and privileges conferred hereby shall immediately terminate and the Award shall immediately be forfeited to the Company. 10.2 Legend. The Committee may require each person acquiring shares pursuant to an Award under this Plan to represent to the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. The stock certificates representing such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates representing shares of Common Stock delivered under this Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or stock market upon which the Common Stock is then listed or traded, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 10.3 Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. 10.4 No Right to Employment. Neither this Plan nor the grant of any Award hereunder shall give any Participant or other employee any right with respect to 10 continuance of employment by the Company nor shall there be a limitation in any way on the right of the Company to terminate such Participant's employment at any time. Neither this Plan nor the grant of any Award hereunder shall give any Director any right with respect to continued service as a Director. 10.5 Withholding of Taxes. The Company shall have the right to (a) require the Participant to remit to the Company an amount sufficient to satisfy all Federal, state, and local tax requirements prior to the delivery of a stock certificate representing the shares of Common Stock otherwise deliverable to the Participant, (b) reduce the number of shares of Common Stock otherwise deliverable to the Participant pursuant to this Plan by an amount that would have a Fair Market Value equal to the amount of all Federal, state or local taxes required to be withheld, or (c) to deduct the amount of such taxes from any cash payment otherwise to be made to the Participant. In connection with such withholding the Committee may make such arrangements as are consistent with this Plan as it may deem appropriate. 10.6 Listing and Other Conditions. (a) If the Common Stock is listed on a national securities exchange, the issuance of any shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange. The company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option or to receive shares pursuant to any other Award shall be suspended until such listing has been effected. (b) If at any time counsel to the Company shall be of the Opinion that any sale or delivery of shares of Common Stock pursuant to an Award is or may in the circumstances be unlawful or result in the imposition of excise taxes under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933, as amended, or otherwise with respect to shares of Common Stock or Awards, and the right to exercise any Option or to receive shares pursuant to any other Award shall be suspended until, in the opinion of such counsel, such sale of delivery shall be lawful or shall not result in the imposition of excise taxes. (c) Upon termination of any period of suspension under this Section 10.6, any Award affect by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Option. 10,7 Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Utah. 11 10.8 Construction. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. 10.9 Liabilily of Committee. No member of the Board or the Committee nor any employee of the Company shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated or, except in circumstances involving bad faith, gross negligence or fraud, for anything done or omitted to be done by himself. 10.10 Other Benefits. No payment pursuant to an Award under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan nor affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation. 10.11 Costs. The Company shall bear all expenses incurred in administering this Plan, including expenses of issuing Common Stock pursuant to Awards hereunder. 10.12 Severability. If any part of this Plan shall be determined to be invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of this Plan which shall continue in full force and effect. 10.13 Successors. This Plan shall be binding upon and inure to the benefit of any successor or successors of the Company. 10.14 Headings. Article and section headings contained in this Plan are included for convenience only and are not to be used in construing or interpreting this Plan. ARTICLE XI Effective Date of Plan 11.1 The Plan shall be effective as of the earlier of (i) the date of first issuance of any Award under the Plan and (ii) the date of its approval by the Company's stockholders ("Stockholder Approval"); provided, that any issuance of an Award prior to Stockholder Approval will be subject to Stockholder Approval being obtained within one year of the date of the Plan was approved by the Company's board of directors. 12 ARTICLE XII Term of Plan 12. No Stock Option or Restricted Stock shall be granted pursuant to this Plan on or after the tenth anniversary of its approval by the Company's shareholders, but Awards granted prior to such tenth anniversary may extend beyond that date. As adopted by the Board of Directors on May 17, 1996 and approved by the shareholders on ___________________. A True Copy ________________________________ Judy Sperry, Secretary 13 EX-10 6 EXHIBIT 10.3 DEVELOPMENT and LICENSE AGREEMENT AGREEMENT, made and entered into as of the 4th day of April, 1997, by and between Kyushu Matsushita Electric Co., Ltd., with its offices at 1-62, 4-chome, Minoshima, Hakata-ku, Fukuoka 812, Japan ("KME"), and Digital Radio Communication Corporation, a Corporation having its registered place of business located at 772 East Utah Valley Drive, American Fork, Utah 84003, U.S.A. ("DRI") WITNESSETH: WHEREAS, KME is engaged in the design, development, manufacture, marketing and distribution of certain communication products; and WHEREAS, DRI is engaged in the development of low-cost spread spectrum radio technology (Technology); and WHEREAS, KME wishes to incorporate the Technology (hereinbelow defined) in the Products (hereinbelow defined) designed by KME. WHEREAS, DRI represents that it is engaged in the business of, and is fully knowledgeable about the development of the Technology. WHEREAS, DRI is willing to develop for KME, and KME are willing to have DRI developed for KME, such the Technology for the Products designed by KME, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and premises set forth herein, the parties agree as follows: 1. DEFINITIONS For purpose of this Agreement, the following terms shall have the following specific meanings: "Technology" shall mean low-cost spread spectrum radio technology which conforms to the specifications described in Exhibit-A to be separately agreed upon by the parties hereto with the recited that it is executed pursuant to this Agreement. ("Specification") "Deliverables" shall mean prototypes, schematics, block diagrams and any other items related to the Technology described in Exhibit-C attached hereto. "Product" or "Products" shall mean the product incorporated the Technology and connected with telelines to be manufactured, marketed, and distributed by KME. 2. THE SERVICES KME hereby retain and assign DRI, and DRI hereby accepts the retention and assignment to develop the Technology for use in certain Products designed by KME. The detailed specification and description of the Technology are set forth in Exhibit-A attached hereto and made a part hereof. 3. DEVELOPMENT SCHEDULE 3.1 DRI shall develop the Technology in accordance with the development schedule mutually agreed upon between the parties hereto, which is set forth in Exhibit-B 1 attached hereto ("Development Schedule") and made a part hereof. DRI agrees to fully comply with the Development Schedule, and further agrees that time is of the essence with respect to its performance of this Agreement. In order for KME to keep the Development Schedule, KME shall have the right, at any time during the term of this Agreement, to review DRI's progress in the development of the Technology. DRI agrees to provide KME, from time to time during the term of this Agreement, at the request of KME, with written progress reports concerning the development of the Technology, containing any data any form required by KME. The Development Schedule may be changed only by the written agreement of the both parties to this Agreement. 3.2 In the event that DRI becomes aware or has reason to believe that it is unable to accomplish any stage of the development of the Technology in accordance with the Development Schedule, DRI shall notify KME in writing within (5) days after DRI first becomes aware or comes to believe the same. Upon notification, KME and DRI shall negotiate in good faith to adjust the Development Schedule in order to accommodate DRI's adjusted schedule. However, in no case shall any particular stage or stages of the Development Schedule be extended by more than (30) days. In the event that any particular stage or stages of the Development Schedule is, in fact, delayed for more than such (30) days, the payments to which DRI shall be entitled pursuant to Article 6 of this Agreement shall be reduced by such amount as KME reasonably determine, to be appropriate as a result of the reduction in value to KME of the Technology due to such delay. 4. ADDITIONS CHANGES 4.1 If, at any time during the term of this Agreement, KME desires to retain and assign DRI to develop any other technology related and in addition to the Technology under this Agreement, KME shall provide DRI with full written particulars of such additions and with such further information as DRI may reasonably require in order to determine whether it wishes to accept such retention and assignment. 4.2 DRI shall, upon the request of KME, immediately submit to KME a written quotation for such additional work for to the Technology specifying what changes, if any, will be required to the Development Schedule and what adjustments or amendments will be required to the Specification. 4.3 Upon receipt of such quotation, KME may elect to proceed in accordance with subparagraph (i) or (ii) of this Article, and shall advise DRI of its election within (15) days after the receipt of DRI's written quotation as aforesaid; (i) to accept such quotation in principal, in which case the parties shall negotiate to decide the specific terms and conditions of any required amendment to this Agreement, or (ii) to withdraw the proposed additions to the Technology, in which case this Agreement shall continue in force unchanged. 4.4 If, any time during the term of this Agreement, KME wishes to make changes to the Specification or the Technology, DRI shall make such changes. The Development Schedule and Development fees may be amended in writing upon mutual agreement, if necessary. 5. DELIVERABLES AND EVALUATION 5.1 DRI shall, at its own expense, on or before the date specified in the Development Schedule, provide KME with Deliverables, as well as complete documentation and any other items therefor, as may be required by KME for its acceptance testing/evaluation of the Technology at facility agreed by the parties. 5.2 Within (60) days after the receipt of the Deliverables and documentation and any 2 other items therefor at the time of the completion of each Milestone by DRI, KME shall conduct evaluation of the Technology whether or not the Technology conforms to the Specification. Upon the request of KME, DRI agrees to corporate with KME's evaluation at free of charge. In the event that the Technology conforms to the Specification, KME shall accept the Technology. In the event that KME decide to reject the Technology, such rejection shall be advised to DRI in writing specifying the reasons for such rejection, KME shall afford DRI one (1) reasonable opportunity to correct any identified problems and resubmit at least (1) additional prototype of the Technology and documentation and any other items therefor to KME, at the expense of DRI, for re-evaluation of the Technology. If, after such second evaluation, the parties negotiate and determine in good faith, due to the failure of the Technology to conform to the Specification, then: (a) the payments to which DRI shall be entitled pursuant to Article 6 of this Agreement shall be reduced by such amount as the parties negotiate and determine in good faith, to be appropriate as a result of the reduction in value to KME of the Technology due to such failure of the Technology to conform to the Specification. The prototypes and the copies of the documentation and any other items therefor, as delivered to KME, shall become the property of KME pursuant to Article 5 of this Agreement, except as may be otherwise expressly provided herein; or (b) KME shall be entitled to terminate this Agreement, and DRI shall, without prejudice to any other rights and remedies of KME, forthwith refund to KME all development fees previously paid by KME to DRI under this Agreement. 6. DEVELOPMENT FEE AND PAYMENT 6.1 In consideration to the obligation of DRI to complete the development of the Technology hereunder, KME shall pay to DRI; a) by 10th day of the following month after the execution of the Exhibit-A, the sum of ($432,000 US dollars), and, b) by 10th day of the following month after sufficiently the completion of KME's evaluation for prototypes set forth in Article 5, the sum of ($432,000 US dollars), and, c) by October 10th 1997 subject to sufficiently the completion of KME's evaluation for final working samples set forth in Article 5, the sum of ($432,000 US dollars), and 6.2 KME shall reserve the right to terminate this Agreement if KME decides, at its sole discretion, that the development work made by DRI pursuant to the Development Schedule does not meet the requirement of KME after KME inspects the process of the development at the time of the completion of each Milestone by DRI. Upon termination of the Agreement pursuant to this Article 6.2 hereof, KME shall pay only the development fee due corresponding to the completion of the Milestone by DMI and KME shall be relieved from any obligation to pay further development fee to Developer pursuant to the Development Schedule. DRI shall immediately assign or transfer to KME all work completed or in process by DRI in connection with the development of the Technology to the date of such termination. 7. ROYALTIES 7.1 In consideration of the license granted by DRI to KME described in Article 10.6, KME will pay DRI the per-unit royalties (the "Royalties") specified below on the sales of Products by KME. Royalties are payable within thirty (30) days following the end of each calendar quarter (each such period a "Royalty Period") based on Products sold or shipped during such Royalty Period. 3 Units Shipped in Total: Royalty per Unit: ----------------------- ----------------- For 2 years from the first shipment of the Products First 600,000 or fewer Free of Charge 600,001 to 1,000,000 $1.00/unit Over 1,000,000 $0.5/unit After 2 years from the first shipment Free of Charge of the Products 7.2 KME shall keep full, clear and accurate records with respect to all Products sold, hereunder to the extent necessary for making the reports and payments provided for herein for 1 year from last payment of the Royalty. 7.3 Such records shall be open for inspection, at DRI's expense, by an independent certified public accountant appointed by DRI and acceptable to KME and upon reasonable notice, but not more than once during any calendar year of this Agreement, to examine KME's books and records to the extent reasonably required to verify the statements furnished by KME to DRI pursuant to Article 7.2 hereof, provided, however, that the certified public accountant will be instructed by DRI not to release any of KME's documentation to DRI or confidential business information including, by way of example and without limitation, information as to KME's customers. 7.4 In the event that Royalties under this Agreement are taxable by the Japanese Government and such tax is required by the Japanese government to be withheld from the Royalties to DRI, KME shall pay such withholding tax to Japanese tax office on behalf of DRI and DRI will receive the net amount as described in Article 7.1 after deducting of such withholding tax. 8. TECHNICAL SUPPORT (a) DRI shall make available to KME during DRI's normal business hours, a telephone hotline service, whereby qualified DRI personnel will be available to respond to KME's inquiries with respect to the Technology. (1)) Upon KME's request, DRI will make available qualified personnel to meet with KME's personnel, at reasonable intervals, to discuss problems with, or improvements to, the Technology identified by KME. (c) The technical support described in this Article 8 shall be provided at DRI's facility free of charge during the execution of this Agreement. (d) Except for above (c), the technical support will be provided on mutual agreed terms and conditions. 9. CONFIDENTIALITY 9.1 The Receiving Party agrees to keep the Confidential Information disclosed to it confidential and to use it only for the purposes described herein, except as the Disclosing Party may otherwise agree in writing. 9.2 If the Confidential Information is disclosed in writing, it shall be conspicuously labeled as confidential. If the Confidential Information is disclosed orally or in other ephemeral form, it must be specifically designated as Confidential Information at the time of the disclosure and confirmed in writing to be received by the Receiving Party within (20) days of such disclosure. 9.3 Each party's Confidential Information previously disclosed under the Confidential Disclosure Agreement dated February 20th 1997 ("CDA") shall be included in the Confidential Information described in this Article 9. 4 9.4 Access to the Confidential Information received by the Receiving Party under this Agreement shall be limited to those employees of the Receiving Party requiring such access for carrying out the purposes of this Agreement. This Agreement shall not be construed to bind or impose obligations upon any other divisions, subsidiaries, business units and/or affiliated companies of Kyushu Matsushita Electric Co., Ltd., other than the fourth Division of KME, except for any of such others that receive access to the Confidential Information of DRI. 9.5 The Receiving Party will use the same degree of care in keeping the Confidential Information confidential as it uses for its own confidential of a similar nature. The Receiving Party shall not be liable for inadvertent disclosure of the Confidential Information, provided it uses the same degree of care in keeping the Confidential Information confidential as it uses for its own confidential information of a similar nature and, upon discovery of any such inadvertent disclosure of the Confidential Information, the Receiving Party promptly advises the Disclosing Party of the inadvertent disclosure and endeavors to prevent any further inadvertent disclosure. 9.6 The obligations under this Agreement shall not extend to the Confidential Information that: (a) is in the public domain at the time it is disclosed or becomes part of the public domain after disclosure, including, without limitation, disclosure in a U.S. or foreign patent or printed publication, or through the unrestricted sale of products embodying the same; or (b) is known to the Receiving Party at the time of its disclosure or becomes known to it without breach of this confidentiality obligations; or (c) is independently developed by the Receiving Party; or (d) is disclosed by the Disclosing Party to a third party without restrictions on such third party's rights to disclose or use the same; or (e) is disclosed pursuant to judicial order, a requirement of a governmental agency or by operation of law; or (f) is approved for release upon the Disclosing Party's prior written consent; or (g) is disclosed by the Disclosing Party to the Receiving Party after the notification by the Receiving Party that it will not accept any further Confidential Information in confidence. 9.7 This Agreement shall be in effect for a period of (2) years from the date hereof, and thereafter all of the obligations hereunder shall cease and neither party shall be under any obligation whatsoever to keep the Confidential Information confidential. 9.8 The parties agree to terminate the CDA upon the execution hereof. 1O. INTELLECTUAL PROPERTY RIGHTS 10.1 In the event that either party develops any Proprietary Rights relating to the Technology under this Agreement, such party shall immediately notify in writing the other party of such Rights. "Proprietary Rights" means any worldwide right, title and interest in and to the Technology and in which contained know-how, trade secrets, patents, copyrights, mask works and all rights or forms of protection of a similar nature or having equivalent or similar effect to any of these which may subsist anywhere in the world. 10.2 Any and all Proprietary Rights that are solely developed by either party under this Agreement shall be solely owned by such party. 5 10.3 Proprietary Rights that are based upon Deliverables and/or jointly developed by the parties hereto under this Agreement shall be owned jointly. Both parties agree that (a) the parties have equal beneficial ownership of the jointly owned Proprietary Rights, (b) the expenses for application of patents or other intellectual property rights under such jointly owned Proprietary Rights and for maintenance of patents or other intellectual property rights issued therefrom shall be borne equally by the parties, (c) each party and Matsushita Electric Industrial Co. Ltd., which is a parent company of KME ("MEI") shall have the right to freely use or exploit the jointly owned Proprietary Rights for any purpose, (d) neither party shall grant a license under the jointly owned Proprietary Rights without the prior written approval by the other party, and (e) neither party shall assign its interest in the jointly owned Proprietary Rights without the prior written approval of the other party. 10.4 Notwithstanding Article 10.3 above, DRI acknowledges and agrees that KME will assign MEI its shared rights in the patents (including utility models and design patents) jointly developed and owned by DRI and KME without any further consent of DRI. At the request of KME, DRI shall cooperate with KME in delivering any and all instruments that are reasonably necessary for such assignment of KME's shared rights to MEI. 10.5 In the event that either party finds it difficult to judge whether certain Proprietary Rights are solely owned by one party or jointly owned, both parties shall meet in good faith to decide the ownership thereof. 10.6 DRI hereby agrees to grant to KME an irrevocable, world-wide and non-exclusive license to use or authorize the use of any patents copyrights, technical know-how and other intellectual property rights (including Proprietary Rights) of DRI which are or become embodied in the Technology, for KME or its suppliers' manufacture of the Technology, and DRI shall not assert any patent or other such intellectual property rights against KME or its suppliers' marketing of any products incorporating the Technology so manufactured. DRI's obligations under this Article 10 shall survive the termination or expiration of this Agreement. 11. LIMITATION OF THE USE OF TECHNOLOGY DRI hereby agrees that the Technology developed pursuant to this Agreement shall not be supplied to any third party for (2) years after first shipment of the Products. DRI's obligation under this Article 11 shall survive the termination or expiration of this Agreement. 12. INDEMNITY 12.1 DRI hereby warrants and represents to KME that the Technology, the documentation and any other items therefor, shall be the original creations of DRI, and will not be copies from the work of any third party, that KME will, pursuant to this Agreement, own or be entitled to the royalty-free license to all proprietary rights (including, without limitation, patent, trademark, trade secrets and copyright rights) in the Technology, such documentation and items therefor. If the Technology, such documentation and items therefor infringes upon the intellectual property rights of any third parties, then DRI hereby agrees to defend, indemnify and hold harmless KME, and its parent, affiliates and subsidiaries, and its successors and assigns, from and against any and all judgments, suits, damages, costs, charges, awards and counsel fees relating to any claim of infringement made by any third parties with respect to the Technology, the documentation and/or items therefor. 6 12.2 DRI's obligations under this Article 12 shall survive indefinitely the termination or expiration of this Agreement. 13. INDEMNIFICATION DRI shall be liable to KME for any and all damages, including and not limited to incidental, consequential or special damages, incurred by KME arising from a breach of DRI's obligations under this Agreement. 14. TERM OF AGREEMENT 14.1 This Agreement shall be effective as of the date first set forth above of the execution by the respective parties or the date of approval by the Japanese government, if required, whichever comes later, and continue effective until the date that KME submits the written notice for termination. 14.2 This Agreement may be terminated by either party upon written notice to the other party without liability; (i) in the event of a breach by the other party of any terms and conditions of this Agreement and the failure to cure such breach within sixty (60) days after written notice; (ii) in the event that performance of this Agreement by either party shall have been rendered impossible or impractical for a period of two (2) consecutive months by the reason of the happening of one (1) or more events referred to in Article 10 hereof, or (iii) at any time (a) upon or after the filing by the other party of a petition in bankruptcy or insolvency; or (b) upon or after any adjudication that the other party is insolvent; or (c) upon or after the filing by the other party of any petition or answer seeking reorganization, readjustment or arrangement of the business of the other party under any law relating to bankruptcy or insolvency; or (d) upon or after the appointment of a receiver for all or substantially all of the property of the other party; or (e) upon or after the making by the other party of any assignment or attempted assignment for the benefit of creditors, or (f) upon or after the institution of any proceedings for the liquidation or winding up of the other party's business or for the termination of its corporate charter. 14.3 Upon any termination or expiration of this Agreement, KME shall immediately stop all reproduction of the Products. In addition, KME agrees to destroy all reproduction materials delivered to KME by DRI immediately after such termination or expiration, except for necessary materials to use only for the purposes of offering continued maintenance or repair service with respect to Products. Notwithstanding anything to contrary in this Agreement, no expiration or termination of this Agreement shall affect or impair the continued validity of any sublicenses granted by KME with respect to units of the Products already shipped by KME, or for which KME has already received a written order from a customer, on and before the date of such termination or expiration. 15. TERMINATION FOR CONVENIENCE KME may, in its sole and absolute discretion, terminate this Agreement, with or without cause, upon (60) days prior written notice to DRI. In the event of any such termination, DRI shall immediately turn over to KME all work completed or in process by DRI in connection with the development of the Technology to the date of such termination, which work and materials shall thereupon become the exclusive property of KME. In consideration for DRI turning over to KME all work completed or in process pursuant to this paragraph, KME may thereupon pay DRI an amount ("Compensation Amount" 7 which the parties negotiate and determine in good faith, is adequate compensation to DRI for such work completed or in process. Therefore, DRI shall repay KME an amount deducted the Compensation Amount from an amount paid by KME in accordance with Article 6. 16. INDEPENDENT CONTRACTOR 16.1 It is expressly understood and agreed that DRI is, and shall at all times during the term of this Agreement be deemed to be, an independent contractor, and nothing in this Agreement shall in any way be deemed or construed to constitute DRI an agent or employee of KME, nor shall DRI have the right or authority to act for, incur, assume or create any obligation, responsibility or liability, express or implied, in the name of, or on behalf of, KME, or to bind KME, in any manner whatsoever. DRI's employees shall be deemed to be the agents, servants and employees of DRI only, and KME shall incur no obligations or liabilities of any kind, nature or sort, express or implied, by virtue of, or with respect to, the conduct or such employees. 16.2 DRI agrees that KME reserve the right to retain third party independent contractors as necessary in their business discretion to perform the terms of this Agreement. 17. ASSIGNMENT Neither this Agreement, nor any of the rights or interests of DRI hereunder, may be assigned, transferred or conveyed by DRI, by operation of law or otherwise, except upon the express prior written consent of KME. Any such assignment, transfer or conveyance bv DRI in violation of this Article 17, shall, at the option of KME, void this Agreement. 18. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of Japan. 19. ENTIRE AGREEMENT This Agreement sets forth the entire understanding, and hereby supersedes any and all prior agreements, oral or written, heretofore made, between the parties, with respect to the subject matter of this Agreement, and there are no representations, warranties, covenants, agreements, or understandings, oral or otherwise, express or implied, affecting this Agreement which are not expressly set forth herein. No delay on the part of either party in exercising any of its respective rights hereunder, or the failure to exercise the same, nor the acquiescence in or waiver of a breach of any term, provision or condition of this Agreement, shall be deemed or construed to operate as a waiver of such rights or acquiescence thereto, except in the specific instance for which it is given. None of the terms, conditions or provisions of this Agreement shall have been held to have been changed, varied, waived, modified or altered, except by a statement in writing signed by all of the parties hereto. 20. FORCE MAJEURE Neither party shall be liable for delay or failure in the performance of this Agreement arising from any of the following matters; (i) Acts of God, or public enemy or war (declared or undeclared); (ii) acts of governmental or quasi-governmental authorities, or any political subdivision thereof, or of any department or agency thereof, or regulations or restrictions imposed by law or by court action; (iii) acts of persons engaged in subversive activities or sabotage, (iv) fires, floods, explosions or other catastrophes; (v) epidemics or quarantine restrictions; (vi) strikes, slowdowns, lockouts or labor stoppages or disputes of any kind; (vi) freight embargoes, or interruption of transportation; 8 (viii) unusually severe weather; or (ix) any other causes, similar or dissimilar, beyond the control of the party concerned; and such party shall give written notice thereof to the other party, and shall use all reasonable endeavors to minimize the period of any such delay or failure. The time for performance by such party shall be extended by the period of any such delay or failure. 21. INTERPRETATION The original text of this Agreement is written in the English language, and the both parties hereto agree that any and all interpretations of this Agreement shall be based upon the original text. 22. ARBITRATION Any disputes arising out of in connection with this Agreement shall be settled amicably. Both parties shall exert their best efforts to reach such amicable settlement. In the event that both parties are unable to reach such amicable settlement, any claim, dispute or controversy arising out of or in connection with this Agreement shall be submitted by the parties to arbitration by the Japan Commercial Arbitration Association under the commercial rules then in effect for that association. Each party shall choose one arbitrator within thirty (30) days of receipt of notice of intent to arbitrate. Within sixty (60) days of receipt of the notice of the intent to arbitrate, the two arbitrators shall choose neutral third arbitrator who will act as chairman. If such two arbitrators fail to choose the third arbitrator within such sixty (60) day period, then the Association shall make such appointment within thirty (30) days thereafter. The decision of the arbitration panel shall be enforceable in any court of competent jurisdiction, and neither party shall object to such decision to be so enforced. 23. NOTICES All notices, reports, requests, acceptance and other communications required or permitted hereunder shall be in writing in English. They shall be deemed given:(i) when delivered personally, (ii) when sent by confirmed telex or facsimile (provided that notice by facsimile is subject to the receiving party's written acknowledgment of receipt thereof) or (iii) five (5) days after having been sent by registered mail, postage prepaid. All communication shall be sent to the receiving party's address as set forth below or to such other address as the receiving party may otherwise designate for the purpose of notice as provided in this Article 23. DRI: Mr. Philip Bunker 772 East Utah Valley Drive American Fork, UT 84003 Tel: 801-763-7600 Fax: 801-763-7379 KME: Mr. Hiroshi Yoshinaga Technical Manager Tel: +81-92-477-1149 Fax: +81-92-477-1646 24. GOVERNMENTAL APPROVAL Any and all performance of this Agreement by KME shall be fulfilled subject to a required approval by the competent authority of the Japanese Government under the Foreign Exchange and Foreign Trade Control Law of Japan and/or the Japanese governmental administrative guidance if and to the extent from time to time so required. 25. EXPORT ADMINISTRATION For the performance of this Agreement by DRI, DRI shall comply with the applicable export control laws or regulations, and DRI shall be responsible for obtaining any export license required under such laws or regulations with respect to the export of the 9 Technology and/or any information therefor. KME will provide DRI with necessary cooperation for obtaining such export license. 26. SURVIVAL After the expiration or termination of this Agreement for any reason, the Article 8, 9, 10, 11, 12, 13, 14, 16, 17, 18, 19, 21, 22, 23, 24, 25 and 26 shall remain in effect and each party shall perform the obligations and duties pursuant to such Articles. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers or representatives as of the day and year first above written. Kyushu Matsushita Electric Co., Ltd. Digital Radio Communication Fourth Division Corporation By: /s/ N. Akamine By: /s/ Phil A. Bunker --------------------------- --------------------------- Name: N. Akamine Name: Phil A. Bunker --------------------------- --------------------------- Title Assistant Director Title Assistant Director --------------------------- --------------------------- Date March 31, 1997 Date March 31, 1997 --------------------------- --------------------------- 10 Exhibit-A: Specifications (TO BE DEFINED BY KME & DRI.) Exhibit-B: Development Schedule (TO BE DEFINED BY KME & DRI.) Exhibit-C: Deliverable (TO BE DEFINED BY KME & DRI.) 11 EX-10 7 EXHIBIT 10.4 TECHNICAL DEVELOPMENT AND MARKETING ALLIANCE AGREEMENT This Technical Development and Marketing Alliance Agreement (the "Agreement") is entered into as of the 26th day of September, 1997 (the "Effective Date"), between Williams Wireless, Inc. d/b/a Williams Telemetry Services, a Delaware corporation with offices at 111 East First Street, Tulsa, Oklahoma 74103 ("WWI") and World Wireless Communications, Inc., a Nevada corporation with offices at 150 Wright Brothers Drive, Salt Lake City, Utah 84116 ("WWC"). WHEREAS, WWI wishes to establish a business relationship with WWC to provide WWI a reliable source of radio based modules and products and thereby allow WWI a unique competitive edge in the Telemetry Market (as defined below); WHEREAS, WWC wishes to establish a business relationship with WWI to provide WWC a constant market for the radio based modules, technology and products it designs and manufactures exc1usively for customers; and WHEREAS, WWI and WWC wish to establish a business relationship, under the terms described below, which will mutually support and enhance the development and marketing efforts of each company in the area of wireless telemetry products and services. Now, therefore, the parties agree as follows: 1. Definitions "Affiliates" means any person, entity, or association directly or indirectly controlling or controlled by or under direct or indirect common control with, the party, entity, person or association in question. "Control" will mean the power to direct the management policies of the controlled person, entity, or association, whether by voting securities, by contract, by family relationship or otherwise. "Radio Technology" means those sub-components of any Telemetry Radio Product that is the subject of a CSA (as hereinafter defined) in which WWC shows, by documentary evidence, that it owned one or more patents, trade-secret rights, or computer-program copyrights prior to the date of a CSA by which WWC agreed to design the Telemetry Radio Product in question for WWI (the "Design Agreement Date"). In the previous sentence, the term "patent" includes any patent issued after the Design Agreement Date on an application filed prior to that date. "Telemetry Applications" means specific Telemetry Systems which WWI contemplates developing and selling to businesses and individuals for the purpose of monitoring and/or controlling a variety of equipment and a variety of situations in a telemetry customer's facilities, including, but not limited to gas, water, electric meter consumption, environmental conditions in those facilities, status of a variety of sensors in the facilities, status of inventory and condition of products and items in the facilities. "Telemetry Radio Products" means a fully functional radio module for transmitting and/or receiving data from Telemetry Applications devices in support of the Telemetry Market. "Telemetry Markets" means, collectively, businesses and individuals who use energy, energy metering equipment, energy monitoring and control equipment and energy using equipment, as well as businesses that sell and distribute products through remote facilities, including without limitation vending machines and postal and express drop boxes. "Telemetry Systems" means, collectively, remote monitoring devices for acquiring data, communication devices for transmitting and receiving such data, host computer systems for processing such data, (optionally) control devices for remote control of equipment, software for performing the foregoing functions, and related technical support services. 2. Scope and Purpose of the Alliance WWC will assist and cooperate with WWI in developing and manufacturing Telemetry Radio Products in support of Telemetry Systems under the terms contained herein. WWI shall grant WWC certain development, manufacturing and marketing rights, under the terms contained herein. From time to time other applications of Telemetry Radio Products may be included by mutual written consent of both parties, under the terms of this Agreement, including such possible applications as process control, toll systems, asset tracking and automatic identification. 3. Radio Systems Engineering and Design Services From time to time WWI may contract with WWC to provide system engineering and design services to create Telemetry Radio Products to be included in WWI's Telemetry Systems. The specific terms of such services shall be set forth in separate Commercial Service Agreements ("CSA"). The parties contemplate (but in that regard this Agreement does not constitute a binding commitment) that for each CSA: (i) Specifications for the specified Telemetry Radio Product will be set forth in Schedule A to the CSA, compensation for engineering and design services, and manufacturing services if applicable, will be set forth in Schedule B to the CSA, and project deliverables, time schedules and milestones will be set forth in Schedule C to the CSA; (ii) If the Telemetry Radio Product is not to be manufactured by WWC, then Schedule B to the CSA will also include compensation for WWI's use of the Radio Technology in the Telemetry Radio Products; and 2 (iii) The CSA will include a sales level commitment on WWI's part and a service level commitment on WWC's part, and will include appropriate remedies for the breach of such commitments. 4. Manufacturing Services WWI will grant WWC exclusive manufacturing rights to all Telemetry Radio Products WWC designs exclusively for use by WWI in the Telemetry Market pursuant to Section 3 above. The manufacturing services will be governed by mutually acceptable terms set forth in separate manufacturing CSA's, unless such terms are specified in an existing CSA for engineering and design services. Terms in such CSA's will include service level expectations concerning cost, quality and timeliness and will include manufacturing warranties. From time to time WWI may also, at its option, grant to WWC manufacturing rights to other products, under terms of separate CSA's. Estimated manufacturing quantity and schedules will be set forth in Schedule A to the CSA, compensation for WWC's manufacture of the Telemetry Radio Products and WWI's use of the Radio Technology will be set forth in Schedule B to the CSA. WWC will in good faith disclose its component and manufacturing costs to WWI and WWI will in good faith negotiate a fair compensation on component and manufacturing costs based on industry standards and the price constraints of the Telemetry Market. Exclusive manufacturing rights will remain in force as long as WWC maintains service level expectations specified in the CSA and associated Schedules and as long as WWC maintains the capability to perform under proposed CSA. Upon the termination of such exclusivity rights, WWI may identify and contract with another manufacturer. WWC will continue to manufacture and deliver specified product to WWI according to the terms specified in the CSA and for as long as WWI performs its obligations under this Agreement and the CSA, including reasonably timely payment for the manufactured Radio Telemetry Products. 5. Property Rights WWI will own all right, title and interest in and to any and all intellectual property rights throughout the world (including without limitation patent rights, design patent rights, copyrights, trade secret rights, and the like) associated with the Telemetry Radio Products as works for hire, and WWC will execute patent applications, copyright registrations, written assignments, etc., of all such rights from time to time upon request by WWI and at WWC's expense. But all Radio Technology used by WWC in creating Telemetry Radio Products for WWI will remain the property of WWC (including but not limited to drawings, specifications, prototypes and circuit boards relating to such Radio Technology), and WWC will grant WWI a perpetual license to use the Radio Technology in Telemetry Radio Products in the Telemetry Markets. The parties understand that the Radio Technology is based upon existing WWC technology and that WWC retains ownership rights to any patents, technology, copyrights or trademarks that were used in creating the Radio Technology. If, however, WWI contracts to WWC under terms specified in a CSA for a custom based Telemetry Radio Product, then WWI will own all such Intellectual property rights in that specified product (as well as the drawings, specifications, 3 prototypes, circuit boards, technical information and documentation relating thereto) as well as any such intellectual property rights that may be derived therefrom. WWC agrees, unless specified otherwise in the CSA, that all work product relating to the Telemetry Radio Products (including without limitation such things as drawings, specifications, prototypes, circuit boards and technical information) and documentation associated with designing, engineering, creating and/or manufacturing the Telemetry Radio Products win be the exclusive property of WWI and will be delivered to WWI from time to time as specified by the applicable CSA, WWC shall not release to any other party for any reason whatsoever at any time any such work product or information, and all of the work product and information that had not previously been returned to WWI shall be returned to WWI promptly following the termination of this Agreement, or earlier upon the request of WWI For so long as WWC retains exclusive manufacturing rights as provided in Section 4 and is performing manufacturing services for WWI, WWI will hold all such documentation proprietary between WWC and WWI and will. not disclose the documentation or solicit any other manufacturer. 6. Marketing Services WWI grants WWC the non-exclusive right to market WWI's Telemetry Systems. A mutually acceptable Marketing Agreement will be developed before December 31, 1997, to be based upon WWI's standard marketing agreement that is being developed, and will set forth the terms and conditions of such marketing relationship, including such terms as pricing, quantities and commitment levels. The parties will determine whether such agreement win allow WWC to market the Telemetry Systems on an agency basis, as a reseller, or under other arrangements. WWI retains the right at any time in the future to assign certain market segments to specific marketers. WWI retains the right to approve in advance WWC's pursuit of all marketing opportunities. To receive approval, WWC will follow a customer registration process, to be established by mutual agreement. WWI will not unreasonably deny WWC's registration of a potentially new customer, but WWI reserves the right to deny WWC's request to pursue a customer if WWI or any of WWI's Affiliates, at WWI's sole discretion, believes that selling to that customer is detrimental in some way to the Williams Companies or if the customer is being pursued, or under active consideration to be pursued, by WWI or another authorized marketer. Once registered, WWI will not sell nor will it allow another marketer to pursue the registered customer. The registration will be canceled only after sufficient time period for closing has elapsed and only if it becomes obvious that WWC is not making progress toward closing the opportunity. Each party shall be fully responsible to its customers for their satisfaction with the Telemetry Systems. Each party will provide technical support to the other in certain instances. 4 7. Relationship of the Parties The execution of this Agreement does not constitute, nor shall the execution hereof be construed to create or imply, a partnership, joint venture, principal-agent or employment relationship, or any other such relationship. Under the terms of this Agreement, neither WWI nor WWC has the right or authority to bind or commit the other party to any obligations. 8. Warranties WWC warrants that the Radio Technology and the resulting Telemetry Radio Products will be free of defects. WWC will repair or replace if found defective within 12 months of delivery of Telemetry Systems to customers 9. General Indemnity. Each party shall defend, indemnify, and hold the other harmless from any and all liabilities resulting from or relating to any breach of warranty, representation, or agreement or performance of duties and obligations of such party, except to the extent caused by the negligence or willful acts or omissions of the party entitled to indemnification. 10. Representations and Warranties Each party is a valid entity and in good standing, has authority to enter into this Agreement, the CSA's and the other agreements contemplated hereby, and to carry out the actions described herein, and represents that the Agreement is binding and enforceable as against such party in accordance with its terms, subject to bankruptcy, insolvency or other similar laws relating to creditors' rights generally, and subject to general principals of equity. WWC represents that it is the exclusive owner of the Radio Technology and all patents, copyrights, or other intellectual property rights pertaining thereto. WWC further represents that no cause of action against WWC has commenced or been threatened as of the Effective Date of this Agreement which alleges that such Radio Technology infringes upon a third party's present or future patent, copyright, trade secret or other proprietary right. 11. Term and Termination The initial term of this Agreement shall commence upon the Effective Date and continue for three years. The term shall be extended if so provided in a CSA entered into during the original term or during an extended term of this Agreement; otherwise, the term may only be extended by the mutual agreement of the parties. 5 12. Termination In the event that: (i) the parties mutually agree to terminate this Agreement; (ii) a party is in material breach of this Agreement (including any CSA) and, after the non-breaching party has given the breaching party 45 days' prior notice setting forth in reasonable detail the alleged breach, the breaching party has failed to cure such breach within such 45-day period; (iii) there occurs a dissolution or any assignment by the other party for the benefit of its creditors, the appointment of a receiver for, or any execution levied upon, all or substantially all of the other party's business or assets, or the filing of any petition for voluntary or involuntary bankruptcy or similar proceeding for or against the other party; or (iv) WWC sells all or substantially all of its assets, or WWC enters into a merger in which WWC is not the surviving entity, or control of WWC is transferred to another entity, and upon any of the foregoing events or within one year thereafter WWI reasonably deems the transferee, surviving entity or controlling entity, as the case may be, to be an entity that is detrimental to The Williams Companies, Inc. or any Affiliate; then, in each such case, this Agreement may be terminated by providing written notice to that effect (in addition to any earlier notice required above), which termination shall not limit any other rights or remedies that a party may have as a result of a breach of this Agreement. 13. Certain Effects of Termination A. Upon the parties' mutual agreement to terminate this Agreement, (i) WWC shall grant WWI a non-exclusive license in perpetuity to manufacture Telemetry Radio Products based on the Radio Technology, as long as WWI pays 5% of it demonstrable manufacturing costs as a royalty. (ii) WWC shall release all design and manufacturing work product, not already released, as previously provided in this Agreement. (iii) WWC shall work in good faith to ensure an orderly transition to a new manufacturer. B. WWI may, upon termination due to the events described in subparts (ii), (iii) or (iv) of Section 12 and during the one-year period thereafter, elect to use, and WWC shall provide, all of WWC's work product, documentation and Radio Technology, for a royalty equal to 2% of WWI's demonstrable manufacturing costs, in order for WWI to establish another manufacturing 6 relationship. To this end, WWC Will immediately turn over all remaining design and manufacturing work product and documentation to WWI and work in good faith to transfer and assign all outside manufacturing contracts pertaining to Telemetry Radio Products to WWI. 14. Confidentiality. The parties acknowledge that they are subject to that certain Confidentiality Agreement executed between the parties and dated June 25, 1997, a copy which is attached hereto as Exhibit A and the terms of which are incorporated herein by this reference; provided, however, that Section 8 thereof is hereby amended so as to be provide that the confidentiality obligations and use restrictions shall remain in effect for a period equal to the term of this Agreement, including any extensions thereof, and for a period of two years thereafter. The parties further acknowledge that the disclosure of confidential or proprietary information hereunder shall constitute "Information" (as such term is used in the Confidentiality Agreement), and that no disclosures shall be made in violation of such Confidentiality Agreement. 15. Notices. Any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, sent by facsimile, or sent by an internationally recognized overnight courier service, and shall be deemed to have been received when (a) delivered in person or received by facsimile (as evidenced by a facsimile confirmation sheet) or (b) three (3) business days after delivery to the office of such overnight courier service with postage prepaid and properly addressed to the other party at the following respective addresses: To WWC To WWI: World Wireless Communications, Inc. Williams Wireless, Inc. Attention: Lance King Attention: James D. Cunningham 150 Wright Brothers Drive, Suite 560 Tulsa Union Depot Salt Lake City, Utah 84116 111 East First Street Telephone #: (801) 575-6600 Tulsa, OK 74103 Facsimile #: (801) 575-6621 Telephone (918) 588-4879 Facsimile (918) 561-6024 or to such other address or addresses as either party may from time to time designate as to itself by like notice. 16. Patent/Copyright Indemnity. WWC agrees it will at its sole cost and expense, defend, indemnify and hold harmless WWI against all claims, liens, demands, damages, liability, actions, causes of action, losses, judgments, costs and expenses of every nature brought against WWI (including investigation costs and expenses, 7 settlement costs, and attorney's fees and expenses) (collectively, "Claim(s)") to the extent such Claims arise out of, result from, or are attributable to any alleged infringement of any present or future patent, copyright, or other proprietary right (hereinafter called "Intellectual Property") based on WWC's design, engineering and/or manufacturing activities hereunder or the use of the Radio Technology provided by WWC pursuant to this Agreement; provided, however, WWI gives WWC prompt notice in writing of the Claims. WWC shall defend, indemnify and hold WWI harmless pursuant to this Section during the entire claim process, regardless of whether the Claim is settled or goes to trial. If a judgment or settlement is obtained or reasonably anticipated against WWI's use of any Intellectual Property for which WWC has indemnified WWI, WWC shall at WWC's sole cost and expense promptly modify the item or items which were determined to be infringing, acquire a license or licenses on WWI's behalf to provide the necessary rights to WWI to continue using the Intellectual Property, or substitute the Intellectual Property with non-infringing Intellectual Property which provides WWI the same functionality. If none of such options is commercially reasonable, WWC shall refund any fees paid by WWI for engineering and design services associated with the infringing Intellectual Property, and pay to WWI the net book value of the Telemetry Radio Products affected by the infringing Intellectual Property. 17. Limitation of Liability. NEITHER PARTY SHALL BE LIABLE FOR INDIRECT, SPECIAL, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHETHER UNDER CONTRACT, TORT OR OTHER CAUSE OF ACTION, INCLUDING, BUT NOT LIMITED TO, ANY DAMAGES, LOSS OR EXPENSES ARISING FROM THE PERFORMANCE OR NON-PERFORMANCE OF ANY THIRD PARTY HARDWARE OR SOFTWARE, INCORRECT THIRD PARTY CONTENT, THE OTHER PARTY'S LOST PROFITS, LOST BUSINESS, LOST DATA, OR LIABILITY OR INJURY TO THIRD PERSONS, WHETHER FORESEEABLE OR NOT AND REGARDLESS OF WHETHER THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IF THIS PROVISION IS IN CONFLICT WITH OTHER CONTRACTUAL TERMS AND CONDITIONS, IT IS UNDERSTOOD BY THE PARTIES THAT THIS PROVISION WILL, IN ALL CASES, PREVAIL. NOTWITHSTANDING ANY OF THE FOREGOING, THE LIMITATION DESCRIBED ABOVE SHALL NOT LIMIT THE SCOPE OF DAMAGES FOR WHICH WWC HAS AGREED TO INDEMNIFY WWI IN SECTION 16. 18. Noncompete. WWC shall not use, sell or otherwise provide the manufactured products referred to herein as the Telemetry Radio Products to any vendor other than WWI who offers similar or competitive products or services with WWI, nor shall WWC sell, distribute or otherwise market Telemetry Radio Products and/or Telemetry Systems other than WWI's during the term of this Agreement and for five years thereafter. WWC retains the right to market its Radio Technology in markets other than Telemetry Markets. 19. Force Majeure. If either party's performance under this Agreement or any obligation hereunder is prevented, restricted or interfered with by causes beyond such party's reasonable 8 control, including earthquakes, landslides, failure of power, riots, insurrection, war, acts of God or other reason of like nature that could not have been reasonably anticipated by the non-performing party as of the Effective Date and that cannot be reasonably avoided or overcome, then such party shall be excused from such performance on a day-to-day basis to the extent of such prevention, restriction or interference. The affected party shall use reasonable efforts under the circumstances to avoid or remove such causes of non-performance and shall proceed to perform with reasonable dispatch whenever such causes are removed or cease, provided that the nonperforming party gives the other party written notice of such cause promptly, and in any event within fifteen (15) calendar days of discovery thereof. 20. Improper Use of Funds. WWC agrees that it will not use any funds received under this Agreement for illegal or otherwise improper purposes. An improper purpose would include, for example, payment of commissions, fees or rebates to an employee of WWI and/or favoring such employee with gifts of entertainment of significant cost or value. If WWI has reasonable cause to believe that the provisions of this section have been violated, WWC agrees to provide WWI, upon written request to WWC, access to sufficient records and information to allow WWI to ensure compliance with the provisions of this section. 21. Alternative Dispute Resolution. The parties will attempt in good faith to resolve any controversy or claim arising out of or relating to this Agreement within sixty (60) days by negotiations between senior executives of the parties who have settlement authority and who do not have direct responsibility for the administration of this Agreement. The disputing party shall give the other party written notice of the dispute in accordance with the notice provision of this Agreement. The other party shall submit a response within twenty (20) days after receiving said notice. The notice and response shall include (a) a summary of the party's position and a summary of the evidence and arguments supporting its position, and (b) the name of the executive who will represent the party. The executives shall meet at a mutually acceptable time and place within thirty (30) days of the disputing party's notice and thereafter as often as they deem reasonably necessary to resolve the dispute. If the matter has not been resolved within sixty (60) days of the disputing party's notice, either party may initiate other means of alternative dispute resolution of the controversy in accordance with the appropriate rules and procedures of the Center for Public Resources or American Arbitration Association or pursue its rights and remedies within a court of competent Jurisdiction. 22. Miscellaneous. 22.1 Announcements. The parties shall consult and confer with each other prior to making any public announcement concerning any of the transactions contemplated in this Agreement. Neither party shall make or issue any public announcement concerning the subject matter of this Agreement without ten days written notice to the other party or the prior written consent of the other party. 9 22.2 Applicable Law. The validity, construction, and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of 0klahoma, without regard to the principles of conflict of laws. 22.3 Assignment. WWC shall not assign this Agreement or its rights or obligations herein without the prior written consent of WWI. 22.4 Survival. Except as provided herein the provisions of Sections 5 (Property Rights), 8 (Warranties), 9 (General Indemnity), 10 (Representations and Warranties), 13 (Certain Effects of Termination), 14 (Confidentiality), 16 (Patent/Copyright Indemnity), 17 (Limitation of Liability), 18 (Noncompete) and 21 (Alternative Dispute Resolution) remain in effect indefinitely and shall survive the termination of this Agreement. 22.5 Complete Agreement. Both parties acknowledge that they have read this Agreement and any attachments or schedules hereto, understand them and agree to be bound by their terms, and further agree that they are the complete and exclusive statement of the Agreement between the parties, which supersede all proposals oral or written and other communications between the parties relating to the subject matter hereof The parties further agree that all changes to this Agreement must be in writing and signed by the parties in order to bind them. 22.6. Severability. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, said term or provision shall be severable and the remainder of this Agreement shall be valid and enforceable to the fullest extent permitted by law. WHEREFORE, the parties have entered into this Agreement as of the date first set forth above. WILLIAMS WIRELESS, INC. WORLD WIRELESS COMMUNICATIONS, INC. d/b/a Williams Telemetry Services By: /s/ S. Miller Williams By: /s/ David Singer ------------------------------ --------------------------------- Name: S. Miller Williams Name: David Singer ------------------------------ --------------------------------- Title: President Title: President --------------------------- ------------------------------- 10 EXHIBIT A Agreement #______________ CONFIDENTIALITY AGREEMENT This Confidentiality Agreement (this "Agreement") is entered into this 25th day of June 1997, by and between Williams Wireless, Inc., whose principal place of business is located at Tulsa Union Depot, 111 East First Street, Tulsa, Oklahoma 74103, and World Wireless Communications, Inc., whose principal place of business is located at 150 Wright Brothers Drive, Salt Lake City, Utah 84116. In consideration of the mutual covenants of this Agreement, the parties hereby agree as follows: I In connection with discussions and negotiations between the parties retarding the one or more proposed transactions or business relations between the parties (hereinafter "Subject Matter"), each party in possession of certain information ("Disclosing Party") may wish to disclose certain of its confidential or proprietary information (hereinafter "Information") to the other party ("Receiving Party") on a confidential basis. "Information" includes inforination furnished in a tangible form, as well as information transferred orally, visually, electronically or by any other means. All Information deemed to be confidential or proprietary by the Disclosing Party shall be so marked by the Disclosing Party (if provided in written form), or otherwise clearly identified (if provided in oral or other means), in a manner to indicate that it is considered proprietary or confidential by the Disclosing Party. In addition, this Agreement and its terms, and the fact and substance of discussions between the parties concerning the Subject Matter, shall be deemed to be Confidential Information. 2. The term "Information" shall not include any information, which (a) was previously known to the Receiving Party free of any obligation to keep it confidential; (b) is or becomes generally available to the public by other than through an unauthorized disclosure; (c) is developed by or on behalf of such party independent of any Information furnished under this Agreement; or (d) is required to be disclosed by law or by any governmental agency having jurisdiction pursuant to an order to produce or in the course of a legal proceeding pursuant to a lawful request for discovery; provided, however, that if a Receiving Party is so ordered or required to disclose the Information, such party shall promptly notify the Disclosing Party of the order or request and permit the Disclosing Party (at its expense) to seek an appropriate Protective order. 3. The Receiving Party, its employees, and employees of its affiliated companies shall (a) hold the Information in secrecy and confidence; (b) restrict disclosure of the Information solely to its directors, officers and employees, affiliates and/or professional advisors/consultants (including attorneys and accountants), all with a need to know, and shall not disclose it to any other person unless it has obtained the prior written consent of the Disclosing Party; (c) advise those persons to whom the Information was disclosed of their obligations with respect to the Information; and (d) use the Information only in connection with the Subject Matter and continuing correspondence and discussions by the parties pertaining thereto. 4. Upon termination of discussions regarding the Subject Matter, the Receiving Party shall return to the Disclosing Party all Information received in tangible form, or, at the Disclosing Party's direction, destroy all such Information and any copies thereof. 5. Neither this Agreement, the disclosure of Information under this Agreement, nor the ongoing discussions and correspondence between the parties shall constitute or imply a commitment or binding obligation between the parties or their respective affiliated companies, if any, regarding the Subject Matter, and shall not be construed as forming a contract regarding the Subject Matter or any other transaction between them. 6. Neither party is responsible or liable for any business decisions made or inferences drawn by the other party in reliance on this Agreement or in reliance on actions taken or disclosures made pursuant to this Agreement. Neither party makes any warranty, express or implied, with respect to the Information. Neither party shall be liable to the other hereunder for amounts representing loss of profits, loss of business, or indirect, consequential, or punitive damages. 7. This Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma, without regard to their conflict of laws provisions. 8. The confidentiality obligations and use restrictions under this Agreement shall remain in effect for a period of two (2) years from the date hereof and shall then terminate. 9. The parties acknowledge that in the event of an unauthorized disclosure of the Information by the Receiving Party, the damages incurred by the Disclosing party may be difficult if not impossible to ascertain, and that such Disclosing party may seek injunctive relief as well as monetary damages against a party that breaches this Agreement. 10. The parties acknowledge that this Agreement does not restrict the ability of the parties to engage in their respective businesses, nor does it limit either party's use or application of any information or knowledge acquired independently of the other without a breach of this Agreement in the course of such party's business. 11. This Agreement shall benefit and be binding upon the parties hereto and their respective successors and assigns. 12. This Agreement constitutes the entire understanding between the parties with respect to the Information provided hereunder. No amendment or modification of this Agreement shall be valid or binding on the parties unless made in writing and executed on behalf of each party by its duly authorized representative. 13. This Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. Facsimile signatures to this Agreement shall be deemed to be binding upon the parties. IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date hereinabove. WILLIAMS WIRELESS, INC. WORLD WIRELESS COMMUNICATIONS, /s/ S. Miller Williams /s/ David Singer - ---------------------------- ------------------------------------ AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE S. Miller Williams David Singer - ---------------------------- ------------------------------------ PRINTED NAME PRINTED NAME President 6/25/97 President 6/25/97 - ---------------------------- ------------------------------------ TITLE TITLE EX-10 8 EXHIBIT 10.5 LEASE by and between PRACVEST, a Utah general partnership, as Landlord and ELECTRONIC TECHNOLOGY CORPORATION, a Utah corporation as Tenant for Suite #100 of building #3 at UTAH VALLEY BUSINESS PARK in AMERICAN FORK CITY, UTAH INDEX TO LEASE AGREEMIENT: UTAH VALLEY BUSINESS PARK ARTICLE I. BASIC LEASE PROVISIONS; ENUMERATION OF EXHIBITS ................. 2 SECTION 1.01. BASIC LEASE PROVISIONS ................................ 2 SECTION 1.02. SIGNIFICANCE OF A BASIC LEASE PROVISION ............... 3 SECTION 1.03. ENUMERATION OF EXHIBITS ............................... 3 ARTICLE II. GRANTAND LEASED PREMISES ....................................... 3 SECTION 2.01. PREMISES .............................................. 3 ARTICLE III. RENT .......................................................... 3 SECTION 3.01. BASE MONTHLY RENT .................................... 3 SECTION 3.02. ESCALATION ........................................... 3 SECTION 3.03. TENANT'S SHARE OF CAM, TAX AND INSURANCE EXPENSES ..................................... 3 SECTION 3.04. TAXES ................................................ 4 SECTION 3.05. PAYMENTS ............................................. 4 ARTICLE IV. RENTAL TERM, COMMENCEMENT DATE & PRELIMINARY TERM .............. 4 SECTION 4.01. RENTAL TERM ........................................... 4 SECTION 4.02. RENTAL COMMENCEMENT DATE .............................. 4 SECTION 4,03. PRELIMINARY TERM ...................................... 4 ARTICLE V. CONSTRUCTION OF PREMISES ........................................ 4 SECTION 5.01. CONSTRUCTION BY LANDLORD .............................. 4 SECTION 5.02. CHANGES AND ADDITIONS BY LANDLORD ..................... 4 SECTION 5.03. DELIVERY OF POSSESSION ................................ 5 ARTICLE, VI. TENANT'S WORK AND LANDLORD'S CONTRIBUTION ..................... 5 SECTION 6.01. TENANT'S WORK ......................................... 5 SECTION 6.02. LANDLORD'S CONTRIBUTION ............................... 5 ARTICLE, VII USE ........................................................... 5 SECTION 7.01. USE OF PREMISES ....................................... 5 SECTION 7.02. HAZARDOUS SUBSTANCES .................................. 5 ARTICLE VIII, OPERATION AND MAINTENANCE OF COMMON AREAS .................... 6 SECTION 8.01. CONSTRUCTION AND CONTROL OF COMMON AREAS .............. 6 SECTION 8.02. LICENSE ............................................... 6 SECTION 8.03. COMMON AREA MAINTENANCE EXPENSES ...................... 6 ARTICLE IX. ALTERATIONS, SIGNS, LOCKS & KEYS ............................... 7 SECTION 9,01. ALTERATIONS ........................................... 7 SECTION 9.02. SIGNS ................................................. 7 SECTION 9.03. LOCKS & KEYS .......................................... 7 ARTICLE X. MAINTENANCE AND REPAIRS; ALTERATIONS; ACCESS .................... 7 SECTION 10.01. LANDLORD'S OBLIGATION FOR MAINTENANCE ................ 7 SECTION 10.02. TENANT'S OBLIGATION FOR MAINTENANCE .................. 7 SECTION 10.03. SURRENDER AND RIGHTS UPON TERMINATION ................ 8 ARTICLE XI. INSURANCE AND INDEMNITY ........................................ 8 SECTION 11.01. LIABILITY INSURANCE AND INDEMNITY .................... 8 SECTION 11 02. FIRE AND CASUALTY INSURANCE .......................... 8 SECTION 11 03. WAIVER OF SUBROGATION ................................ 9 ARTICLE XII. UTILITY CHARGES ............................................... 9 SECTION 12.01. UTILITY CHARGES ...................................... 9 ARTICLE XIII. OFF-SET STATEMENT, ATTORNMENT AND SUBROGATION ................ 9 SECTION 13.01. OFF-SET STATEMENT .................................... 9 SECTION 13.02. ATTORNMENT ........................................... 9 SECTION 13.03. SUBROATION ........................................... 9 SECTION 13.04. MORTGAGE SUBROGATION ................................. 9 SECTION 13.05. REMEDIES ............................................. 9 ARTICLE XIV. ASSIGNMENT .................................................... 10 SECTION 14.01. ASSIGNMENT ........................................... 10 i INDEX TO LEASE AGREEMENT: UTAH VALLEY BUSINESS PARK (CONTID) ARTICLE XV. WASTE OR NUISANCE ............................................. 10 SECTION 15.01. WASTE OR NUISANCE .................................. 10 ARTICLE XVI, NOTICES ...................................................... 10 SECTION 16.01. NOTICES ............................................ 10 ARTICLE XVII. DESTRUCTION OF THE PREMISES ................................. 10 SECTION 17.01. DESTRUCTION ........................................ 10 ARTICLE XVIII. CONDEMNATION ............................................... 10 SECTION 18.01. CONDEMNATION ....................................... 10 ARTICLE XIX, DEFAULT OF TENANT ............................................ 11 SECTION 19.01. DEFAULT -RIGHT TO RE-ENTER ......................... 11 SECTION 19.02. DEFAULT - RIGHT TO RE-LET .......................... 11 SECTION 19.03. LEGAL EXPENSES ..................................... 10 ARTICLE XX. BANKRUPTCY, INSOLVENCY OR RECEIVERSHIP ........................ 11 SECTION 20.01. ACT OF INSOLVENCY, GUARDIANSHIP, ETC ............... 11 ARTICLE XXI. LANDLORD ACCESS .............................................. 12 SECTION 21.01. LANDLORDACCESS ..................................... 12 ARTICLE XXII. LANDLORD'S LIEN ............................................. 12 SECTION 22.01. LANDLORD'S LIEN .................................... 12 ARTICLE XXIII. HOLDING OVER ............................................... 12 SECTION 23.01. HOLDING OVER ....................................... 12 SECTION 23,02. SUCCESSORS ......................................... 12 ARTICLE XXIV. RULES AND REGULATIONS ....................................... 12 SECTION 24.01. RULES AND REGULATIONS .............................. 12 ARTICLE XXV. QUIET ENJOYMENT .............................................. 12 SECTION 25.01. QUIET ENJOYMENT .................................... 12 ARTICLE XXVI. SECURITY DEPOSIT ............................................ 12 SECTION 26.01. SECURITY DEPOSIT ................................... 12 ARTICLE XXVII. MISCELLANEOUS PROVISIONS ................................... 13 SECTION 27.01. WAIVER ............................................. 13 SECTION 27.02. ENTIRE AGREEMENT ................................... 13 SECTION 27.03. FORCE MAJEURE ...................................... 13 SECTION 27 04. LOSS AND DAMAGE .................................... 13 SECTION 27.05. ACCORD AND SATISFACTION ............................ 13 SECTI0N 27.06. NO OPTION .......................................... 13 SECTION 27.07. ANTI-DISCRIMINATION ................................ 13 SECTION 27.08. SEVERABILITY ....................................... 13 SECTION 27.09. OTHER MISCELLANEOUS PROVISIONS ..................... 13 SECTION 27.10. REPRESENTATION REGARDING AUTHORITY ................. 13 SIGNATURES ................................................................ 14 LANDLORD ACKNOWLEDGEMENT .................................................. 14 TENANT ACKNOWLEDGMENT (CORPORATE) ......................................... 14 GUARANTEE ................................................................. 15 EXHIBITS EXHIBIT "A" Pg. 1 - FLOOR PLAN EXHIBIT "A" Pg. 2 - POWER PLAN EXHIBIT "A" Pg. 3 - REFLECTED CEILING PLAN EXHIBIT "A-2" - BUSINESS PARK PLOT PLAN EXHIBIT "B" - LEGAL DESCRIPTION(S) EXHIBIT "C" - LANDLORD'S WORK EXHIBIT "D" - TENANT'S WORK EXHIBIT "E" - SIGN CRITERIA ii UTAH VALLEY BUSINESS PARK LEASE AGREEMENT ARTICLE I BASIC LEASE PROVISIONS; ENUMERATION OF EXHIBITS SECTION 1.011 BASIC LEASE PROVISIONS (A) DATE: May 17,1995 (B) LANDLORD: PRACVEST, a Utah general partnership (C) ADDRESS OF LANDLORD FOR NOTICES (Section 16.01): 2677 East Parleys Way, Salt Lake City, Utah 84109 (D) TENANT: Electronic Technology Corporation (E) ADDRESS OF TENANT FOR NOTICES (Section 16.01). 435 West Universal Circle, Sandy, Utah 84070 (I) PERMITTED USES (Section 7.01): Office/Light Electronic Manufacturing and Assembly (G) TENANT'STRADE NAME (Exhibit "E" - Sign Criteria): Electronic Technology Corporation and EMA. Inc. (H) BUILDING (Section 2.01): An approximate 28,000 sq. ft. building situated as shown on Exhibit "A" attached hereto in tlie Utah Valley Business Park, American Fork City, Utah County, State of Utah. Mailing address will be determined prior to occupancy. (1) PREMISES (Section 2.01): That portion of building #3 at the approximate location outlined on Exhibit "A" known as Suite 100 consisting of approximately 9,685 sq. ft. of net rentable area. (J) DELIVERY OF POSSESSION (Section 5.03): July 1. 1995 (K) RENTAL TERM, COMMENCEMENT AND EXPIRATION DATE (Sections 4.01 & 4.02): The Rental Term shall commence on the date Tenant receives possession of the Leased Premises and shall be for a period ofthirty-six (36) full calendar months plus any initial partial calendar month. (L) BASE MONTHLY RENT (Section 3.01): Seven Thousand Five Hundred Eighty Seven Dollars ($7,587.00) per calendar month (M) ESCALATIONS IN BASE MONTHLY RENT (Section 3.02): None. (N) TENANT'S PERCENTAGE OF OPERATING EXPENSES (Section 3.03): 35.00 percent (35%) of all operating expenses as defined in Sections 3.03 and 8.03. Such expenses include common area and utility system maintenance, taxes, and insurance, but shall specifically exclude utilities, janitorial and any management fees. L,andlord estimates that Tenant share will not exceed $1.00 per sq. ft. during the first Lease Year and $1.15 per sq. 1@t, in the second Lease Year. Utilities and janitorial expenses shall be paid by Tenant pursuant to Sections L1.01 and 10.0", respectively. (0) LANDLORD'S CONTRIBUTION TO TENANT'S WORK (Section 6.02): Actual cost of Tenant's Work in accordance with specifications set forth in Exhibit "D" and as mutually agreed, but not to exceed Fourteen and 55/100 Dollars ($14.55) per square foot of gross rentable area. (P) PREPAID RENT: $7,587.00 paid upon delivery of the premises to Tenant and shall be applied to the first installment(s) of Base Monthly Rent due hereunder. (Q) SECURITY DEPOSIT (Section 26.01): Seven Thousand Five Hundred and no/100ths Dollars ($7,500.00) (R) TENANT RIGHT TO CONSTRUCTION BUDGET SAVINGS: Tenant shall have the right to apply unused SECTION 1.02. SIGNIFICANCE OF A BASIC LEASE PROVISION. The foregoing provisions of Section 1.01 summarize for convenience only certain fundamental terms of the Lease delineated more fully in the Articles and Sections referenced therein. In the event of a conflict between the provisions of Section 1.01 and the balance of the Lease, the latter shall control. SECTION 1.03. ENUMERATION OF EXIBBITS. The exhibits enumerated in this Section and attached to this Lease are incorporated in the Lease by this reference and are to be construed as a part of the Lease. EXHIBIT "A" Pg. 1 - FLOOR PLAN EXHIBIT "A" Pg. 2 - POWER PLAN EXHIBIT "A" Pg. 3 - REFLECTED CEILING PLAN EXHIBIT "A-2" - BUSINESS PARK PLOT PLAN EXHIBIT "B" - LEGAL DESCRIPTION(S) EXHIBIT "C" - LANDLORD'S WORK EXHIBIT "D" - TENANT'S WORK EXHIBIT "E" - SIGN CRITERIA ARTICLE II. GRANT AND PREMISES SECTION 2.01. PREMISES. In consideration for the rent to be paid and covenants to be performed by Tenant, Landlord hereby leases to Tenant, and Tenant leases from Landlord for the Term and upon the terms and conditions herein set forth premises described in Section 1.01(l) (hereinafter referred to as the "Premises"), located in an office building development referred to in Section 1.01(H) (hereinafter referred to as the "Building"). The legal description of the Building is attached hereto as Exhibit "B". Gross rentable area measurements herein specified are from the exterior of the perimeter walls of the building to the center of the interior walls. In addition, the factor set forth in Section 1.010.) has been added to the area as measured above to adjust for Tenant's proportionate share of common hallways, restrooms, etc. in the building. The exterior walls and roof of the Premises and the areas beneath said Premises are not demised hereunder and the use thereof together with the right to install, maintain, use, repair, and replace pipes, ducts, conduits, and wires leading through the Premises in locations which will not materially interfere with Tenant's use thereof and serving other parts of the building or buildings are hereby reserved to Landlord. Landlord reserves (a) such access rights through the Premises as may be reasonably necessary to enable access by Landlord to the balance of the building and reserved areas and elements as set forth above; and (b) the right to install or maintain meters on the Premises to monitor use of utilities. In exercising such rights, Landlord will use reasonable efforts so as to not commit waste upon the Premises and as far as practicable to minimize annoyance, interference or damage to Tenant when making modifications, additions or repairs. Subject to the provisions of Article VIII contained hereinbelow, Tenant and its customers, agents and invitees have the right to the non-exclusive use, in common with others of such unreserved automobile parking spaces, driveways, footways, and other facilities designated for common use within the Building, except that with respect to non-exclusive areas, Tenant shall cause its employees to park their cars only in areas specifically designated from time to time by Landlord for that purpose. ARTICLE III RENT SECTION 3.01 BASE MONTHLY RENT. Tenant agrees to pay to Landlord the Base Monthly Rent set forth in Section 1.01(L) at such place as Landlord may designate, without prior demand therefor, without offset or deduction and in advance on or before the first day of each calendar month during the Rental Term, commencing on the Rental Commencement Date. In the event the Rental Commencement Date occurs on a day other than the first day of a calendar month, then the Base Monthly Rent to be paid on the Rental Commencement Date shall include both the Base Monthly Rent for the first full calendar month occurring after the Rental Commencement Date, plus the Base Monthly Rent for the initial fractional calendar month prorated on a per-diem basis (based upon a thirty (30) day month). SECTION 3.02 ESCALATION. Tenant's Base Monthly Rent shall be increased on the Adjustment Dates set forth in Section 1..01(M). SECTION 3.03 TENANT'S SHARE OF CAM, TAX AND INSURANCE EXPENSES. Tenant shall pay as additiona Rent Tenant's pro-rated share of Landlord's expenses for common area maintenance and security, if any, as defined in Section 8.03, property taxes and assessments as defined in Section 3.04 and insurance as defined in Section 11.01. Tenant's pro-rated share of Landlord's expenses is set forth in Section 1.01(N) and is calculated by dividing the gross rentable area of the premises by the gross rentable area of the Building. Said additional rent shall be estimated annually at the beginning of each Lease Year of the Rental Term. One-twelfth (1/12th) of Tenant's Share shall be payable each month together with Base Monthly Rent as determined in Sections 3.01 and 3.02. Within sixty (60) days after the end of each Lease Year, Landlord shall deliver to Tenant an accounting in reasonable detail of actual common area maintenance, tax and insurance expenses certified by an officer of Landlord as true and correct together with a calcualtion of Tenant's share of such expenses incurred by Landlord in that Lease Year. Should the actual amount of such expense exceed the estimated amount paid by Tenant during that Lease Year, then Tenant shall pay the amount of any excess within twenty (20) days after receipt of invoice. However if the estimated payments for the previous year exceeded the actual amount incurred by Landlord, then Tenant may deduct the excess amount from the next monthly estimated payment due from Tenant. SECTION 3.04 TAXES. (a) Landlord shall pay all real property taxes and assessments (all of which are hereinafter collectively referred (o as "Taxes") which are levied against or which apply with respect to the Premises, subject to reirribursement of Tenant's share as set forth in Section 3.03. (b) Tenant shall prior to delinquency pay all taxes, assessments, charges, and fees which during the Rental Term hereof may be imposed, assessed, or levied by any governmental or public authority against or upon Tenant's use of the Premises or any inventory, personal property, fixtures or equipment kept or installed, or permitted to be located therein by Tenant. SECTION 3.05 PAYMENTS. All payments of Base Monthly Rent, Additional Rent and other payments to be made to Landlord shall be made on a timely basis and shall be payable to Landlord or as Landlord may otherwise designate. All such payments shall be mailed or delivered to Landlord's principal office set forth in Section 1.01(C), or at such other place as Landlord may designate from time to time in writing. If mailed, all payments shall be mailed in sufficient time and with adequate postage thereon to be received in Landlord's account by no later than the due date for such payment, if Tenant shall fail to pay any Base Monthly Rent or any additional rent or any other amounts or charges within ten (10) days after the due date, Tenant shall pay a late fee equal to four (4%) percent of such past due amount and, in addition, Tenant shall pay interest from the due date of such past due amounts to the date of payment, both before and after at a rate equal to the greater of fourteen (14%) percent per annum or two (2%) percent over the "prime" or "base" rate charged by Zions First National Bank of Utah at the due date of such payment; provided howeyer, that in any case the maximum amount or rate of interest to be charged shall not exceed the maximum non- usurious rate M accordance with applicable law. ARTICLE IV RENTAL TERM, COMMENCEMENT DATE & PRELIMINARY TERM SECTION 4.01 RENTAL TERM. The initial term of this Lease shall be for the period defined as the Rental Term in Section 1,01(K), plus the partial calendar month, if any, occurring after the Rental Commencement Date (as hereinafter defined) if the Rental Commencement Date occurs other than on the first day of a calendar month. "Lease Year" shall include twelve 1 12) calendar months, except that first Lease Year will also include any partial calendar month beginning on the Rental Date. SECTION 4.02 RENTAL COMMENCEMENT DATE. The Rental Term of this Lease and Tenant's obligation to pay rent. hereunder shall commence as set forth in Section 1.01(K) (the "Rental Commencement Date"). Within five (5) (lays after Landlord's request to do so, Landlord and Tenant shall execute a written affidavit, in recordable form, expressing the Rental Commencement Date and the termination date, which affidavit shall be deemed to be part of this Lease. SE( TION 4.03 PRELIMINARY TERM. The period between the date Tenant enters upon the Premises and the commencement of the Rental Term will be designated as the "preliminary term" during which no Base Monthly Rent or other common area expenses shall accrue; however, other covenants and obligations of Tenant shall be in full force and effect. Delivery of possession of the Premises to Tenant as provided in Section 5.03 shall be considered "entry" by Tenant and commencement of "preliminary term". ARTICLE V CONSTRUCTION OF PREMISES SECTION 5.01 CONSTRUCTION BY LANDLORD. Landlord shall construct or cause to be constructed the Building in which the Premises are to be located. The Premises shall be constructed substantially in accordance with Outline Specifications entitled "Landlord's Work" marked Exhibit "C" attached hereto and Exhibit "D" to the extent set forth therein and made a pan hereof. Landlord's construction obligation shall include Tenant Improvement pursuant to mutually agreed space layout plans and specifications. After consultation with Tenant, Landlord's architect shall furnish the plans and specifications for the Leased Premises, but the cost thereof shall be charged toward Landlord Contribution It is understood and agreed by Tenant that no minor changes from any plans or from said Outline Specifications which may be necessary during construction of the Premises or the Building shall affect or change this Lease or invalidate same. SECTION 5.02 CHANGES AND ADDITIONS BY LANDLORD. Landlord hereby reserves the right at any time, and from time to time, to make alterations or additions to, and to build additional stories on the Building in which the Premises are contained and to build adjoining the same and to modify the existing parking or other common areas to accommodate additional buildings. Landlord also reserves the right to construct other buildings or improvements in the Building area from time to time, on condition that if the Building area is expanded so as to include any additional buildings, Landlord agrees to create or maintain a parking ratio adequate to meet local laws and ordinances, including the right to add land to the Building or to erect parking structures thereon. SECTION 5.03 DELIVERY OF POSSESSION. Except as hereinafter provided, Landlord shall deliver the Premises to Tenant ready for Tenant's Work on or before the date set forth in Section 1.01(J). The Premises shall be deemed as ready for delivery when Landlord shall have substantially completed construction of the portion of the said Premises to be occupied exclusively by Tenant, in accordance with Landlord's obligations set forth in Exhibit "C". Landlord shall, from time to time during the course of construction, provide information to Tenant concerning the progress of construction of said Premises, and will give written notice to Tenant when said Premises are in fact ready for Tenant's Work. Notwithstanding the foregoing, Landlord shall have the right to extend the date for delivery of possession of the Premises for a period of one (1) month by notice in writing given to Tenant any time prior to said delivery date. If any disputes shall arise as to the Premises being ready for delivery of possession, a certificate furnished by Landlord's architect in charge so certifying shall be conclusive and binding of that fact and date upon the parties. It is agreed that by occupying the Premises as a tenant, Tenant formally accepts the same and acknowledges that the Premises are In the condition called for hereunder, except for items specifically excepted in writing at date of occupancy as 1 ARTICLE VI TENANT'S WORK & LANDLORD'S CONTRIBUTION SECTION 6.01 TENANT'S WORK. Tenant agrees to provide all work of whatsoever nature in accordance with its obligations set forth in Exhibit "D" except as set forth to be completed by Landlord during initial construction in Exhibit "C". If Tenant desires to remodel the Premises, Tenant agrees to furnish Landlord, prior to construction, with a complete and detailed set of plans and specifications drawn by some qualified person acceptable to Landlord setting forth and describing Tenant's Work in such detail as Landlord may require and in compliance with Exhibit "D", unless this requirement be waived in writing by Landlord. Landlord must approve all Tenant plans in writing prior to construction. No substantive deviation from the final set of plans and specifications once submitted to and approved by Landlord, shall be made by Tenant without Landlord's prior written consent. Landlord shall have the right to approve Tenant's contractor to be used in performing Tenant's Work, and the right to require and approve insurance or bonds provided by Tenant or such contractors. In due course after completion of Tenant's Work, Tenant shall certify to Landlord the itemized cost of Tenant improvements and fixtures located upon the Premise,@. SECTION 6.02 LANDLORD'S CONTRIBUTION. Landlord agrees to make a contribution to Tenant's Work set forth in Exhibit "D", in an amount not to exceed the actual cost of Tenant's Work or the amount set forth in Section I 040), whichever amount is the lesser. Within thirty (30) days after invoice therefore, Tenant shall reimburse to Landlord any construction cost in excess of the sum of Landlord's Work pursuant to Exhibit "C" and Landlord's Contribution toward work performed by Landlord shown in Exhibit "D". ARTICLE VII USE SECTION 7.01 USE OF PREMISES. Tenant shall use and occupy the Premises solely for the purpose of conducting the business indicated in Section 1.01(F). Tenant shall promptly comply with all present or future laws, ordinances, lawful orders and regulations affecting the Premises and the cleanliness, safety, occupancy and use of same. Tenant shall not make any use of the Premises which will cause cancellation or an increase in the cost of any insurance policy covering the same. Tenant shall not keep or use on the Premises any article, item, or thing which is prohibited by the standard form of fire insurance policy. Neither Tenant nor Landlord shall not commit any waste upon the Premises and shall not conduct or allow any business, activity, or thing on the Premises which is an annoyance or causes damage to landlords Tenant to other subtenants, occupants, or users of the improvements, or to occupants of the vicinity. SECTION 7.02 RAZARDOUS SUBSTANCES. a) Landlord shall be responsible for removal of any Hazardous Substances that existed at the Leased Premises prior to construction or any that Landlord has or does install at the Leased Premises or Building. After reasonable inquiry, Landlord is not aware of any existing Hazardous Substances in the Building or Common Areas. b) Tenant shall not use, produce, store, release, dispose or handle in or about the Leased Premises or transfer to or from the Leased Premises (or permit any other party to do such acts) any Hazardous Substance except in compliance with all applicable Environmental Laws. Tenant shall not construct or use any improvements, fixtures or equipment or engage in any act on or about the Leased Premises that would require the procurement of any license or permit pursuant to any Environmental Law and Tenant shall remove any Hazardous Substance resulting from Tenant's or its agent's contractors, or business invitee's acts. Tenant shall immediately notify Landlord of (i) the existence of any Hazardous Substance on or about the Leased Premises that may in violation of any Environmental Law (regardless of whether Tenant is responsible for the existence of such Hazardous Substance), (ii) any proceeding or investigation by any governmental authority regarding the presence of any Hazardous Substance on the Leased Premises or the migration thereof to or from any other property, (iii) all claims made or threatened by any third party against Tenant relating to any loss or injury resulting from any Hazardous Substance in or about the Leased Premises. "Environmental Laws" shall mean any federal, state or local statute, ordinance, rule, regulation or guideline pertaining to health, industrial hygiene, or the environment, including without limitation, the federal Comprehensive Environmental Response, Compensation, and Liability Act; "Hazardous Substance' shall mean all substances, materials and wastes that are or become regulated, or classified as hazardous or toxic, under any Environmental Law. c) The party herein responsible for removal of Hazardous Substances shall upon learning of such condition proceed within five (5) days thereafter to commence removal of such Hazardous Substance and shall diligently continue to effect such removal until completion. Removal shall be accomplished in accordance with any applicable safety standards. ARTICLE VII OPERATION AND MAINTENANCE OF COMMON AREAS SECTION 8.01 CONSTRUCTION AND CONTROL OF COMMON AREAS. All automobile parking areas, driveways, entrances and exits thereto, and other facilities furnished by Landlord in or near the buildings or Building, including if any, employee parking areas, truck ways, loading docks, mail rooms or mail pickup areas, pedestrian sidewalks and hallways, landscaped areas, retaining walls, stairways, restrooms, HVAC, electrical and other utility systems, and other areas and improvements provided by Landlord for the general use in common tenants, their officers, agents, employees and customers, (hereinafter "Common Facilities") shall at all times be subject to the exclusive control and management of Landlord which shall have the right from time to time to establish, modify and enforce reasonable Rules and Regulations with respect to all facilities and areas mentioned in this Section. Landlord shall have the right to construct, maintain and operate lighting and drainage facilities on or in all said areas and improvements; to police the same, front time to time to change the area, level, location and arrangement of parking areas and other facilities hereinabove referred to; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to close temporarily all or any portion of said areas or facilities to such extent as may, in the opinion of counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein; to assign "reserved" par-king spaces for exclusive use of certain tenants or for customer parking, to discourage non-employee and non-custorrier parking; and to do and perform such other acts in and to said areas and improvements as, in the exercise ofgood businessjudgment, the Landlord shall determine to be advisable with a view toward maintaining of appropriate convenience uses, amenities, and for permitted uses by tenants, their officers, agents, employees and customers. Landlord will operate and maintain the common facilities referred to above in such a manner as it, in its sole discretion, shall determine from time to time. Without limiting the scope of such discretion, Landlord shall have the full right and authority to employ all personnel and to make all Rules and Regulations pertaining to and necessary for the proper operation, security and maintenance of the common areas and facilities. Building and/or project signs, traffic control signs and other signs determined by Landlord to be in best interest of the Building, will be considered part of common area and common facilities. SECTION 8.02 LICENSE. All common areas and facilities not within the Premises, which Tenant may be permitted to use and occupy, are to be used and occupied under a revocable license, and if the amount of such areas be diminished, Landlord shall not be subject to any liabilities nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such diminution of such areas be deemed constructive or actual eviction, so long as such revocations or diminutions are deemed by Landlord to serve the best interests of the Building. SECTION 8.03 COMMON AREA MAE14TENANCE EXPENSES. a) Pursuant to Section 3.03, Tenant shall pay its share of the "Common Area Operating Cost" for the Common Facilities b) For the purpose of this Section 8.03 the "Common Area Operating Cost" means the total cost and expense incurred in operating and maintaining, equipping, policing, protecting, lighting, repairing and replacing the Common Facilities, actually used or available for use by tenants and the employees, agents, servants and other invitees of tenants, excluding carrying charges, "on-site employee expenses" and management fees or Landlord administrative fee, but specifically including fire and other casualty, public liability and property damage insurance, real estate taxes and assessments, security personnel and equipment, utility charges, heating and air conditioning, on and off-site traffic control, directories, repairs, line painting, lighting, and sanitary control. Notwithstanding the above, the following items are to be specifically excluded from "Common Area Operating Cost": 1) Costs attributable to original development, or seeking and obtaining new tenants or lease extensions, such as advertising, brokerage commissions, architectural, engineering, attorney's fees, renovations and improvements 2) Costs attributable to enforcing leases against tenants in the project, such as attorney's fees, court costs, adverse judgments and similar expenses, except for a reasonable allocation of costs to extent action relates to common area collections or operations; 3) Costs that are reimbursed to the Landlord by tenants as a result of provisions contained in their specific leases; 4) Costs for alterations and additions that are in the nature of new, rather than replacement of existing common area capital improvements; 5) Reserves for bad debts or future expenditures which would be incurred subsequent to the then current accounting year; 6) Interest on any mortgages of the Landlord (except that this shall not restrict charges for depreciation of amortization (including principal and interest) of permitted capital improvements or equipment regardless of whether or not acquisition proceeds may have been borrowed); 7) Repairs and other work occasioned by fire, windstorm or other casualty to the extent that the Landlord is reimbursed by insurance that was required to be carried under the Lease: 8) Any costs, fines or penalties incurred due to violations by Landlord of any leases or any governmental rule or authority, except to the extent that Landlord reasonably determines that Operating Expenses had been reduced in prior years as a result thereof; 9) The costs of correcting originally-constructed conunon area improvements in order to comply with codes that were applicable at the time such improvements were constructed; 10) Costs attributable to repairing items that are covered by warranties to the extent that Landlord recovers such costs under the warranties; 11) Repairs and maintenance performed exclusively for a particular tenant exclusive space and not in the common areas, or tenant improvements in a tenant's space rather than for improvements intended generally for the common benefit of the office building tenant. 12) Costs of correcting defective conditions in the Building resulting from failure to comply with applicable building and construction codes at the time such improvements were constructed; 13) Building structural, roof and other costs set forth as Item 2 in Landlord maintenance obligations in Section 10.01. 14) Costs resulting from Landlord's negligent acts. ARTICLE IX ALTERATIONS, SIGNS, LOCKS & KEYS SECTION 9.01 ALTERATIONS. Tenant shall not make or suffer to be made any alterations or additions to the Premises or any part thereof without the prior written consent of Landlord. Any additions to, or alterations of the Premises except movable furniture, equipment and trade fixtures shall become a part of the realty and belong to Landlord upon the termination of Tenant's lease or renewal term or other termination or surrender of the Premises to Landlord. SECTION 9.02 SIGNS. Subject to prior municipal or required public approvals and to full conformity with Exhibit " E ", Tenant may place, at its own expense, suitable tenant identification signs on the Premises and/or Building, provided that such sign shall be in the Landlord-approved building location, and that general design conforms to the design and style of other tenant signs on the buildings and provided that written approval of the sign design and proposed location is obtained in advance from Landlord. If any sign is installed or posted prior to obtaining such approval or which does not conform to the conditions herein specified, Tenant shall be required to remove said sign and repair any damage caused thereby at its sole cost and expense. At the termination of this Lease, Tenant shall remove said sign. Tenant shall repair any damage caused by the installation or removal of any Tenant signs. All work shall be completed in a good and workmanlike manner. SECTION 9.03 LOCKS AND KEYS. Tenant may change locks or install other locks on doors, but if Tenant does, Tenant must provide Landlord with duplicate keys within twenty four hours after said change or installation. Tenant upon termination of this Lease shall deliver to Landlord all the keys to the Premises including any interior offices, toilet rooms, combinations to built-in safes, etc. which shall have been furnished to or by the Tenant or are in the possession ot the 'Tenant ARTICLE X MAINTENANCE AND REPAIRS; ALTERATIONS; ACCESS SECTION 10.01 LANDLORD'S OBLIGATION FOR MAMTENANCE. Landlord shall maintain and repair: (1) the areas outside the Premises including hallways, public restrooms, if any, general landscaping, parking areas, driveways and walkways; (2) the Building structure including roof, exterior walls, and foundation; and (3) all plumbing, electrical, heating, and air conditioning systems. However, if the need for such repairs or maintenance results from any careless, wrongful or negligent act or omission of Tenant, Tenant shall pay the entire cost of any such repair or maintenance including a reasonable charge to cover Landlord's supervisory overhead. Landlord shall not be obligated to repair any damage or defect until receipt of written notice from Tenant of the need of such repair and Landlord shall have a reasonable time after receipt of such notice in which to make such repairs. Tenant shall give immediate notice to Landlord in case of fire or accidents in the Premises or in the building of which the Premises are a part or of defects therein or in any fixtures or equipment provided by Landlord. SECTION 10.02 TENANT'S OBLIGATION FOR MAINTENANCE. (a) Tenant shall provide its own janitorial service and keep and maintain the Premises including the interior wall surfaces and windows, floors, floor coverings and ceilings in a clean, sanitary and safe condition in accordance with the laws of the State and in accordance with all directions, rules and regulations of the health officer, fire marshall, building inspector, or other proper officials of the governmental agencies having jurisdiction, at the sole cost and expense of Tenant, and Tenant shall comply with all requirements of law, ordinance and otherwise, affecting said Premises. (b) Tenant shall pay, when due, all claims for labor or material furnished, for work under Sections 9.01, 9.02 and 9.03 hereof, to or for Tenant at or for use in the Premises, and shall bond such work if reasonably required by Landlord to prevent assertion of claims against Landlord. (c) Tenant agrees to be responsible for all furnishings fixtures and equipment located upon the Premises from time to time and shall replace carpeting within the Premises if same shall be damaged by tearing, burning, or stains resulting from spilling anything on said carpet, reasonable wear and tear accepted. Tenant further agrees to use chairmats or floor protectors wherever it uses chairs with wheels or casters on carpeted areas. SECTION 10.03 SURRENDER AND RIGHTS UPON TERMINATION. (a) This Lease and the tenancy hereby created shall cease and terminate at the end of the Rental Term hereof, or any extension or renewal thereof, without the necessity of any notice from either Landlord or Tenant to terminate the same, and Tenant hereby waives notice to vacate the Premises and agrees that Landlord shall be entitled to the benefit of all provisions of law respecting summary recovery of possession of Premises from a Tenant holding over to the same extent as if statutory notice has been given. (b) Upon termination of this Lease at any time and for any reason whatsoever, Tenant shall surrender and deliver up the Premises to Landlord in the same condition as when the Premises were delivered to Tenant or as altered as provided in Section 9.01, ordinary wear and tear excepted. Upon request of Landlord, Tenant shall promptly remove all personal property from the Premises and repair any damage caused by such removal. Obligations under this Lease relating to events occurring or circumstances existing prior to the date of termination shall survive the expiration or other termination of the Rental Term or this Lease. Liabilities accruing after date of termination are defined in Sections 19.01 and 19.02. ARTICLE XI INSURANCE AND INDEMNITY SECTION 11.01 LIABILITY INSURANCE AND INDEMNITY. Tenant shall, during all terms hereof, keep in full force and effect a policy of public bodily injury and property damage liability insurance with respect to the Premises, with a combined single limit of not less than One Million Dollars ($1,f000,000.00) per occurrence. The policy shall name Landlord, Property Manager (i.e., Woodbury Corporation) and any other persons, firms or corporations designated by Landlord and Tenant as insureds, and shall contain a clause that the insurer will not cancel or change the insurance without first giving the Landlord ten (10) days prior written notice. Such insurance shall include an endorsement permitting Landlord and Property Manager to recover damage suffered due to act or omission of Tenant, notwithstanding being named as an additional "Insured party" in such policies. Such insurance may be furnished by Tenant under any blanket policy carried by it or under a separate policy therefor. The insurance shall be with an insurance company approved by Landlord and a copy of the paid-up policy evidencing such insurance or a certificate of insurer certifying to the issuance of such policy shall be delivered to Landlord. If Tenant fails to provide such insurance, Landlord may do so and charge same to Tenant. Tenant will indemnify, defend and hold Landlord harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon or at the Premises or from the occupancy or use by Tenant of the Premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, sublessees, concessionaires or business invitees unless caused by the negligence of Landlord and to the extent not covered by its fire, casualty and liability insurance. In case Landlord shall, without fault of its part, be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses and reasonable attorney fees incurred or paid by either in defending itself or enforcing the covenants and agreements of this Lease. Landlord will indemnify, defend and hold Tenant harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any misconduct or negligent omission of Landlord, its agents, contractors, employees or servants, to the extent not covered by its fire, casualty and liability insurance. In case Tenant shall, without fault of its part, be made a party to any litigation commenced by or against Landlord, then Landlord shall protect and hold Tenant harmless and shall pay all costs, expenses and reasonable attorney fees incurred or paid by either in defending itself or enforcing the covenants and agreements of this Lease. SECTION 11.02 FIRE AND CASUALTY INSURANCE. (a) Subject to the provisions of this Section 11.02, Landlord shall secure, pay for, and at all times during the terms hereof maintain, insurance providing coverage upon the building improvements in an amount equal to the full insurable value thereof (as determined by Landlord) and insuring against the perils of fire, extended coverage, vandalism, and malicious mischief. All insurance required hereunder shall be written by reputable, responsible companies licensed in the State of Utah. Tenant shall have the right, at its request at any reasonable time, to be furnished with copies of the insurance policies then in force pursuant to this Section, together with evidence that the premiums therefor have been paid. (b) Tenant agrees to maintain at its own expense such fire and casualty insurance coverage as Tenant may desire or require in respect to Tenant's personal property, equipment, furniture, fixtures or inventory and Landlord shall have no obligation in respect to such insurance or losses. All property kept or stored on the Premises by Tenant or with Tenant's permission shall be so done at Tenant's sole risk and Tenant shall indemnify Landlord against and hold it harmless from any claims arising out of loss or damage to same. (c) Tenant will not permit said Premises to be used for any purpose which would render the insurance thereon void or cause cancellation thereof or increase the insurance risk or increase the insurance premiums in effect just prior to the commencement of this Lease. Tenant agrees to pay as additional rent the total amount of any increase in the insurance premium of Landlord over that in effect prior to the commencement of this lease resulting from Tenant use of the Premises. If Tenant installs any electrical or other equipment which overloads the lines in the Premises, Tenant shall at its own expense make whatever changes are necessary to comply with the requirements of Landlord's insurance. (d) Tenant shall be responsible for all glass breakage at Leased Premises from any cause whatsoever and agrees to immediately replace all glass broken or damaged during the terms hereof with glass of the same quality as that broken or damaged. Landlord may replace, at Tenant's expense, any broken or damaged glass if not replaced by Tenant within five (5) days after such damage. (e) Tenant shall reimburse to Landlord Tenant's share of casualty insurance provided by Landlord pursuant to subsection (a) above in the manner set forth in Section 3.03 herein. SECTION 11.03 WAIVER OF SUBROGATION. Each party hereto does hereby release and discharge the other party hereto and any officer, agent, employee or representative of such party, of and from any liability whatsoever hereafter arising from loss, damage or injury caused by fire or other casualty for which insurance (permitting waiver of liability and containing a waiver of subrogation) is carried by the injured party at the time of such loss, damage or injury to the extent of any recovery by the injured party under such insurance. ARTICLE XII UTILITY CHARGES SECTION 12.01 UTILITY CHARGES. Landlord shall install all utility systems and shall have electricity and gas sub-metered or monitored such that Tenant shall pay only for actual electrical and gas usage at the Leased Premises. Water and sewer charges shall be included in common area maintenance pursuant to Section 8.O3 Landlord shall pay all utility charges to utility companies promptly when due, but Tenant shall pay to Landlord its actual share within ten (10) days after invoice by Landlord. Tenant shall pay for all telephone installation, equipment and monthly use charges. If utility companies bill Tenant direct for separately metered utility charges, Tenant agrees to pay when due all such charges direct to the utility company. ARTICLE XIII OFF-SET STATEMENT, ATTORNMENT AND SUBORDINATION SECTION 13.01 OFF-SET STATEMENT. Tenant agrees within ten (10) days after request therefor by Landlord to execute in recordable form and deliver to Landlord a statement in writing, certifying (a) that this Lease is in full force and effect (b) the date of commencement of the Rental Term of this Lease, (c) that rent is paid currently without any off-set or defense thereto, (d) the amount of rent, if any paid in advance. and (e) that there are no uncured defaults by Landlord or stating those claimed by Tenant. SECTION 13.02 ATTORNMENT. Tenant shall, in the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease. SECTION 13.03 SUBORDINATION. Tenant agrees that this Lease shall, at the request of Landlord, be subordinate to any first mortgages or deeds of trust that may hereafter be placed upon said Premises and to any and all advances to be made thereunder, and to the interest thereon, and all renewals, replacements and extensions thereof, provided the mortgagees or trustees named in said mortgages or deeds of trust shall agree to recognize and not disturb the Lease of Tenant in the event of foreclosure, if Tenant is not in default. SECTION 13.04 MORTGAGEE SUBORDINATION. Tenant hereby agrees that this Lease shall, if at any time requested by Landlord or any lender in respect to Landlord's financing of the building or project in which the Premises are located or any portion hereof, be made superior to any mortgage or deed of trust that may have preceded such Lease. SECTION 13.05 REMEDIES. Tenant hereby irrevocably appoints Landlord as attorney-in-fact for the Tenant with full power and authority to execute and deliver in the name of the Tenant any such instruments described in this Article XIII upon failure of the Tenant to execute and deliver any of the above instruments within fifteen (15) days after written request so to do by Landlord; and such failure shall constitute a breach of this Lease entitling the Landlord, at its option, to cancel this Lease and terminate the Tenant's interest therein. ARTICLE XIV ASSIGNMENT SECTION 14.01 ASSIGNMENT. Tenant shall not assign this Lease or sublet the Premises, or any part thereof, without first obtaining the written consent of the Landlord, which consent shall not be unreasonably withheld. The consent of Landlord shall not relieve Tenant or Guarantors of this Lease from continuing liability for all obligations under this Lease. Any Assignment by operation of law or if the Tenant be a corporation, unincorporated association or partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association or partnership in the aggregate in excess of 50% shall be deemed an "Assignment" within the meaning of this Section. ARTICLE XV WASTE OR NUISANCE SECTION 15.01 WASTE OR NUISANCE. Tenant shall not commit or suffer to be committed any waste upon the Premises, or any nuisance or other act or thing which may disturb the quite enjoyment of any other tenant in the building in which the Premises may be located, or elsewhere within the Building. ARTICLE XVI NOTICES SECTION 16.01 NOTICES. Except as provided in Section 19.01 any notice required or permitted hereunder to be given or transmitted between the parties shall be either personally delivered, or mailed postage prepaid by registered mail, return receipt requested, addressed if to Tenant at the address set forth in Section 1.01(E), and if to Landlord at the address set forth in Section 1.01(C). Either party may, by notice to the other given as prescribed in this Section 16.01, change its above address for any future notices which are mailed under this Lease. ARTICLE XVII DESTRUCTION OF THE PREMISES SECTION 17.01 DESTRUCTION. (a) If the Premises are partially or totally destroyed by fire or other casualty insurable under standard fire insurance policies with extended coverage endorsement so as to become partially or totally untenantable, the same shall be repaired or rebuilt as speedily as practical under the circumstances at the expense of the Landlord, unless Landlord elects not to repair or rebuild as provided in Subsection (b) of this Section 17.01. During the period required for restoration, a just and proportionate part of Base Rent, additional rent and other charges payable by Tenant hereunder shall be abated until the Premises are repaired or rebuilt. (b) If the Premises are (I) rendered totally untenantable by reason of an occurrence described in Subsection (a), or (II) damaged or destroyed as a result of a risk which is not insured under Landlord's fire insurance policies, or (III) at least twenty percent (20%) damaged or destroyed during the last year of the Rental Term, or (IV) if the Building is damaged in whole or in part (whether or not the Premises are damaged), to such an extent that Tenant cannot practically use the Premises for its intended purpose, then and in any such events Landlord or Tenant may at its option terminate this Lease Agreement by notice in writing to the Tenant within sixty (60) days after the date of such occurrence. Unless Landlord gives such notice, this Lease Agreement will remain in full force and effect and Landlord shall repair such damage at its expense as expeditiously as possible under the circumstances. (c) If Landlord should elect or be obligated pursuant to Subsection (a) above to repair or rebuild because of any damage or destruction, Landlord's obligation shall be limited to the original Building any other work or improvements which may have been originally performed or installed at Landlord's expense. If the cost of performing Landlord's obligation exceeds the actual proceeds of insurance paid or payable to Landlord on account of such casualty, Landlord may terminate this Lease Agreement unless Tenant, within fifteen (15) days after demand therefor, deposits with Landlord a sum of money sufficient to pay the difference between the cost of repair and the proceeds of the insurance available for such purpose Tenant shall replace all work and improvements not originally installed or performed by Landlord at its expense. (d) Except as stated in this Article XVII and as otherwise provided in this Lease, Landlord shall not be liable for any loss or damage sustained by Tenant by reason of casualties mentioned hereinabove or any other accidental casualty. ARTICLE XVIII CONDEMNATION SECTION 18.01 CONDEMNATION. As used in this Section the term "Condemnation Proceeding" means any action or proceeding in which any interest in the Premises or Building is taken for any public or quasi-public purpose by any lawful authority through exercise of the power of eminent domain or right of condemnation or by purchase or otherwise in lieu thereof. If the whole of the Premises is taken through Condemnation Proceedings, this Lease shall automatically terminate as of the date possession is taken by the condemning authority. If in excess of twenty-five (25%) percent of the Premises is taken, either party hereto shall have the option to terminate this Lease by giving the other written notice of such election at any time within thirty (30) days after the date of taking. If less than twenty-five (25%) percent of the space is taken and Landlord determines, in Landlord's sole discretion, that a reasonable amount of reconstruction thereof will not result in the Premises or the Building becoming a practical improvement reasonably suitable for use for the purpose for which it is designed, then Landlord may elect to terminate this Lease Agreement by giving thirty (30) days written notice as provided hereinabove. In all other cases, or if neither party exercises its option to terminate, this Lease shall remain in effect and the rent payable hereunder from and after the date of taking shall be proportionately reduced in proportion to the ratio of: (1) the area contained in the Premises which is capable of occupancy after the taking; to (II) the total area contained in the Premises which was capable of occupancy prior to the taking. In the event of any termination or rental reduction provided for in this Section, there shall be a proration of the rent payable under this Lease and Landlord shall refund any excess theretofore paid by Tenant. Whether or not this Lease is terminated as a consequence of Condemnation Proceedings, all damages or compensation awarded for a partial or total taking, including any sums compensating Tenant for diminution in the value of or deprivation of its leasehold estate, shall be the sole and exclusive property of Landlord, except that Tenant will be entitled to any awards intended to compensate Tenant for expenses of locating and moving Tenant's operations to a new space. ARTICLE XIX DEFAULT OF TENANT SECTION 19.01 DEFAULT - RIGHT TO RE-ENTER. In the event of any failure of Tenant to pay any rental due hereunder within ten (10) days after written notice that the same is past due shall have been mailed by certified mail to Tenant, or any failure by Tenant to perform any other of the terms, conditions or covenants required of Tenant by this Lease within thirty (30) days after written notice of such default shall have been mailed by certified mail to Tenant, or if Tenant shall abandon said Premises, or permit this Lease to be taken under any writ of execution, then Landlord, besides other rights or remedies it may have, shall have the right to declare this Lease terminated and shall have the immediate right of re-entry and may remove all persons and property from the Premises. Such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant, without evidence of notice or resort to legal process and without being deemed guilty of trespass, or becoming liable for any loss or damage which may be occasioned thereby. Tenant hereby waives all compensation for the forfeiture of the term or its loss of possession of the Premises in the event of the forfeiture of this Lease as provided for above. Any notice that Landlord may desire or is required to give Tenant with reference to the foregoing provision may, in lieu of mailing, at the option of Landlord, be conspicuously posted for ten (10) consecutive days at the main entrance to or in front of the Premises, and such notice shall constitute a good, sufficient, and lawful notice for the purpose of declaring a forfeiture of this Lease and for terminating all of the rights of the Tenant hereunder. SECTION 19.02 DEFAULT - RIGHT TO RE-LET. Should Landlord elect to re-enter, as herein provided, or should it take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or it may from time to time, without terminating this Lease, make such alterations and repairs as may be necessary in order to relet the Premises, and may relet said Premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable. Upon each such reletting, all rentals received by Landlord from such reletting shall be applied first to the payment of any costs and expenses of such reletting, including brokerage fees and attorney's fees and costs of such alterations and repairs; second, to the payment of rent or other unpaid obligations due hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same may become due and payable hereunder. If such rental received from such reletting during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of said Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court or competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time elect to terminate this Lease for such previous default. Should Landlord at any time terminate this Lease for any default, in addition to any other remedies it may have, it may recover from Tenant all damages it may incur by reason of such default, including the cost of recovering the Premises, reasonable attorney's fees, and including the worth at the time of such termination of the excess, if any, of the amount of rent and charges equivalent to rent reserved in this Lease for the remainder of the stated term over the then reasonable rental value of the Premises for the remainder of the stated term, all of which amounts shall be immediately due and payable. SECTION 19.03 LEGAL EXPENSES. In case of default by either party in the performance and obligations under this Lease, the defaulting patty shall pay all costs incurred in enforcing this Lease, or any right arising out of such default, whether by suit or otherwise, including a reasonable attorney's fee. ARTICLE XX BANKRUPTCY, INSOLVENCY OR RECEIVERSHIP SECTION 20.01 ACT OF INSOLVENCY, GUARDIANSHIP, ETC. The following shall constitute a default of this Lease by the Tenant for which Landlord, at Landlord's option, may immediately terminate this Lease. (a) The appointment of a receiver to take possession of all or substantially all of the assets of the Tenant. (b) A general assignment by the Tenant of his assets for the benefit of creditors. (c) Any action taken or suffered by or against the Tenant under any federal or state insolvency or bankruptcy act. (d) The appointment of a guardian, conservator, trustee, or other similar officer to take charge of all or any substantial part of the Tenant's property. Neither this Lease, nor any interest therein nor any estate thereby created shall pass to any trustee, guardian, receiver or assignee for the benefit of creditors or otherwise by operation of law. ARTICLE XXI LANDLORD ACCESS SECTION 21.01 LANDLORD ACCESS. Landlord or Landlord's agent shall have the right to enter the Premises at all reasonable times to examine the same, or to show them to prospective purchasers or lessees of the Building, or to make all repairs, alterations, improvements or additions as Landlord may deem necessary or desirable, and Landlord shall be allowed to take all material into and upon said Premises that may be required therefor without the same constituting an eviction of Tenant in whole or in part, and rent shall not abate while said repairs, alterations, improvements, or additions are being made, by reason of loss or interruption of business of Tenant, or otherwise which shall not materially affect Tenant. During the ninety days prior to the expiration of the Rental Term of this Lease or any renewal term, Landlord may exhibit the Premises to prospective tenants and place upon the Premises the usual notices "To Let" or "For Rent" which notices Tenant shall permit to remain thereon without molestation. ARTICLE XXII LANDLORD'S LIEN SECTION 22.01 LANDLORD'S LIEN. Tenant hereby grants to Landlord a lien upon the improvements, trade fixtures and furnishings of Tenant to secure full and faithful performance of all of the terms of this Lease. ARTICLE XXIII HOLDING OVER SECTION 23.01 HOLDING OVER. Any holding over after the expiration of the Rental Term hereof shall be construed to be a tenancy at sufferance and all provisions of this Lease Agreement shall be and remain in effect except that the monthly rental shall be double the amount of rent (including any adjustments as provided herein) payable for the last full calendar month of the Rental Term including renewals or extensions. Notwithstanding the aforementioned double rent penalty, should Tenant and Landlord agree to construct or lease another building to the Tenant, this penalty can be waived. SECTION 23.02 SUCCESSORS. All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several respective heirs, executors, administrators, successors and assigns of the said parties; and if there shall be more than one tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein. No rights, however, shall inure to the benefit of any assignee of Tenant unless the assignment to such assignee has been approved by Landlord in writing. ARTICLE XXIV RULES AND REGULATIONS SECTION 24.01 RULES AND REGULATIONS. Tenant shall comply with all reasonable rules and regulations which are now or which may be hereafter prescribed by the Landlord and posted in or about said Premises or otherwise brought to the notice of the Tenant, both with regard to the project as a whole and to the Premises including common facilities. ARTICLE XXV QUIET ENJOYMENT SECTION 25.01 QUIET ENJOYMENT. Upon payment by the Tenant of the rents herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under the Landlord, subject, nevertheless, to the terms and conditions of this Lease and actions resulting from future eminent domain proceedings and casualty losses. ARTICLE XXVI SECURITY DEPOSIT SECTION 26.01 SECURITY DEPOSIT. The Landlord herewith acknowledges receipt of the amount set forth in Section 1.01(Q), which it is to retain as security for the faithful performance of all the covenants, conditions and agreements of this Lease, but in no event shall the Landlord be obliged to apply the same upon rents or other charges in arrears or upon damages for Tenant's failure to perform the said covenants, conditions and agreements. The Landlord may so apply the security, at its option, and the Landlord's right to possession of the Premises for non-payment of rent or for any other reason shall not in any event be affected by reason of the fact that the Landlord holds this security. The said sum, if not applied toward the payment of rent in arrears or toward the payment of damages suffered by the Landlord by reason of the Tenant's breach of the covenants, conditions and agreements of this Lease, is to be returned to the Tenant without interest when this Lease is terminated,according to these terms, and in no event is the said security to be returned until the Tenant has vacated the Premises and delivered possession to the Landlord. In the event that the Landlord repossesses the Premises because of the Tenant's default or because of the Tenant's failure to carry out the covenants, conditions and agreements of this Lease, the Landlord may apply the said security toward damages as may be suffered or shall accrue thereafter by reason of the Tenant's default or breach. The Landlord shall not be obligated to keep the said security as a separate fund, but may mix the said security with its own funds. ARTICLE XXVII MISCELLANEOUS PROVISIONS SECTION 27.01 WAIVER. No failure on the part of Landlord to enforce any covenant or provision of this Lease shall discharge or invalidate such covenant or provision or affect the right of Landlord to enforce the same in the event of any subsequent breach. One or more waivers of any covenant or condition by Landlord shall not be construed as a waiver of a subsequent breach of the same covenant or condition and the consent to or approval of any subsequent similar act by Tenant. No breach of a covenant or condition of this Lease shall be deemed to have been waived by Landlord, unless such waiver be in writing signed by Landlord. SECTION 27.02 ENTIRE AGREEMENT. This Lease constitutes the entire Agreement and understanding between the parties hereto and supersedes all prior discussions, understandings and agreements. This Lease may not be altered or amended except by a subsequent written agreement executed by all parties. SECTION 27.03 FORCE MAJEURE. Any failure to perform or delay in performance by either party of any obligation under this Lease. other than Tenant's obligation to pay rent, shall be excused if such failure or delay is caused by any strike, lockout, governmental restriction or any similar cause beyond the control of the party so failing to perform, to the extent and for the period that such continues. SECTION 27.04 LOSS AND DAMAGE . Except as otherwise provided in this Lease, the Landlord shall not be responsible or liable to tile Tenant for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying all or any part of the premises adjacent to or connected with the Premises or any part of the building of which the Premises are a part, or for any loss or damage resulting to the Tenant or his property from bursting, stoppage or leaking of water, gas sewer or steam pipes or for any damage or loss of property within the Premises from any cause whatsoever. SECTION 27.05 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the amount owing hereunder shall be deemed to be other than on account of the earliest stipulated amount receivable from Tenant, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or receivable or pursue any other remedy available under this Lease or the law of the state where the Premises are located. SECTION 27.06 NO OPTION. The submission of this Lease for examination does not constitute a reservation of or option for the Premises and this Lease becomes effective as a lease only upon full execution and delivery thereof by Landlord and Tenant. SECTION 27.07 ANTI-DISCRIMINATION. Tenant herein covenants by and for itself, its heirs, executors, administrators and assigns and all persons claiming under or through it, and this Lease is made and accepted upon and subject to the following conditions That there shall be no discrimination against or segregation of any person or group of persons on account of race, sex, marital status, color, creed, national origin or ancestry, in the leasing, subleasing, assigning, use, occupancy, tenure or enjoyment of the Premises, nor shall the Tenant itself, or any person claiming under or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, or subtenants in the Premises. SECTION 27.08 SEVERABILITY. If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Lease, or the application of such term, 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, covenant or condition of this Lease shall be valid and be enforced to the fullest extent permitted by law. SECTION 27.09 OTHER MISCELLANEOUS PROVISIONS. This instrument shall not be recorded without the prior written consent of Landlord; however, upon the request of either party hereto, the other party shall join in the execution of a memorandum or "short form" lease for recording purposes which memorandum shall describe the parties, the Premises, the Rental Term and shall incorporate this Lease by reference, and may include other special provisions. The captions which precede the Sections of this Lease are for convenience only and shall in no way affect the manner in which any provisions hereof is construed. In the event there is more than one Tenant hereunder, the liability of each shall be joint and several. This instrument shall be governed by and construed in accordance with the laws of the State wherein the Premises are located. Words of any gender used in this Lease shall be held to include any other gender, and words in the singular number shall be held to include the plural when the sense requires. Time is of the essence of this Lease and every term, covenant and condition herein contained. SECTION 27.10 REPRESENTATION REGARDING AUTHORITY. The persons who have executed this Agreement represent and warrant that they are duly authorized to execute this Agreement in their individual or representative capacity as indicated. IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the day and year first above written. TENANT: LANDLORD: ELECTRONIC TECHNOLOGY CORP. PRACVEST, A UTAH GENERAL PARTNERSHIP By: William E Chipman Sr. By: /s/ W. Richards Woodbury - ------------------------- --------------------------------------- William E Chipman Sr. W. Richards Woodbury, Attorney-in-Fact Director and Chief Financial Officer By: /s/ Orin R. Woodbury --------------------------------------- Orin R. Woodbury, Attorney-in-Fact LANDLORD ACKNOWLEDGMENT STATE OF UTAH ) )ss. COUNTY OF SALT LAKE ) On this 21st day of May, 1995 before me personally appeared W. RICHARDS WOODBURY and ORIN R WOODBURY to me personally known who being by me duly sworn did each for himself say that he is Attorney In Fact for that certain partnership known as PRACVEST and that the within instrument was executed by them for and on behalf of said partnership. O. Randall Woodbury ----------------------------------------- Notary Public TENANT ACKNOWLEDGEMENT (CORPORATE) STATE OF UTAH ) )ss. COUNTY OF UTAH ) On this 17 day of May, 1995, before me personally appeared WILLIAM E CHIPMAN, known to me to be the Director and Chief Financial Officer , of ELECTRONIC TECHNOLOGY CORP., the corporation that executed the within instrument, known to me to be the person who executed the within instrument on behalf of the corporate therein named, and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors. Melvin A. Clement ----------------------------------------- Notary Public GUARANTY TO INDUCE PRACVEST, a Utah general partnership, to enter into that certain Lease Agreement dated the 17th day of May, 1995, by and between PRACVEST, a Utah general partnership, and ELECTRONIC TECHNOLOGY CORP, William E. Chipman,Sr. hereby guarantees to PRACVEST a Utah general partnership, the Landlord, and its successors and assigns the due and punctual payment of all rent thereunder, and the performance of all covenants, conditions and agreements to be paid or performed by Tenant in or under the foregoing Lease. The undersigned jointly and severally waive any demand for performance upon Tenant and any notice to the undersigned of non-payment or non-performance by Tenant and hereby waive all suretyship defenses The undersigned further consents to any indulgences granted or allowed to Tenant, including but not limited to granting of extensions of times for payment or taking of any notes or other obligations or any security for payment of sums due or to become due, without notice to the undersigned and without thereby in any manner releasing or affecting the liability of the undersigned. DATED May 17, 1995 /s/ William E Chipman, Sr. ----------------------------------------- William E Chipman, Sr. STATE OF UTAH ) )ss. COUNTY OF ) On this 17 day of May, 1995, personally appeared before me William E. Chipman, Sr., signer of the foregoing instrument, who duly acknowledged to me that he executed the same. Melvin A. Clement ----------------------------------------- Notary Public PICTURE OF FLOOR PLAN PICTURE OF POWER PLAN PICTURE REFLECTED CEILING PLAN PICTURE OF UTAH VALLEY BUSINESS PARK EXHIBIT "B" LEGAL DESCRIPTION Lots 15 and 16 of Plat G, Utah Valley Business Park Subdivision. EXHIBIT "C" LANDLORD'S WORK The following is a description of the construction, and limitations of same, which will be provided exclusively by the Landlord at Landlord's expense unless indicated otherwise herein. The basic site, exterior common area, and building shell improvements are existing or will be provided by Landlord in accordance with plans and specifications, prepared by Landlord's Architect, and shall be of a type and quality indicated herein or determined by Landlord's Architect. Where two types of materials, structures, or installations are indicated, the option will be exclusively with the Landlord. A. SITE WORK 1. Perform all earthwork, excavation, grading, and preparation of building pads and parking lot areas to receive final finishes. 2. Install new curb, sidewalks, landscaping, underground sprinkler systems, and other improvements as indicated on site plans and in planters around the perimeter of the building. 3. Install all parking lot improvements, asphalt paving, striping, and signage. 4. Install parking lot drainage, retention, and other site utilities, including installation of pole and/or building mounted parking lot lighting. B. UTILITY DISTRIBUTION SYSTEMS EXTERIOR TO THE PREMISES 1. Provide all utility mains including culinary water, fire protection, storm drainage, sanitary sewer, gas, electrical, and telephone and install in accordance with the governing municipal and utility company standards. 2. Extend power and telephone mains to electrical rooms and provide distribution panels at a central location as more specifically described in Paragraph I.E. of this Exhibit. C. BUILDINGS 1. Construct a one-story building consisting steel and/or wood framed structural support members on continuous concrete or spot footings of the shape, size, and configuration as shown on Exhibit "A". All work to be in accordance with plans and specifications prepared by Landlord's Architect. 2. The exterior envelope shall consist of integrally colored or painted of 4" x 8" x 16" clay or concrete masonry units in combination with fixed glass and aluminum window framing and entrance door system. Configuration and design of windows, masonry units, and other exterior finishes to be as determined by Landlord's Architect. Roof to be constructed of single-ply, PVC or EPDM membrane system over rigid insulation. 3. Landlord shall install demising partitions which shall be one-hour fire-rated and constructed of masonry or steel studs and 5/8" gypsum board. Such partitions shall extend from floor to underside of roof or floor construction above. D. COMMON AREAS, LOBBIES, CORRIDORS, AND RESTROOMS 1. Each occupant will generally have independent restrooms, entrances, and exits serving its Leased Premises. Common lobbies, corridors, and restrooms are not anticipated but may be provided at Landlord's option where deemed necessary to serve building occupants. 2. Provide mechanical and/or service and equipment areas including walkways, trash rooms, janitors rooms, electrical rooms, and shafts. 3. Landlord reserves the right to make any additional changes, modifications, alterations, or additions to common areas utilizing a design and materials as determined appropriate by Landlord's Architect to achieve overall building design schemes developed by Landlord's Architect. E. LANDLORD'S WORK WITHIN THE PREMISES 1. Basic functional main utility lines and systems shall be brought to restrooms, mechanical equipment, and electrical panels within the Leased Premises as follows: a. Water: Provided in restrooms, janitor's rooms, mechanical rooms, drinking fountains, etc. b. Sewer: Provided except in restrooms, janitor's rooms, mechanical rooms, drinking fountains, etc. C. Electrical Service: shall be 120/208 volt 3-phase service. Landlord shall either provide for a separate electrical disconnect panel within tenant space with main power extending therefrom to building central panels, or power shall be provided from tenant space directly to building central panels at Landlord's option. d. Gas: Provided as required for boilers, HVAC equipment. e. Telephones: None provided except for main service to electrical rooms. 2. Landlord will provide functional packaged heating and air conditioning roof-top units, sized, positioned, and zoned as required and supply and return air duct distribution system, grilles, Page 1 diffusers, and controls within each lease space. System shall be designed to maintain 72 degrees F. indoor at 95 degrees F., outdoor summer condition; and 70 degrees F. indoor at O degrees F., outdoor winter condition. All work will be installed in accordance with good engineering practice based on the exposure and areas served. 3. Landlord shall provide handicapped accessible and equipped restrooms within Leased Premises. Restrooms shall include complete hot and cold water service, number and type of fixtures, finishes, and accessories as indicated below. All work to be installed in accordance with applicable laws and codes. a. Fixtures - Provide quantity required by code. To include ceramic floor-mounted, tank-type water closets; matching ceramic urinals; recessed ceramic vanities in counter-top with brass-bodied, chrome plated hardware. b. Accessories - Provide steel, floor-mounted bathroom partitions or wall-hung privacy screens between water closet compartments and urinals. Also, provide handicap grab bars, toilet paper holders, soap dispensers, paper towel dispensers, and vanity mirrors as required by code and to serve each restroom. c. Finishes - Provide 4'-0" high, plastic laminate or marlite wainscot on all walls with painted sheetrock walls and ceilings above. Floor to have vinyl composition tile and 4" covered vinyl base. Cabinet bases and counter-tops to be as indicated elsewhere. 4. Landlord shall provide a complete fire sprinkler system throughout in accordance with NFPA #13 including risers, valves, fire department connections, alarms, main and branch piping, drops, and heads. System to be based on the layout as shown in Exhibit A. 5. Landlord shall provide additional improvements and finishes within the Premises as indicated below and as shown on attached Exhibit A Floor Plan, Reflected Ceiling Plan, and Power Plan. Any work that is otherwise required to place the Premises in a finished occupiable condition shall be provided by Tenant in accordance with Design and Construction Standards. a. Interior Partitioning: 8 - 9 ft. high partitions extending to underside of ceiling with 5/8" or 1/2" gypsum board each side, fire-taped and painted. b. Paint and Wall Covering: Landlord shall provide a 3-coat paint application on all demising walls and Landlord provided interior partitions. Color to be at Tenant's option. Two different colors can be used but only one color per wall. c. Interior Doors and Hardware: Landlord shall provide 3'-0" x 6'8" solid core wood doors with hollow metal or wood frame at Landlord's option, stained and finished on all interior doors shown on plan. Hardware will typically include 1-1/2 pair hinges, door stop, and commercial grade lockset. d. Entrance Doors and Hardware: Landlord shall provide 3'-0" x 7'-0" glass and aluminum door and frame together with 1-1/2" pair hinges, door stop, closer, and mortise type lockset with deadbolt for all exterior entrance and exit doors. Where a exterior door is for service use only, Landlord may provide a standard, painted, hollow-metal door and frame. e. Millwork: Landlord will provide plastic laminate counter-top with 4" back-splash and base cabinets in restrooms and breakroom as shown on Floor Plan. At Landlord's option, wood casings and/or base matching color and finish of wood doors may be used around doors and windows or in other locations where deemed advisable by Landlord's Architect. f. Electrical: Landlord shall provide overhead lighting, switches, duplex outlets, and phone outlets as shown on Power Plan and Reflected Ceiling Plan. Light fixtures to be 2'0" x 4'0" standard recessed 3-tube light fixture with acrylic tenses or 8'0" strip lights as applicable. Light switches and outlets to be standard ivory colored 20 amp devices or the quantity shown on plan or of any other type specifically indicated. Empty telephone junction outlets extending to ceiling plenum to be provided where shown. g. Window Coverings: Landlord shall provide 1-inch mini-blinds of a uniform type and color on all exterior windows. h. Floor Coverings: Landlord shall provide 26 oz. level-loop carpet directly glued to floor throughout the Premises except in the product assembly area. Restrooms and equipment rooms to have vinyl composition tile. Color at Tenant's option, selected from manufacturer's standard line for the type of carpet provided. i. Wall Base: Landlord shall provide 4-inch high, straight vinyl base on all carpeted and VCT floors at Landlord provided partitions. Color at Tenant's option, selected from manufacturer's standard line. j. Ceilings: Landlord shall provide a standard 2'0" x 4'0", suspended acoustical lay-in ceiling system and grid where shown on plan. Landlord may provide suspended gypsum board ceilings where deemed advisable by Landlord's Architect in lieu of standard 2'0" x 4'0" ceiling. Other areas to remain unfinished. 6. Locating of Landlord's Work Within the Premises. a. In addition to any rights that Landlord or other building occupants might have through the Restrictions, Rules, and Covenants related to this project, Landlord and other Tenants shall have the right to locate utility mains and other facilities within the Premises, when such location is dictated by necessities of engineering design, good practice, and/or code requirements. These shall be located, wherever possible, in ceiling plenums and walls or so as to cause the minimum of interference with the Tenant and to be unobtrusive in appearance, and so as not to materially interfere with Tenant's business or use of space. Page 2 b. This right to locate work within the Premises shall include the right to locate work in ceiling plenum areas between finished ceiling and roof or floor deck above, as well as on the roof or under the roof thereof. c. Facilities may include, but are not necessarily limited to: drains, water supply, sewerage lines, refrigerant lines, sprinkler risers, electric power circuits, telephone circuits, pump stations, electric panel boards, sanitary vents, air supply, ducts and shafts, exhaust ducts, and flues servicing other building occupants. d. Such areas shall be located adjacent to an interior wall and shall in no event exceed 1.0% of the floor area. 7. Construction plans and specifications will be prepared by Landlord's Architect showing final location of all partitions, doors, ceiling layout, etectrical fixtures and outlets, heating and air conditioning diffusers, and other construction within the Leased Premises. All plans shall be subject to Tenant's approval. Landlord will not commence with Tenant finish construction prior to obtaining Tenant's approval of finish plans. Landlord may make minor deviations to the approved plan where deemed necessary by Landlord's Architect due to site conditions or where good engineering and design may so dictate provided the aesthetic effect or function of the space is not materially altered. Page 3 EXHIBIT "D" TENANT'S WORK A. GENERAL 1. Any work which is not specifically described as being Landlord's work herein but which is required to complete and place the premises in a finished condition shall be done by Tenant at Tenant's cost and in full accordance with Design and Construction Standards. 2. Tenant's work shall include all design, finishes, decorating, equipment, furniture and any other costs or fees required to complete construction or obtain occupancy permits, business licenses, or utility services except as specifically required to be performed by Landlord herein. 3. Tenant may not enter upon premises to commence Tenant's work or to deliver fixtures or equipment prior to substantial completion of Landlord's work within the premises except with prior written approval of Landlord. If so permitted, such entry shall not be deemed an acceptance by the Tenant of possession of the premises, but in such event Tenant shall hold Landlord and Landlord's General Contractor harmless for any loss or damage to Tenant's property, fixtures, or equipment and for injury to any persons, unless same be directly caused by the wanton negligence of Landlord or its agents or its General Contractor. 4. Tenant will provide Landlord with all necessary information with respect to space needs, equipment requirements, and other special conditions or provisions that must be planned for. Such information shall be provided promptly at Landlord's request. B. PLANS AND SPECIFICATIONS 1. Tenant will provide plans, drawings, or other necessary information to Landlord's Architect with respect to space layout needs, electrical and mechanical criteria, and with respect to special requirements and additional improvements to be provided by Tenant. Tenant shall pay an architectural fee equal to 6% of the value of all construction costs for Tenant provided work or work exceeding the allowances provided by Landlord. 2. Landlord shall make changes to preliminary plans as requested by Tenant. Any changes, modifications, or additions to plans requested by Tenant thereafter may be made prior to proceeding with construction. However, to the extent that such changes require re-engineering or material alterations to construction drawings, Tenant shall pay for the cost of making such changes or modifications. 3. From approved preliminary plans, Landlord shall prepare final construction drawings and perform the necessary engineering, circuiting design, HVAC distribution design, and other details required for construction of the Leased Premises. 4. Landlord shall submit final construction drawings to Tenant for review and approval. Construction of Tenant improvements may commence only after completion of construction drawings by Landlord's Architect and final approval by Tenant. 5. Where possible, Landlord will provide to Tenant for approval a cost of all Tenant work prior to proceeding with construction. However, Landlord may proceed with such work prior to obtaining cost where it is necessary in order to maintain construction progress. 6. Tenant shall pay for the cost of all changes, modifications, or alterations in approved drawings or construction requested by Tenant after completion of final construction drawings. 7. Any questions, clarifications, or interpretations regarding design criteria, plans, or specifications and all submissions for approval shall be directed to Landlord at 2677 East Parley's Way, SLC, UT, 84109, Attention: Lynn S. Woodbury. 8. At Tenant's option, Tenant may separately prepare additional drawings describing Tenant construction or additional improvements not provided by Landlord. In such event, all such drawings shall be submitted to Landlord's Architect for approval prior to Tenant proceeding with such work. C. CONSTRUCTION BY TENANT CONTRACTORS 1. Where initial construction is to be performed by Tenant and Landlord is paying an agreed upon allowance toward the cost of the construction of Tenant's work, the Tenant and Tenant's contractors will be responsible for the entire cost of the work, including the cost of permits, fees, and other general conditions as described in the General Construction Requirements. 2. Tenant's contractors shall conform with the General Construction Requirements herein, secure necessary permits and be responsible for any damage to basic building systems caused by or incidental to its work. 3. Upon completion, Landlord shall inspect and upon verification of compliance with design criteria and proper tie-in with building systems, construction allowance will be paid. 4. For any subsequent remodeling to the Leased Premises, or, where initial additional Tenant construction is to be performed by Tenant, such work may only be performed after receipt of written approval from Landlord. Tenant shall prepare all plans and fully describe any remodeling work to be performed. Page 1 5. Tenant is encouraged to utilize Landlord's contractor for the completion of Tenant work in light of contractor's familiarity with the project and the construction requirements and operating systems. Landlord's contractor will submit complete cost breakdown for the performance of all work and, upon receipt of Tenant's approval, will commence construction and complete all work in a timely manner. D. CONSTRUCTION BY LANDLORD CONTRACTORS 1. Initial construction work is to be performed by Landlord's contractors. Tenant shall pay the cost of any work required beyond that set forth in Exhibits "A-1" or "C". Where Landlord is performing Tenant work, the procedure shall be as follows: a. Landlord's contractor will submit to Tenant complete cost breakdowns for the portion of the work to be paid for by Tenant. b. Contractor shall not proceed with any work until after receipt of Tenant's written approval and acceptance of the cost and a deposit in the amount of 50% of the value thereof. c. Landlord's contractor shall notify Tenant of substantial completion at which time an inspection will be performed and a "punch list" of deficiencies prepared. Tenant shall immediately make payment of the remaining portion of the cost to be paid by Tenant, less a reasonable retainage based on the value to correct or complete any of the deficiencies or items of work on the punch list. d. Tenant may then enter upon the premises and install any other equipment, fixtures, furnishings, decorations, or improvements not included as part of the construction contract. e. Landlord's contractor shall correct in a timely manner any deficiencies on the punch list. f. Tenant shall make payment of any retainages held to Landlord's contractor within 10 days after completion of all punch list items. 2. Tenant shall promptly repair or be responsible for the cost of repairing any damage to Landlord provided improvements caused by Tenant's Contractors or the installation of Tenant's fixtures and furnishings. 3. Tenant shall also pay an amount equal to $____________________ toward the cost of work to be provided by Landlord per Exhibit "C". Such amount is determined as follows. E. DESIGN AND CONSTRUCTION STANDARDS 1. Purpose and Scope a. The design criteria as set forth in this section represent minimum standards for all systems, finishes, mechanical, electrical, and other construction work and installations and design. b. These standards also describe the specification and construction standard to be used with respect to all Landlord provided work. If there is a discrepancy between these construction standards and Exhibit "C" descriptions, the Exhibit "C" descriptions shall govern. c. These standards and criteria are established to assure the proper and efficient operation and functioning of common building systems, to verify the compatibility of all installations with basic building systems, to set a standard of quality which will enhance and maintain building values and to establish uniform criteria relating to the overall aesthetics and appearance of the project. d. All construction and installations shall conform with the standards set forth herein and shall be subject to the prior written approval of Landlord's Architect, who shall have absolute authority with respect to the design and construction issues and whose decisions shall be binding upon all building tenants. Tenant hereby agrees to abide by the decisions of said Architect. 2. General Construction Requirements a. The design, type of construction, engineering of mechanical and electrical systems, types of materials and finishes, and each of Tenant's proposed contractors must be approved by Landlord or Landlord's Architect prior to the commencement of any construction work. b. Construction and use shall comply with applicable statutes, ordinances, regulations, laws, building codes, zoning statutes including, without limiting, the foregoing: Uniform Building Code, National Electric Code, Uniform Plumbing Code, Uniform Mechanical Code, and any other applicable City, County and State Building, Plumbing, Mechanical, Fire, Health, Pollution, Electrical, Safety, Americans With Disabilities Act, and other codes. c. All required permits shall be obtained and paid for by Tenant and/or Tenant's Contractor. d. Quality of workmanship and materials shall be first class, acceptable to Landlord's Architect and in keeping with the project standards. e. On completion, all facilities shall be in full use without defects. Page 2 f. Contractors shall be required to show evidence of possessing good labor relations, compatible with other labor on the project, and Tenant and its contractors shall avoid labor practices or disputes which will interfere with other work or operations in the project. g. Contractors shall be required to work in harmony with other contractors on the project. Tenant's contractors shall coordinate their work and any systems shut downs with the contractors and occupants of the building. h. Landlord shall have the right to order any Tenant or Tenant's Contractor, who willfully violates the above requirements, to cease work, and to remove himself, his work, his equipment, and his employees from the property. i. Tenant's contractors shall carry such types of insurance in such amounts as shall be designated by Landlord, and all policies shall name the Landlord and its agents as additional insureds. Prior to starting construction, Tenant's contractor shall submit to Landlord a copy of or other evidence of such insurance. j. Landlord shall have the right to perform by its own contractor or subcontractors, on behalf of and for the account of the Tenant, any of the Tenant's work which Landlord determines should be so performed. Generally, such work shall be that which affects structural components, or the general utility systems for the project. If Landlord so determines, Landlord shall notify Tenant prior to commencement of said work, and Tenant shall reimburse Landlord for all costs of planning and performing such work. k. No approval by Landlord shall be deemed valid unless same shall be in writing signed by Landlord or Landlord's Architect. l. In the event that the premises have not been constructed in accordance with said approved drawings, Tenant shall not be permitted to open the premises for business until the premises comply in all respects with said approved drawings, in the reasonable exercised judgement of the Landlord's Architect. Where final drawings are in conflict with design criteria, the provisions of the design criteria shall prevail unless specific exceptions were agreed upon in writing. 3. Architectural (To the extent not otherwise provided by Landlord.) a. Exterior Walls and Windows 1) Modifications to exterior walls after Landlord's initial construction will generally not be permitted. 2) Wall finish shall be 4" x 8" x 16" clay or concrete masonry units in the pattern, design, finish, color, texture, and style determined by Landlord's Architect. A landscaped beam will be constructed to a point approximately 6" below the sill of all windows. Any modifications thereto must match precisely the materials and other project details established by Landlord in the original construction. 3) Glass shall be 1" double-glazed, medium gray tinted, insulated glass. Exterior pane to be tinted and interior pane to be clear. 4) Aluminum frame shall extend from sill to underside of masonry head or finish ceiling structure above and shall be 4" wide at door and window recess areas and 2-3/4" wide at other windows. Finish shall be clear anodized. 5) Penetrations or modifications of exterior walls for exhaust vents, ducts, or other purposes will not be permitted except where specifically agreed otherwise by Landlord's Architect. Detailing must be in strict accordance with Landlord's requirements. b. Interior Walls and Partitions 1) Demising walls generally to have 5/8" sheetrock (one-hour rated construction) on light-gauge metal studs extending from floor to underside of structure above. 2) Office partitioning shall generally be of light gauge metal studs with 1/2" sheetrock extending from floor to underside of acoustical ceiling. One-hour construction must be utilized in corridors or other areas where required by code. 3) All walls to be painted with one prime coat and two finish coats of alkyd-enamel paint with satin finish. Color at Tenant's option. 4) Floor base to be 4" high straight edge vinyl. Color at Tenant's option. 5) Other types of partitioning systems, base material, or wall finishes may be applied at Tenant's option. Tenant shall be responsible for any additional cost related thereto. c. Ceilings 1) Ceilings shall be suspended 2' x 4' fissured, white acoustical ceiling tile in T-bar grid or suspended gypsum board. 2) In one-hour rated corridors or spaces, ceilings must be 1-hour fire-rated construction with fire dampers at grilles and boxed "USG Thermal Fiber" light fixture protection or equal, unless approved otherwise by the local building official. Fixtures may be surface mounted where approved by Landlord. 1) Carpet to be 26 oz., Level loop, nylon or olefin, directly glued to concrete floor. Color at Tenant's option selected from palette of standard colors offered by manufacturer. 2) Vinyl tile may be substituted in file rooms, storage rooms, print rooms, restrooms, or other areas where use of such floor covering is prudent. 3) Other type or quality of floor coverings may be used with Landlord's Architect's approval. Tenant shall be responsible for any additional costs related thereto. f. Cabinetry & Millwork - Type, style and color at Tenant's option. 4. Structural and Roof (To the extent not otherwise provided by Landlord.) a. There shall be no penetrations of the roof or installation of radio or television antennas or any other equipment on the roof without the prior written approval of Landlord's Architect. b. Any and all roof penetrations shall be engineered and installed in accordance with standard project details. c. Any rooftop equipment or exhaust fans, if permitted, shall be installed on fully contained curbs in a location specifically approved by Landlord's Architect. 1) Roof curbs shall be fully framed and the structure will be reinforced as necessary and in a manner so as to leave it as strong or stronger than original design with finish unimpaired. 2) Equipment shall be located so as not to be visible from the ground or parking lot areas. Metal screen walls may be required by Landlord's Architect to shield equipment where location makes visible. d. Floor construction and loads are designed of adequate capacity to generally support typical offices uses. However, Tenant shall indicate on plans the weight of any special equipment, heavy equipment, computers, library cases, etc., so that Landlord's Architect may evaluate load carrying capacity. If inadequate, additional reinforcing will be required. e. Under no condition shall any penetrations or cutting of the floor or roof joists be permitted except with Landlord's Architect's specific written approval and then only in accordance with any special requirements that Landlord's Architect may impose. f. The dimension to the underside of structural joists is typically no less than 11'-0". Consequently, approximately 2'-0" of clear plenum space is available for utility distribution systems. g. Any cutting of stabs must be by sawcutting or core drilling. Take precautions to protect adjoining finishes and construction. 5. Plumbing (To the extent not otherwise provided by Landlord.) a. Restrooms, janitor's rooms, and drinking fountains of adequate size and capacity to meet applicable building codes are provided by Landlord as shown on plans. b. Tenant shall be responsible for the installation of all additional plumbing within premises as may be desired including but not limited to additional restrooms, water heaters, vanities, fountains, sinks, wet bars, floor drains, associated rough-ins, distribution and vents and all other plumbing work unless specifically indicated otherwise herein. c. Tenant shall connect to building water and sewer mains in locations designated by Landlord's Architect. d. Any other special systems for natural gas or plumbing for Tenant equipment or other special Tenant facilities shall be by Tenant including any grease interceptors, chemical holding pots or other types of special waste traps from laboratories that may be needed to safeguard and assure the proper operations and maintenance of basic building systems in accordance with good engineering design as determined by Landlord's Architect. 6. Heating, Ventilating, and Air Conditioning (HVAC) (To the extent not otherwise provided by Landlord.) a. Landlord has provided rooftop heating and air conditioning units and associated gas piping, together with supply and return air duct distribution system, ceiling diffusers and registers, and controls to serve the Leased Premises. Units shall have Page 4 e. Each restroom will have a separate exhaust fan with back-draft damper appropriately sized for the area exhausted and interlocked with the lighting. f. Additional exhaust fans, exhaust hoods and make-up air vents or additional cooling will be installed by Tenant if such units in the determination of Landlord's Architect are necessary. All exhaust fans must be provided with back-draft dampers. g. Any separate HVAC systems that may be required for Tenant's special needs or special purpose areas shall be provided by Tenant at Tenant's expense. h. The ceiling plenum area is used as a return-air plenum. 7. Fire Protection: (To the extent not otherwise provided by Landlord.) a. A complete fire sprinkler system is provided throughout with approximately one head per 125 sq. ft. All fire sprinkler work must conform to NFPA #13 for light hazard occupancies. b. Heads shall be chrome-plated brass pendant with semi-recessed chrome-plated escutcheons. c. Tenant shall relocate existing heads or install new heads as required to achieve proper coverages in compliance with NFPA #13 with respect to the construction or installation of any Tenant partitioning. d. Tenant to provide fire extinguishers as determined necessary by local fire marshall. 8. Electrical (To the extent not otherwise provided by Landlord.) a. Electric power available to Tenant's premises shall be 120/208 volt, 3 phase, 4 wire. Except for work to be provided by Landlord, Tenant shall pay all costs related to the modification of Landlord provided electrical or the installation and distribution of Tenant provided electrical equipment. b. Tenant power shall be brought to panels or subpanels within electrical rooms located adjacent to the Leased Premises or in the wall of a partition within the Leased Premises. c. Tenant shall do any and all electrical work it may require beyond that provide by Landlord including but not limited to distribution center requirements and branch wiring, duplex and convenience outlets, under-floor ducts for outlets and telephone, lighting, distribution and fixture installation, lamps, control wiring, equipment time clocks, and electrical work required for special equipment. All Tenant circuiting shall be installed so as to maintain a balance between phases. d. Exit lights and emergency exit lighting are provided by Landlord at each main exit. Additional exit lights and emergency lighting when required by the building official shall be provided by Tenant. 9. Telephone Communications (To the extent not otherwise provided by Landlord.) a. Landlord has provided main telephone service to the building at telephone distribution panels located in building electrical rooms. Telephone outlet boxes stubbed to plenum area have also been provided. b. Tenant shall be responsible for all telephone and communication systems, distribution wiring, outlets, and equipment required to satisfy its needs and shall make any necessary arrangements with the local utility company and/or private telephone companies. c. Telephone wiring shall be of a type permitted by building codes. Wiring shall be installed in conduit or be Teflon coated. 10. Data and Computer Equipment and Associated Wiring (To the extent not otherwise provided by Landlord.) a. Landlord has provided data outlet boxes stubbed to plenum area. b. Tenant shall be responsible for all data and computer systems, distribution wiring, outlets, and equipment required to satisfy its needs. c. Data and computer wiring shall be of a type permitted by building codes. Wiring shall be installed in conduit or be Teflon coated. Page 5 !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! COPY MISSING !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2 Prior to proceeding with the fabrication and installation of any exterior signage, Tenant shall submit to Landlord a sign fabrication drawing showing the dimensions, construction details, method of attachment, location of lighting, and other pertinent information. All sign fabrication drawings must be approved by Landlord in writing. 3. The wording of Tenant's exterior signage shall be as set forth in Section 1.01 (G) of the Lease. Use of corporate logos, shields, or crests will be permitted. 4. Business identification signage will be required of all tenants. Such signage will be of a uniform type and size, located on the side masonry panel immediately adjacent to the Tenant entrance. Optional identification signage may be installed by Tenant at Tenant expense. Such signage shall be of a uniform type and size, located the masonry parapet fascia above the windows where specifically approved by Landlord. 5. Exterior signs shall be used to identify the names of businesses only. Advertising, identification of products sold or services provided will generally be prohibited. 6. All signs must be approved by Landlord prior to fabrication and installation. No approval shall be deemed valid unless given in writing. 7. Tenant shall be responsible for the removal of all signs at the termination of any lease. Tenant shall repair any damage to building materials and shall completely remove any remnants of signage including, if necessary, cleaning the masonry surface to remove dirt or other surface stains. Tenant shall patch all holes using mortar matching that used on the other parts of the building. Tenant agrees to pay Landlord $500 penalty for failure to remove signage or properly repair and restore building surfaces to a condition satisfactory to Landlord. C. BUSINESS IDENTIFICATION SIGNAGE CRITERIA 1. All signs shall be non-illuminated individual letter type. Letters shall be cut, 1" thick, plastic faces without edge trim, painted to match window frames. 2. Maximum letter size shall be 6". 3. Letter style shall be ____________________. Where Tenant logo or trade mark utilizes a different letter style, such style may be used only when specifically approved by Landlord. 4. Logos may be utilized using the same type materials and design. Size of logo may be increased to 12". 5. Signs shall be Located on the masonry panel between the entrance and window. Signs shall be centered horizontally on the panel and maintain a minimum of 1'-0", clear space each side. Signs shall also be centered vertically between the window sill and the head. In no case may signage extend above the window head. 6. Where multiple businesses are located within Leased Premises, each business may have separate identification signage. Signs shall be on separate lines, appropriately spaced and separated. 7. Tenant may install one set of signs at each entrance. D. OPTIONAL IDENTIFICATION SIGNAGE CRITERIA 1. All signs shall be reversed channel, individual letter type signs constructed from sheet metal with 4" deep painted returns and faces matching the color used in the exterior aluminum framing system. No exposed fasteners shall be permitted. Signs may be illuminated or non-illuminated at Tenant's option. a. If sign is illuminated, construction shall provide a halo effect wherein lighting is by way of white neon concealed within each letter with a clear back. Letter shall be set off from the face of the wall by 1". b. If sign is non-illuminated, construction shall be the same as for illuminated signs except that neon and clear plastic backer will not be instated. 2. Maximum letter size shall be 24" high. 3. Letter style shall be as selected by Tenant. 4. Logos may be utilized using illuminated faces, cabinets, and backgrounds without the halo effect. Size of logo may be increased to 32". Color, style, and design of face shall be at Tenant's option. The returns shall be painted to match the other Lettering. 5. Tenant may install one sign on the face of each elevation upon which the Leased Premises Page 1 !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! COPY MISSING !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Such lettering will be 6" high and located and centered on the masonry band above each entrance recess. 3. No other signage will be permitted on buildings. 4. Interior signage of the type and style selected by Tenant may be provided by Tenant at Tenant's option and expense. F. PARKING STALL IDENTIFICATION 1. Reserved parking spaces may be designated. Reserved parking spaces shall be identified by painting "Reserved," "Business Name Only," or such other mutually approved designation. The location of spaces reserved for Tenant is designated on Exhibit "A", Site Plan. 2. Other parking spaces may be designated for visitor or customer use only in a similar manner. 3. Tenant will not permit its employees to park in spaces that are reserved or designated for specific tenants, visitors, or customers. Page 2 a. The design, type of construction, engineering of mechanical and electrical systems, types of materials and finishes, and each of Tenant's proposed contractors must be approved by LandLord or Landlord's Architect prior to the commencement of any construction work. b. Construction and use shall compLy with applicable statutes, ordinances, regulations, Laws, building codes, zoning statutes including, without Limiting, the foregoing: Uniform Building Code, National Electric Code, Uniform Plumbing Code, Uniform Mechanical Code, and any other applicable City, County and State Building, Plumbing, Mechanical, Fire, Health, Pollution, Electrical, Safety, Americans With Disabilities Act, and other codes. c. ALL required permits shall be obtained and paid for by Tenant and/or Tenant's Contractor. d. Quality of workmanship and materials shall be first class, acceptable to Landlord's Architect and in keeping with the project standards. e. on completion, all facilities shaLL be in full use without defects. EX-10.6 9 EXHIBIT 10.6 ================================================================================ WILEY POST PLAZA LEASE 4750 Wiley Post Way Salt Lake City, Utah ================================================================================ SUMMARY OF BASIC LEASE PROVISIONS DATE OF LEASE: February 12, 1996 TERM OF LEASE: Ends May 31, 1998 TENANT: Data Security Corporation LEASED PREMISES: Suite # 550, see Exhibit A for description. NET RENTABLE AREA: 20,079 square feet MONTHLY PAYMENT, BASE ANNUAL RENT: $8,403.90 Base Annual Rent increases by amount of increase in CPI (Not less than 3% or more than 6% per year). ADDITIONAL RENT: Tenant's Proportionate Share of Taxes, Common Area Expenses and Insurance. Estimated initial total monthly payment for additional rent $2,610.27 SECURITY DEPOSIT: $8,403.90 LANDLORD'S ADDRESS FOR PAYMENT OF RENT: GREEN/PRAVER ET AL c/o ASSET MANAGEMENT SERVICES, INC. 428 East 6400 South, Suite 100 Salt Lake City, Utah 84107 TABLE OF CONTENTS I. LEASE OF PREMISES, TERM................................... 1 1.1. Lease of Premises............................... 1 1.2. Use of Common Area.............................. 1 1.3. Term of Lease................................... 1 1.4. Holding Over.................................... 2 II. RENT, SECURITY............................................ 2 2.1. Annual Base Rent................................ 2 2.2. Additional Rent................................. 2 2.3. Security Deposit................................ 3 2.4. Late Charges.................................... 3 III. TAXES..................................................... 3 3.1. Real Estate Taxes............................... 3 3.2. Personal Property Taxes......................... 4 IV. COMMON AREA............................................... 4 4.1. Common Area..................................... 4 4.2. Maintenance of Common Area...................... 5 4.3. Tenant's Proportionate Share of Common Area Expenses........................................ 5 V. INSURANCE, INDEMNITY...................................... 5 5.1. Insurance to be Maintained by Landlord.......... 5 5.2. Insurance to be Maintained by Tenant............ 5 5.3. Waiver of Subrogation........................... 6 5.4. Indemnification................................. 6 VI. UTILITIES................................................. 6 6.1. Utilities....................................... 6 6.2. Failure of Utility Service...................... 7 VII. CONDITION OF PREMISES, IMPROVEMENTS, REPAIRS.............. 7 7.1. Condition of Premises - Improvements............ 7 7.2. Alterations and Additions....................... 7 7.3. Maintenance and Repairs to Premises............. 7 7.4. Repairs to Building............................. 8 7.5. Liens........................................... 8 VIII. POSSESSION, USE........................................... 8 8.1. Quiet Possession................................ 8 8.2. Possession...................................... 8 i 8.3. Use of Premises............................ 9 8.4. Compliance With Law........................ 9 8.5. Compliance With Hazardous Materials Requirements and Rules..................... 9 8.6. Signs...................................... 9 8.8. Entry and Inspection....................... 10 IX. ASSIGNING, SUBLETTING, MORTGAGING......................... 10 9.1. No Assignment etc Without Landlord's Consent 10 9.2. No Release of Tenant....................... 10 X. DESTRUCTION, CONDEMNATION................................. 11 10.1. Destruction................................ 11 10.2. Condemnation............................... 11 XI. DEFAULT, REMEDIES......................................... 11 11.1. Default by Tenant.......................... 11 11.2. Landlord's Right to Reenter and Relet Premises................................... 12 11.3. Tenant's Property.......................... 13 11.4. Other Rights and Remedies of Landlord...... 13 11.5. Waiver of Rights........................... 14 11.6. Default By Landlord........................ 14 XII. PROVISIONS APPLICABLE UPON TERMINATION OF LEASE........... 14 12.1. Surrender of Premises...................... 14 12.2. Tenants Fixtures and Property.............. 15 12.3. Surrender of Lease......................... 15 12.4. Tenant's Obligations to Survive Termination 15 XIII. FINANCING, SUBORDINATION, ESTOPPEL CERTIFICATES........... 15 13.1. Subordination.............................. 15 13.2. Amendment.................................. 16 13.3. Attornment................................. 16 13.4. Landlord's Right to Estoppel Certificate... 16 13.5. Sale of Premises by Landlord............... 16 XIV. ADDITIONAL PROVISIONS..................................... 17 14.1. Waiver..................................... 17 14.2. Notice..................................... 17 14.3. Joint Obligation........................... 17 14.4. Governing Law - Headings................... 17 14.5. Time....................................... 18 14.6. Successors and Assigns..................... 18 14.7. Recordation................................ 18 14.8. Prior Agreements........................... 18 ii 14.9. Force Majeure.............................. 18 14.10. Attorney's Fees............................ 18 14.11. Severability............................... 18 14.12. Cumulative Remedies........................ 18 14.13. Authority of Signatories.................. 18 14.14. Brokers.................................... 19 EXHIBITS Exhibit Description ------- ----------- A Description of Premises B Estimate of Additional Rent C Description of Improvements to Premises to be Made by Landlord and/or Tenant D Hazardous Materials Requirements E Rules iii LEASE THIS LEASE AGREEMENT, dated as of February , 1996 is made and entered into by and between parties who are joint tenant owners referred to as GREEN/PRAYER ET AL with a mailing address c/o Asset Management Services, Inc. 428 East 6400 South, Suite 100 Salt Lake City, Utah 84107 (hereinafter collectively called "Landlord") and DATA SECURITY CORPORATION, a Nevada corporation, with a mailing address of 150 Wright Brothers Drive, Suite 550, Salt Lake City, Utah 84116 (hereinafter called "Tenant"). THIS LEASE AGREEMENT IS TO BECOME EFFECTIVE UPON THE CONDITIONS SET OUT IN THAT CERTAIN AGREEMENT BETWEEN LANDLORD AND TENANT DATED FEBRUARY , 1996. FOR AND IN CONSIDERATION OF the mutual covenants, conditions and agreements hereinafter set out, the parties agree as follows: I. LEASE OF PREMISES, TERM 1.1. Lease of Premises. Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord those certain premises (hereinafter called "Premises") described in Exhibit "A" to this Lease, known and described as Suite # 550 situated in Building # 5 (hereinafter called the "Building") which is one of four buildings in that certain commercial - industrial center located at approximately 4750 Wiley Post Way, Salt Lake City, Utah known as Wiley Post Plaza (hereinafter called the "Project"). It is agreed, for the purpose of this Lease, that the Premises have a rentable area of 20,079 square feet. This Lease is subject to the terms, covenants and conditions herein set forth and Tenant covenants, as a material part of the consideration for this Lease, to keep and perform each and all of said terms, covenants, and conditions to be kept and performed by Tenant. 1.2. Use of Common Area. The use and occupation by Tenant of the Premises shall include the non-exclusive right by Tenant, its agents, employees, customers, licensees and subtenants, in common with Landlord, and other present and future owners and tenants and their agents, employees, customers, licensees and subtenants, to use the Common Area, as designated in Section 5.1 of this Lease during the entire term of this Lease, or any extension thereof, for ingress and egress, walkways and parking. Tenant agrees to comply with the terms and conditions of this Lease and such reasonable rules and regulations as Landlord may adopt from time to time for the orderly and proper operation of Common Area. 1.3. Term of Lease. The term of this Lease (hereinafter called the "Lease Term") shall commence on the date (hereinafter called the "Commencement Date") that 1 Tenant receives notice from Landlord that Landlord has acquired possession of the Premises from the existing tenant of the Premises and that the Premises are available for occupancy by Tenant and shall end May 31, 1998. 1.4. Holding Over. In the event Tenant remains in possession of the Premises, or any part thereof, after the expiration of the Lease Term with the consent of Landlord, such occupancy shall be a tenancy from month to month, terminable upon 30 days written notice, at a rental of 150 percent of the amount of the last monthly rent, plus all other additional rent and other charges payable hereunder, and upon all the terms hereof applicable to a month to month tenancy. II. RENT, SECURITY 2.1. Annual Base Rent. Tenant agrees to pay to Landlord, without prior notice or demand, as base rental for the Premises, monthly payments of $8,403.90 on or before the first day of each month in advance. Rent for any period which is for less than one month shall be a prorated portion of the monthly installment, based on a thirty 30 day month. All rent to be paid by Tenant to Landlord shall be in lawful money of the United States of America and shall be paid without deduction or offset, at the address designated in Section 14.2. 2.2. Additional Rent. Tenant shall pay, as additional rent, all sums of money required to be paid by Tenant under any of the provisions of this Lease, including but not limited to taxes, insurance and Common Area expenses whether or not the same be designated "additional rent". In those cases where the payments to be made by Tenant are based on "Tenant's Proportionate Share", that term shall mean 10.62 percent, which is determined by dividing the 20,079 square feet being rented by Tenant by the 189,100 square feet of total rentable space in the Project. In event that there are changes in either the square feet being rented by Tenant or the total rentable space in the Project, Tenant's Proportionate Share shall be recalculated on the same basis used above to reflect such changes. If the amounts to be paid by Tenant are not paid at the time provided in this Lease, they shall nevertheless be collectible as additional rent with the next installment of annual base rent thereafter falling due, but nothing herein contained shall be deemed to suspend or delay the payment of any amount or charge at the time the same becomes due and payable hereunder, or limit any other remedy of Landlord. Landlord may estimate Tenant's share of said costs and expenses, for a period of not more than 12 months in advance, and may collect and impound Tenant's estimated share in advance on a monthly basis. On or before March 15 of each year, Landlord shall provide to Tenant a reconciliation of Tenant's account for the twelve month period ending the preceding December 31. Said reconciliation shall set forth in reasonable detail the costs and expenses paid by Landlord, and shall include a computation as to Tenant's Proportionate Share. In the event Tenant has overpaid its share of said costs and expenses, the excess shall be credited on Tenant's next succeeding payment of additional rent, and in the event of an underpayment, Tenant shall pay to Landlord said underpayment within ten days after receipt of the reconciliation. The initial estimated monthly charge for 2 additional RENT is $2,610.27, as set out in Exhibit "B" hereto, and shall be adjusted annually or at such time as there is a significant change in the costs of any item of additional rent to be paid by Tenant. 2.3. Security Deposit. Tenant shall deposit with Landlord upon the execution of this Lease the sum of $8,403.90 as a security deposit. Said sum shall be security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease during the Lease Term. If Tenant defaults with respect to any provision of this Lease, including, but not limited to the provisions relating to the payment of rent, Landlord may (but shall not be required) to use, apply or retain all or any part of this security deposit for the payment of any rent or any other sum in default, or for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's Default. If any portion of the security deposit is so used or applied, Tenant shall deposit with Landlord an amount sufficient to restore the security deposit to its original amount within ten days after written demand therefor by Landlord, and Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the security deposit separate from its general funds, and Tenant shall not be entitled to interest on said deposit. If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the security deposit or any balance thereof shall be returned to Tenant (or, at Landlord's option, to the last valid assignee of Tenant's interest hereunder) at the expiration of the Lease Term. 2.4. Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or other sum due from Tenant shall not be received by Landlord or Landlord's designee within ten days after said amount is due, then Tenant shall pay to Landlord a late charge equal to ten percent of such overdue amount. Acceptance of such late charges by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. III. TAXES 3.1. Real Estate Taxes. In addition to all rents herein reserved, Tenant shall pay to Landlord, as additional rent, all real estate taxes and assessments levied upon the Premises and Tenant's Proportionate Share of all real estate taxes and assessments levied upon the Common Area. Such amount shall be payable in advance as estimated by Landlord as provided in Section 2.2 of this Agreement or, at Landlord's option, within ten days after receipt of an annual statement to be sent by Landlord to Tenant setting forth the amount of such tax based upon the actual tax bill received by Landlord. In the event the Premises are not separately assessed, the taxes on the Premises shall be Tenant's Proportionate Share if taxes are assessed on the Project as a single tax parcel, or the ratio that the square feet of 3 rentable area in the Premises bears to the total square feet of rentable area in the Building or buildings in the Project covered by the tax parcel that includes the Premises and Tenant's Proportionate Share of the taxes and assessments levied on the Common Area. Any such tax for the year in which the lease commences or ends shall be prorated. With respect to any assessment which may be levied against or upon the Premises and which, under the laws then in force, may be evidenced by improvement or other bonds payable in annual installments, only the annual payments on said assessment shall be included in computing Tenant's annual obligation for taxes and assessments. The term "real estate taxes" as used herein shall be deemed to mean all taxes imposed upon the real property and permanent improvements constituting the Premises, all assessments levied against the Premises, and all excise, privilege and other taxes levied or assessed by any federal, state or local authority upon the rent received by Landlord hereunder, and any business tax imposed upon Landlord by any governmental authority which is based or measured in whole or in part by amounts charged or received by Landlord from Tenant under this Lease but shall not include personal income taxes, personal property taxes, inheritance taxes, or franchise taxes levied against the Landlord, but not directly against the Premises or the Lease even though such taxes shall become a lien against the Premises. 3.2. Personal Property Taxes. During the Lease Term, Tenant shall pay, prior to delinquency, all taxes assessed against and levied upon fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises, and when possible Tenant shall cause said fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the real property of Landlord. In the event any or all of Tenant's fixtures, furnishings, equipment and other personal property shall be assessed and taxed with Landlord's real property, Tenant shall pay to Landlord its share of such taxes within ten days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's property. IV. COMMON AREA 4.1. Common Area. All area included in the Project not specified for leasing to tenants shall be "Common Area" of the Project. Landlord has or shall cause the Common Area to be improved, lighted and appropriately marked and landscaped at no expense to Tenant as parking areas, service roads, loading facilities, sidewalks, landscaped areas, and other facilities as determined from time to time by Landlord. Landlord covenants that the Common Area shall be available for the non-exclusive use of Tenant during the term of this Lease as provided in Section 1.2 of this Lease and provided that the condemnation or other taking by any public authority, or sale in lieu of condemnation, of any or all of the Common Area shall not constitute a violation of this covenant. Landlord reserves the right to change the entrances, exits, traffic lanes and the boundaries and locations of the parking area or other portions of the Common Area; provided that any such changes do not unreasonably interfere with Tenant or Tenant's employees or customers. 4 4.2. Maintenance of Common Area. Landlord shall cause the Common Area to be kept in a neat, clean and orderly condition, properly lighted and landscaped, and shall maintain in good condition and repair any damage to the facilities thereof, but all expenses in connection with the maintenance of the Common Area shall be charged to tenants of the Project in the manner set forth in section 4.3 of this Lease. It is understood and agreed that such "Common Area Expenses" shall be construed to include, but not be limited to, all sums expended by Landlord in connection with the Common Area for all general maintenance and repairs, resurfacing, painting, restriking, cleaning, sweeping and janitorial services, garbage collection, snow removal, landscaping, lighting, security and other services, water, power and other utility charges for the Common Area, assessments by the Salt Lake International Center Owners Association, real estate taxes on the Common Area, unless billed pursuant to Section 3.1, required fees or charges levied pursuant to any governmental requirements and ten percent of said costs to Landlord as a management fee. 4.3. Tenant's Proportionate Share of Common Area Expenses. Tenant shall pay to Landlord, Tenant's Proportionate Share of Common Area Expenses. Such amount shall be payable in advance as estimated by Landlord as provided in Section 2.2 of this Agreement. There shall be appropriate adjustments of Tenant's share of Common Area Expenses as of the commencement and expiration of the Lease Term. V. INSURANCE, INDEMNITY 5.1. Insurance to be Maintained by Landlord. Landlord shall maintain standard form fire insurance with extended coverage endorsement throughout the Lease Term on the Building in such amount and with such deductibles as Landlord shall reasonably determine, together with such other insurance as may be required by Landlord's lender or by any governmental agency. Landlord shall also maintain public liability and property damage insurance on the Common Area under which Tenant shall be named as an additional insured, with limits as determined by Landlord. Tenant agrees to pay to Landlord Tenant's Proportionate Share of the cost of the insurance to be secured by Landlord under this Section; or if the fire and extended coverage insurance covering the Premises does not include all of the leasable space in the Project, Tenant's share of that insurance in shall be determined by the ratio that the square feet of rentable area in the Premises bears to the total square feet of rentable area in the Building or the buildings in the Project covered by that insurance. Such amount shall be payable in advance as estimated by Landlord as provided in Section 2.2 of this Agreement. There shall be appropriate adjustments of Tenant's share of insurance as of the commencement and expiration of the Lease Term. 5.2. Insurance to be Maintained by Tenant. During the entire Lease Term, Tenant shall, at Tenant's sole cost and expense, but for the mutual benefit of Landlord and Tenant, maintain comprehensive public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the Premises. The limitation of liability of such insurance shall not be less than $2,000,000. All such policies of insurance shall be issued in the name of Tenant and Landlord and for the mutual and joint benefit and 5 protection of the parties, and such policies of insurance or copies thereof shall be delivered to the Landlord and renewal certificates or other evidence of coverage shall be provided to Landlord annually. Such policy or polices shall provide for not less than thirty days' prior written notice to Landlord and any mortgagee of Landlord in the event of cancellation or material modification of the terms and conditions thereof. Such insurance may be provided under a blanket policy, provided that an endorsement naming Landlord and Landlord's property manager as additional insureds is attached thereto. In addition to the foregoing, Tenant shall maintain insurance against such other perils and in such amounts as Landlord may from time to time reasonably require. 5.3. Waiver of Subrogation. Tenant hereby waives any right of recovery from Landlord, its officers and employees, and Landlord hereby waives any right of recovery from Tenant, its officers or employees, for any loss or damage (including consequential loss) resulting from any of the perils insured against in the fire and extended coverage insurance; and each party, on behalf of its insurance company or companies, to the extent allowed by applicable law, waives any right of subrogation that it may have against the other party. 5.4. Indemnification. Tenant, as a material part of the consideration to be rendered to Landlord under this lease, hereby waives all claims against Landlord for damages to goods, wares and merchandise in, upon or about the Premises and for injuries to persons in, upon or about the Premises, from any cause arising at any time, and Tenant will hold Landlord exempt and harmless from any damage or injury to any person, or the goods, wares, and merchandise of any person, arising from the use of the Premises by Tenant or from the failure of Tenant to keep the Premises in good condition and repair, as herein provided. VI. UTILITIES 6.1. Utilities. Throughout the Lease Term, Tenant shall pay for all public and other utilities and related services rendered or furnished to the Premises, including, but not limited to, water, hot water, gas, electricity, telephone, heat, light, sewer charges, installation and connection charges or deposits therefor and refuse or garbage collection or disposal. Tenant shall not allow refuse, garbage, or trash to accumulate inside or outside of the Premises. In the event that one or more of such utilities or related services shall be supplied to the Premises and to one or more other tenants within the Building or the Project without being individually metered or measured to the Premises, Tenant's proportionate share thereof shall be paid as additional rent and shall be determined by Landlord with such consultants as Landlord shall deem advisable, based upon Landlords estimate of Tenant's usage. Payment for Tenant's share of any and all unmetered water, gas, electricity and other utilities used by Tenant shall be made monthly and within ten days of the presentation of bills to Tenant. Landlord may cut off and discontinue, without notice to Tenant, water, gas, electricity, or any other service whenever and during any period for which bills for the service, or any sum under this lease, are not properly paid by Tenant. Landlord shall 6 provide and maintain the necessary mains, conduits, wires, and cables to bring water and electricity to the Premises. 6.2. Failure of Utility Service. Landlord shall not be liable in damages, consequential or otherwise, arising out of any failure or interruption in utility services which are due to causes beyond the control of Landlord or any interruptions in such service which are necessary to the making of alterations, repairs or improvements. Any such failure or interruption of utility service shall not entitle Tenant to terminate this Lease or offset against rent payable under this Lease. VII. CONDITION OF PREMISES, IMPROVEMENTS, REPAIRS 7.1. Condition of Premises - Improvements. Except for the improvements, if any, to be made by Landlord and/or Tenant, as set out in Exhibit C" to this Lease, the Premises are leased in an "as is condition", without any liability or obligation on the part of Landlord to make any alterations or improvements of any kind. Unless otherwise agreed in writing by Landlord, upon occupancy of the Premises by Tenant, all of the obligations of Landlord to make Improvements shall be deemed to be satisfactorily completed. 7.2. Alterations and Additions. Tenant shall not make or suffer to be made any alterations, additions, or improvements to the Premises without the prior written consent of Landlord. In the event Landlord consents to Tenant making alternations, additions or improvements to the Premises, they shall be made at Tenant's sole cost and expense and by a contractor or person approved by Landlord. Any alterations, additions or improvements made by Tenant, including, but not limited to, wall covering, carpeting, paneling and built-in cabinet work, but excepting movable furniture and trade fixtures, shall upon the expiration of the Lease Term become a part of the realty and belong to Landlord and shall be surrendered with the Premises. At Landlord's election and upon written demand by Landlord, Tenant shall remove any alternations, additions, or improvements made by Tenant without Landlord's prior approval and repair all damage caused to the Premises by their removal at Tenant's sole cost and expense. 7.3. Maintenance and Repairs to Premises. Tenant shall be responsible for all maintenance and report to the Premises of whatsoever kind or nature that is not set forth specifically as the obligation of Landlord in this Lease. Tenant shall take good care of the Premises and fixtures, and keep them in good repair and free from filth, overloading, danger of fire or any pest or nuisance, and repair any damage or breakage done by Tenant or Tenant's agents, employees or invitees, including damage done to the Building by Tenant's equipment or installations. Tenant shall be responsible for the repair and replacement of all glass and plate glass on the Premises. Tenant shall furnish and pay for the upkeep, maintenance, repair and periodic servicing of the heating, ventilation and air conditioning system servicing the Premises. In the event Tenant fails to maintain the Premises, including the heating, ventilation and air conditioning system, as provided for herein, Landlord shall have the right, but not the obligation, to perform such maintenance as is required of Tenant, 7 in which event Tenant shall promptly reimburse Landlord for its costs in providing such maintenance or repairs together with a ten percent charge for landlord's overhead. Tenant shall enter into a service contract for the heating, ventilation and air conditioning system providing for periodic inspection, servicing and repair of the system with a contractor approved by Landlord, which approval shall not be unreasonably withheld, and Tenant shall provide a copy of such service contract to Landlord. At the end of the Lease Term or any renewal thereof, Tenant shall quit and surrender the Premises broom clean in as good condition as when received by Tenant, normal wear and tear excepted. 7.4. Repairs to Building. Landlord shall, subject to Tenant's reimbursement as herein provided, maintain in good repair the exterior walls (excluding glass or plate glass), roof, gutters and downspouts of the Building in good condition and repair. Tenant agrees that it will not, nor will it authorize any person to, go onto the roof of the Building without the prior written consent of Landlord. Landlord shall not be required to make any repairs to the exterior walls, roof and sidewalks unless and until Tenant has notified Landlord in writing of the need for such repairs and Landlord shall have had a reasonable period of time thereafter to commence and complete said repairs. Tenant shall reimburse Landlord for its prorate share of the cost of said repairs and maintenance incurred by Landlord, said prorate share to be determined according to the square feet of rentable area included in the Premises as it relates to the total square feet of rentable area of the Building. There shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the building or the Premises or to fixtures, appurtenances and equipment therein. Tenant waives the right to terminate this Lease in the event of any failure to make repairs or maintenance and the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. 7.5. Liens. Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant. VIII. POSSESSION, USE 8.1. Quiet Possession. Upon Tenant paying the rent reserved hereunder and observing and performing all of the covenants, conditions, and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the Premises for the entire Lease Term, subject to all provisions of this Lease. 8.2. Possession. Tenant shall be deemed to have taken possession of the Premises as of the Commencement Date. In the event Tenant acquires equipment currently located on the Premises and the equipment remains on the Premises prior to the Commencement Date, the provisions of ARTICLE V of this Lease shall apply and be in effect prior to the Commencement Date. 8 8.3. Use of Premises. Tenant shall use the Premises solely for purposes of office and light manufacturing or fabrication. Tenant shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord. No use shall be made or permitted to be made of the Premises, nor acts done, which will increase the rate of insurance upon the Building (once said rate is established), or cause a cancellation of any insurance policy covering the Building or any part thereof, nor shall Tenant sell or permit to be kept, used or sold in or about the Premises any article which may be prohibited by standard form of fire insurance policies. Tenant shall, at his sole cost, comply with any and all requirements, pertaining to the use of the Premises, of any insurance organization or company necessary for the maintenance of reasonable fire and public liability insurance, covering the Premises and appurtenances. In the event Tenant's uses of the premises, as recited in this Section, results in a rate increase for the Building, Tenant shall pay annually on the anniversary date of this lease, as additional rent, a sum equal to that of the additional premium occasioned by said rate increase. Tenant shall not do or permit anything to be done in or about the Premises which will unreasonably disturb or interfere with other tenants of the Project or their customers; or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant will not commit or suffer to be committed any waste in or to the Premises. 8.4. Compliance With Law. Tenant shall not use the Premises or permit any thing to be done in or about the Premises which will in any way conflict with any law, statue, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall at its sole cost and expense, promptly comply with all laws, statues, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force. The judgement of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any law, statue, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between the Landlord and Tenant. 8.5. Compliance With Hazardous Materials Requirements and Rules. Tenant shall faithfully observe and comply with the Hazardous Materials Requirements set out in Exhibit "D" to this Lease. Tenant shall faithfully observe and comply with the rules relating to the Project that Landlord shall from time to time promulgate. A copy of the current rules are attached as Exhibit "E" to this Lease (hereinafter called the "Rules"). Landlord reserves the right from time to time to make all reasonable modifications to the Rules and modifications to the Rules shall be binding on Tenant upon delivery of a copy of them to Tenant. Landlord shall not be responsible to Tenant for the nonperformance of any of the Hazardous Materials Requirements or the Rules by any other tenant or occupants. Violations by Tenant of the Hazardous Materials Requirements or the Rules shall constitute a default under this Lease. 8.6. Signs. Tenant shall not place or permit to be placed any sign upon the exterior or in the windows of the Premises, the Building or the Project without Landlords 9 prior written consent, nor shall Tenant change the color or exterior appearance of the Premises without Landlord's prior written consent. 8.8. Entry and Inspection. Tenant shall permit Landlord and its agents to enter into and upon the Premises at all reasonable times for the purpose of inspecting the same or for the purpose of maintaining the Building, or for the purpose of making repairs, alterations, or additions to any other portion of the Building, including the erection and maintenance of such scaffolding, canopy, fences and props as may be required, or for the purpose of posting notices of non-liability for alterations, additions or repairs, or for the purpose of placing upon the Building or the Project any usual or ordinary "For Sale' signs. Landlord shall be permitted to do any of the above without any rebate of rent and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned. Tenant shall permit Landlord, at any time within 30 days prior to the expiration of this lease, to place upon the Premises any usual or ordinary "For Lease" signs, and during such 30 day period Landlord or his agents may, during normal business hours, enter upon the Premises and exhibit same to prospective Tenants. IX. ASSIGNING, SUBLETTING, MORTGAGING 9.1. No Assignment etc Without Landlord's Consent. Tenant shall not transfer, assign, sublet, enter into license or concession agreements, mortgage or pledge this Lease or the Tenant's interest in and to the Premises nor permit the occupancy or use of any part thereof by another, without the prior written consent of Landlord. Any assignment, mortgage, pledge, encumbrance, subletting or license of this Lease, the leasehold estate hereby created, or the Premises or any portion thereof, either voluntary or involuntary, whether by operation of law or otherwise, without the prior written consent of Landlord shall be null and void and shall at the option of Landlord terminate this Lease. If Tenant is a corporation which is not deemed to be a "public corporation" under the laws of the State of Utah, or if Tenant is an unincorporated association or partnership, the assignment or transfer of more than 25 percent of the stock or other ownership interest in Tenant shall be deemed an assignment within the meaning and provisions of this Section. Tenant agrees to reimburse Landlord for Landlord's reasonable attorney fees and other costs incurred in conjunction with the processing and documentation of approval of any requested transfer, assignment, subletting, licensing or concession agreement, mortgage or pledge of this Lease or Tenant's interest in and to the Premises. 9.2 No Release of Tenant. No consent by Landlord to any assignment, subletting shall relieve Tenant from any of the provisions, Covenants, and conditions of this Lease on the part of Tenant to be kept and performed, The consent by Landlord to any assignment, subletting, licensing or concession agreement, mortgage or pledge of this Lease or Tenant's interest in and to the Premises shall not relieve Tenant from the obligation to obtain the consent of Landlord to any other or subsequent assignment, subletting, licensing or concession agreement, mongage or pledge of this Lease or Tenant's interest in and to the Premises. 10 X. DESTRUCTION, CONDEMNATION 10.1 Destruction. In the event the Premises or the Building are damaged by fire or other perils covered by extended coverage insurance and Landlord receives sufficient proceeds to cover the cost of replacing the damage and said proceeds are made available by Landlord's Mortgagee, then Landlord agrees to forthwith repair the same and this Lease shall remain in full force and effect, except that Tenant shall be entitled to a proportionate reduction of the rent while such repairs are being made, such proportionate reduction to be based upon the extent to which the making of such repairs materially interferes with the business carried on by the Tenant in the Premises. If the damage is due to the fault or neglect of Tenant or his employees, there shall be no abatement of rent. Notwithstanding anything to the contrary contained in this Article, Landlord shall not have any obligation whatsoever, to repair, reconstruct or restore the Premises when the damage resulting from any casualty covered under this Section either destroys 25 percent of the Building or occurs during the last 12 months of the Lease Term or any extension thereof, and under either of such circumstances, Landlord shall have the right to terminate this Lease without liability on its part. Landlord shall not be required to repair any damage by fire or other cause, or to make any repairs or replacements of any panels, decoration, office fixtures, railings, floor covering, partitions, or any other property installed in the Premises by Tenant. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises, Tenant's personal property or any inconvenience or annoyance occasioned by such damage, repair, reconstruction or restoration. 10.2. Condemnation. If all or a substantial portion of the Premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, either party hereto shall have the right, at its option, to terminate this Lease and Landlord shall be entitled to any and all income, rent, award, or any interest therein which may be paid or made in connection with such public or quasi-public use or purpose and Tenant shall have no claim against Landlord for the value of any unexpired portion of the Lease Term. If any part of the Project is so taken or appropriated which, in Landlord's judgement, materially interferes with the ability to operate the Project or a substantial portion thereof, Landlord shall have the right, at its option, to terminate this Lease and shall be entitled to the entire award as above provided. If a portion of the Premises is taken and neither party terminates this Lease as herein provided, the rent thereafter to be paid shall be equitably reduced. XI. DEFAULT, REMEDIES 11.1. Default by Tenant. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant: (a) The vacating or abandonment of the Premises by Tenant. 11 (b) The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder within a period of ten days after the same is due and payable. (c) The failure by Tenant to observe or perform any of the covenants, conditions, or provisions of this Lease to be observed or performed by the Tenant, other than to make the payments set out in subsection (b) above, where such failure shall continue for a period of 30 days after written notice thereof to Tenant by Landlord. (d) The making by Tenant of any general assignment or general arrangement for the benefit of creditors; or the filing by or against Tenant of a petition to have Tenant adjudged bankrupt, or a petition or reorganization or arrangernent under any law relating to bankruptcy (unless, in the case of the petition filed against Tenant, the same is dismissed within 60 days); or the appointment of a trustee or a receiver to take possession of substantially all of Trenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within 30 days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged in 30 days. (e) The failure of the Tenant to keep the Premises free of liens as required by this Lease. 11.2. Landlord's Right Reenter and Relet Premises. In the event of any default or breach by Tenant, Landlord may elect to re-enter the Premises, as herein provided, or take possession pursuant to legal proceedings or pursuant to any notice provided for by law, and Landlord may either terminate this Lease or it may from time to time, without terminating this Lease, make such alterations and repairs as may be necessary in order to relet the Premises and relet the Premises or any part thereof for such term or terms (which may be for a term extending beyond the Lease Term) and at such rent or rents and upon such other terms and conditions as Landlord, in its sole discretion, may deem advisable. Upon each such reletting, all rents received by Landlord from such reletting shall be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses of such reletting, including brokerage fees and attorney's fees to the payment of rent due and unpaid hereunder; and, the residue, if any, shall be held by Landlord and applied in payment of further rent as the same may become due and payable hereunder. If rents received from such reletting during any month are less than that to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly or at such greater intervals as Landlord may see fit; or Landlord may institute action for the whole of such deficiency immediately upon effecting any letting or reletting and shall not thereafter be precluded from further like action in the event such 12 letting or reletting shall not embrace the whole unexpired portion of the Lease Term. No such re-entry or taking possession of said Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant, or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedies it may have, it may recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and reasonable attorney's fees, and including the worth at the time of such termination of the excess, if any, of the amount of rent and charges equivalent to rent reserved in this Lease for the remainder of the Lease Term over the then reasonable rental value of the Premises for the remainder of the Lease Term, all of which amount shall be immediately due and payable by Tenant. 11.3. Tenant's Property. In the event Landlord shall take possession of the Premises upon any default or breach by Tenant, all property of Tenant placed on the Premises may be taken, possessed and used by Landlord without compensation to the Tenant, and may be let with the Premises upon any reletting provided for in this Lease, and may be taken, possessed and used by the substitute tenant in the conduct of the substitute tenant's business, without compensation to Tenant and without constituting an eviction of Tenant from the Premises or any part thereof. Said right of taking, using and letting shall apply to any of said property which may be subject to a lease or to a conditional sales contract, lease contract, reserved or soecurity title, chattel mortgage or other security agreement to secure the balance of the purchase price thereof, or other obligation of Tenant. The Landlord or receiver or trustee shall be subrogated to all rights of Tenant in such property and shall have the right to make such payments as may be required to prevent repossession or foreclosure or the exercise of any remedy by the obligee under any such lease or security agreement; and the amount so paid, with interest therein, shall be added to the sum due from Tenant to Landlord. In the alternative, upon taking possession of the Premises, Landlord may require Tenant to remove all property of Tenant on the Premises or have such property removed from the Premises and stored at the cost of and for the account of Tenant. 11.4. Other Rights and Remedies of Landlord. Each of the remedies set out in sections 11.2 and 11.3 of this Lease may be exercised jointly or severally with any of the remedies provided by this Lease or by law, at the option of Landlord or any receiver or trustee; and any remedy election may be abandoned or terminated and may be resumed after such abandonment or termination, at the option of Landlord or receiver or trustee. The rights and remedies herein set forth and granted to Landlord shall be cumulative and in addition to any and all other rights and remedies provided and given to Landlord under applicable 1aw. The use of any one or more of the rights and remedies herein enumerated, shall not be an election of remedies; nor, in such event, shall Landlord be barred or estopped from using or asserting any other or different or concurrent or cumulative right or remedy at the same or any other or different time or place. Tenant hereby agrees to hold Landlord safe and harmless from any claim of any character by any person arising out of or in any wise 13 connected with the entry and the taking possession of the Premises and/or the property of Tenant by Landlord or receiver or trustee, by reason of Tenants default or breach of this Lease. 11.5. Waiver of Rights. In the event Landlord commences any proceeding for nonpayment of rent, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding. This shall not, however, be construed as a waiver of the Tenant's right to assert such claims in any separate actions brought by the Tenant. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of the Premises by reason of the violation by Tenant of any of the covenants or conditions of the Lease or otherwise. 11.6. Default By Landlord. In the event Landlord shall neglect or fail to perform or observe any of the covenants, provisions or conditions contained in this Lease on its part to be performed or observed within 30 days after written notice of default (or if more than 30 days shall be required because of the nature of the default, if Landlord shall fail to proceed diligently to cure such default after notice), then in that event Landlord shall be responsible to Tenant for any and all damages sustained by Tenant as a result of Landlord's breach, unless such damages are or would be covered by insurance provided or required to be provided by Tenant. If the Premises or any part thereof are at any time subject to any mortgage or deed of trust and this Lease or the rentals due from Tenant hereunder are assigned to such mortgagee, trustee or beneficiary (called "Assignee" for purposes of this Section only), then Tenant shall give written notice to such Assignee, specifying the default in reasonable detail, and affording such Assignee a reasonable opportunity to make performance for and on behalf of Landlord. If and when the said Assignee has made performance on behalf of Landlord, such default shall be deemed cured. If, after such notice to Landlord and Assignee, if any, Landlord and Assignee shall fail to cure such default as provided herein, Tenant shall have the right to cure any such default at Landlord's expense including in such expenditure all costs and attorney's fees incurred to cure such default or breach of this Lease. Tenant shall have no right to terminate this Lease except as herein otherwise specifically provided. XII. PROVISIONS APPLICABLE UPON TERMINATION OF LEASE 12.1. Surrender of Premises. Tenant shall upon expiration of the Lease Term, or any earlier termination of this Lease for any cause surrender to Landlord the Premises, including, without limitation, all building apparatus and equipment then upon the Premises (other than the trade fixtures, signs and other personal property which Tenant has the right to remove); and all alternations, improvements, and other additions thereto that may have been made or installed by either party to, in or upon the Premises in the same condition as when received, reasonable use and wear thereof excepted without payment therefore. Tenant, at its expense, shall immediately repair any damage to the Premises caused by it vacating the same 14 or by Tenant's removal of such trade fixtures, signs and other personal property, and shall leave the Premises in a neat and clean condition, free of debris. 12.2. Tenants Fixtures and Property. If Tenant shall not be in default upon surrender of the Premises, Tenant may remove its trade fixtures, signs and other personal property, but not including ceiling, light fixtures, air conditioning equipment and duct work, floor and wall coverings, doors, windows, window coverings including blinds, and partitions, which items shall remain in the Premises and become the property of Landlord without any payment therefore. If Tenant shall be in default, Tenant shall not have the right to remove any of said trade fixtures, signs and other personal property and the same shall remain and become the property of Landlord. Landlord shall have a Landlord's lien against Tenant's property until said default is remedied. If Tenant fails to remove the trade fixtures, signs and other personal property which Tenant has a right to remove within three days after the expiration of the Lease Term, or earlier termination of the Lease, Landlord may, at its election: (i) consider the same abandoned and retain the same as Landlord's property; or (ii) remove and store the same for the account of Tenant and at Tenant's cost and expense. 12.3. Surrender of Lease. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to him of any or all of such subleases or subtenancies. 12.4. Tenant's Obligations to Survive Termination. Tenant's obligation to observe and perform any of the provisions of this Article shall survive the expiration of the Lease Term or earlier termination of this Lease. XIII. FINANCING, SUBORDINATION, ESTOPPEL CERTIFICATES 3.1. Subordination. Tenant acknowledges that it might be necessary for Landlord or its successors or assigns to secure mortgage loan financing or refinancing affecting the Premises. Tenant also acknowledges that the lender interested in any given loan may desire that Tenant's interests under this Lease be either superior or subordinate to the mortgage then held or to be taken by said Lender. Accordingly, Tenant agrees that at the request of Landlord at any time and from time to time Tenant shall execute and deliver to Landlord an instrument, in form reasonably acceptable to Landlord, whereby Tenant subordinates its interests under this Lease in the Premises to any mortgage or trust deed and customary related instruments are herein collectively referred to merely as a "Mortgage" securing a loan obtained by Landlord or its successors or assigns for the purpose of enabling acquisition of the Project and/or construction of additional improvements to the Project or to provide standing or permanent financing for the Project, or for the purpose of refinancing any such construction, acquisition, standing or permanent loan as may be specified by Landlord. Provided, however, that any such instrument or subordination executed by Tenant shall provide that so long as Tenant continues to perform all of its obligations under this Lease its tenancy shall remain in full force and effect notwithstanding Landlord's default in 15 connection with the Mortgage concerned or any resulting foreclosure or sale or transfer in lieu of such proceedings. Tenant shall not subordinate its interests hereunder or in the Premises to any lien or encumbrance other than the Mortgages described in and specified pursuant to this Section without the prior written consent of Landlord. Any such unauthorized subordination by Tenant shall be void and of no force or effect. 13.2. Amendment. Tenant recognizes that Landlord's ability from time to time to obtain construction, acquisition, standing, and/or permanent mortgage loan financing for the Project may in part be dependent upon the acceptability of the terms of this lease to the lender concerned. Accordingly, Tenant agrees that from time to time it shall, if so requested by Landlord and if doing so will not materially and adversely affect Tenant's economic interests hereunder join with Landlord in amending this Lease so as to meet the needs or requirements of any lender which is considering making or which has made a loan secured by a mortgage affecting the Premises. 13.3. Attornment. Any sale, assignment, or transfer of Landlord's interest under this Lease or in the Premises including any such disposition resulting from Landlord's default under a mortgage, shall be subject to this Lease and also Tenant shall attorn to Landlord's successor and assigns and shall recognize such successor or assigns as landlord under this Lease, regardless of any rule of law to the contrary or absence of privity of contract. 13.4. Landlord's Right to Estoppel Certificate. Tenant shall, within 15 days after Landlord's request, execute and deliver to Landlord a written declaration in recordable form ("Estoppel Certificate"): (i) ratifying this Lease; (ii) expressing the commencement date and termination date hereof; (iii) certifying that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended (except as shall be stated); (iv) that all conditions under this Lease to be performed by Landlord have been satisfied (except as shall be stated); (v) that there are no defenses or offsets against the enforcement of this Lease by the Landlord (or stating those claimed by Tenant); (vi) the amount of advance rental, if any, (or none if such is the case) paid by Tenant; (vii) the date to which rental has been paid; (viii) the amount of security deposited with Landlord; and (ix) such other information as Landlord may reasonably request. Landlord's mortgage lenders and/or purchasers shall be entitled to rely upon such declaration. If Tenant shall fail to furnish any Estoppel Certificate within 15 days after request therefor shall be deemed a default hereunder and, moreover, it shall be conclusively presumed that: (i) this Lease is in full force and effect without modification in accordance with the terms set forth in the request; (ii) that there are no unusual breaches or defaults on the part of the Landlord; and (iii) no more than one month's rent has been paid in advance. 13.5. Sale of Premises by Landlord. In the event of any sale of the Project or the Building Landlord shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, Occurrence or omission occurring after the consummation of such sale; 16 and the purchaser, at such sale or any subsequent sale of the Premises shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of the Landlord under this Lease. XIV. ADDITIONAL PROVISIONS 14.1. Waiver. The waiver by Landlord of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition on any subsequent breach of the same or any other term, covenant or condition herein contained. The acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of the acceptance of such rent. 14.2. Notice. Any notice given under this Lease shall be in writing and shall be delivered personally, be mailed by first class or express mail, or be sent by facsimile transmission ("Fax") addressed as follows: To Landlord: GREEN/PRAVER ET AL c/o ASSET MANAGEMENT SERVICES INC. 428 East 6400 South, Suite 100 Salt Lake City, Utah 84107 Fax No. (801) 281-4888 Attention: Gregory Strong To Tenant: DATA SECURITY CORPORATION 150 Wright Brothers Drive, Suite 150 Salt Lake City, Utah 84116 Fax No. (801) 575-6621 Attention: Gary Peterson or at such other address as either party may designate by written notice to the other party as herein provided. Notice shall be deemed given when actually received if personally delivered; if faxed, when the fax is received, except that if the fax is received after normal business hours of the office at which it is received, on the next regular business day; and if by mail, the earlier of the day actually received or the third business day after the notice is deposited in the United States mail properly addressed and postage prepaid. 14.3. Joint Obligation. If there be more than one Tenant, the obligations hereunder imposed upon Tenants shall be joint and several. 14.4. GoverninG Law - Headings. This Lease shall be governed as to validity, enforcement, construction, effect and in all other respects by the laws of the State of 17 Utah. The section headings and captions appearing in this Lease are for convenience only and are not to be used to construe, interpret or define the provisions of this Lease. 14.5. Time. Time is of the essence of this Lease and each and every provision hereof. 14.6. Successors and Assigns. The covenants and conditions herein contained, subject to the provisions as to assignment contained elsewhere in this Lease, apply to and bind the heirs, successors, personal representatives, administrators and assigns of the parties hereto. 14.7. Recordation. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the prior written consent of the other party. 14.8. Prior Agreements. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreements or understanding pertaining to any such matters shall be effective for any purpose. No provisions of this Lease may be amended or added to, except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Lease shall not be effective or binding on any party until fully executed by both parties hereto. 14.9 Force Majeure. This Lease and the obligations of the Tenant hereunder shall not be affected or impaired because the Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of strike, labor troubles, acts of God, or any other causes beyond the reasonable control of the Landlord. 14.10. Attorney's Fees. The parties agree that should any party default in any of the covenants or agreements herein contained, the defaulting party shall pay all costs and expenses, including reasonable attorney's fees, which may arise or accrue from enforcing this Lease or in pursuing any remedy provided hereunder or by applicable law, whether such remedy is pursued by filing suit or otherwise. 14.11. Severability. Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way effect, impair or invalidate any other provisions hereof and such other provisions shall remain in full force and effect. 14.12. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 14.13. Authority of Signatories. The persons executing this Lease on behalf of Landlord and Tenant, each represent and warrant that he or she has the authority to execute this Agreement and to bind the responsive party. 18 14.14. Brokers. Except as agreed upon in writing by Landlord, Tenant represents, and warrants that there are no claims for brokerage commissions or finder's fees in connection with this Lease and agrees to indemnify Landlord against and hold it harmless from all liabilities arising from such claim, including any attorneys' fees connected therewith. THE PARTIES HERETO have caused this Lease to be executed as of the date first hereinabove set out. TENANT: DATA SECURITY CORPORATION By /s/ xxxxxxxxxx ----------------------- Its: President LANDLORD: GREEN/PRAVER ET AL By /s/ xxxxxxxxxx ----------------------- Its: Project Manager 19 EXHIBIT "B" ATTACHED TO AND FORMING A PART OF THE LEASE DATED FEBRUARY 12, 1996 BETWEEN GREEN/PRAVER ET AL AND DATA SECURITY CORPORATION COVERING PREMISES AT WILEY POST PLAZA ESTIMATE OF ADDITIONAL RENT 20,079 Square Feet x $0.13 = $2,610.27 20 EXHIBIT "C" ATTACHED TO AND FORMING A PART OF THE LEASE DATED FEBRUARY 12, 1996 BETWEEN GREEN/PRAVER ET AL AND DATA SECURITY CORPORATION COVERING PREMISES AT WILEY POST PLAZA DESCRIPTION OF IMPROVEMENTS TO PREMISES TO BE MADE BY LANDLORD AND/OR TENANT No improvements are to be made. Tenant is leasing the Premises in their "AS IS" condition. EXHIBIT "D" ATTACHED TO AND FORMING A PART OF THE LEASE DATED FEBRUARY 12, 1996 BETWEEN GREEN/ RAVER ET AL AND DATA SECURITY CORPORATION COVERING PREMISES AT WILEY POST PLAZA HAZARDOUS MATERIAL REQUIREMENTS The following Hazardous Material Requirements are additional provisions of the above referenced Lease (the "Lease") to which they are attached. Terms used herein shall have the same meanings as are given those Terms in the Lease. 1. For purposes of these Requirements, the following terms shall be defined as follows: "Disposal of Hazardous Material" shall mean any emitting, releasing, spilling, leaking, pumping, pouring, emptying, disposing or dumping of any Hazardous Material into air or waters (including ground water) or onto lands. "Environmental Compliance Audit" shall mean an audit of the Premises and of Tenant's operations at or affecting the Premises for the purpose of determining whether Tenant and Tenant's operations are in full compliance with all applicable Environmental Laws. The audit sHall include, without limitation, (i) a determination of all environmental registrations and notices required to be filed by Tenant with respect to its operations or the Premises, (ii) a determination of all permits and approvals required to be obtained or maintained by Tenant with respect to its operations or the Premises, (iii) an examination of the Premises to determine whether there has been any Disposal of Hazardous Material on or under the Premises or any other Violation of any applicable Environmental Law affecting Tenant or the Premises which has not been fully and finally corrected, and (iv) a review of Tenant's facilities, records, training programs, policies, procedures and ongoing operations to determine whether Tenant's operations are being conducted in full compliance with all applicable Environmental Laws. "Environmental Compliance Audit Certificate" shall mean a certificate addressed to Landlord issued by a competent, independent environmental consultant reasonably acceptable to Landlord certifying (i) that the consultant has completed an Environmental Compliance Audit of Tenant and the Premises, (ii) that, as of the effective date of the certificate, Tenant and the Premises are in full compliance with all applicable Environmental Laws, (iii) that there has been no known Disposal of Hazardous Material at, in, on or under the Premises, and (iv) that in the consultant's opinion after due inquiry there is no basis for the consultant to recommend or require further investigation or testing with respect to any suspected or possible contamination at the Premises. "Environmental Laws" shall mean all federal, state and local laws and ordinances pertaining to the generation, manufacture, refining, recycling, treatment, handling, use, storage, transportation, disposal and cleanup of hazardous, radioactive, reactive, flammable, infectious, toxic or dangerous substances or materials or the protection of public health or of the environment, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601, et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.), the Clean Air Act (42 U.S.C. Section 7401, et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251, et seq.), and any similar state law, including all amendments thereto and all regulations promulgated thereunder, and further including the conditions and requirements of all permits and regulatory approvals issued thereunder. "Hazardous Material" shall mean oil, petroleum, petroleum products, asbestos, PCB's, dioxins and any other pollutants, contaminants, hazardous substances, hazardous wastes and toxic or dangerous substances or materials as defined in or regulated under any Environmental Laws. 2. Tenant shall not cause or permit any Hazardous Material to be brought upon, kept or used in or about the Premises or the Project by Tenant, its agents, employees, contractors or invitees, except for such Hazardous Material as is necessary or useful to Tenant's business. 3. At the commencement of the Lease Term and the commencement of each subsequent year of the Lease Term, Tenant shall disclose to Landlord the names and approximate amounts of all Hazardous Material which Tenant intends to store or use on the Premises in the coming lease year. In addition, at the commencement of each year of the Lease Term beginning with the second year, Tenant shall disclose to Landlord the names and amounts of all Hazardous Material which were actually used or stored on the Premises if such materials were not 2 previously identified to Landlord at the commencement of the previous year of the Lease Term. 4. Tenant (and each other occupant of the Premises) shall comply fully with all Environmental Laws applicable to the Premises or to activities on or uses of the Premises. Any Hazardous Material permitted on the Premises as provided in Section 2 above, and all containers therefor, shall be used, kept, stored and disposed of in a manner that complies with all Environmental Laws. 5. Tenant shall not cause or permit to exist, as a result of any intentional or unintentional act or omission on Tenant's part or on the part of any occupant of the Premises, any Disposal of Hazardous Material on, in or under the Premises or the Project. 6. Tenant shall promptly notify Landlord of any event or occurrence, whether occurring on the Premises or on the Project or nearby lands, which causes or poses a risk of contamination of the Premises or of air or water on, under or near the Premises with any Hazardous Material. Tenant shall also promptly provide to Landlord with a copy of every summons, citation, directive, letter, order, information request, notice of violation (NOV) or other communication received or obtained by Tenant, written or oral, from any local, state or federal agency or department concerning any known, alleged or suspected intentional or unintentional action or omission on Tenant's or any other person's part which resulted or may have resulted in the Disposal of Hazardous Materials on, in or under the Premises or the Project, or which alleges the violation by Tenant or any other occupant of the Premises of any Environmental Law. 7. If and whenever so requested by Landlord, Tenant shall promptly provide Landlord wiih complete and accurate copies of all reports, notices applications or other documents filed with any governmental authority, including accompanying or related correspondence and all responsive notices and correspondence, under any Environmental Law with respect to any events or activities occurring at or on the Premises. If so requested by Landlord, Tenant shall provide Landlord, on an ongoing basis and without needing further requests, with copies of all such materials as and when filed with or received from such governmental authorities. 8. Tenant shall promptly provide Landlord with copies of any tests, analyses or reports obtained by Tenant pertaining to Tenant's compliance with Environmental Laws, the existence or nonexistence of any Hazardous Material on, in or under the Premises, or the condition of the Premises. 9. Tenant shall protect, indemnify, defend and save harmless Landlord and its directors, officers, trustees, agents and employees from and 3 against any and all obligations, duties, liabilities, expenses, fines, penalties and damages of every kind and nature and from all suits, claims, notices, orders and demands, including reasonable legal fees and expenses, on account of any matter or thing, whether in suit or not, (i) arising out of or relating to any violation or alleged violation of Environmental Laws at, on or with respect to the Premises during the Lease Term, (ii) arising out of or relating to the investigation, testing, study, removal, monitoring or remediation of any known or suspected Disposal of Hazardous Material during the Lease Term from the Premises, (iii) arising out of or relating to the presence, investigation, testing, study, removal, monitoring or remediation of any known or suspected Hazardous Material at or from lands, air or water in the vicinity of the Premises resulting from any actual or alleged Disposal of Hazardous Material or violation of Environmental Laws at or on the Premises during the Lease Term, or iv) arising out of or relating to the inaccuracy of any representation by Tenant or to the breach by Tenant of any warranty, covenant or agreement contained herein. 10. If Landlord, in its sole discretion, has reason to suspect that a violation of any Environmental Law has occurred, or that a Disposal of Hazardous Material at, on, in or under the Premises has occurred, Landlord may request and Tenant shall provide an Environmental Compliance Audit Certificate at any time during the Lease Term. In addition if the information provided pursuant to Section 3 of these requirements discloses the use of a significant amount of Hazardous Material on the Premises or the use of Hazardous Material on the Premises in a manner that Landlord reasonably believes creates a significant risk of a Disposal of Hazardous Material, Landlord may request and Tenant shall provide Landlord with an Environmental Compliance Audit Certificate within 30 days following each anniversary of the beginning of the Lease Term, effective as of a date no earlier than 60 days prior to the date of delivery of the certificate. 11. In the event Tenant fails or refuses promptly to provide Landlord with an Environmental Compliance Audit Certificate when required under Section 10 of these Requirements Landlord may, at Tenants risk and expense, arrange to obtain such a certificate. Landlord and any consultant retained by or for the benefit of Landlord shall have the right, without further permission from or notice to Tenant, to enter upon the Premises for the purpose of performing any examination or testing required in order to provide such a certificate, and Tenant shall provide the consultant with reasonable access to Tenant's records for such purposes. Any costs incurred by Landlord in obtaining such a certificate shall constitute additional rent under the Lease, and shall be due and payable as provided in the Lease. 12. During the Lease Term, Tenant shall have, sufficient control over all employees, agents, and other persons using or occupying the Premises to ensure compliance with these Requirements. 4 13. The obligations of Tenant and the rights and remedies of Landlord under these Requirements shall survive the termination of the Lease. 5 EXHIBIT "E" ATTACHED TO AND FORMING A PART OF THE LEASE DATED FEBRUARY 12, 1996 BETWEEN GREEN/PRAVER ET AL AND DATA SECURITY CORPORATION COVERING PREMISES AT WILEY POST PLAZA RULES The following Rules are additional provisions of the above referenced Lease (the "Lease") to which they are attached. Terms used herein shall have the same meanings as are given those Terms in the Lease. 1. Use of Common Areas. Tenant will not obstruct the sidewalks, exits and entrances of the Building and Common Areas, and Tenant will not use the Common Areas for any purpose other than ingress and egress to and from the Premises. The Common Areas are not open to the general public and Landlord reserves the right to control and prevent access to the Common Areas of any person whose presence, in Landlord's opinion, would be prejudicial to the safety, reputation and interests of the Project and its tenants. 2. No Access to Roof. Tenant has no right of access to the roof of the Building and will not install, repair or replace any antenna, aerial, aerial wires, fan, air-conditioner or other device on the roof of the Building, without prior written consent of Landlord. Any such device installed without such written consent is subject to the removal at Tenant's expense without notice at any time. In any event Tenant will be liable for any damages or repairs incurred or required as a result of its installation, use or removal of such devices on the roof. 3. Signage. No sign, placard, picture, name, advertisement or notice visible from the exterior of the premises will be inscribed, painted, affixed or otherwise displayed by Tenant on or in any part of the Building without prior written consent of Landlord. Landlord reserves the right to adopt and furnish Tenant with general guidelines relating to signs in or on the Building. All approved signage will be inscribed, painted or affixed at Tenant's expense by a person approved by Landlord, which approval will not be unreasonably withheld. 4. Freight. Landlord reserves the right to prescribe the weigh, size and position of all equipment, materials, furniture or other property brought into the Building. Landlord reserves the right to require that heavy objects will stand on wood strips of such length and thickness as is necessary to properly distribute weight. Landlord will not be responsible for loss of or damage to any such property from any cause, and Tenant will be liable for all damage or injuries caused by moving such property. 5. Electrical Installations. Landlord will direct Tenant's electricians as to where and how telephone, telegraph and electrical wires are to be installed. No boring or cutting from wires will be allowed without the prior written consent of Landlord. The location of burglar alarms, smoke detectors, telephone, call boxes and other office equipment affixed to the premises shall be subject to the written approval of Landlord. 6. Building Closing Procedures. Tenant will see that the doors of the Premises are closed and locked and that all water faucets, water apparatus and utilities are shut off before Tenant or its employees leave the Premises, so as to prevent waste or damage Tenant will be liable for all damage or injuries sustained by other tenants or occupants of the Building or Landlord resulting from Tenant's carelessness in this regard or violation of this rule. Tenant will keep the doors to the Building closed at all times except for ingress and egress. 7. Plumbing Facilities. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be disposed of therein. Tenant will be liable for any breakage, stoppage or damage resulting from the violation of this rule by Tenant, its employees or invitees. 8. Refuse. Tenant will store all its trash and garbage within the Premises or in designated dumpsters or trash receptacles provided by Landlord in the Common Areas. No material will be placed in the dumpsters or receptacles if such material may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in Salt Lake City without being in violation of any law or ordinance governing such disposal. All trash and garbage removal will be only through the Common Areas provided for such purposes and at such times as Landlord may designate. 9. Soliciting. Canvassing, peddling, soliciting and distribution of handbills or any other written materials in the Building and Common Areas are prohibited, and Tenant will cooperate to prevent the same. 10. Parking. Tenant will use, and will cause its agents, employees, contractors, invitees and visitors to use, the parking spaces to which it is entitled under the Lease in a manner consistent with Landlord's directional signs and markings in the parking areas. Specifically, but without limitations, Tenant will not park, in a manner that impedes access to and from the Building or the parking areas or that violates space reservations for handicapped drivers. Landlord may use such reasonable means as may be necessary to enforce the directional signs and markings in the parking areas, including but not limited to towing services, and Landlord will not be liable for any damage to vehicles towed as a result of non-compliance with such parking regulations. 2 11. Fires, Security and Safety-Regulations. Tenant will comply with all safety, security, fire protection and evacuation measures and procedures established by Landlord or any governmental agency. 12. Responsibility for Theft. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 13. Sales and Auctions. Tenant will not display or sell merchandise outside the exterior walls and doorways of the Premises nor use such areas for storage. Tenant will not install any exterior lighting, amplifiers or similar devices or use in or about the premises any advertising medium which may be heard or seen outside the Premises, including flashing lights, searchlights, loudspeakers, phonographs or radio broadcasts. Tenant will not conduct or permit to be conducted any sale by auction in, upon or from the Premises or elsewhere in the Project, whether auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceeding. 14. Enforcement. Landlord may waive any one or more of these Rules for the benefit of a particular tenant or tenants, but no such waiver by Landlord will be construed as a waiver of such Rules in favor of any other tenant or tenants nor prevent Landlord from enforcing or waiving these Rules with regard to any other tenant or tenants. 15. Effect on Lease. These Rules are in addition to, shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. Violation of these Rules constitutes a default under the Lease. 16. Additional and Amended Rules. Landlord reserves the right to rescind or amend these Rules and/or adopt any other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Project and for the preservation of good order therein. 17. No portion of the Project shall be used for lodging purposes. 3 EX-10 10 EX-10.7 EXHIBIT C SHAREHOLDERS AGREEMENT OF WORLD WIRELESS COMMUNICATIONS, INC. Agreement made as of the 21st day of May 1997, by and among World Wireless Communications, Inc., a Nevada corporation currently having its office and principal place of business at 150 Wright Brothers Drive, Suite 560, Salt Lake City, Utah 84116 (the "Corporation"), Digital Radio Communications Corporation, a Utah corporation currently having its principal place of business at 772 East Valley Drive, American Fork, Utah, Philip Bunker, residing at 946 East 880 North, Orem, Utah 84097, William E. Chipman, Sr., residing at RD # 1, Box 503, Parksburg, Utah 84003, and Jeffrey G. Ballif, residing at 112 West 1340 North American Fork, Utah 84003 (each such person or entity, together with all such other former shareholders of Digital Radio Communications Corporation, a Utah corporation ("Digital") listed in Schedule A attached hereto and such other persons or entities subsequently becoming parties to this Agreement by virtue of the exercise of options granted to them by Digital after the Effective Date (as defined herein), hereinafter shall be referred to individually as a "Shareholder" and collectively as the "Shareholders"). 1 WHEREAS, upon the Closing (the "Effective Date"), as defined in the Agreement and Plan of Merger by and among the Corporation, Wireless Acquisitions Corp.("Newco") and Digital dated as of May 21, 1997, the Shareholders will collectively own approximately 18.9% of the issued and outstanding, shares of common stock, $.001 par value per share, of the Corporation (shares of such common stock, together with shares of common subsequently acquired by the parties, being referred to as the "Shares" and collectively as the "Stock"); WHEREAS, upon the Effective Date, the Corporation and the Shareholders desire to provide for certain registration rights for the Stock of the Corporation or any interest therein now or hereafter owned by the Shareholders; WHEREAS, upon the Effective Date, the Corporation and the Shareholders desire to facilitate the continuity of the management of the Corporation and Digital following its merger with and into Newco; NOW, THEREFORE, effective upon the Effective Date, in consideration of the mutual covenants and conditions herein contained, each of the parties hereby agrees as follows: 1. Voting of Stock; Directors. 1.1 The Shareholders hereby agree with one another that they will, at all times, vote their respective Shares, commencing on the Effective Date and 2 continuing until the first annual meeting of the shareholders of the Corporation, so as to effectuate the election of solely the following persons as directors of the Corporation: (a) David Singer, (b) Jonathan Rahn, (c) Brian Pettersen, (d) Phil B. Acton, and (e) Philip Bunker. 1.2 The Corporation hereby agrees that it will, at all times, vote all of its shares of the capital stock of Digital, commencing on the Effective Date and continuing until the Corporation owns none of the capital stock of Digital, so as to effectuate the election of solely the following persons as directors of the Corporation: (a) David Singer; (b) Philip Bunker; and (c) William E. Chipman, 1.3 (a) In the event the size of the Board of Directors of Digital is increased from time to time or Philip Bunker or William E. Chipman, Sr., shall not be serving as directors, Digital, acting through Philip Bunker and William E. Chipman, Sr., jointly, or, by the sole director of the two of them if only one of them is then serving 3 as a director, shall have the right to designate additional persons to serve as members of the Board of Directors, so that, in all events, Digital's designees constitute 75% of the members of the Board of Directors of Digital and the Corporation's designees constitute 25% of the members of the Board of Directors of the Corporation. (b) In the event of the death of Philip Bunker or William E. Chipman, Sr., the survivor of them shall have the right to appoint a director to replace the deceased director pursuant to Section 1.3(a) hereof, and upon the death of the survivor of them, the last person or persons so appointed a director or directors shall have the right provided herein to appoint a director in such decedent's place. 2. Officers. 2.1 The Shareholders hereby agree to use their best efforts to cause the Board of Directors to appoint the following person as an officer of the Corporation, to hold the office or offices set opposite his name, for the period commencing on the Effective Date and continuing until all of the Shareholders own no Stock: David Singer, President and Chief Executive Officer. 2.2 The Corporation hereby agrees to cause the Board of Directors of Digital to appoint the following persons as officers of Digital, to hold the office or offices set opposite their respective names, for the period commencing on the Effective Date and continuing until all of the Shareholders own no Stock: 4 (a) Philip Bunker, President (b) William E. Chipman, Sr., Chief Financial Officer and (c) David Singer, Secretary. 3. Voting. 3.1 The Shareholders and the Corporation shall vote at all corporate meetings so as to effectuate the terms and provisions of this Agreement. 4. Other Activities. 4.1 Neither this Agreement nor any activity on behalf of the Corporation or Digital shall prevent the Shareholders from engaging in any other activities or businesses or from making any other investments. In no event shall any of the Shareholders be obligated to account to the other Shareholders of the Corporation, to the Corporation or to Digital, for any profits or other benefits derived from such permitted activities, businesses or investments or be under any obligation to offer to the other Shareholders of the Corporation, the Corporation or Digital an interest in any such permitted activity business or investment, and any income realized may therefrom be retained by such Shareholder for his or her own account. 4.2 The fact that a Shareholder is directly or indirectly interested in any person, firm or corporation employed or retained by the Corporation or Digital to render or perform a service, or to or from whom the Corporation or Digital may 5 purchase, sell, license or lease property, shall not prohibit the Corporation or Digital from employing or retaining such person or firm or Corporation or Digital or from otherwise dealing with him or it, provided, however, that the same is approved by the Board of Directors of the Corporation or Digital, as the case may be. 5. Piggyback and Demand Registration Rights. 5.1 (a) If the Corporation shall propose to file a registration statement under the Securities Act, at any time during the 30-month period after the Effective Date, either on its own behalf or that of any of its shareholders for an offering of shares of the capital stock of the Corporation (including shares to be issued pursuant to the exercise of any warrants) for cash or securities, the Corporation shall give written notice as promptly as possible of such proposed registration to each Shareholder and shall use reasonable efforts to include such number or amount of shares of the Stock owned by such Shareholders (including shares to be issued pursuant to the exercise of any warrants) (each a "Seller" or "Registering Shareholder" and collectively, the "Sellers" or "Registering Shareholders") in such registration statement as such Seller or Sellers shall request within ten days after receipt of such notice from the Corporation, provided, that (A) if shares of the Stock are being offered by the Corporation in an underwritten offering, any shares of the Stock proposed to be included in the registration statement on behalf of such Seller(s) shall be included in 6 the underwriting offering on the same terms and conditions as the Stock being offered by the Corporation, (B) each Seller shall be entitled to include such number of shares of the Stock owned by such Seller in such registration statement, one time only during the applicable period set forth herein, so that the proportion of shares of the Stock of each Seller to be included in such registration statement to the total number of shares of the Stock owned by him is equal to the proportion that the number of shares of the Stock of all Sellers to be included in such registration statement bears to the total number of shares of the Stock owned by all Shareholders (except that each Seller shall have the right not to exercise such piggyback registration right set forth herein once, in which case such Seller shall have the right set forth in this Section 5.1 with respect to the next succeeding registration statement described in this Section 5.1 proposed to be filed by the Corporation during such 30-month period); and provided further, that (i) the Corporation shall not be required to include such number or amount of shares owned by such Seller(s) in any such registration statement if it relates solely to securities of the Corporation to be issued pursuant to a stock option or other employee benefit plan, (ii) the Corporation may, as to an offering of securities of the Corporation by the Corporation, withdraw such registration statement at its sole discretion and without the consent of any Seller and abandon such proposed offering and (iii) the Corporation shall not be required to include such number of shares of the Stock owned 7 by such Seller in such registration statement if the Corporation is advised in writing by its underwriter or investment banking firm that it reasonably believes that the inclusion of such Seller's shares would have an adverse effect on the offering, provided that if such limitation is imposed, the effects of such limitation shall be allocated among the Sellers pro rata in proportion to the number of shares of the Stock as to which such Sellers have requested inclusion therein. (b) A registration filed pursuant to this Section 5.1(a) shall not be deemed to have been effected unless the registration statement related thereto (i) has become effective under the Securities Act and (ii) has remained effective for a period of at least nine months (or such shorter period of time in which all of the Stock registered thereunder has actually been sold thereunder); provided, however, that if, after any registration statement filed pursuant to Section 5. l (a) becomes effective and prior to the time the registration statement has been effective for a period of at least nine months, such registration statement is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court solely due to actions or omissions to act of the Corporation, such registration statement shall not be considered one of the registrations applicable pursuant to Section 5.1(a). 8 5.2 (a) (i) If the Corporation fails to prepare and file a registration statement under Section 5.1 hereof within 24 months after the Effective Date which has become effective under the Securities Act and has remained effective for a period of at least six months (or such shorter period of time in which shares registered thereunder have been sold thereunder), then (ii) if Philip Bunker (or any affiliate of his), William E. Chipman, Sr., (or any affiliate of his) or Jeffrey Ballif or any two of such three Shareholders acting jointly desire to sell, transfer or otherwise dispose of at least 20% of their Shares pursuant to an offering registered under the Securities Act, such Shareholder or Shareholders shall have the right, twice during such three-year period commencing with the expiration of 24 months after the Effective Date and continuing until the expiration of 60 months after the Effective Date, to deliver a notice to the Corporation (the "Registration Notice") on behalf of all of the former Digital shareholders (A) specifying the number of shares proposed to be sold or otherwise transferred by all Digital shareholders (collectively the "Registration Shares") (which shall not be less than 400,000 shares of Acquiror Common Stock (the "Minimum Number"), (B) describing the proposed manner of sale or other transfer thereof and (C) requesting the registration of the Registration Shares under the rules and regulations of the Securities and Exchange Commission (the "Commission") pursuant to the Securities Act. As promptly as practicable following its receipt of a 9 Registration Notice, the Corporation shall prepare and file with the Commission a registration statement with respect to the Registration Shares pursuant to the rules and regulations of the Commission and use its reasonable best efforts to effect the registration under the Securities Act of any Registration Shares requested to be so registered by the Shareholder or Shareholders to the extent required to permit the sale or other transfer of the Registration Shares in the manner described in the Registration Notice. Notwithstanding the foregoing demand (but subject to the penultimate sentence of Section 5.2 (b)), the Corporation shall not be obligated to effect more than two registrations pursuant to this Section 5.2(a) using the then applicable registration forms of the Commission, and the Shareholder or Shareholders shall not be entitled to request registration of the Registration Shares more than once in any six-month period. A registration requested pursuant to this Section 5.2(a) shall not be deemed to have been effected unless the registration statement related thereto (i) has become effective under the Securities Act and (ii) has remained effective for a period of at least nine months (or such shorter period of time in which all Registration Shares registered thereunder have actually been sold thereunder); provided, however, that if, after any registration statement requested pursuant to this Section 5.2(a) becomes effective and prior to the time the registration statement has been effective for a period of at least nine months, such registration statement is interfered with by any stop order, injunction 10 or other order or requirement of the Commission or other governmental agency or court solely due to actions or omissions to act of the Corporation, such registration statement shall not be considered one of the registrations which may be requested pursuant to this Section 5.2(a). (b) Delay or Suspension of Registration. Notwithstanding any other provision of this Section 5.2 to the contrary, if the Corporation shall furnish to the Shareholder or Shareholders: (i) a certificate signed by the President of the Corporation stating that, in the good faith judgment of a majority of the members of the entire Board of Directors of the Corporation, it would adversely and materially affect the Corporation's ability to enter into an agreement with respect to, or to consummate, a bona fide material transaction to which it is or would be a party, or the Corporation has a plan to register Stock to be sold for its own account within a 90-day period after the receipt of the demand request under Section 5.2(a), for the Corporation to use its reasonable best efforts to effect the registration of the Registration Shares (following a demand therefor by the Shareholder or Shareholders pursuant to Section 5.2(a)); or (ii) both (A) a certificate signed by the President of the Corporation stating that, in the good faith judgment of a majority of the 11 members of the entire Board of Directors of the Corporation, a material fact exists which the Corporation has a bona fide business purpose for preserving as confidential and (B) an opinion of counsel to the Corporation to the effect that the registration by the Corporation (following a demand for registration by the Shareholder or Shareholders pursuant to Section 5.2(a)) or the offer or sale by the Shareholder or Shareholders of the Registration Shares pursuant to an effective registration statement would require disclosure of the material fact which is referenced in the President's certificate required under Section 5.2(b)(ii)(A) and which, in such counsel's opinion, is not otherwise required to be disclosed, then the Corporation's obligations pursuant to Section 5.2(a) with respect to any such demand for registration shall be deferred or offers and sales of Registration Shares by the Shareholder or Shareholders shall be suspended, as the case may be, until the earliest of: (1) the date on which, as applicable (a) the Corporation's use of reasonable best efforts to effect the registration of the Registration Shares would no longer have such a material adverse effect or (b) the material fact is disclosed to the public or ceases to be material; (2) 135 days from the date of receipt by the Shareholder or Shareholders of the materials referred to in Section 5.2(b) (i) and (ii) above; and (3) such time as the Corporation notifies the Shareholder or Shareholders that it has 12 resumed use of its reasonable best efforts to effect registration of the Registration Shares or that offers and sales of Registration Shares pursuant to an effective registration statement may be resumed, as the case may be. If the Shareholder or Shareholders receives the materials referred to in Section 5.2(b)(ii) above while a registration statement for the offer and sale of the Registration Shares is in effect, the Shareholder or Shareholders agree to terminate immediately any offer or sale of Registration Shares. If offers and sales of the Registration Shares are suspended and resumed following the effectiveness of a registration statement within the 135-day period set forth in clause (2) of the second preceding sentence, the six-month period set forth in Section 5.2(a) shall be extended for a number of days equal to the number of days for which offers and sales of Registration Shares were suspended. If offers and sales of the Registration Shares are suspended but not resumed within the 135-day period, the Corporation shall, at the request of the Shareholder or Shareholders, withdraw such registration and the Shareholder or Shareholders shall be entitled to one additional demand registration right under this Section 9.2(a). A particular material transaction to which the Corporation is or would be a party or a particular material fact shall not give rise to more than one deferral or suspension notice by the Corporation pursuant to the provisions of this Section 5.2(b). 13 5.3 In connection with any registration or qualification pursuant to the provisions of this Article V, all Sellers, and the Corporation shall, except as prohibited under the blue sky or securities laws of any jurisdiction under which a registration or qualification is being effected, pay (pro rata based on the relative number of shares included in such registration) all of the fees and expenses, which shall not include fees and expenses of legal counsel for any Seller and any underwriting or selling discounts, fees, commissions or similar charges with respect to the shares of Stock as to which registration is requested; provided, however, that in the event the Corporation shall have incurred out-of-pocket expenses in connection with the preparation of any registration statement which shall be withdrawn prior to its effective date at the request of a Seller, such Seller shall promptly reimburse the Corporation for all out-of-pocket expenses including, without limitation, attorneys' fees and expenses, accounting costs and all fees and expenses relating to blue sky filings incurred by the Corporation in connection with such preparation (including any filing thereof); and provided further, however, that the Corporation shall not be required in the case of any registration hereunder to make blue sky filings in more than 20 states. 5.4 (a) In each case of registration of shares of Stock under the Securities Act pursuant to these registration provisions, the Corporation shall unconditionally indemnify and hold harmless each of the Sellers, each underwriter (as 14 defined in the Securities Act), and each person who controls any such underwriter within the meaning of Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934 (the Sellers and each such underwriter, and each such person who controls any such underwriter being referred to for purposes of this Section 5.4, as an "Indemnified Person") from and against any and all losses, claims, damages, liabilities and expenses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such shares of the Stock were registered under the Securities Act, any prospectus or preliminary prospectus contained therein or any amendment or supplement thereto (including, in each case, any documents incorporated by reference therein), or arising out of any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any of the Sellers or any underwriter and furnished to the Corporation or the Registering Shareholder, as the case may be, in writing by any of the Sellers or such underwriter expressly for use therein; provided that the foregoing indemnification with respect to a preliminary prospectus shall not inure to the benefit of any underwriter (or to the benefit of any person controlling such underwriter) from 15 whom the person asserting any such losses, claims, damages, liabilities or expenses purchased shares of the Stock to the extent such losses, claims, damages or liabilities result from the fact that a copy of the final prospectus had not been sent or given to such person at or prior to written confirmation of the sale of such shares to such person. (b) In each case of a registration of shares of the Stock under the Securities Act pursuant to these registration provisions, each of the Sellers participating in the registration, severally and not jointly, shall unconditionally indemnify and hold harmless the Corporation (and its directors and officers) each underwriter and each person, if any, who controls the Corporation or such underwriter within the meaning of Section 15 of the Securities Act of Section 20(a) of the Securities Exchange Act of 1934, to the same extent as the foregoing indemnity from the Corporation to the Sellers but only with reference to information relating to such Seller and furnished to the Corporation by such Seller for use in the registration statement, any prospectus or preliminary prospectus contained therein or any amendment or supplement thereto. Each Seller will use all reasonable efforts to cause any underwriters of shares of Stock to be sold by any of the Sellers to indemnify the Corporation on the same terms as the Sellers agree to indemnify the Corporation or the Registering Shareholder, as the case may be, but only with reference to information 16 furnished in writing by such underwriter for use in the registration statement. (c) In case any action or proceeding shall be brought against or instituted which involves any Indemnified Person, such Indemnified Person shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing and the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such action or proceeding, any Indemnified Person shall have the right to obtain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person has agreed to the retention of such counsel at its expense or (ii) the named parties to any such action or proceeding include both the Indemnifying Person and the Indemnified Person, and the Indemnified Person has been advised by counsel that there may be one or more defenses available to such Indemnified Person which are different from or additional to those available to the Indemnifying Person (in which case, if the Indemnified Person notifies the Indemnifying Person that it wishes to employ separate counsel at the expense of the Indemnifying Person, the Indemnifying Person shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Person). It is 17 understood that the Indemnifying Person shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all such similarly situated Indemnified Persons. The Indemnifying Person shall not be liable for any settlement of any action or proceeding effected without its written consent. (d) In the event the indemnifications provided for in this Article V are unavailable or insufficient, then the Sellers shall each contribute to the amount paid or payable as a result of such losses, claims, damages, liabilities, actions and expenses in such proportion as is appropriate to reflect (A) the relative benefits received by each Seller and (B) the relative fault of each Seller. (e) Notwithstanding anything in this Article V to the contrary, the Corporation shall not be liable to any Seller for any losses, claims, damages or liabilities arising out of or caused by (A) any reasonable delay (1) in filing or processing any registration statement or any preliminary or final prospectus, amendment or supplement thereto after the inclusion of such Seller's Stock in such registration statement, or (2) in requesting such registration statement be declared effective by the Commission and (B) the failure of the Commission for any reason to declare effective any registration statement. 18 6. MISCELLANEOUS. 6.1 Notices. All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on (a) the date of delivery, if delivered in person, by nationally recognized overnight delivery service or by facsimile or (b) three days after mailing if mailed from within the continental United States by registered or certified mail, return receipt requested to the party entitled to receive the same, if to the Corporation, World Wireless Communications Inc., 150 Wright Brothers Drive, Suite 560, Salt Lake City, Utah 84116, with a copy to Ronald N. Vance, P.C., American Plaza II, 57 West 200 South, Suite 310, Salt Lake City, Utah 84101; if to Digital, Digital Radio Communications Corporation, 772 East Utah Valley Drive, American Fork, Utah 84003, with a copy to Law Offices of Stephen R. Field, 620 Fifth Avenue, New York, New York, Attn: Stephen R. Field, Esq.; and if to any Shareholder, at his address as set forth in the books and records of the Corporation. Any party may change his or its address by giving notice to the other party stating his or its new address. Commencing on the 10th day after the giving of such notice, such newly designated address shall be such party's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement. 19 6.2 Governing Law. This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Utah, without regard to its conflicts of law principles. All parties hereto (i) agree that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted only in a federal or state court in Salt Lake City, Utah, (ii) waive any objection which they may now or hereafter have to the laying of the venue of any such suit, action or proceeding, and (iii) irrevocably submit to the exclusive jurisdiction of any federal or state court in Salt Lake City, Utah, in any such suit, action or proceeding, but such consent shall not constitute a general appearance or be available to any other person who is not a party to this Agreement. All parties hereto agree that the mailing of any process in any suit, action or proceeding in accordance with the notice provisions of this Agreement shall constitute personal service thereof. 6.3 Entire Agreement; Waiver of Breach. This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understanding among them with respect to the subject matter hereof, and it may not be modified or amended in any manner other than as provided herein; and no waiver of any breach or condition of this Agreement shall be deemed to have occurred unless such waiver is in writing, signed by the party against whom enforcement is sought, and no waiver shall be claimed to be a waiver of any subsequent breach or condition of a 20 like or different nature. 6.4 Binding Effect; Assignability. This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of the parties and their respective heirs, successors and permitted assigns. This Agreement and the rights of the parties hereunder shall not be assigned except with the written consent of all parties hereto. 6.5 Specific Performance. The parties hereby acknowledge that irreparable damage will be caused by a violation or threatened violation of this Agreement and that it is impossible to measure in money the damages which will accrue to a party hereto or to the personal representative of a decedent by reason of a failure to perform any of the obligations under this Agreement. Therefore, if any party hereto or the personal representative of a decedent shall institute any action or proceeding to enforce any of the provisions hereof, any person (including the Corporation) against whom such action or proceeding is brought hereby consents to a grant of an injunction restraining any such violation or threatened violation of this Agreement or any other appropriate decree of specific performance by any court having equity jurisdiction and waives the claim or defense therein that such party or such personal representative has an adequate remedy at law, and such person shall not allege in any such action or proceeding the claim or defense that such remedy at law 21 exists. 6.6 Restrictive Legend. Each certificate representing shares of Stock shall bear the following legend in addition to such other restrictive legends as may be required by law or as agreed to by the Corporation and Digital acting jointly: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or any state securities laws, and no sale or transfer thereof may be effected without an effective registration statement or an opinion of counsel for the holder, satisfactory to the company, that such registration is not required under the act and any applicable state securities laws. Also, the shares represented by this certificate are subject to the limitations and restrictions and are entitled to the registration rights that are set forth in the Shareholders Agreement, dated as of May 21, 1997, a copy of which is on file at the principal office of the Corporation." 6.7 Captions. Captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provision hereof. 6.8 Number and Gender. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. 22 6.9 Severability. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. 6.10 Amendments. This Agreement may not be amended except in a writing signed by all of the parties hereto. 6.11 Compliance with Securities Laws. Commencing with the Effective Date, the Corporation will use its best efforts to comply thereafter with the applicable provisions of the Securities Act and the Securities Exchange Act of 1934. 6.12 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. In addition, this Agreement may contain more than one counterpart of the signature page and this Agreement may be executed by the affixing of such signature pages executed by the parties to one copy of the Agreement; all of such counterpart signature pages shall be read as though one, and they shall have 23 the same force and effect as though all of the signers had signed a single signature page. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first above written. WORLD WIRELESS COMMUNICATIONS, INC. By: /s/ David Singer ---------------------------------------- David Singer, President DIGITAL RADIO COMMUNICATIONS CORPORATION By: /s/ Philip Bunker ---------------------------------------- Philip Bunker, President /s/ Philip Bunker ---------------------------------------- Philip Bunker /s/ William E. Chipman ---------------------------------------- William E. Chipman /s/ Jeffrey G. Ballif ---------------------------------------- Jeffrey G. Ballif 24 EX-21 11 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES The following are wholly-owned subsidiaries of World Wireless Communications, Inc. State of Name Incorporation ---- ------------- Digital Radio Communications Corporation Utah ECA Electronic Contract Assembly, Inc. Nevada EMA Corporation* Utah DEM-Tronics, Inc.* Utah *Subsidiary of Digital Radio Communications Corporation EX-23 12 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form SB-2) and related Prospectus of World Wireless Communications, Inc. for the registration of 4,000,000 shares of common stock, and to the use therein of our report dated March 7, 1997 with respect to the consolidated financial statements of World Wireless Communications, Inc. and subsidiaries, and our report dated March 4, 1997 (except for the second paragraph of Note 2, as to which the date is September 15, 1997), with respect to the consolidated financial statement of Digital Radio Communications Corporation and subsidiaries. /s/ HANSEN, BARNETT & MAXWELL --------------------------------------- HANSEN, BARNETT & MAXWELL Salt Lake City, Utah October 17, 1997 EX-27 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF WORLD WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996, AND THE CONSOLIDATED BALANCE SHEET OF WORLD WIRELESS, INC. AND SUBSIDIARIES AS OF JUNE 30, 1997 (UNAUDITED) AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS EQUITY AND CASH FLOWS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 6-MOS 12-MOS DEC-31-1997 DEC-31-1996 JUN-30-1997 DEC-31-1996 707,120 37,278 0 0 824,636 130,509 0 0 422,206 159,881 1,953,962 328,551 1,279,625 448,237 212,556 121,215 6,654,713 663,042 903,380 203,351 0 0 0 0 0 0 9,525 5,663 5,141,259 409,220 6,654,713 663,042 1,875,494 618,505 1,875,494 618,505 1,070,097 662,184 2,345,497 825,568 0 0 0 0 22,597 30,677 (1,562,697) (899,924) 0 0 (1,562,697) (899,924) 0 0 0 0 0 0 (1,562,697) (899,924) (0.19) (0.25) (0.19) (0.25)
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