-----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, OL5f5NYv4biPpvIg8YTsQJrdzEjZw19dcyaPhBXmtpq2yxzOFme4Vr4r2D9o2BQ7 BxLUUcDEtSzLdheK92LHmg== /in/edgar/work/20000901/0001015402-00-002428/0001015402-00-002428.txt : 20000922 0001015402-00-002428.hdr.sgml : 20000922 ACCESSION NUMBER: 0001015402-00-002428 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 20000901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMTECH CONSOLIDATION GROUP INC/DE CENTRAL INDEX KEY: 0001086474 STANDARD INDUSTRIAL CLASSIFICATION: [6770 ] IRS NUMBER: 760544385 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-41210 FILM NUMBER: 715209 BUSINESS ADDRESS: STREET 1: 10497 TOWN & COUNTRY WAY STREET 2: SUITE 460 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7135542244 MAIL ADDRESS: STREET 1: 10497 TOWN & COUNTRY WAY STREET 2: SUITE 460 CITY: HOUSTON STATE: TX ZIP: 77024 SB-2/A 1 0001.txt As filed with the Securities and Exchange Commission on August 30, 2000. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2/A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (AMENDMENT NO. 1) COMTECH CONSOLIDATION GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7375; 8082 76-0544385 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) Copies to: Comtech Consolidation Group, Inc. T. Deon Warner 10497 Town & Country Way Warner & Washington L.L.P. Suite 460 4410 Montrose Blvd. Houston, Texas 77024 Houston, Texas 77006 (713) 554-2244 (713) 807-1007 Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]. If delivery of the prospectus is expected to be made pursuant to Rule 434 check the following box. [ ]
CALCULATION OF REGISTRATION FEE Proposed Proposed Amount Maximum Maximum Amount of Title of Each Class of Securities To Be Offering Price Aggregate Registration To be Registered Registered Per Unit Offering Price Fee (2) - --------------------------------- ---------- ---------------- --------------- -------------- Common Stock 26,245,082 $ 0.15 (1) $ 3,936,762 $ 1,069.20 1. The proposed offering price is estimated solely for the purpose of calculating the registration fee. Pursuant to Rule 457(c) the registration fee is based on $0.15 per share for the Common Stock, the average of the high and low prices of the Common Stock reported on NASDAQ on July 7, 2000. 2. Previously paid on July 12, 2000.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECRURITIES 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, SOLICIATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS FO ANY SUCH STATE. SUBJECT TO COMPLETION DATED AUGUST 30, 2000 PROPSECTUS COMTECH CONSOLIDATION GROUP, INC. - -------------------------------------------------------------------------------- SECURITIES TO BE ISSUED BY THE COMPANY: 23,000,000 SHARES OF COMMON STOCK SECURITIES TO BE OFFERED BY SELLING SHAREHOLDERS: 3,245,082 SHARES OF COMMON STOCK - -------------------------------------------------------------------------------- Comtech Consolidation Group, Inc., a Delaware corporation (the "Company" or "Comtech"), is offering, upon the terms and conditions set forth herein, 23,000,000 shares of Common Stock, par value $.00967 per share ("Common Stock"), of the Company. In addition, nineteen shareholders of the Company are offering up to 3,245,082 shares of Common Stock to the public. For detailed information on who is selling their shares look on page 33 below under the Section entitled "Selling Security Holders." The Company's Common Stock is listed for trading on the NASDAQ Small Cap Market under the symbol "CCGI". The Company and the nineteen shareholders intend to sell the shares into the public market from time to time. The Company and the shareholders will negotiate with the market makers for the Company's Common Stock to determine the prices for each sale. They expect each sale price to be near to the market price at the time of sale. Purchase of Comtech's Common Stock involves risk. Please see the section below entitled "Risk Factors," which begins on page 6. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. All prospective purchasers receiving this Prospectus are urged to read this Prospectus carefully. THE DATE OF THIS PROSPECTUS IS AUGUST ____, 2000 2 TABLE OF CONTENTS PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SUMMARY FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . 5 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS. . . . . . . . . . . . . . . . . . . . . 8 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . 11 DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . 17 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 28 DESCRIPTION OF OUR SECURITIES. . . . . . . . . . . . . . . . . . . . . . 29 INTEREST OF NAMED EXPERTS AND COUNSEL. . . . . . . . . . . . . . . . . . 31 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES . . . . . . . . . . . . . . . . . . . . . 31 RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 31 SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 32 PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 33 LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 33 INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . 34 3 PROSPECTUS SUMMARY Comtech Consolidation Group, Inc. Comtech Consolidation Group, Inc., f/k/a Vending Group, Inc. ("Comtech" or the "Company") was incorporated on July 13, 1987 under the laws of the State of Delaware. Comtech is engaged in the acquisition and consolidation of business operations of small companies. Comtech currently operates A-1 Bayou, a home health care agency located in Jeanerette, Louisiana and owns EISP Corporation ("EISP"), a provider of high speed Internet access and other enhanced Internet services such as teleconferencing and broadcast faxing, and Networks On-Line, Inc. ("NOL"), a network integrator and internet service provider. Comtech has two leased offices, the main office is located at 10497 Town & Country Way, Suite 460, Houston, Texas, 77024 and the health care office is located at 9884 Greenwell Spring Road, Suite C, Baton Rouge, Louisiana 70814. Our main telephone number is (713) 554-2244. The Selling Shareholders Nineteen Shareholders are using this Prospectus to sell shares of Comtech Common Stock to the public. Ten shareholders acquired their shares in exchange for professional services rendered on behalf of Comtech. Seven shareholders acquired their shares as a result of a private financing of Comtech's Common Stock and convertible Preferred Stock in 2000. One shareholder acquired its shares in exchange for past due employee wages accrued in 1998. 200,000 shares of Common Stock are being registered as part of the CCGI Settlement, a litigation settlement with various prior holders of Comtech's Preferred Stock. Such holders alleged they had rights to past due dividends and to convert their Preferred Stock holdings into 1,900,000 shares of Common Stock and Comtech disputed such rights. Both Comtech and the holders settled their disputes for the issuance and registration, when possible, of 1,900,000 shares of Common Stock for the holders. Outstanding Shares Comtech has issued two classes of stock: Common Stock and Preferred Stock. As of August 30, 2000, there were 28,341,714 shares of Common Stock outstanding and 9,839 shares of Preferred Stock outstanding. In addition, there are options and contract rights outstanding that could lead to additional shares of Common Stock being issued. We cannot determine at this time the number of additional shares that could be issued, because some of the contract rights are based on the future market price of our Common Stock. 4 SUMMARY FINANCIAL INFORMATION The Information for years 1999 and 1998 and the six months periods ended June 30, 2000 and 1999 is derived from the financial statements included at the end of this prospectus. The information for the six-month periods ended June 30, 2000 and 1999 have not been audited, but in our opinion, we have made all adjustments necessary for a fair presentation of the financial results for those quarters. Results for the six-month period ended June 30, 2000 are not indicative of the results that can be expected for the year.
STATEMENT OF JUNE 30 JUNE 30 OPERATIONS YEAR ENDED YEAR ENDED 2000 1999 12/31/99 12/31/98 (UNAUDITED) (UNAUDITED) ------------------------------------------------------------ Revenues $ 1,576,011 $ 751,558 $ 973,160 $ 883,415 Operating Expenses 2,752,600 1,057,866 931,512 857,134 ------------------ ------------ ------------ ------------ Operating Income (Loss) (1,176,589) (306,308) 41,648 26,281 Other Income (Loss) (4,617) (27,925) (67) (1,862) Income (Loss) from Discontinued Operations (1,910,372) 1,049,818 -- 1,613,719 ------------------ ------------ ------------ ------------ NetIncome/(Loss) $ (3,091,578) $ 715,585 $ 41,581 $ 1,638,138 ============================================================ NetIncome/(Loss) Per Share $(0.13) $0.04 $ 0.00 $ 0.08 ============================================================ Weighted Average Number of Shares Outstanding 24,634,045 16,312,361 27,684,379 19,641,600 BALANCE SHEET JUNE 30 JUNE 30 DATA YEAR ENDED YEAR ENDED 2000 1999 12/31/99 12/31/98 (UNAUDITED) (UNAUDITED) ------------------------------------------------------------ Working Capital $ 21,710 $ 40,505 $ 41,696 $ 21,710 Total Assets 948,071 2,683,897 1,341,254 948,071 Long-term Liabilities 545,114 417,136 294,014 545,114 Total Liabilities 1,409,894 1,042,128 1,366,326 1,409,894 Shareholders' Equity (461,823) 1,641,769 (25,072) (461,823)
5 RISK FACTORS You should carefully consider the risks described below before buying our Common Stock. If any of the risks described below actually occurs, that event could cause the trading price of our Common Stock to decline, and you could lose all or part of your investment We may not become profitable From inception though June 30, 2000, we had a capital deficit of $25,072. From June 30, 1999 to June 30, 2000, our working capital increased from $21,710 to $41,696. Unless our revenues increase significantly, we will increase our capital deficit. Our Accountants' have included a paragraph in their opinion expressing some doubt about the Company's ability to continue to operate The Company's independent certified public accountants included an explanatory paragraph in their opinion with respect to the Company's financial statements to reflect the recurring losses from operations have raised substantial doubt about the ability of the Company to continue as a going concern. The Company's internally generated cash flows from operations have historically been, and continue to be, insufficient for cash needs. The Company has, therefore, relied upon external equity financing to continue its operations. We have a need for additional cash Our efforts to develop and grow our Internet service business has required, and will continue to require, us to invest in infrastructure and systems development. In addition, in our health care business, our reliance on government programs such as Medicare and Medicaid to fund our healthcare operations puts our prospective revenues at risk due to the delays in payment and potential for those agencies to hold back payments and seek repayment of previously paid revenues. The Company has incurred substantial losses since inception and expects to continue to incur losses through the fourth quarter of 2000. Also, we expect to need additional investment money in the future. Currently, we do not have sufficient capital to meet our projected cash requirements over the next 6 months. The Company expects to satisfy its cash shortages with (i) the sale of additional shares of Common Stock pursuant to private financed investments, (ii) the proceeds of the sale of the securities in this prospectus and (iii) the proceeds of a bank line of credit, which the Company is presently seeking to obtain. If we experience greater than anticipated cash needs, or if the implementation of our operating strategy fails to produce the revenue growth and cash flows we expected or if additional sources of cash are needed earlier than currently anticipated, we may not be able to continue operations. To understand our cash needs, see the section below entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." There is risk in growing to fast; we also have risk due to the recent management changes The Company's growth has placed, and is expected to continue to place, a significant strain on the Company's limited management. We do not have enough money to hire additional administrative, operational, financial and technical people to assist the current management with operating Comtech. Comtech has had recent changes in its chief executive officer and chief financial officer over the past two years and the current chief executive officer and chief financial officer have worked together since December 1999. The Company believes it will need, both in the short term and the long term, to hire additional qualified administrative and management employees to assist with its operations. If we are unable to find qualified employees or to retain them, our growth could be negatively affected. Our core businesses are highly competitive and we may not be able to compete with others in our industries. If our computer systems should break, our revenues from that business could drop and therefore any profits that we expected to make would also drop. 6 Lack of Long-Term Customer Contracts The majority of our Internet services are performed pursuant to purchase orders from customers and not though long-term contracts. Because our contracts are short-term, we could lose a significant number of them at any one time and therefore end up with less revenue. The Pricing for Internet Services is Uncertain Prices for Internet services continue to fall each year. We expect these prices to continue to fall. As a result, we have to constantly update our pricing schedules to compete for customers. If we do not keep our pricing schedule competitive, we could lose business. The technology in our businesses (especially the Internet business) change every year Any new technological changes that we do not keep up with could hurt our ability to compete. Because of our lack of operating cash, we may not be able to keep up with the new technology in our industries. The Company uses the Internet to conduct most of its EISP and NOL business. If the Internet is shut down or if the government begins taxing transmissions on the Internet, then the Company's revenues from the Internet could either stop or significantly be reduced. The Company's future success will depend on its ability to route its customers' traffic through the Internet and through dedicated and/or partially dedicated data network lines. The Company depends on the existence and use of the Internet and other methods of transmission to generate revenues from its customers. The Company does not have any patents or other protected rights in its names, software or equipment. Part of the Company's strategy is to acquire customer databases from other businesses. The Company also plans to get access to the other databases by entering into strategic alliances with companies that have large customer databases, switching capabilities or existing networks. Comtech will finance any future acquisitions, investments or strategic alliances with either additional shares of Comtech's Common Stock or through the issuance by Comtech of debt securities. There are many risks associated with issuing equity or debt for acquisitions, including, but not limited to, (i) the difficulty of identifying appropriate acquisition candidates, (ii) the difficulty of assimilating the operations and personnel of the respective entities, (iii) the potential disruption of the Company's ongoing business, (iv) the inability of management to capitalize on the opportunities presented by acquisitions, investments, strategic alliances or related efforts, (v) the failure to successfully incorporate licensed or acquired technology and rights into the Company's services, (vi) the inability of Comtech to maintain uniform standards, controls, procedures and policies between its operations and the acquired company's operations and (vii) the relationships problems among employees and customers as a result of changes in management. Both of the Comtech's business units are subject to government regulation and oversight. Comtech's EISP and NOL divisions are subject to regulation by the Federal Communications Commission (the "FCC"), by various state public service and public utility commissions and by various international regulatory authorities. Generally, the FCC has chosen not to closely regulate the charges or practices of non-dominant carriers. The FCC also has the power to impose more stringent regulatory requirements on the Company and to change its regulatory classification. If this happens, it could cost Comtech more dollars to operate and therefore decrease Comtech's revenues. Comtech's EISP and NOL businesses are also subject to federal and state laws regulating the unsolicited transmission of e-mail transmissions for advertisement purposes. Comtech has adopted a policy to refrain from transmitting e-mail advertisements except to the Company's own customers and other recipients who have expressed an interest in receiving the transmitted information or otherwise have given their permission to receive such transmissions. The Company's healthcare division is also subject to various state and federal laws that regulate the relationships between patients and the providers of health care services. These laws include the fraud and abuse provisions of the Social Security Act, which include "anti-kickback" and "anti-referral" laws. The "anti-kickback" laws prohibit the solicitation, payment, receipt, or offering of any direct or indirect remuneration for the referral of Medicare or Medicaid patients or for the ordering or providing of Medicare or Medicaid covered services, items or equipment. The "anti-referral" laws impose 7 restrictions on physicians' referrals for designated health services to entities with which they have financial relationships. Violations of these laws may result in substantial civil or criminal penalties for individuals or entities, including large civil monetary penalties and exclusion from participation in the Medicare and Medicaid programs. Such exclusion, if applied to Comtech's healthcare division, could result in significant loss of reimbursement. Reimbursement; Trends and Cost Containment Comtech's healthcare business is subject to the same cost cutting trend that the rest of the healthcare industry is experiencing. Comtech's management believes that these trends will continue to result in a reduction of revenues. There is no market maker providing strong support for our Common Stock. As a result, our Common Stock is low-priced, thinly traded, and subject to relatively wide swings in price. The public trading market for the Company's Common Stock has a minimal trading volume (approximately 200,000 shares per day) and there can be no assurance that the trading market will improve. For the past year, with the decline in Comtech's business results and the closing of many of its operating subsidiaries, interest in Comtech's Common Stock within the investment community has waned. Unless interest in the Common Stock and a thriving market for the Common Stock emerges, you may find it impossible to sell Comtech shares at a profit, and may find it difficult to sell them at all. The shares of Comtech Preferred Stock will be converted into large numbers of shares of Common Stock, which will dilute the value of your shares. In addition, any additional sells of shares of Common Stock may dilute the value of your shares. Comtech has issued and outstanding 6,355 shares of Class B Preferred Stock with a face value of $100.00 per share. The Preferred Stock (plus an 8% annual accrual) will be converted into Common Stock at a rate equal to 80% of the then current market price of the Common Stock. Assuming a price of $0.15, the conversion of all of the Class B Preferred Stock would convert into 5,295,833 shares of Common Stock. Comtech has issued and outstanding 3,484 shares of Class E Preferred Stock with a face value of $100.00 per share. The Preferred Stock (plus an 8% annual accrual) will be converted into Common Stock at a rate of 650 shares of Common Stock for each 1 share of Preferred Stock. If all of the Class E Preferred Stock were converted into Common Stock, it would convert into 2,264,600 shares of Common Stock. Comtech's management has the authority to issue up to 1,000,000 shares of preferred stock and up to an additional 71,658,296 shares of Common Stock. YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS This Prospectus contains forward-looking statements, including statements regarding Comtech's future plans and growth strategies and anticipated trends in the industry. Among the forward-looking statements are descriptions of our plans to acquire other companies, to increase our revenues and to raise additional capital. These forward-looking statements are a true statement of our present intentions, but are neither predictions of the future nor assurances that any of our intentions will be fulfilled. Many factors beyond our control could act to thwart Comtech in its efforts to develop and market its services, including factors discussed in the section above entitled "Risk Factors," above, as well as factors we have not foreseen. In addition, changing circumstances may cause us to determine that a change in plans will be in the best interests of Comtech. 8 USE OF PROCEEDS Management of the Company expects the net proceeds from the Offering to be approximately $3,350,000 after deducting estimated expenses assuming 23,000,000 shares of Common Stock registered hereunder are sold at a price per share of $.15 and the Company's offering expenses do not exceed $100,000. The Company will use the proceeds, if any, from the sale of the shares of Common Stock (i) to retire vendor payables and other debt of the Company, (ii) to pay expenses associated with registering shares for the selling shareholders and (iii) for general corporate purposes. The Company's current vendor payables and other debt approximate $1,277,997 and its general corporate needs for the period July 2000 thru June 2001 are expected to be $1,397,893. DIVIDEND POLICY Comtech has never declared or paid any dividends on its Common Stock to date. The current policy of the Board of Directors is to retain earnings, if any, to provide funds for operating and expansion of the Company's business. The Company is required to pay dividends on all outstanding classes of Preferred Stock prior to payments, if any, of dividends on its Common Stock. As of June 30, 2000, the Company had accrued, but unpaid, dividends of $74,318 on its Preferred Stock. CAPITALIZATION As of August 30, 2000, there were 28,341,714 shares of Common Stock outstanding and other securities of Comtech convertible into shares of Common Stock. The following table identifies the other securities convertible into shares of Common Stock as of August 30, 2000.
Number of Shares of Number of Shares Derivative Securities Preferred Stock Of Common Stock Isssuable --------------------- ------------------- ------------------------- Class B Preferred Stock (1) 6,355 5,295,833 Class E Preferred Stock (2) 3,484 2,264,600 Incentive Stock Options Exercisable at $0.33 - 966,500 Incentive Stock Options Exercisable at $0.195 - 1,265,831 Other Stock Options Exercisable at $0.16 100,000 Total: Common Stock currently outstanding 28,341,714 ---------- Total: 38,234,478 - -------------------- 1. Based on a conversion price of $0.15 per share of Common Stock. 2. Based on a conversion rate of 650 shares of Common Stock for each share of Class E Preferred Stock.
9 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the OTC Bulletin Board under the symbol "CCGI." The Company' authorized capital stock consist of 100,000,000 shares of common stock, $.00967 par value, of which 28,341,714 shares were issued and outstanding as of August 30, 2000 and 1,000,000 shares of preferred stock, $.01 par value, of which 9,839 shares were issued and outstanding as of August 30, 2000. As of June 30, 2000, the approximate number of holders of record of the common stock of the Company was [3,600]. The Company has never paid any cash dividends in the past and anticipates that for the foreseeable future all earnings, if any, will be retained to finance growth and to meet working capital requirements. The Common Stock is traded over the counter on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). The high and low of the sales price for the Common Stock for the past four quarters is as follows: DATE HI SALES PRICE LOW SALES PRICE -------------------- -------------- --------------- THIRD QUARTER 1999 .1.02 .375 FOURTH QUARTER 1999 .65 .25 FIRST QUARTER 2000 .85 .28 SECOND QUARTER 2000 .19 .28 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of the Company for the years ended December 31, 1999 and 1998 and the six months ended June 30, 2000 and 1999. It should be read in conjunction with the financial statements and the notes thereto included elsewhere in this Prospectus. The following information contains forward-looking statements. For a discussion of certain limitations inherent in such statements, see "Risk Factors - Forward Looking Statements." OVERVIEW STATE OF THE COMPANY AT THE CHANGE OF MANAGEMENT A change of management occurred in the first quarter of 2000. It included the appointment of three independent board members and the election of Walter Davis as Chief Executive Officer and Lamont Waddell as Chief Financial Officer. At that point in time morale was low, stock values were in decline and the company was in poor financial condition due to significant management problems and in part to the closure of most of its healthcare subsidiaries. NEW MANAGEMENT'S PHILOSOPHIES The new management team of Comtech decided to redirect the Company to take advantage of the growth of the Internet industry. Management intends to refocus the Company's operations to technology and technology related aspects of the Internet industry. Management made several changes to help meet its Capital needs and to hold unto key employees. First, we established relationships with investment-banking firms to assist us with our capital needs. Second, we recently submitted a proposal to our shareholders to prepare an employee stock option plan so we might compensate our key executives and the board. Because we believe the Company's best area of growth is in the Internet, we are channeling our hiring, joint ventures ad other operational plans toward EISP and NOL-our subsidiaries in that industry. FUTURE PLANS AND PROSPECTS The Company intends to acquire Internet related companies by issuing shares of the Company's stock. As of the date of this report, management has begun seeking discussions with potential merger and acquisition candidates, but there are no definitive agreements between the Company and any merger candidates. Current management recognizes that some of the Company's prior acquisitions negatively impacted the Company. As a result, we have established a due diligence team to Assist us with our review of acquisition candidates. CERTAIN ACCOUNTING POLICIES New Accounting Pronouncements In June 1998, the Financial Accounting Standards board issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 established standards for accounting and reporting of derivative financial instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in fair value of a derivative depends on the intended use of the derivative and the resulting designation. Management is currently in the process of assessing the impact of SFAS No. 133 to the Company. In December 1998, the AICPA issued Statement of Position (SOP) No. 98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions. SOP No. 98-9 requires recognition of revenue using the "residual method" in a multiple-element software arrangement when fair value does not exist for one or more of the delivered elements in the arrangement. Under the "residual method", the total fair value of the undelivered elements is deferred and recognized in accordance with SOP No. 97-2. The Company will be required to 11 implement SOP No. 98-9 for the year beginning Jan. 1, 1999. SOP No. 98-9 also extends the deferral of the application of SOP No. 97-2 to certain other multiple element software arrangements until the date SOP 98-9 becomes effective. The Company does not expect a material change to its accounting for revenues as a result of the provisions of SOP 98-9. Summary of Significant Accounting Policies (a) Revenue Recognition The Company recognizes revenue in accordance with Statement of Position No. 97-2, Internet Revenue Recognition. Internet license revenue is recognized when all of the following criteria have been met: there is an executed license agreement, software has been shipped to the customer, no significant vendor obligations remain, the license fee is fixed and payable within a month and collection is deemed probable. Maintenance revenues are recognized ratably over the term of the contract, typically 3 - 12 months. Consulting and other revenues are recognized when services are performed. Deferred revenue represents payment received or amounts in advance of services to be performed. (b) Software Development Costs Software development costs are expensed as incurred until technological feasibility is established. Software development costs incurred subsequent to establishing technological feasibility are capitalized and amortized over their estimated useful lives. During 1999 and 1998, no software development costs were capitalized. (c) Comprehensive Income Comprehensive income represents the change in stockholders' deficit resulting from other than stockholder investments and distributions. Accumulated other comprehensive income (loss) in the consolidated statements of stockholders' deficit is solely comprised of the accumulated foreign currency translation adjustment. (d) Net loss per Share Basic loss per share is computed by dividing net loss available to common stockholders by the weighted-average number of share outstanding during the period. Diluted earning per share recognizes the potential dilution caused by stock options and warrants determined by the treasury stock method and the effects of convertible debt. (e) Stock-based Compensation The Company uses the intrinsic value-based method prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for employee stock options. Under the intrinsic value method, compensation expense is recorded only to the extent that the market price of the common stock exceeds the exercise price of the stock option on the date of grant. (f) Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized at the enacted rates for the future tax consequences attributable to differences between financial statement carrying amounts of existing tax assets and liabilities and their respective tax basis. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. (g) Fair Value of Financial Instruments The carrying value of the Company's financial assets and liabilities, because of their short-term nature, approximates fair value. The carrying value of notes payable and long-term debt approximates fair value because the current rates approximate market rates available on similar instruments. 12 (h) Cash and Cash Equivalents Cash equivalents consist of highly liquid money market accounts carried at cost plus accrued interest, which approximates market value. All cash equivalents have remaining maturities of 90 days or less. (i) Stock Subscription Receivable Stock subscription receivables that are paid in full by the subscriber prior to the date the financial statements are issued are reflected as a current asset. (j) Property and Equipment, Net Property and equipment consists of property, equipment, furniture and computers and are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, which generally range from three to seven years. (k) Advertising Costs Advertising costs are expensed as incurred. Advertising costs totaled approximately $156,000 and $130,000 for the years ended December 31, 1999 and 1998, respectively. (l) Business and Credit Concentrations Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of trade accounts receivable. The Company sells principally to resellers and end users in the United States, Australia, and Europe. The Company performs ongoing credit evaluations of its customers and has not experienced significant credit losses in the past. (m) Impairment of Long-lived Assets and Assets to be Disposed Of Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generate by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (n) Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of those assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in the facts and circumstances surrounding these estimates could result in a change to the estimates and impact future operating results. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Total revenues for the six months ended June 30, 2000 and 1999 were $973,160 and $883,415, respectively, which is an increase of $89,745 or approximately %10. This increase was primarily attributable to an increase in healthcare revenues from the current operating entities. Net earnings for the six months ended June 30, 2000 and 1999 were $41,581 and $1,638,138, respectively, which represents a decrease of $1,596,557, or 97.5%. The decrease in net earnings for this period is primarily due to (i) the disposal of the majority of the Company's healthcare facilities in 1999 which resulted in a significant loss in revenues in 2000 and (ii) $837,839 of earnings posted in the first two quarters of 1999 from the discontinued healthcare operations. 13 YEAR END DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998 Total revenues for 1999 of $1,576,011 represents an increase of $824,453 or 109% increase from revenues of $751,558 in 1998. This increase was primarily due to increased revenues from the Company's health care facilities in 1999, acquisition of new health care facilities in 1999 and an aggregate five-month operating period for the Company's health care facilities in 1998. The Company reported a net loss of $3,091,578 in 1999 as compared to net income of $715,585 in 1998. The amount of the net loss in 1999 from 1998 is primarily due to (i) higher operating expenses in 1999, (ii) an increase of $969,396 in corporate expenses in 1999 and (iii) losses in 1999 aggregating $1,910,372 from the discontinued health care operations. The increase in corporate expenses is due to the accrual of approximately $400,000 in expenses related to settled and pending litigation, $71,000 in legal expenses, $374,000 in expenses for investor relations paid in stock, $86,000 in bad debts related to loans to subsidiaries, and $113,000 in compensation to officers. LIQUIDITY AND CAPITAL RESOURCES During the first two quarters of this year, the Company raised $240,500 through private sales of the Company's Class E Preferred Stock and Common Stock. The Company sold 2,118 shares of its Class E preferred stock at $100 per share and 549,526 shares of its Common Stock. The funds were used to pay for corporate operations. The Company is currently in negotiations with an investor to raise additional private equity capital for the Company. The Company has immediate cash requirements that will require it to raise additional capital immediately. SUBSIDIARY OVERVIEW NETWORKS ON-LINE, INC. (NOL) is a wholly owned subsidiary of Comtech whose primary business is providing high speed Internet Access, Video Conferencing, Web Hosting and other bundled Internet Services. Management's goal is to build the revenue base of Networks On-line, Inc. from its current base of approximately $550,000 annually, to over $2 million annually during the next twelve months. To accomplish this task, management will hire an experienced ISP operator whose compensation will be performance based and incentive laden to promote achievement of Company's goals. Comtech will also seek to grow NOL through acquisitions and groom NOL for a potential spin-off to increase shareholder value. All of the operations of EISP (which are not significant) are captured in the financial and other information for NOL. Networks On-Line has several different types of clients, each on month-to-month contracts. Either party may cancel these contracts at the end of the current month. As of May 10, 2000, approximately 15 of NOL's accounts were co-located, Ethernet, or T-1 accounts. These accounts generate approximately $6,000 in monthly billings. NOL also provides ISDN services. The company has over 100 clients receiving ISDN service. These accounts generate nearly $13,000 in monthly billings. Some of the accounts that NOL has are billed on a quarterly or semi-annual basis, but these amounts have been averaged in to the above calculations for simplicity. The loss of one or two clients would not decrease NOL's revenues significantly. NOL has a sufficiently diverse client base that it would survive. However, with the levels of competition in this marketplace, NOL will need to develop a strong marketing team to expand its client base and generate additional income. A-ONE BAYOU is a wholly owned subsidiary of Comtech. A-One Bayou operates in the home health care industry. A-One Bayou has grown its current operations to generate annual revenues of approximately $1.5 million. Last year the company opened a second office in the Jeanerette, Louisiana area. A-One Bayou is managed and operated by Karvett Queen. Ms. Queen is responsible for the growth of A-One Bayou, having opened the second branch office last year and continues to manage the day-to-day operations of A-One Bayou. The Company's health care subsidiaries have agreements with third-party payers (primarily Medicare and Medicaid programs) that provide for payments to the Company at amounts different from its established rate for services and supplies. Payment arrangements include prospectively determined rates, reimbursed costs, discounted charges, and other arrangements. Patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payers. Retroactive adjustments are recorded on an estimated basis in the period the services are rendered and adjusted in the future periods, as final settlements with the payers are determined. 14 No agency should be 100% dependent upon a program such as Medicare or Medicaid. Home health care agencies must be diverse enough to attract revenue from private sources as well as the federal government. A-One is seeking private sources such as private insurance companies. In order to qualify with the larger insurance companies such as Blue Cross or Prudential, the agency must be JACHO certified and presently, A-One holds this certification. Referrals are generated by physicians. It is imperative that A-One continue to be able to attract and consult with the doctors in its service area to generate referrals. Due to the Company's current cash flow difficulties, A-One is not able to attract the physicians with the larger patient base within its service area. As outlined below, A-One provides a variety of services that are billed at varying rates. Services Cost RN $18.30/ visit LPN 15.30/visit HHA 12.00/visit Medical Social Worker 45.00/visit Physical/Occupational Therapist 45.00/visit Medical Directors 750.00/month MARKETING ANALYSIS Currently, our subsidiaries operate in two basic market segments: technology and healthcare. Each segment is highly fragmented with the major players putting tremendous pressure on the smaller companies to complete. As mentioned above, we are phasing out the purely healthcare segment of our business and moving it toward ecommerce &healthcare ecommerce. As a thinly capitalized company, Comtech is always searching for under-served or niche sectors of the market. By identifying these opportunities, Comtech seeks to provide the consumer with superior service while also partnering with the smaller retailers nationally, giving them a competitive edge as they compete for market share against the larger companies. One such sector management has identified is the e-medical sector. This sector has been slow to see the value of the new economies convergence of the Internet (or "clicks and bricks"). We hope to merge our healthcare experience with our Internet experience to find ecommerce business opportunities in healthcare. Management seeks to exploit business-to-business opportunities by providing smaller healthcare facilities with the ability to utilize the Internet to conduct business. MARKETING PLAN The Company intends to increase marketing efforts across the board for all subsidiaries in a cost-effective manner. Management will develop a defined and targeted marketing campaign for Networks On-Line, Inc. through a variety of print and media advertising and marketing programs. These programs will be designed to expand the subscriber base of NOL, while generating additional revenue streams for the company. Additional, experienced marketing personnel will be brought on board to assist in implementing this marketing plan. In addition, we plan to market our move to healthcare business-to-business Internet opportunities. Currently, we do not have any such opportunities, however, we believe that opportunities do exist in the market. FINANCIAL PLAN Management's goals are to increase revenues to $5 to $10 million dollars over the next 12-month period, with revenues increasing to over $20 million dollars in 24 months. The company plans to grow revenue through internal growth and acquisitions, with the acquisitions financed primarily through the issuance of restricted common shares or preferred stock. Management plans to complete a private placement of common stock to properly fund the operations of the parent company. 15 The increase in profits generated by acquiring profitable companies and providing superior, cost effective management and back office functions will provide Comtech with the necessary capital to grow the company. CONCLUSION By successfully executing the Company's business plan, we believe that the Company will be able to grow into a profitable entity. With the tremendous consolidation and spin-off opportunities available to the Company, we EXTRAORDINARY LOSSES During 1999, a number of the health care facilities (6) in Louisiana owned by the Company's subsidiary, Professional Management Providers, Inc. were operating under Chapter 11 of the U.S. Bankruptcy Code. As a result of several disputes and lawsuits with former management of the subsidiary, the Trustee in bankruptcy closed the six subsidiary corporations of Home Care Center, Inc. in July 1999. Thereafter, the Company closed three of the remaining four facilities in Louisiana, and transferred ownership of the remaining one to the parent company. The one remaining facility was still in operation at December 31, 1999. In addition, the Company made several acquisitions during 1999 through its Unique Dawning, Inc. (UDI) subsidiary without board approval or corporate involvement. These facilities proved unmanageable, and as a result, Unique Dawning, Inc. was placed in Chapter 11 of the Bankruptcy Code in September 1999. Subsequently, the Trustee transferred the filing to Chapter 7, which provides for liquidation. The Chief Financial Officer at the time and most of management disagreed with a two-member Board decision to place Unique Dawning, Inc into bankruptcy. The Board not only placed UDI into bankruptcy, the interim President asked the bankruptcy count to appoint a trustee to manage the operations of UDI. UDI was placed into bankruptcy based on an internal conflict between two board members. Once the trustee was appointed, UDI doctors transferred the patients to other health care facilities; therefore, the trustee was forced to close the facility. As a result of these events, the Company recognized losses on the closing and disposal of the twelve facilities (nine under Professional Management Providers, Inc. and three under Unique Dawning, Inc.). The losses were as follows: Professional Management Providers, Inc. $2,088,367 Unique Dawning, Inc. 639,273 ---------- $2,727,640 ========== The current management of the Company is certain that controls are in place that will assure shareholders that sound business practices will be used in the future. LIQUIDITY During February and March 2000, the Company raised $200,000 through a private placement. The Company sold 2,000 shares of its Class E preferred stock at $100 per share. The funds were used to pay for corporate operations. The Company is currently in negotiations with a current investor to raise additional equity capital for the Company. The Company also plans to obtain additional equity financing through a private placement within the next sixty days. There can be no assurance that the Company will be successful in these efforts. CAPITAL RESOURCES The Company's current assets represented 15% of current liabilities at December 31, 1999 as compared to 74% at December 31, 1998. Current liabilities exceeded current liabilities by $733,063 at December 31, 1999. At December 31, 1999, the Company primarily had two operational subsidiaries: one health care subsidiary located in Louisiana and one Internet Service Provider located in Houston, Texas. The net income from these operations is not sufficient to support corporate expenses and pay current liabilities. Based on this liquidity problem, the Company's external auditors' report on the 1999 consolidated financial statements included a fourth paragraph noting a going concern problem. Based on discussions with the external auditors, if the Company is able to 16 resolve this problem by obtaining additional equity funding, the auditors are willing to review the Company's current situation and, if conditions have improved, the firm is willing to reissue their report without noting the going concern problem. Management believes that actions presently being taken to obtain additional equity financing through a private placement and pursuing acquisitions and increasing sales in the technology sector will provide the Company with the opportunity to continue as a going concern. RESULTS OF OPERATIONS BEFORE DISCONTINUED OPERATIONS: 1999 COMPARED TO 1998 Total revenues for 1999 of $1,576,011 represents an increase of $824,453 or 109.7% increase from revenues of $751,558 in 1998. This increase is due to revenue from health care facilities being reported for twelve months in 1999 as compared to five months in 1998. The Company reported a net loss before extraordinary items of $1,181,206 in 1999 as compared to net loss of $334,233 in 1998. The $846,973 decrease from 1998 is primarily due to an increase in operating expenses, including and increase of $969,396 in corporate expenses. The increase in corporate expenses is due to the accrual of approximately $400,000 in expenses related to settled and pending litigation, $71,000 in legal expenses, $374,000 in expenses for investor relations paid in stock, $86,000 in bad debts related to loans to subsidiaries, $113,000 in compensation to officers. FUTURE OPERATIONS As noted in the description of the business section of the document, management has changed the focus of the Company to pursue the technology industry with emphasis on Internet related businesses. The Company intends to acquire Internet related companies by issuing shares of the Company's stock after stock registration. As of the date of this report, management of the Company has had preliminary discussions with potential merger or acquisition candidates, but there is no definitive agreement between the Company and any merger candidates. In the event the Company does enter into an agreement with such a third party, the new Board of Directors does intend to obtain certain assurances of the value of the target entity assets prior to consummating such a transaction. Current management has established a due diligence team to prevent the type of transactions that have negatively impacted the Company in the past. DESCRIPTION OF THE BUSINESS Our Company was initially incorporated on July 13, 1987 under the laws of the State of Delaware. The Company was in the development stage from inception until August 12, 1997, at which time it acquired all of the capital stock of Networks On-Line, Inc. ("NOL"), a network integrator and Internet service provider and began operations. Comtech was originally in the business of growing sales revenues and earnings through consolidation (acquisition) of privately held operating entities under its two tier corporate holding structure. As acquisitions were made, the Company formed a Subsidiary Holding Company, specifically structured as a financing vehicle to fund ongoing expansion around the business initially acquired. This two tier corporate holding structure was established to provide a means of raising operating capital without dilution to the Company shareholders. It also allowed the Subsidiary Holding Company to develop its own market identity, separate and apart from that of the Company. The objective of this system was to continue to grow the business of its Subsidiary Holding Company, thereby increasing sales revenue and earnings. To date the Company has acquired or consolidated with five businesses: two in the Internet industry and three in the healthcare industry. In February of 1998, the Company acquired Professional Management Providers, Inc. (PMP), a Baton Rouge, Louisiana based corporation. PMP is a management consulting company for home health care providers, with customers located in Texas and Louisiana. PMP was established as a subsidiary holding company for acquisitions of home health care agencies. In April 1998, the Company acquired Unique Dawning, Inc. (UDI), a Texas Corporation. UDI, headquartered in Houston, operated specialized health care center (partial hospitals) providing services to outpatients, with centers located in Texas and Louisiana. UDI was established as a subsidiary holding company for acquisitions of partial hospitals. 17 From February 1998 through June 1999, PMP acquired a number of healthcare businesses. In second quarter of 1999, Comtech decided to abandon the Subsidiary Holding Company concept because of its lack of control over the Subsidiary Holding Companies. The Company did not realize how much control it had actually lost until it tried to change its method of managing the day-to-day operations of the subsidiaries. In doing so, the Company lost a significant amount of operations in the health care division. In July 1999, the Company lost seven of the eight operating health care facilities of PMP. The only surviving operating health care entity of PMP was A-1 Bayou, a home health care agency located in Jeanerette, Louisiana. In December 1999, the Company transferred the ownership of A-1 Bayou directly to Comtech. In September 1999, the Company closed four of the five operating health care facilities of UDI. As of December 1999, Comtech has only three operating subsidiaries, A-1 Bayou, engaged in health care, and NOL and EISP both engaged in Internet related businesses. Due to the significant management problems noted in 1999, the Company has changed its method of managing it subsidiaries. Comtech, the holding company, now directly manages the financial and administrative operations of all of its subsidiaries. In early 2000, the new management team of Comtech decided to refocus the Company to capitalize on the tremendous growth of the Internet. The fact that Comtech already owns NOL and EISP (Internet service providers) facilitates this refocus. Comtech will play a major role in the technology arena and will attempt to grow rapidly through acquisitions. Management feels that by changing the direction of the Company to focus more fully on technology related companies, Comtech will be opening the door to numerous business possibilities. Along with NOL, the Company acquired EISP Corporation (Enhanced Internet Service Provider), a Texas corporation. EISP's mission was to develop market enhanced Internet services, i.e. video teleconferencing, faxing to be bundled with its standard Internet services. The Company operations from EISP have been immaterial and many of the operations that EISP was to conduct have been preformed by NOL. Networks On-Line/EISP - NOL is a wholly owned subsidiary of Comtech whose primary business is providing high speed Internet access, video conferencing, web hosting, and other bundled Internet services. Management's goal is to build the revenue base of Networks Online during the next eighteen months. To accomplish this task, management hired an experienced ISP operator whose compensation is performance-based and incentive-laden to promote achievement of company goals. Comtech will also seek to build NOL through acquisitions and groom the company for a potential spin-off to increase shareholder value. A-One Bayou Home Health 2000, Inc. - A-One Bayou is a wholly owned subsidiary of Comtech. A-One Bayou operates in the home health care industry. A-One Bayou has grown its current operations. Last year, the company opened a second office in the Jeanerette, Louisiana area. A-One Bayou is managed and operated by a seasoned health care professional with more than ten years' managerial experience. This professional is responsible for the growth of A-One Bayou, opening the second office last year, and continues to manage the day-to-day operations of A-One Bayou. A-One Bayou is the only home health agency located in Jeanerette, Louisiana. A-One Bayou specializes in providing quality health care in the home environment. A-One Bayou has a second branch located in Morgan City, Louisiana, which is located directly across from Lakewood Hospital. There are two other home health care agencies in Morgan City. A-One Bayou provides the following services: RN, LPN, Home Health Aides (HHA), Medical Social Services, Physical and Occupational Therapist. A-One Bayou specializes in providing Psychiatric and Pediatric Nursing. Since its acquisition in October of 1998, revenue for A-One Bayou increased to $2.2 million in 1999 and Comtech anticipates even greater results in the year 2000. 18 MARKET ANALYSIS The multi-billion dollar U.S. Internet industry is currently going through a massive restructuring, which is creating virtually unlimited acquisition and merger possibilities. Opportunities for Internet and technology firms abound, and Comtech's Internet companies will be key to its growth and expansion in technology related industries. Technology Market Trends- A May 2000 study by eTForecasts, a market research and consulting firm, estimates that by the end of 2000, there will be 375 million Internet users. This will be an increase of almost 100 million since 1999, when 276 million users worldwide accessed the Internet. eTForecasts reports that although the US continues to be the leading Internet country, the rest of the world is getting online as well. Other Internet research firms have similar high estimates for the number of Internet users. These include the Computer Industry Almanac, which places the number at 349 million, while International Data Corporation (IDC) and Internet Industry Almanac both estimate 327 million users. eMarketer projects a more modest 191 million Internet users worldwide for 2000. The growing number of Internet users has created a tremendous demand for Internet service providers (ISAPs). Coming off a spectacular 67% increase in 1999, revenues in the U.S. Internet services market are predicted to increase another 29% in 2000 and approach the $23 billion mark. According to International Data Corporation, AOL and UUNet will lead the market's drive. These two ISPs have a commanding lead over the competitors in their market segments. Individual users are not the only ones flocking to the Internet in growing numbers. The huge online population has created an enormous potential market for businesses. Businesses on the Internet serve both other business clients as well as the general consumer market. IDC expects the number of U.S. small businesses engaged in e-commerce to increase from 400,000 at the end of 1998 to almost 2.8 million by the end of 2003 - an annual increase of 47.1%. Leading research firms project that the Business-to-Business (B2B) market will reach between $2.7 and $7.3 trillion by the year 2004 (CNET News.com.) That figure compares with the $131 billion generated by business-to-business companies in 1999. On the other side of the coin, Forrester Research projects that the Business to Consumer market will generate $184.5 billion in 2004, up from $20.3 billion in 1999. According to IDC, the consumer segment will maintain the largest share of the market's revenues until 2002, when the value-added services segment will grab the lead. Value-added services are expected to grow faster than the other segments as Web-hosting revenues skyrocket, free Internet service providers build their subscriber bases, and corporations and consumers utilize services other than just access from ISPs. IDC predicts that growth in the consumer segment will moderate due to market saturation, but that the number of daily users in this segment will increase as will the length of time they remain online. Business-to-Business companies generally focus on infrastructure, software, online exchanges, as well as industrial and commercial items that allow their clients to operate more effectively in the modern marketplace. Business-to-Business companies make it possible for other firms to decrease the cost of doing business and increase their profits. Typically, business-to-business technology partners provide expertise, consulting, and technical knowledge that the client firms do not possess in-house and don't require on a permanent, full time basis. The growth of small business Internet, home page, and e-commerce activity has been dramatic. During 1998, more than 1 million small businesses added Internet capability. During 1999, over 800,000 small businesses implemented their own Web sites. At the same time, the number of small businesses actively selling on the Internet has doubled each year. IDC believes that number will approach 1.6 million in 2000. An increasing number of companies are turning to hosting service providers to implement and manage their Web sites, and in response, the Web hosting services market is growing at a torrid pace. According to International Data Corporation (IDC), this segment is one of the fastest-growing markets in the information technology industry and the Internet economy in general. IDC expects revenues of U.S.-based Web hosting companies to grow by almost $1 billion in 1999 alone, bringing them to over $1.8 billion. 19 Looking farther ahead, IDC expects the number of small businesses implementing e-commerce to reach over 2.9 million by 2003. Although the annualized growth rate will not match that seen prior to 2000, the number of small firms adding e-commerce capabilities is still expected to be increase 22.5% between 2000 and 2003. The Internet is changing the way companies do business, and small businesses (fewer than 100 employees) are no exception. According to results from IDC's 1999 U.S. Small Business Survey, the percentage of small businesses accessing the Internet surpassed 52% in 1999, and that number is expected to climb to over 70% by 2003. Once confined by geographical constraints, small businesses are now leveraging the Internet to expand beyond local boundaries. In addition to accessing the wealth of information the Web has to offer, a number of small businesses have recognized the benefit of promoting themselves via the Web. In 1999, 2.1 million U.S. small businesses had a home page or Web site. That number is expected to increase 30% to 2.7 million in 2000. IDC stated that although more small businesses are experimenting with Web promotion of their products and services, the market is far from saturated, and there is still plenty of room to grow. Almost 13% of U.S. small businesses have yet to invest in a PC, never mind add Internet capability. At this point, e-commerce presents the most significant growth opportunity for a wide range of U.S. small businesses. The number of these companies selling goods and services online is expected to grow from 850,000 at the end of 1999 to 2.9 million in 2003. By 2003 nearly half of online small businesses are expected to sell over the Internet, according to IDC. Yet another change which will have a major impact on the Internet market is high-speed wireless Internet access that is currently available in many markets for residential and business customers. The advantage in this technology is that it is relatively inexpensive to acquire and maintain. End-user installation is accomplished very quickly because this type of service bypasses local telephone company lines and equipment. One of the primary advantages of wireless access is that security becomes much less of an issue because each connection is transmitted using spread-spectrum technology - using many frequencies to transmit information rather than one, easy to tap frequency. Security will become almost a non-issue. As wireless technology matures, the prices will fall, increasing the potential market for such services. With these key features, wireless technology will provide tremendous possibilities for growth in the business-to-business marketplace. NOL intends to begin pursuing these opportunities in the current calendar year. Once wireless Internet access becomes a more widespread alternative, it will prove an attractive option for businesses since it is faster and less expensive than the current choices. Wireless access promises to provide faster speeds than current DSL, in areas where DSL technologies are not available, and at a very cost-effective price. NOL fully intends to be a part of this emerging market. Equipment and Bandwidth -- Network On-Line began in 1994 as a small ISP offering unlimited dial-up access to the Internet, web site hosting, and email, primarily to individual accounts. As the business grew, better equipment was necessary and was acquired to fulfill customer demands. As the business continues to grow today, some of the equipment has become outdated, unreliable, and inappropriate for its intended use. NOL has been very successful in its ability to maintain its client base despite this shortcoming, but at the cost of a tarnished reputation and ability to sustain growth. To maintain its quality-of-service commitments to present and future clients, NOL must lease of purchase additional equipment and bandwidth. It is estimated that within the next six to twelve month period, at least four additional servers and three additional workstations will be needed. The total cost of these machines will be in the $40,000 to $50,000 range. That price will include the appropriate operating system and installed programs necessary for the tasks to be performed. Additionally, as a Southwest Bell ADSL Partner (one of the few ISPs in Houston to be so designated), NOL must purchase bandwidth, in the form of T1 ATM circuits from SWB in order to provide ADSL to customers, whether residential or business. ADSL has proven to be "the better mousetrap" because it provides very fast bandwidth at an inexpensive price. ADSL offers huge growth potential because of this. In order to continue offering ADSL to its subscribers, NOL will need to implement additional T1 ATM circuits along with a router for each circuit. The initial cost of implementing one circuit is approximately $3,000 and the monthly recurring cost is approximately $650.00. NOL currently needs two additional circuits to balance current ADSL loads and provide for the immediate needs of pending customers. The Company projections show that NOL will need another two to four routers within the next 12 months. 20 Technology Trends for Past Three Years -- The dominant trend in all Internet sectors for the past three years has been the continued phenomenal growth. In April 1999. IDC, a top Internet research firm stated that the value of the US ISP market would generate $15.1 billion in that year. This is an increase of 41% from the 10.7 billion produced in 1998. IDC further reported that the US market for ISPs would continue its growth, generating a projected $37.4 billion in 2003. This translates to a compound annual growth rate of 28 percent. Growth in ISPs is projected to slow in 2001, however demand for value-added services are expected to make up the deficit. IDC predicts that the value-added service market will overtake the individual access market by 2003. America Online (AOL) currently occupies the dominant position in the ISP market, with a 23% market share. MCIWorldCom is second, with 17 percent, according to IDC. These two companies dominate the overall ISP market with AOL holding the key position in individual and value-added ISP markets, and the latter leading in business and wholesale markets. Internet usage continues to grow at an unprecedented rate as new technologies create additional opportunities for revenue generation, especially in the business-to-business venue. A recent trend in the business-to-business segment is the growth of Application Service Providers (ASPs). An ASP rents software to be used online by businesses for a monthly fee. The software is a value-added service rented from the ISP. Due to the nature of the infrastructure required to deliver the ASP to the businesses, most ASPs are also ISPs. The software is provided at a cost that is low enough to justify the monthly expense and, in the long run the business client saves money by not being required to purchase multiple licenses or multiple copies of the same software. Some of the services typically provided by ASPs include Microsoft Word, Excel, Access, Peachtree Accounting packages, and others. High-speed wireless Internet access is currently available in many markets for residential and business customers. This wireless access promises to be faster than the current DSL, as well as less expensive. This will make high-speed wireless access attractive to businesses. The advantage to this technology is that it is relatively inexpensive to acquire and maintain. End-user installation can be accomplished quickly as this type of service bypasses local telephone company lines and equipment. One of the primary advantages of wireless access is that security becomes much less of an issue because each "connection" is transmitted using spread-spectrum technology - using many frequencies to transmit information than just one, easy-to-tap frequency. With high-speed access, security becomes almost a non-issue, making it very attractive to business users. As this wireless technology matures, prices will drop, increasing the potential market for such services. This relatively new technology is expected to provide a boost in revenues across the board for the business-to-business segment of the market. COMTECH'S INDUSTRIES Health Care Industry - According to a report by the Health Care Financing Administration (HCFA), total health care spending increased by 5.6% in 1998, compared with 4.7 percent in 1997. The $1.1 trillion spent on health care in 1998 amounted to an average of $4,094 per person, compared with $3,912 per person in 1997. In contrast to the public spending decline, private health care spending increased 6.9 percent in 1998, compared with 4.8 percent in 1997. According to the HCFA report, the private sector spending growth in 1998 was primarily the result of an 8.2 percent increase in private health insurance premiums, which is more than twice the rate of the past couple of years. In 1999, there were 32 million older Americans and 5 million disabled people enrolled in SMI (Supplementary Medical Insurance -- Medicare Part B); 87 percent received services covered under the program. Medicare was the dominant payer source, representing nearly one-third of industry revenue, according to Health Industry Distributors' Association's 1999 Home Care Financial Performance Survey. The aging American population and the growing desire among older citizens to remain in their own homes as long as possible, have created a revolution in the home health care industry. More and more seniors remain in their own homes, or family residences, than in past years. Other factors affecting the growth in the home health care segment include: the emphasis on preventive medicine increases in self-treatment, earlier hospital releases, and the expansion of senior residential facilities. 21 Together, these changes have created a rising demand for products and supplies needed to care for these patients. Total demand for disposable medical supplies is expected to expand 5.3 percent annually through 2004 to nearly $56 billion -- and home health care will be the fastest-growing market, according to a report entitled U.S. Disposable Medical Supplies, compiled by the Cleveland-based Freedonia Group. According to the Freedonia report, sales in the home care segment will reach $8.6 billion by 2004, up 6.5 percent annually from 1999. Despite such growth, however, home uses of disposable medical supplies will be concentrated in only a few product groups. Favorable growth opportunities are anticipated for IV administration kits, enteral feeding sets, oxygen delivery accessories, prefilled and empty hypodermic syringe systems, dialysis sets, adhesive tapes, and general patient utensils, such as bedpans and basins. On the consumer side, trends promoting self-care will increase the demand for first-aid kits, bandages and dressings, diabetes monitoring products and home medical test kits. A growing incidence of incontinence experienced by an aging population will boost sales of related products. Future Trends in Home Health Care -- A study by the White House National Economic Council and Domestic Policy Council yielded some interesting findings, particularly in reference to Medicare's future enrollment. According to the study, by 2025, elderly individuals will compose at least one-fifth of the population in 30 states. Currently there are no states with that high a percentage of elderly. This means that some 62 million Americans will have reached that age 65 or greater within 25 years, more than double the current mark of 35 million. Since more than half the individuals currently receiving home health care services are seniors, there will be an increase in the demand for such services. Providing professional medical services in the senior's own home is economically advantageous. It costs less to provide quality medical care in the home than in an institution or hospital environment. Patients also feel more comfortable in their own surroundings and, in many cases, family members assist with the care of their loved ones. Currently, the federal government enacting serious costs cuts for nursing home services. Many nursing facilities have been forced to cease operations and their patients have been moved back to their own or relatives' homes. This trend will also create additional potential revenue for home health care agencies. Trends in health care industry for past three years -- In the mid-1990s, home health care was a lucrative business in the US. Lacking stringent rules and regulations, many agencies were started by owners and operators with little or no experience. Then the government imposed more strict regulations with vigorous policies and procedures, hiring additional auditors, revamping the payment system, and researching the implementation of a surety bond. The government places a moratorium on home health agencies in most states and that limitation is still in place in the state of Louisiana, due to the number of agencies that had started up. Most agencies that began operations on or before October 30, 1993 are considered base year agencies. Base year agencies are reimbursed at a higher rate by the government, even though the services provided and overhead rates are identical to established home health operations. Health Care Financing Administration (HCFA) implemented an interim payment system in which agencies were operating in the blind. HCFA reimbursed agencies based upon their assigned interim rate. Six months later, HCFA adjusted the agencies' rates with a retroactive date. HCFA withheld payment based on their calculations. This lack of funds forced many agencies to cease operations. HFCA is once again in the process of implementing a new plan with an effective date of October 1, 2000. The new program is the Prospective Payment System (PPS). Under PPS, reimbursement will be based on diagnosis codes for a three-month certification period. At present, HCFA has not announced nor published the reimbursement rates. MARKETING PLAN The Company intends to implement a cost-effective marketing strategy by developing a public relations campaign to announce its concentration solely on technology. 22 FINANCIAL PLAN Management's goals are to increase revenues and shareholder value through acquisitions. The Company will principally use its Common Stock to fund the Acquisitions. Comtech will attempt to secure relationships with investment banking firms to assist with future capital needs. COMPETITION The market for the company's Internet products is highly competitive, and Comtech expects this competition to increase. Many of the Company's competitors have significantly greater research and development, marketing and financial resources than the Company, and therefore maybe able to reach markets which the Company cannot reach. The Company believes that the primary competitive factors in the market for the Company's services are price, performance, and technical support. EISP/Networks On-Line's (NOL) competition -- As an Internet Service Provider, or EISP, NOL competes with such well-known companies as America Online, MCIWorldCom, Earthlink, Microsoft Network, Sprint, and many others. In addition to the major names in the ISP industry, there are numerous smaller entities that derive their revenues by providing Internet access. AOL and the majority of other ISPs have focused on the individual Internet user and, up to this point, Networks On-Line has as well. However, the individual Internet users market is one that produces a small profit margin. One trouble call from an individual user whose telephone line isn't working properly literally eliminates the profit from that account for the month. Providing services to business Internet users is a far more lucrative market. NOL will focus on the business Internet user. These users have much higher levels of expectation for their ISP. They want fast, easy, trouble-free Internet and they are willing to pay premium rates to assure these features. Internet services for business are becoming more "mission-critical" than ever before. Services such as web hosting and email are simply expected from their ISP. A ISPs ability to provide value-added services is critical to its long-term success and growth. Web site design, web site hosting, applications services, high-speed connections, customized email packages, e-commerce, and the ability to successful bring these elements together on a consistent, reliable basis will all but assure an ISP's success in the marketplace. Quality-of-service issues are of paramount importance to business users. An ISP must be fast, friendly, and reliable to succeed, and business Internet users are generally willing to pay more than individual subscribers for that service. Business both need and demand higher bandwidth connectivity in the form of ADSL, T1, or DS3 circuits that an individual has no need for. Businesses also need and demand fast, friendly, and competent customer service and are adept at finding those ISPs that can provide it. Upon completion of the anticipated financing, NOL will upgrade its infrastructure and equipment, and hire marketing personnel, allowing the Company to target this more highly selective business user audience. The Company believes that the primary competitive factors in the market for the Company's services are price, performance and technical support and Comtech's ISP divisions will continue to provide these features to their clients. A-One Bayou's Competition -- A-One Bayou Home Health 2000, Inc. (A-One) is the only home health agency located in Jeanerette, Louisiana. A-One specializes in providing quality health care in the home environment. A-One has a second branch located in Morgan City, Louisiana that is located directly across from Lakewood Hospital. There are two other home health care agencies in Morgan City. Home Medical Equipment companies will serve this burgeoning senior population in increasing numbers. The average HME provider is a small "Mom and Pop" operation with fewer than 20 employees and less than $3 million in annual revenue. Small businesses of this nature spend a disproportionate amount of their time and revenue on administrative functions and costs. By acquiring numerous small operations and centralizing the administrative functions within the parent corporation, Comtech creates a more cost-effective business and streamlines operations. DESCRIPTION OF PROPERTY The Company leases a total of approximately 3,000 square feet of office space for the Company's headquarters and Internet operations. The Company's headquarters is located at 10497 Town & Country Way, Suite 460, Houston, Texas. 23 In addition, the Company leases approximately 2,000 square feet of space for its health care operations in Louisiana. The operating lease at the Company's headquarters expires on May 31, 2001. LEGAL PROCEEDINGS The following cases reflect the status of legal proceedings in which the Company is involved. Comtech is a Defendant/Third Party Plaintiff in a cause in the 356th District Court of Hardin County, Texas. Comtech is one of three defendants sued by former owners of a home health care agency acquired by a subsidiary of Comtech. Settlement discussions are in progress. Comtech is a Plaintiff in a cause in the 11th District Court of Harris County, Texas. Comtech filed suit against this former subsidiary in order to rescind the share exchange agreement. Judgment for the Company is anticipated. Home Care Center, Inc., a discontinued subsidiary of Comtech, is a Defendant in a civil action in the United States District Court, Middle District of Louisiana. Home Care Center is one of ten firms sued by the Department of Labor relative to pension funds transferred to the former owners. Attorneys representing the Department of Labor have negotiated a settlement with the former owners that should result in no loss to the Company. Comtech is a Defendant in a cause in the 60th District Court of Jefferson County, Texas. Comtech is one of three Defendants in a suit brought by former employees of Comtech subsidiaries. It is presently anticipated that the liquid assets of the two other defendants in this matter will satisfy the plaintiffs' demands without loss to Comtech. Comtech is a defendant in two causes in the 58th District of Jefferson County, Texas. These suits were brought by former employees of a health care agency acquired by a subsidiary of Comtech. The Plaintiffs do not have privity of contract with Comtech and favorable outcome is expected without loss to the Company. EMPLOYEES The Company and its subsidiaries have 27 employees of which 20 are full time. 24 MANAGEMENT The following table sets forth information concerning executive officers and directors of the Company, including their ages and positions with the Company as of August 9, 2000. Name Age Position - ---- --- -------- Walter D. Davis 49 Chairman of the Board, President, Chief Executive Officer and Director Lamont Waddell 58 Chief Financial Officer and Director Vincent E. Alexander 38 Director and Chairman of the Audit Committee Beatrice Beasley 55 Director and Chairman of the Compensation Committee Jesse Funchess 69 Director Walter D. Davis, 49, has been chairman of the board and the chief executive officer/president of CCGI since 1/20/00. He served as the chief financial officer from 9/1/99-1/20/00. He also serves as trustee on the Houston Municipal Pension Board. Lamont Waddell, 58, is a director and has been the Chief Financial Officer since 1/20/00. He formerly served as Controller of CCGI from October 1, 1999 to January 20, 2000, and prior to that he was the Vice President of Finance/Human Resource/Controller of the Faro Pharmaceutical Corp. Vincent E. Alexander, 38, serves as director and chair of the audit committee. He was elected to the board in 12/99. He is a financial officer of the Infinity Brokerage Corporation. He is also a member of the greater Houston partnership. Dr. Beatrice Beasley, 55, has been a member of the board since 1/20/00 and the chair of the compensation committee. She is a tenured professor at Texas Southern University and is president of Beasley & Associates, a business training and consulting firm. Dr. Beasley also serves on the board of the Harris County Children's Protective Services Agency. Attorney Jesse Funchess, 69, was elected to the board in 2/00. He is managing partner of Jesse Funchess & Associates Attorneys at Law in Houston and Beaumont, Texas. Attorney Funchess is also the Chairman of the board of the South Central Houston Community Action Council, Inc. 25 EXECUTIVE COMPENSATION The following report do not constitute soliciting materials and are not considered filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, unless the Company states otherwise.
SUMMARY COMPENSATION TABLE (2000)(1) Annual Compensation ------------------- Name and Principal Position Year Salary Bonus Other Annual Compensation - --------------------------- ---- ---------- ---------- ------------------------- WALTER DAVIS 2000 $ 120,000 $ 48,000 0 Chief Executive Officer LAMONT WADDELL Chief Financial Officer 2000 $ 95,000 $ 20,000 0 Long Term Compensation ---------------------- Name and Long-Term NUMBER OF STOCK Principal Position Compensation Compensation Awards OPTIONS GRANTED - --------------------------- ---------------- --------------------- --------------- WALTER DAVIS $ 0 $ 0 815,833 Chief Executive Officer LAMONT WADDELL Chief Financial Officer $ 0 $ 0 466,666 - ------------------------- 1. Annualized compensation amounts projected for the year 2000. The current Officers of the Company were not officers in 1999.
26
OPTIONS OUTSTANDING (as of June 30, 2000) % of TOTAL NUMBER OF OPTIONS SECURITIES GRANTED TO UNDERLYING ALL EXERCISE GRANT DATE OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT NAME GRANTED 2000 PER SHARE) DATE VALUE - --------------- ---------- ---------- ---------- ---------- ----------- Walter Davis 350,000 $ 0.33 1/20/2007 0 465,833 $ 0.195 1/20/2007 0 Lamont Waddell 200,000 $ 0.33 1/21/2007 0 266,666 $ 0.195 1/21/2007 0 Jesse Funchess 100,000 $ 0.33 1/21/2007 0 133,333 $ 0.195 1/21/2007 0 Dr. Beatrice R. Beasley 100,000 $ 0.33 1/21/2007 0 133,333 $ 0.195 1/21/2007 0 Vincent Edward Alexander 100,000 $ 0.33 1/21/2007 0 133,333 $ 0.195 1/21/2007 0 Nelson Jones 100,000 $ 0.33 1/21/2007 0 133,333 $ 0.195 1/21/2007 0 Karvett Tillery-Queen 116,500 $ 0.33 1/21/2007 0 Total: 2,332,331 2,332,331 ----
27
OPTION EXERCISES AND YEAR-END VALUE TABLE (1) NUMBER SECURITIES VALUE OF NUMBER OF UNDERLYING UNEXERCISED SHARES UNEXERCISED IN-THE-MONEY ACQUIRED VALUE OPTIONS AT OPTION AS OF NAME ON EXERCISE REALIZED JUNE 30, 2000 JUNE 30, 2000 - ----------------- ---------- ------------------------- ---------------- ---------------- EXERCISABLE NOT EXERCISABLE NOT ----------- --- ----------- --- Walter Davis 0 -- -- -- -- -- Lamont Waddell 0 -- -- -- -- -- Jesse Funchess 0 -- -- -- -- -- Dr. Beatrice R. Beasley 0 -- -- -- -- -- Vincent Edward Alexnander 0 -- -- -- -- -- Nelson Jones 0 -- -- -- -- -- Karvett Tillery-Queen 0 -- -- -- -- --
PRINCIPAL SHAREHOLDERS The following table sets forth as of March 31, 2000, information with respect to (a) each person (including "group" as that term is used in section 13(d)(3) of the Securities Exchange Act of 1934 who is known to the Company to be the beneficial owner of more than five percent (5%) of the outstanding Common Stock of the Company and (b) the number and percentage of the Company's Common Stock owned by (i) each of the directors and the executive officers named on the Summary Compensation Table above and (ii) all directors and executive officers of the Company as a group. The Company believes that, unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares beneficially owned. CLASS NAME AND ADDRESS AMOUNT PERCENT - ----------------------- ------------------------- --------- -------- Common CCGI Settlement Group LLC 1,900,000 6.7% 8484 Jefferson Highway Baton Rouge, LA 70809 Common I Capital Group 1,500,000 5.29% 2603Main Street Suite 1150 Irvine, California 92614 Common Officers and Directors 95,269 0.3`% (One Officer) Approximately 3,600 holders hold the balance of the Company's outstanding Common Shares. 28 DESCRIPTION OF OUR SECURITIES The Company's authorized capital stock consists of 100,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. The following summary description of certain terms of the capital stock of the Company is qualified in its entirety by reference to the Company's Articles of Incorporation, which is included as an exhibit to the Registration Statement of which this Prospectus is a part. Common Stock The Company has authorized 100,000,000 shares of Common Stock, par value $.00967 per share. As of the date of this Prospectus, assuming the successful completion of the Offering, 51,341,714 shares of Common Stock will be outstanding. In addition, options to purchase 2,432,331 shares of Common Stock are outstanding. Except as required by applicable law, including the Delaware General Corporation Laws ("DGCL"), the holders of Common Stock are entitled to vote on all matters and are entitled, subject to the preferential rights of holders of Preferred Stock, to receive such dividends, if any, as may be declared by the Board of Directors from time to time out of legally available funds. Upon liquidation or dissolution of the Company, the holders of Common Stock are entitled to share in all assets of the Company that are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of Preferred Stock then outstanding. Holders of Common Stock have no preemptive rights to acquire new securities issued by the Company, have no rights to cumulate their votes for the election of directors and have no rights to convert their Common Stock into any other securities of the Company. Preferred Stock The Company is authorized to issue 1,000,000 shares of Preferred Stock, par value $100.00 per share ("Preferred Stock"). The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors of the Company, without further action of the shareholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion, redemption rights and sinking fund provisions. The Company has an aggregate of 9,839 shares of Preferred Stock outstanding as of the date of this Prospectus. The Company has no present plans for the issuance of additional shares of Preferred Stock. Class B Preferred Stock As of the date of this Prospectus, 6,355 shares of Class B Preferred Stock, stated value $100 per share ("Class B Preferred Stock") are issued and outstanding. The terms and preferences of the Class B Preferred Stock are set forth below. Ranking. The Class B Preferred Stock ranks senior to the Company's Common Stock with respect to dividends and rights upon liquidation or dissolution of the Company. Voting Rights. Except as required by applicable laws, holders of Class B Preferred Stock are not entitled to vote. Dividend Rights. The holders of Class B Preferred Stock are entitled to receive out of funds of the Company legally available therefore, dividends at an annual rate of 8% per share. Such dividends are payable at term in arrears. Dividends accrue and cumulate from the date of first issuance and are paid to holders of record as of the record date of the last day of the stated term. Accumulated dividends do not bear interest. So long as any shares of Class B Preferred Stock are outstanding, the Company may not declare or pay any dividend on the Common Stock until all accumulated, unpaid dividends on the Class B Preferred Stock have been paid in full. Conversion and Mandatory Conversion. Shares of Class B Preferred Stock are convertible by the holder at any time after twelve months after the date of issuance into Common Stock at a conversion rate of 80% of the market price of the Common Stock at the time of issuance. The Class B Preferred Stock has a face value of $100 per share. At the end of twenty-four months the shares of Class B Preferred Stock are automatically converted into shares of Common Stock at a conversion rate equal to 80% of the market bid price of the Common Stock at the time of issuance. 29 Redemption. Each share of Class B Preferred Stock is redeemable by the Company at anytime in exchange for a cash payment equal to $100, the face amount of each share, plus accumulated and unpaid dividends. Liquidation Rights. In the event of liquidation or dissolution of the Company, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Company, the holders of the Class B Preferred Stock are entitled to receive, out of the remaining net assets of the Company available for distribution to shareholders before any distribution or payment made to holders of Common Stock or other junior capital stock, the Class B Preferred Stock stated value of $100 per share, plus any accrued and unpaid dividends thereon. Upon payment of the full amount of such stated value plus any unpaid dividends, the holders of Class B Preferred Stock are not entitled to any further participation in any distribution of assets of the Company. Piggyback Rights. Each holder of shares of Class B Preferred Stock is entitled to piggyback registration rights when and if the Company files a registration statement offering its shares of Common Stock. In such event, the participating holder of Class B Preferred Stock is responsible for its fees and expenses associated with the registration of its shares. Class E Preferred Stock. As of the date of this Prospectus, 3,484 shares of Class E Preferred Stock, stated value $100 per share ("Class E Preferred Stock") are issued and outstanding. The terms and preferences of the Class E Preferred Stock are set forth below. Ranking. The Class E Preferred Stock ranks senior to the Company's Common Stock with respect to dividends and rights upon liquidation or dissolution of the Company and pari passu to the Company's Class B Preferred Stock with respect to dividends and rights upon liquidation or dissolution of the Company. Voting Rights. Except as required by applicable laws, holders of Class E Preferred Stock are not entitled to vote. Dividend Rights. The holders of Class E Preferred Stock are entitled to receive out of funds of the Company legally available therefore, dividends at an annual rate of 8% per share. Such dividends are at term in arrears. Dividends accrue and cumulate from the date of first issuance and are paid to holders of record as of the term. Accumulated dividends do not bear interest. So long as any shares of Class E Preferred Stock are outstanding, the Company may not declare or pay any dividend on the Common Stock until all accumulated, unpaid dividends on the Class E Preferred Stock have been paid in full. Conversion and Mandatory Conversion. Shares of Class E Preferred Stock are convertible by the holder at any time after the date of issuance into Common Stock at a conversion rate of 650 shares of Common Stock for each share of Class E Preferred Stock. The Class E Preferred Stock has a face value of $100 per share. Dividend payment of 8% is accrued and due on conversion. Redemption. Each share of Class B Preferred Stock is redeemable by the Company at anytime in exchange for a cash payment equal to $100, the face amount of each share, plus accumulated and unpaid dividends. Liquidation Rights. In the event of liquidation or dissolution of the Company, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Company, the holders of the Class B Preferred Stock are entitled to receive, out of the remaining net assets of the Company available for distribution to shareholders before any distribution or payment made to holders of Common Stock or other junior capital stock, the Class B Preferred Stock stated value of $100 per share, plus any accrued and unpaid dividends thereon. Upon payment of the full amount of such stated value plus any unpaid dividends, the holders of Class B Preferred Stock are not entitled to any further participation in any distribution of assets of the Company. Piggyback Rights. Each holder of shares of Class B Preferred Stock is entitled to piggyback registration rights when and if the Company files a registration statement offering its shares of Common Stock. In such event, the participating holder of Class B Preferred Stock is responsible for its fees and expenses associated with the registration of its shares. Warrants There are none authorized or issued. 30 Transfer Agent The Transfer Agent and Registrar for the Common Stock is Holladay Stock Transfer, Inc., 2939 67th Place, Scottsdale, AZ, 85251 INTEREST OF NAMED EXPERTS AND COUNSEL As of the date of this Prospectus, the law firm of Warner & Washington, LLP holds an option to purchase up to 100,000 shares of Common Stock of the Company at an exercise price of $.016 per share. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION ---------------------------------------------------- FOR SECURITIES ACT LIABILITIES The Company's organizing documents - charter and bylaws - do not provide for indemnification of its directors, officers and control persons. In the future, the Company may adopt such indemnification provisions in its organizing documents. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), 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 Securities Act and is, therefore, unenforceable. RELATED PARTY TRANSACTIONS In January 1999, the Company sold 645,625 shares of common stock for $129,125 ($.20 per share) to a company owned by a relative of the Chairman of the Board at the time (the Chairman was subsequently removed by the Board). The Chairman of the Board charged the Company a fee in the amount of $5,125 to consummate this transaction. The Board of Directors never approved this private placement. In January 1999, the Company issued 1,251,995 shares of common stock to companies owned by relatives of the Chairman of the Board at the time. The shares were issued to retire loans made to the Company by the Chairman of the Board and a company owned by the deceased former Chairman of the Board. The Board of Directors never approved these transactions. The Chairman resigned from the Board. The shares were never returned and are still outstanding. In March 2000, the Company signed a settlement agreement and mutual release in return for another private placement of stock (see note 14). In addition, the former President of the Company agreed to return 200,000 shares of common stock in settlement of his involvement in the issuance of the shares. In April 1999, the Company issued 130,000 shares ($.20 per share) of common stock to the Chairman of the Board at the time for compensation for services performed. In December 1999, the Company issued 53,600 shares ($.40 per share) of common stock to the Chief Financial Officer for compensation for services performed and the repayment of $11,500 in loans made to the Company. On July 2, 1998, the Company completed a private offering of 1,500,000 shares of its common stock at an offering price of $.001 per share. Of the 1,500,000 offered, 1,499,138 shares were issued and sold. 283,000 shares were sold to a company owned by the son of the Chairman of the Board at the time, 666,138 shares were sold to the Chairman of the Board at the end of 1998, and 500,000 shares were sold to a close business associate of the Chairman of the Board, of which, 320,000 shares were subsequently transferred to the Chairman of the Board. The shares were issued for less than the par value of the shares. The excess of the par value over the proceeds from the placement has been charged to Additional paid-in capital. At December 31, 1998, $40,000 of the cash balance was pledged as collateral for a personal loan made by the president of PMP. The Board of Directors of the Company did not approve this transaction. 31 SELLING SECURITY HOLDERS This Prospectus also relates to the resale of up to 3,245,082 shares of Common Stock by Selling Shareholders (collectively, the "Selling Shareholders") in connection with certain registration rights granted to the Selling Shareholders. See attached Exhibit A. In connection with the sale of its shares in the Offering, the Selling Shareholders have agreed not to sell any additional shares of Common Stock for a period of 90 days. The Company intends to grant to the Selling Shareholders certain registration rights with respect to their remaining shares. The table below sets forth information concerning the resale by the Selling Shareholders of shares of Common Stock.
HOLDER SHARE HELD AMOUNT OFFERED SHARED HELD (ASSUMING ALL AFTER OFFERING ARE SOLD) - ----------------- -------------- -------------- -------------- I Capital Corp. 1,500,000 1,500,000 0 About Face Comm 500,000 50,000 450,000 Carolyn Harris 19,636 19,636 0 CCGI Settlement 200,000 200,000 0 CFG Inc. 52,250 52,250 0 Charterbridge 450,000 450,000 0 Chris Spohn 125,000 125,000 0 Clarence Campbell 199,650 199,650 0 Don Brown 310,869 31,086 279,783 E. Horton 96,387 96,387 0 Ian Rappoport 250,000 25,000 225,000 J. Hagan 192,930 19,293 173,637 Nancy Moreson 125,000 125,000 0 R. Sullivan 100,614 100,614 0 R. Walker 137,817 137,817 0 S. Smith 62,990 62,990 0 Steve Clemons 129,167 12,917 116,250 T. Smith 24,942 24,942 0 Wayne Franks 125,000 12,500 112,500 Total 4,602,252 3,245,082 1,357,170 ============== ============== ===========
32 PLAN OF DISTRIBUTION ISSUER SALES The Company intends to sell the Common Stock through its offices and directors without the assistance of underwriters or brokers. SELLING SHAREHOLDER SALES The Selling shareholder intends to sell after a 90 day holding period. LEGAL MATTERS The validity of the shares of Common Stock to be issued pursuant to the Offering will be passed upon for the Company by Warner & Washington LLP, Houston, Texas. EXPERTS The financial statements included in the Prospectus and in the Registration Statement have been audited by R. E. Bassie & Co., P.C., independent certified public accountants, to the extent and for the periods set forth in their report (which contains an explanatory paragraph regarding the Company's ability to continue as a going concern) appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company has filed a Registration Statement on Form SB-2 (together with all amendments, schedules and exhibits thereto, the "Registration Statement") with the Commission under the Securities Act, with respect to the Common Stock offered hereby. This Prospectus, which is included as part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain portions of which have been omitted in accordance with the rules and regulations of the Commission. Statements contained in this Prospectus as to the contents of any contract or other document referred to herein are not necessarily complete, and in each instance that a reference is made to a contract or other document filed as an exhibit to the Registration Statement, each such examined without charge at the Commission's principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the Registration Statement may be obtained from the Public Reference Section of the Commission upon payment of certain fees prescribed by the Commission. Copies of such materials may also be obtained over the Internet at http://www.sec.gov. The Company currently furnishes its shareholders with annual reports containing consolidated financial statements audited and reported upon by its independent public accounting firm quarterly consolidated financial statements unaudited and reported on by its independent public accounting firm and current periodic reports as are required by the 1934 Act. 33 COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES INDEX TO YEAR END FINANCIALS Independent Auditors' Report Consolidated Financial Statements: Balance Sheets - December 31, 1999 and 1998 Statements of Operations - Years ended December 31, 1999 and 1998 Statements of Stockholders' Equity - Years ended December 31, 1999 and 1998 Statements of Cash Flows - Years ended December 31, 1999 and 1998 Notes to Consolidated Financial Statements 34 R. E. BASSIE & CO., P.C. CERTIFIED PUBLIC ACCOUNTANTS A PROFESSIONAL CORPORATION - -------------------------------------------------------------------------------- 7171 Harwin Drive, Suite 306 Houston, Texas 77036-2197 Tel: (713) 266-0691 Fax: (713) 266-0692 E-Mail: Rebassie@aol.com INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Comtech Consolidation Group, Inc.: We have audited the consolidated balance sheets of ComTech Consolidation Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Comtech Consolidation Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the two-year period ended December 31, 1999, in conformity with generally accepted accounting principles. As shown in the consolidated financial statements, the Company incurred a net loss of $3,091,578 in 1999. At December 31, 1999, current liabilities exceed current assets by $733,063. These factors, and others discussed in Note 13, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. /s/ R. E. Bassie & Co., P.C. Houston, Texas March 24, 2000 35
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 Assets 1999 1998 ------ --------------- ------------- Current assets: Cash (note 3) $ 21,710 $ 40,505 Accounts receivable, less allowances for contractual adjustments and doubtful accounts of $1,000 in 1999 and in 1998 (note 12) 110,007 173,017 Prepaid expenses - 79,850 Net assets of discontinued operations - 1,576,598 --------------- ------------- Total current assets 131,717 1,869,970 --------------- ------------- Note receivable (note 2) 20,000 - Property and equipment, net of accumulated depreciation and amortization (notes 4 and 5) 146,014 137,591 Excess of cost over net assets of businesses acquired, less accumulated amortization of $34,000 in 1999 and $8,004 in 1998 (notes 2 and 12) 646,000 671,996 Other assets 4,340 4,340 --------------- ------------- Total assets $ 948,071 $ 2,683,897 =============== ============= Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable and accrued expenses 617,392 15,523 Accrued salaries and related liabilities 131,686 102,833 Loans payable to shareholders 42,482 277,882 Notes payable 10,000 - Convertible subordinated debentures (note 8) - 195,000 Current installments of long-term debt (note 5) 63,220 33,754 --------------- ------------- Total current liabilities (note 12) 864,780 624,992 Long-term debt, less current installments (note 5) 545,114 417,136 --------------- ------------- Total liabilities 1,409,894 1,042,128 --------------- ------------- Stockholders' equity (notes 2, 3, 6, 8, 12 and 14): Preferred stock, $.01 par value. Authorized 1,000,000 shares: issued and outstanding, 31,028 shares in 1999 and 31,450 in 1998 Class B, 8% cumulative and convertible 310 314 Common stock, $.00967 par value. Authorized 30,000,000 shares: issued and outstanding, 22,077,072 shares in 1999 and 16,970,849 shares in 1998 213,485 164,108 Additional paid-in capital 2,024,806 1,033,393 Retained earnings (deficit) (2,700,424) 443,954 --------------- ------------- Total stockholders' equity (deficit) (461,823) 1,641,769 Commitments and contingent liabilities (notes 6, 8, 9, 11, 13, 14 and 15) --------------- ------------- Total liabilities and stockholders' equity $ 948,071 $ 2,683,897 =============== =============
See accompanying notes to consolidated financial statements. 36
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1999 and 1998 1999 1998 -------------------- -------------------- Revenues: Net patient service revenue $ 984,982 $ - Internet service revenue 591,029 751,558 -------------------- -------------------- Total revenues 1,576,011 751,558 -------------------- -------------------- Operating expenses: Health care operations 901,483 - Internet operations 578,323 763,542 Corporate operations 1,221,083 251,687 Amortization 25,996 5,650 Depreciation 25,715 36,987 -------------------- -------------------- Total operating expenses 2,752,600 1,057,866 -------------------- -------------------- Operating loss (1,176,589) (306,308) Other income (expenses): Interest income - 187 Interest expense (4,617) (28,112) -------------------- -------------------- Total other income (expenses) (4,617) (27,925) -------------------- -------------------- Net loss from continuing operations (1,181,206) (334,233) Loss from discontinued operations (note 12) (1,910,372) 1,049,818 Net earnings (loss) (note 8) $ (3,091,578) $ 715,585 ==================== ==================== Earnings (loss) per share: Basic: Net loss from continuing operations $ (0.06) $ (0.02) ==================== ==================== Net earnings (loss) from discontinued operations $ (0.10) $ 0.07 ==================== ==================== Net earnings (loss) $ (0.15) $ 0.05 ==================== ==================== Diluted: Net loss from continuing operations $ (0.05) $ (0.02) ==================== ==================== Net earnings (loss) from discontinued operations $ (0.08) $ 0.06 ==================== ==================== Net earnings (loss) $ (0.13) $ 0.04 ==================== ==================== Weighted average common shares: Basic 19,954,922 14,719,450 ==================== ==================== Diluted 24,634,045 16,312,361 ==================== ====================
See accompanying notes to consolidated financial statements. 37
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1999 and 1998 Total Additional Retained stockholders' Preferred Common paid-in earnings equity stock stock capital (deficit) (deficit) -------------- ---------- --------------- -------------- --------------- Balance, December 31, 1997 $ - $ 124,996 $ 75,978 $ (271,631) $ (70,657) Issuance of 1,029,410 shares for acquisitions (note 2) 314 9,670 743,958 - 753,942 Issuance of 1,499,138 shares under private placement (note 3) - 14,497 (12,998) - 1,499 Issuance of 182,000 shares - for marketing services - 1,760 34,640 - 36,400 Conversion of debentures for 1,363,511 shares of common stock (note 9) - 13,185 191,815 - 205,000 Net earnings - - - 715,585 715,585 -------------- ---------- --------------- -------------- --------------- Balance, December 31, 1998 314 164,108 1,033,393 443,954 1,641,769 Issuance of 3,500 shares of preferred stock for acquisitions (note 2) 35 - 62,166 - 62,201 Issuance of 645,625 shares of common stock under private placement (note 3) - 6,243 122,882 - 129,125 Issuance of 1,251,995 shares of common stock for retirement of debt (note 3) - 12,108 238,291 - 250,399 Conversion of debentures for 1,223,787 shares of common stock (note 9) - 11,834 183,166 - 195,000 Issuance of 376,078 shares for investor relations 25 3,622 300,174 - 303,821 Issuance of 183,600 shares of common stock for contractual services (note 3) - 1,775 45,665 - 47,440 Conversion of 6,400 shares of preferred stock for 1,530,222 shares of common stock (note 6) (64) 14,797 (14,733) - - Issuance of 96,392 shares of common stock for preferred stock dividends (note 6) - 932 51,868 (52,800) - Retirement of 200,000 shares of common stock (note 3) - (1,934) 1,934 - - Net loss - - - (3,091,578) (3,091,578) -------------- ---------- --------------- -------------- --------------- Balance, December 31, 1999 $ 310 $ 213,485 $ 2,024,806 $ (2,700,424) $ (461,823) ============== ========== =============== ============== ===============
See accompanying notes to consolidated financial statements. 38
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1999 and 1998 1999 1998 ------------------ ----------------- Cash flows from operating activities: Net earnings (loss) $ (3,091,578) $ 715,585 (Earnings) loss from discontinued operations (note 12) 1,910,372 (1,049,818) ------------------ ----------------- Net loss from continuing operations (1,181,206) (334,233) Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 25,715 36,987 Amortization of excess of cost over net assets of businesses acquired 25,966 5,650 Bad debt expense 86,000 - Stock issued for various services 366,221 - Loss on disposal of equipment 2,963 - (Increase) decrease in assets: Accounts receivable 16,010 (158,972) Prepaid expenses 79,850 (79,850) Other assets - (2,510) Increase (decrease) in liabilities: Accounts payable and accrued expenses 601,869 (6,403) Accrued salaries and related liabilities 28,853 28,472 ------------------ ----------------- Net cash provided by (used in) continuing operations 52,241 (510,859) Net cash provided by discontinued operations 90,431 152,480 ------------------ ----------------- Net cash provided by (used in) operating activities 142,672 (358,379) ------------------ ----------------- Cash flows from investing activities: Purchase of property and equipment (34,138) (69,172) ------------------ ----------------- Net cash used in investing activities (34,138) (69,172) ------------------ ----------------- Cash flows from financing activities: Proceeds from borrowing from shareholders - 33,750 Repayments to shareholders (235,400) (37,038) Proceeds from long-term debt - 79,850 Principal payments on long-term debt (31,054) (12,528) Proceeds from short-term note payable 10,000 - Proceeds from issuance of shares under private placement 129,125 1,499 Proceeds from sales of subordinated debentures - 400,000 ------------------ ----------------- Net cash provided by (used in) financing activities (127,329) 465,533 ------------------ ----------------- Net increase (decrease) in cash (18,795) 37,982 Cash at beginning of year 40,505 2,523 ------------------ ----------------- Cash at end of year $ 21,710 $ 40,505 ================== ================= Supplemental schedule of cash flow information: Interest paid $ 4,617 $ 28,112 ================== ================= Supplemental disclosures: Noncash investing and financing activities (notes 2, 3, 8 and 12))
See accompanying notes to consolidated financial statements. 39 NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY ComTech Consolidation Group, Inc., a Delaware corporation, was incorporated on July 13, 1987. The Company is a Houston, Texas based consolidation company that is focused on acquiring and building growth-oriented businesses through acquisitions in the technology related industries. The Company has operations in Texas and Louisiana. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Comtech Consolidation Group, Inc. and its wholly owned subsidiaries (the Company). All material intercompany profits, transactions and balances have been eliminated. The accounts of purchased companies are included in the consolidated financial statements from the dates of acquisition. The excess of cost over the fair value of net assets of businesses acquired is being amortized using the straight-line method over a 40-year period commencing with the dates of acquisition. PROPERTY AND EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. EARNINGS PER SHARE Earnings (losses) per common share have been computed by dividing net earnings (losses) by the weighted average number of common shares outstanding during the respective periods. STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. PATIENT SERVICE REVENUE The Company's health care subsidiaries have agreements with third-party payers (primarily Medicare and Medicaid programs) that provide for payments to the Company at amounts different from its established rate for services and supplies. Payment arrangements include prospectively determined rates, reimbursed costs, discounted charges, and other arrangements. Patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payers. Retroactive adjustments are recorded on an estimated basis in the period the related services are rendered and adjusted in the future periods, as final settlements with the payers are determined. 40 CONCENTRATION OF CREDIT RISK Medicare and Medicaid Programs Net revenue from the majority of the Company's subsidiaries is generated from services rendered to Medicare and Medicaid program (the Programs) beneficiaries. The reimbursement from the Programs is determined under cost-based reimbursement formulas. The ultimate reimbursement to which the Company is entitled is based on the submission of annual cost reports, which are subject to audit, by the Programs through the Programs intermediaries. Management has made allowances for potential cost disallowances. Differences between allowances and final settlements are reported as modification to net patient service revenue in the year of settlement. Since the Company receives a substantial portion of its funding from the Programs, it is dependent on funding from the Medicare and Medicaid programs to support fifty percent of its operations. (2) ACQUISITIONS Effective January 1, 1999, the Company, through its wholly-owned subsidiary, PMP, issued 1,000 shares of its Class B preferred stock (see note 6) for all of the outstanding stock of Clinical Concepts, Inc., a Louisiana health care corporation. On the same day, the Company sold Clinical Concepts Inc. to an individual for a long-term note receivable in the amount of $30,000. The note receivable is due in six annual installments of $5,000. Effective March 26, 1999, the Company, through its wholly-owned subsidiary, Unique Dawning, Inc., issued 2,500 shares of its Class B preferred stock (see note 6) for all of the outstanding stock of two Texas health care corporations. Effective February 15, 1998, the Company issued 500,000 shares of its common stock in exchange for all of the outstanding stock of Professional Management Providers, Inc. (PMP), a Louisiana health care management corporation. Effective April 1, 1998, the Company issued 500,000 shares of its common stock in exchange for all of the outstanding stock of Unique Dawning, Inc., a Texas health care corporation. Effective June 30, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 2,000 shares of its Class B preferred stock for all of the outstanding stock of Superior Quality Health Care, Inc., a Texas health care corporation. Effective July 30, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 11,000 shares of its Class B preferred stock for all of the outstanding stock of Home Care Center, Inc., a Louisiana health care corporation (see note 11). Effective August 13, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 1,300 shares of its Class B preferred stock for all of the outstanding stock of Magnolia Home Health, Inc., a Louisiana health care corporation. Effective October 3, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 600 shares of its Class B preferred stock for all of the outstanding stock of A-1 Bayou Health 2000, Inc., a Louisiana health care corporation. Between July 1, 1998 and December 29, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 16,550 shares of its Class B preferred stock for certain net assets of twelve Louisiana health care corporations. All of the above acquisitions have been accounted for using the purchase method with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition dates. Such allocations were based on evaluations and estimations. A valuation adjustment in the amount of $2,000,000 has been assigned to the value of existing contracts for entities acquired in 1998. 41 The purchase allocation is summarized as follows:
1999 1998 ----------- ------------- Current assets $ 133,849 $ 3,630,796 Noncurrent assets 25,000 - Property and equipment - 439,745 Excess of cost over net assets of businesses acquired - 2,000,000 Current liabilities (96,648) (5,229,128) Long-term liabilities - (87,471) ----------- ------------- $ 62,201 $ 753,942 =========== =============
Goodwill is being amortized over a period of 40 years. (3) RELATED PARTY TRANSACTIONS In January 1999, the Company sold 645,625 shares of common stock for $129,125 ($.20 per share) to a company owned by a relative of the Chairman of the Board at the time (the Chairman was subsequently removed by the Board). The Chairman of the Board charged the Company a fee in the amount of $5,125 to consummate this transaction. This private placement was never approved by the Board of Directors. In January 1999, the Company issued 1,251,995 shares of common stock to companies owned by relatives of the Chairman of the Board at the time. The shares were issued to retire loans made to the Company by the Chairman of the Board and a company owned by the deceased former Chairman of the Board. The Board of Directors never approved these transactions. The Board subsequently removed the Chairman from the Board. The shares were never returned and are still outstanding. In March 2000, the Company signed a settlement agreement and mutual release in return for another private placement of stock (see note 14). In addition, the former President of the Company agreed to return 200,000 shares of common stock in settlement of his involvement in the issuance of the shares. In April 1999, the Company issued 130,000 shares ($.20 per share) of common stock to the Chairman of the Board at the time for compensation for services performed. In December 1999, the Company issued 53,600 shares ($.40 per share) of common stock to the Chief Financial Officer for compensation for services performed and the repayment of $11,500 in loans made to the Company, On July 2, 1998, the Company completed a private offering of 1,500,000 shares of its common stock at an offering price of $.001 per share. Of the 1,500,000 offered, 1,499,138 shares were issued and sold. 283,000 shares were sold to a company owned by the son of the Chairman of the Board at the time, 666,138 shares were sold to the Chairman of the Board at the end of 1998, and 500,000 shares were sold to a close business associate of the Chairman of the Board, of which, 320,000 shares were subsequently transferred to the Chairman of the Board. The shares were issued for less than the par value of the shares. The excess of the par value over the proceeds from the placement has been charged to Additional paid-in capital. The Company has not determined whether the issuance met the requirements of state law. At December 31, 1998, $40,000 of the cash balance was pledged as collateral for a personal loan made by the president of PMP. The Board of Directors of the Company did not approve this transaction. 42 (4) PROPERTY AND EQUIPMENT Property and equipment is summarized as follows:
December 31, -------------------- 1999 1998 --------- --------- Equipment $ 240,317 $ 206,179 Furniture and fixtures 1,600 1,600 --------- --------- Total property and equipment 241,917 207,779 LESS ACCUMULATED DEPRECIATION AND Amortization 95,903 70,188 --------- --------- Net property and equipment $ 146,014 $ 137,591 ========= =========
(5) LONG-TERM DEBT Long-term debt is summarized as follows:
December 31, ----------------- 1999 1998 -------- -------- Notes payable (8), due March 10, 2001, with interest at 6.5% (see note 11) $251,100 $ - Note payable in monthly installments of $868 through September 2003; with interest at 10.5%, unsecured 34,075 40,393 Note payable in monthly installments of $970 through September 2004, with monthly installments increasing to $5,500 through August 2005, with interest, unsecured 115,126 119,006 NOTE PAYABLE IN MONTHLY INSTALLMENTS OF $3,700 THROUGH AUGUST 2004, UNSECURED 208,033 224,169 Note payable to a bank, with interest at the lender's prime rate plus 2%, due March 5, 2000 (note 12), - 67,322 -------- -------- Total long-term debt 608,334 450,890 Less current installments 63,220 33,754 -------- -------- Long-term debt, less current installments $545,114 $417,136 ======== ========
Aggregate yearly maturities of long-term debt for the periods after December 31, 1999 are as follows: Years -------- 2000 $ 63,220 2001 315,111 2002 64,889 2003 66,115 2004 60,193 Thereafer 38,806 -------- $608,334 ======== 43 (6) PREFERRED STOCK In 1999, the Company issued 3,500 shares of its Class B preferred stock in exchange for all of the outstanding stock of three health care companies (see note 2). In 1998, the Company issued 31,450 shares of its Class B preferred stock in exchange for all of the outstanding stock of four health care companies and certain net assets of twelve health care companies (see note 2). The Class B preferred shares have a face value of $100 per share, with an annual cumulative dividend equal to 8%, with a term of 24 months. The Class B preferred shares are convertible by the shareholders for the Company's common stock at anytime after 12 months from the date of issuance at a conversion rate equal to 80% of the then market price of the Company's common stock. The Class B preferred shares are redeemable by the Company at anytime in exchange for cash payment equal to the full-face amount of the shares plus accumulated dividends. At the end of the 24 month term, if not redeemed by the Company for cash equal to the face amount of the preferred shares, the shares automatically convert to common stock at a conversion rate equal to 80% of the then market bid price of the Company's common stock. See note 14 for subsequent events related to the creation and subsequent sale of the Company's Class E preferred stock. (7) FEDERAL INCOME TAX EXPENSE The estimated federal income tax expense for the year ended December 31, 1998 is eliminated by net operating loss carryforwards. (8) CONVERTIBLE SUBORDINATED DEBENTURES On August 3, 1998, the Company entered into an agreement to issue, as needed, $750,000 of 8% senior subordinated convertible redeemable debentures (the Debentures) due August 3, 1999. Interest on the outstanding balance is due and payable monthly commencing September 3, 1998. The Debentures may be converted into shares of the Company's stock at the lower of 75% of the closing bid price of the Company's stock the day immediately preceding the date of receipt by the Company of notice of conversion or by 75% of the closing bid price of the Company's stock on the five days immediately preceding the date of subscription by the holder as reported by the National Association of Securities Dealers Electronic Bulletin Board ("NASDAQ"). As of December 31, 1998, the Company had borrowed $400,000 of the $750,000. And, the holders of the Debentures converted $205,000 of the borrowings into 1,363,511 shares of the Company's common stock. The remaining $195,000 is recorded as a current liability at December 31, 1998. In 1999, the Company converted the remaining $195,000 into 1,223,787 shares of the Company's common stock. (9) LEASES The Company leases certain office space, furniture and equipment under operating leases. Future minimum lease payments under noncancellable operating leases at December 31, 1999 are as follows: Year ---- 2000 $ 73,633 2001 19,168 --------- Total $ 92,801 ========= 44 (10) INDUSTRY SEGMENTS The Company operated in two industries (health care and internet service providers) and two geographical locations (Texas and Louisiana) during 1999 and 1998. Professional Management Providers, Inc. provided health care services in the state of Louisiana (see note 12), and Unique Dawning, Inc. provided health care services in the state of Texas (see note 12). Networks On-Line, Inc. is an Internet service provider (ISP) in Texas. Segment and geographical information for the years ended December 31, 1999 and 1998 is as follows:
1999 1998 ------------- ------------ Revenues: Health care - Louisiana $ 984,982 $ - ISP - Texas 591,029 751,558 ------------- ------------ $ 1,576,011 $ 751,558 ============= ============ Operating income (loss): Health care - Louisiana $ 74,259 $ - ISP - Texas (29,765) (54,621) Corporate expenses (1,221,083) (251,687) ------------- ------------ $ (1,176,589) $ (306,308) ============= ============ Identifiable assets: Health care - Louisiana $ 292,103 $ 293,514 ISP - Texas 630,916 644,874 Assets of discontinued operations - 1,576,598 Corporate 25,052 168,911 ------------- ------------ $ 948,071 $ 2,683,897 ============= ============
Corporate expenses for the year ended December 31, 1999 are summarized as follows: Settled and pending litigation $ 400,000 Investor relations 373,702 Contractual services 112,727 Bad debt expenses 86,000 Legal fees 71,198 Accounting and audit fees 47,696 Salaries and payroll taxes 38,131 Other administrative expense 91,629 ---------- Total $1,221,083 ========== (11) LITIGATION The Company has certain pending and threatened litigation and claims incurred in the ordinary course of business (primarily related to acquisitions and disposition of subsidiaries and related employment agreements). Management has not determined whether or not the probable resolution of such contingencies will have any additional material affect on the financial position of the Company or the results of operations. Included in long-term debt is $251,100 of liabilities related to settled litigation. In addition, approximately $150,000 is included in accounts payable and accrued expenses for pending litigation. 45 (12) DISPOSAL OF HEALTH CARE FACILITIES During 1999, a number of the facilities (6) in Louisiana owned by the Company's subsidiary, Professional Management Providers, Inc. were operating under Chapter 11 of the U.S. Bankruptcy Code. As a result of several disputes and lawsuits with former management of the subsidiary, the Trustee in bankruptcy closed the six subsidiary corporations of Home Care Center, Inc. in July 1999. Thereafter, the Company closed three of the remaining four facilities in Louisiana, and transferred ownership of the remaining one to the parent company. The one remaining facility was still in operation at December 31, 1999. In addition, the Company made several acquisitions during 1999 through its Unique Dawning, Inc. (UDI) subsidiary without board approval or corporate involvement. These facilities proved unmanageable, and as a result, Unique Dawning, Inc. was placed in Chapter 11 of the Bankruptcy Code in September 1999. Subsequently, the Trustee transferred the filing to Chapter 7, which provides for liquidation. As a result of these events, the Company recognized losses on the closing and disposal of the twelve facilities (nine under Professional Management Providers, Inc. (PMP) and three under Unique Dawning, Inc.). The loss has been reflected in the accompanying statement of operations as a loss from discontinued operations. No income tax credit has been provided against the loss due to the unavailability of recoverable taxes in prior periods. The losses were as follows:
PMP UDI Total ------------ ---------- ------------ Loss on disposal $(2,088,367) $(639,273) $(2,727,640) Net earnings for 1999 586,309 230,959 817,268 ------------ ---------- ------------ Net loss $(1,502,058) $(408,314) $(1,910,372) ============ ========== ============
Shown below is a summary of certain elements of PMP's and UDI's operations and net assets:
1999 1998 ----------- ---------- Revenues $ 7,876,070 $8,148,863 Cost and expenses 7,058,802 7,099,045 ----------- ---------- Net earnings $ 817,268 $1,049,818 =========== ========== Net assets $ 2,727,640 $1,576,598 =========== ==========
RECLASSIFICATIONS The accounting for the disposal of the health care facilities was originally treated as an extraordinary item. The consolidated financial statements for 1999 and 1998 have been reclassified to account for the disposal as a loss from discontinued operations. These reclassifications did not have an affect on retained earnings (deficit) for 1999 or 1998. (13) OPERATIONAL STATUS The current company is the survivor of a reverse merger, which occurred in 1997 and has expanded since then through both internal growth and acquisitions. During this growth period, the Company reported significant revenues in 1998 and 1999; however, the revenues reported for both years represented approximately one-half of a year's operations. This situation was due to significant acquisitions occurring in mid-year 1998 and the disposition (note 12) of a majority of those businesses in mid-year 1999. The management of the acquisition process and the management of those subsequent operations exposed the Company to significant legal liabilities (note 11). At December 31, 1999, current liabilities exceeded current assets by $733,063. At December 31, 1999, the Company primarily had two operational subsidiaries: one health care subsidiary located in Louisiana and one 46 Internet Service Provider located in Houston, Texas. The net income from these operations is not sufficient to support corporate expenses and pay current liabilities. In view of these matters, realization of a major portion of the assets in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, the success of a secondary placement and future acquisitions and operations. Management believes that actions presently being taken to obtain additional equity financing through a secondary offering and acquisitions and increasing sales in the technology sector will provide the opportunity to continue as a going concern. (14) SUBSEQUENT EVENT During February and March 2000, the Company raised $200,000 through a private placement. The Company agreed to sell 2,000 shares of its Class E preferred stock at $100 per share. Each share of the Class E preferred stock, has an annual cumulative dividend equal to 8%, with a term of 12 months, and is convertible into 650 shares of the Company's common stock. (15) YEAR 2000 ISSUE The Year 2000 issue is the result of computer programs being written using two digits rather than four to define a specific year. Absent corrective actions, a computer program that has date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruptions to various activities and operations. The Company primarily uses licensed software products in its operations with a significant portion of processes and transactions centralized in several particular accounting software packages. The Company has not experienced any year 2000 problems to date; however, the Company plans to continue to monitor the situation closely. 47 COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES INDEX FOR INTERIM FINANCIALS JUNE 30, 2000 AND 1999 Consolidated Financial Statements: Balance Sheets - June 30, 2000 and December 31, 1999 Statements of Operations - Three months and Six months ended June 30, 2000 and 1999 Statements of Cash Flows - Six months ended June 30, 2000 and 1999 Notes to Consolidated Financial Statements MARCH 31, 2000 AND 1999 Consolidated Financial Statements: Balance Sheets - March 31, 2000 and 1999 Statements of Operations - Three months ended March 31, 2000 and 1999 Statements of Cash Flows - Three months ended March 31, 2000 and 1999 Notes to Consolidated Financial Statements 48 INDEPENDENT ACCOUNTANTS' REPORT ------------------------------- The Board of Directors and Stockholders Comtech Consolidation Group, Inc.: We have reviewed the accompanying condensed consolidated balance sheet of Comtech Consolidation Group, Inc. and subsidiaries as of June 30, 2000, and the related condensed consolidated statements of operations and cash flows for the three-month and six month periods ended June 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the condensed financial statements (and Note 13 to the annual financial statements for the year ended December 31, 1999 (not presented herein), certain conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3 (and Note 13) to the respective financial statements. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of ComTech Consolidation Group, Inc. and subsidiaries as of December 31, 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 24, 2000, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph concerning matters that raise substantial doubt about the Company's ability to continue as a going concern. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ R. E. Bassie & Co., P.C. Houston, Texas August 11, 2000 49
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2000 and December 31, 1999 (Unaudited - see accompanying accountants' review report) Assets 2000 1999 ------ ------------- -------------- (Audited) Current assets: Cash $ 41,696 $ 21,710 Accounts receivable, less allowances for contractual adjustments and doubtful accounts of $1,000 in 2000 and 1999 432,919 110,007 Prepaid expenses 74,008 - ------------- -------------- Total current assets 548,623 131,717 ------------- -------------- Note receivable 20,000 20,000 Property and equipment, net of accumulated depreciation and amortization 130,791 146,014 Excess of cost over net assets of businesses acquired, less accumulated amortization of $42,500 in 2000 and $34,000 in 1999 637,500 646,000 Other assets 4,340 4,340 ------------- -------------- Total assets $ 1,341,254 $ 948,071 ============= ============== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable and accrued expenses 552,465 617,392 Accrued salaries and related liabilities 160,406 131,686 Loans payable to shareholders 42,482 42,482 Notes payable 10,000 10,000 Current installments of long-term debt 306,959 63,220 ------------- -------------- Total current liabilities 1,072,312 864,780 Long-term debt, less current installments 294,014 545,114 ------------- -------------- Total liabilities 1,366,326 1,409,894 ------------- -------------- Stockholders' equity: Preferred stock, $.01 par value. Authorized 1,000,000 shares: issued and outstanding, 31,562 shares in 2000 and 31,028 shares in 1999 358 310 Common stock, $.00967 par value. Authorized 30,000,000 shares: issued and outstanding, 27,923,290 shares in 2000 and 22,077,072 shares in 1999 270,018 213,485 Additional paid-in capital 2,363,395 2,024,806 Retained earnings (deficit) (2,658,843) (2,700,424) ------------- -------------- Total stockholders' equity (deficit) (25,072) (461,823) Commitments and contingent liabilities ------------- -------------- Total liabilities and stockholders' equity $ 1,341,254 $ 948,071 ============= ==============
See accompanying notes to consolidated financial statements. 50
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended June 30, 2000 and 1999 (Unaudited - see accompanying accountants' review report) 2000 1999 ------------------- ------------------- Revenues: Patient service revenue, net $ 317,661 $ 238,540 Internet service revenue 130,337 185,580 ------------------- ------------------- Total revenues 447,998 424,120 ------------------- ------------------- Operating expenses: Health care operations 207,704 143,964 Internet operations 116,862 159,250 Corporate operations 84,714 51,395 Amortization 4,250 6,300 Depreciation 12,211 9,849 ------------------- ------------------- Total operating expenses 425,741 370,758 ------------------- ------------------- Operating income 22,257 53,362 Other income (expenses): Interest income - 4 Interest expense (6) (938) ------------------- ------------------- Net earnings (loss) from continuing operations 22,251 52,428 Earnings from discontinued operations - 837,839 ------------------- ------------------- Net earnings $ 22,251 $ 890,267 =================== =================== Earnings per share: Basic: Net earnings from continuing operations $ 0.00 $ 0.00 =================== =================== Net earnings from discontinued operations $ - $ 0.04 =================== =================== Net earnings $ 0.00 $ 0.05 =================== =================== Diluted: Net earnings from continuing operations $ 0.00 $ 0.00 =================== =================== Net earnings from discontinued operations $ - $ 0.04 =================== =================== Net earnings $ 0.00 $ 0.04 =================== =================== Weighted average common shares: Basic 23,737,296 18,956,000 =================== =================== Diluted 26,111,026 20,851,600 =================== ===================
See accompanying notes to consolidated financial statements. 51
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Six months ended June 30, 2000 and 1999 (Unaudited - see accompanying accountants' review report) 2000 1999 ------------------- ------------------- Revenues: Patient service revenue, net $ 673,639 $ 538,635 Internet service revenue 299,521 344,780 ------------------- ------------------- Total revenues 973,160 883,415 ------------------- ------------------- Operating expenses: Health care operations 451,251 395,680 Internet operations 263,868 301,189 Corporate operations 183,953 128,092 Amortization 8,500 12,600 Depreciation 23,940 19,573 ------------------- ------------------- Total operating expenses 931,512 857,134 ------------------- ------------------- Operating income 41,648 26,281 Other income (expenses): Interest income - 14 Interest expense (67) (1,876) ------------------- ------------------- Net earnings from continuing operations 41,581 24,419 Earnings from discontinued operations - 1,613,719 ------------------- ------------------- Net earnings $ 41,581 $ 1,638,138 =================== =================== Earnings per share: Basic: Net earnings (loss) from continuing operations $ 0.00 $ 0.00 =================== =================== Net earnings from discontinued operations $ - $ 0.09 =================== =================== Net earnings $ 0.00 $ 0.09 =================== =================== Diluted: Net earnings (loss) from continuing operations $ 0.00 $ 0.00 =================== =================== Net earnings from discontinued operations $ - $ 0.08 =================== =================== Net earnings $ 0.00 $ 0.08 =================== =================== Weighted average common shares: Basic 25,167,617 17,856,000 =================== =================== Diluted 27,684,379 19,641,600 =================== ===================
See accompanying notes to consolidated financial statements. 52
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 2000 and 1999 (Unaudited - see accompanying accountants' review report) 2000 1999 ---------------- --------------- Cash flows from operating activities: Net earnings $ 41,581 $ 1,638,138 Earnings from discontinued operations - (1,613,719) ---------------- --------------- Net earnings from continuing operations 41,581 24,419 Adjustments to reconcile net earnings (loss) from continuing operations to net cash used in operating activities: Depreciation and amortization of property and equipment 23,940 19,573 Amortization of excess of cost over net assets of businesses acquired 8,500 12,600 Stock issued for services 147,800 - (Increase) decrease in assets: Accounts receivable (322,912) (49) Prepaid expenses (74,008) - Increase (decrease) in liabilities: Accounts payable and accrued expenses (64,927) (48,947) Accrued salaries and related liabilities 28,720 81,573 ---------------- --------------- Net cash provided by (used in) continuing operations (211,306) 89,169 Net cash used in discontinued operations - (125,328) ---------------- --------------- Net cash used in operating activities (211,306) (36,159) ---------------- --------------- Cash flows from investing activities: Purchase of property and equipment (8,717) (26,637) ---------------- --------------- Net cash used in investing activities (8,717) (26,637) ---------------- --------------- Cash flows from financing activities: Principal payments on long-term debt (7,361) (27,948) Proceeds from issuance of shares under private placement 247,370 114,000 ---------------- --------------- Net cash provided by operating activities 240,009 86,052 ---------------- --------------- Net increase in cash 19,986 23,256 Cash at beginning of year 21,710 40,505 ---------------- --------------- Cash at end of period $ 41,696 $ 63,761 ================ =============== Supplemental schedule of cash flow information: Interest paid $ 67 $ 1,876 ================ ===============
See accompanying notes to consolidated financial statements. 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) GENERAL Comtech Consolidation Group, Inc. (Comtech or the Company) is a Houston Texas based consolidation Company that is focused on acquiring and building businesses through acquisitions, with an emphasis toward technology. The Company currently has technology operations in Houston, Texas operating under the name Networks On-line, Inc. and healthcare operations in Louisiana, operating under the name A-1 Bayou. All acquired companies become the direct property of Comtech and are run as wholly owned subsidiaries. Comtech directly manage the financial and administrative functions of all of its subsidiaries. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation for each of the periods presented. The results of operations for interim periods are not necessarily indicative of results to be achieved for full fiscal years. As contemplated by the Securities and Exchange Commission (SEC) under Rules of Regulation S-B, the accompanying consolidated financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company's annual consolidated financial statements and footnotes thereto. For further information, refer to the Company's 1999 audited consolidated financial statements and related footnotes. (2) FEDERAL INCOME TAX EXPENSE The estimated federal income tax expense for the three-month and six-month periods ended June 30, 2000 and 1999 is eliminated by net operating loss carryforwards. (3) OPERATIONAL STATUS At June 30, 2000, current liabilities exceeded current assets by $523,689. At June 30, 2000, the Company primarily had two operational subsidiaries: one Internet Service Provider located in Houston, Texas and one healthcare subsidiary located in Louisiana. The net income from these operations is not sufficient to support corporate expenses and pay current liabilities. However, a new Board was elected in late January 2000, which hired a new management team. The new management installed management practices, which resulted in a substantial reduction of corporate expenses. New management also negotiated settlements on a substantial portion of corporate debt, decreasing debt by over $112,000 in the first quarter. To overcome the shortfall in operating expenses, management has raised approximately $400,000 in operating capital through private placements of the Company's common and preferred stock. Total assets at June 30, 2000 increased by $393,183 compared to total assets at December 31, 1999. Management believes that actions presently being taken to obtain additional equity financing through a secondary offering will provide adequate working capital over the next 12 months, without creating new debt. Acquisitions and increasing sales in the technology sector will provide the opportunity for the Company to continue as a going concern. A more complete profile of management plans is shown in the 2nd quarter 10QSB, Item 2. ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 Revenues for the six months and three months ended June 30, 2000 increased by $89,745 or 10.2% and $23,878 or 5.6%, respectively, over the comparable periods a year earlier. Increase in sales was primarily due to increase patient census in the health care subsidiary. 54 Net earnings from continuing operations for the six and three months ended June 30, 2000 increased by $17,162 and decreased by $30,177, respectively. LIQUIDITY AND CAPITAL RESOURCES During the quarter ended June 30, 2000, the Company raised $47,370 through private placements. The funds were used to pay for corporate operations. The Company had filed Form SB-2 with the Securities and Exchange Commission to register 27,000,000 shares of common stock for sale to the public. The Company expects to raise approximately $4,000,000 with this offering. There can be no assurance that the Company will be successful in this effort. SUBSIDIARY OVERVIEW NETWORKS ON-LINE, INC. (NOL) is a wholly owned subsidiary of Comtech whose primary business is providing high speed Internet Access, Video Conferencing, Web Hosting and other bundled Internet Services. Management's goal is to build the revenue base of Networks On-line, Inc. from its current base of approximately $550,000 annually, to over $2 million annually during the next twelve months. To accomplish this task, management had hired an experienced ISP operator whose compensation is performance based and incentive laden to promote achievement of Company's goals. Comtech will also seek to grow NOL through acquisitions and groom NOL for a potential spin-off to increase shareholder value. A1-BAYOU is a wholly owned subsidiary of Comtech. A-1 Bayou operates in the home health care industry. A-1 Bayou has grown its current operations to generate annual revenues of approximately $1.5 million. Last year the company opened a second office in the Jeanerette, Louisiana area. A-1 Bayou is managed and operated by experienced health care administrator. The administrator is responsible for the growth and management of the day-to-day operations of A-1 Bayou. MARKETING ANALYSIS Comtech subsidiaries operate in two basic market segments: technology and healthcare. Each segment is highly fragmented with the major players putting tremendous pressure on the smaller companies to complete. As a Micro-cap company, Comtech is always searching for under served or niche sectors of the market. By identifying these opportunities, Comtech seeks to provide the consumer with superior service while also partnering with the smaller retailers nationally, giving them a competitive edge as they compete for market share against the larger companies. MARKETING PLAN NETWORKS ON-LINE, INC. The Company intends to increase marketing efforts across the board for all subsidiaries in a cost-effective manner. Management will develop a defined and targeted marketing campaign for Networks On-Line, Inc. through a variety of print and media advertising and marketing programs. These programs will be designed to grow the subscriber base of NOL, while seeking to develop added revenue streams available to the company. FINANCIAL PLAN Management's goals are to increase revenues to $10 to $12 million dollars over the next 12-month period, with revenues increasing to over $20 million dollars in 24 months. The company plans to grow revenue through internal growth and acquisitions, with the acquisitions financed primarily through the issuance of restricted common shares or preferred stock. Management plans to complete a private placement of common stock to properly fund the operations of the parent company. The increase in profits generated by acquiring profitable companies and providing superior, cost effective management and back office functions will provide Comtech with the necessary capital to grow the company. CONCLUSION By successfully executing the company's business plan Comtech will be able to grow the company into a valuable profitable entity. With the tremendous consolidation and spin-off opportunities available to the Company and its shareholders, Comtech will provide its customers the best service and content in the industry. 55 INDEPENDENT ACCOUNTANTS' REPORT - --------------------------------- The Board of Directors and Stockholders Comtech Consolidation Group, Inc.: We have reviewed the accompanying condensed consolidated balance sheet of Comtech Consolidation Group, Inc. and subsidiaries as of March 31, 2000, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended March 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the condensed financial statements (and Note 13 to the annual financial statements for the year ended December 31, 1999 (note presented herein), certain conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 5 (and Note 13) to the respective financial statements. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of ComTech Consolidation Group, Inc. and subsidiaries as of December 31, 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 24, 2000, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph concerning matters that raise substantial doubt about the Company's ability to continue as a going concern. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ R. E. Bassie & Co., P.C. Houston, Texas May 13, 2000 56
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2000 and December 31, 1999 (Unaudited - see accompanying accountants' review report) Assets 2000 1999 ------ ------------- -------------- (Audited) Current assets: Cash $ 64,082 $ 21,710 Accounts receivable, less allowances for contractual adjustments and doubtful accounts of $1,000 in 2000 and 1999 272,578 110,007 Prepaid expenses 66,000 - ------------- -------------- Total current assets 402,660 131,717 ------------- -------------- Note receivable 20,000 20,000 Property and equipment, net of accumulated depreciation and amortization 134,285 146,014 Excess of cost over net assets of businesses acquired, less accumulated amortization of $38,250 in 2000 and $34,000 in 1999 641,750 646,000 Other assets 4,340 4,340 ------------- -------------- Total assets $ 1,203,035 $ 948,071 ============= ============== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable and accrued expenses 499,580 617,392 Accrued salaries and related liabilities 144,598 131,686 Loans payable to shareholders 42,482 42,482 Notes payable 8,250 10,000 Current installments of long-term debt 308,754 63,220 ------------- -------------- Total current liabilities 1,003,664 864,780 Long-term debt, less current installments 294,014 545,114 ------------- -------------- Total liabilities 1,297,678 1,409,894 ------------- -------------- Stockholders' equity: Preferred stock, $.01 par value. Authorized 1,000,000 shares: issued and outstanding, 31,562 shares in 2000 and 31,028 shares in 1999 316 310 Common stock, $.00967 par value. Authorized 30,000,000 shares: issued and outstanding, 24,308,634 shares in 2000 and 22,077,072 shares in 1999 235,064 213,485 Additional paid-in capital 2,351,071 2,024,806 Retained earnings (deficit) (2,681,094) (2,700,424) ------------- -------------- Total stockholders' equity (deficit) (94,643) (461,823) Commitments and contingent liabilities ------------- -------------- Total liabilities and stockholders' equity $ 1,203,035 $ 948,071 ============= ==============
See accompanying notes to consolidated financial statements. 57
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended March 31, 2000 and 1999 (Unaudited - see accompanying accountants' review report) 2000 1999 ------------------- ------------------- Revenues: Patient service revenue, net $ 355,978 $ 300,095 Internet service revenue 169,184 159,200 ------------------- ------------------- Total revenues 525,162 459,295 ------------------- ------------------- Operating expenses: Health care operations 243,547 251,716 Internet operations 147,006 141,939 Corporate operations 99,239 76,697 Amortization 4,250 6,300 Depreciation 11,729 9,724 ------------------- ------------------- Total operating expenses 505,771 486,376 ------------------- ------------------- Operating income (loss) 19,391 (27,081) Other income (expenses): Interest income - 18 Interest expense (61) (938) ------------------- ------------------- Net earnings (loss) from continuing operations 19,330 (28,001) Earnings from discontinued operations - 775,880 Net earnings $ 19,330 $ 747,879 =================== =================== Earnings per share: Basic: Net earnings (loss) from continuing operations $ - $ - =================== =================== Net earnings from discontinued operations $ - $ 0.04 =================== =================== Net earnings $ - $ 0.04 =================== =================== Diluted: Net earnings (loss) from continuing operations $ - $ - =================== =================== Net earnings from discontinued operations $ - $ 0.04 =================== =================== Net earnings $ - $ 0.04 =================== =================== Weighted average common shares: Basic 22,521,890 17,726,000 =================== =================== Diluted 24,774,079 19,498,600 =================== ===================
See accompanying notes to consolidated financial statements. 58
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended March 31, 2000 and 1999 (Unaudited - see accompanying accountants' review report) 2000 1999 ---------------- --------------- Cash flows from operating activities: Net earnings $ 19,330 $ 747,879 Earnings from discontinued operations - (775,880) ---------------- --------------- Net earnings (loss) from continuing operations 19,330 (28,001) Adjustments to reconcile net earnings (loss) from continuing operations to net cash used in operating activities: Depreciation and amortization of property and equipment 11,729 9,724 Amortization of excess of cost over net assets of businesses acquired 4,250 6,300 (Increase) decrease in assets: Accounts receivable (162,571) (15,627) Prepaid expenses (66,000) - Increase (decrease) in liabilities: Accounts payable and accrued expenses 31,788 55,564 Accrued salaries and related liabilities 12,912 (102,302) ---------------- --------------- Net cash used in continuing operations (148,562) (74,342) Net cash used in discontinued operations - (31,387) ---------------- --------------- Net cash used in operating activities (148,562) (105,729) ---------------- --------------- Cash flows from investing activities: Purchase of property and equipment - (13,916) ---------------- --------------- Net cash used in investing activities - (13,916) ---------------- --------------- Cash flows from financing activities: Principal payments on long-term debt (5,566) (17,678) Repayment of short-term note payable (3,500) - Proceeds from issuance of shares under private placement 200,000 104,000 ---------------- --------------- Net cash provided by operating activities 190,934 86,322 ---------------- --------------- Net increase (decrease) in cash 42,372 (33,323) Cash at beginning of year 21,710 40,505 ---------------- --------------- Cash at end of period $ 64,082 $ 7,182 ================ =============== Supplemental schedule of cash flow information: Interest paid $ 61 $ 3,532 ================ ===============
See accompanying notes to consolidated financial statements. 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) GENERAL Comtech Consolidation Group, Inc. (Comtech or the Company) is a Houston Texas based consolidation Company that is focused on acquiring and building businesses through acquisitions, with an emphasis toward technology. The Company currently has technology operations in Houston, Texas operating under the name Networks On-line, Inc. and healthcare operations in Louisiana, operating under the name A-1 Bayou. All acquired companies become the direct property of Comtech and are run as wholly owned subsidiaries. Comtech directly manage the financial and administrative functions of all of its subsidiaries. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation for each of the periods presented. The results of operations for interim periods are not necessarily indicative of results to be achieved for full fiscal years. As contemplated by the Securities and Exchange Commission (SEC) under Rules of Regulation S-B, the accompanying consolidated financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company's annual consolidated financial statements and footnotes thereto. For further information, refer to the Company's 1999 audited consolidated financial statements and related footnotes. (2) PROPERTY AND EQUIPMENT Property and equipment is summarized as follows at March 31, 2000 and December 31, 1999:
2000 1999 -------- -------- Equipment $240,317 $240,317 Furniture and fixtures 1,600 1,600 -------- -------- Total property and equipment 241,917 241,917 Less accumulated depreciation 107,632 95,903 -------- -------- Net property and equipment $134,285 $146,014 ======== ========
(3) LONG-TERM DEBT Long-term debt at March 31, 2000 and December 31, 1999 are as follows:
2000 1999 -------- -------- Long-term debt $602,768 $608,334 Less current installments 308,754 63,220 -------- -------- $294,014 $545,114 ======== ========
(4) FEDERAL INCOME TAX EXPENSE The estimated federal income tax expense for the three-month periods ended March 31, 2000 and 1999 is eliminated by net operating loss carryforwards. (5) OPERATIONAL STATUS At March 31, 2000, current liabilities exceeded current assets by $601,004. At March 31, 2000, the Company primarily had two operational subsidiaries: one Internet Service Provider located in Houston, Texas and one healthcare subsidiary located in Louisiana. The net income from these operations is not sufficient to support corporate expenses and pay current liabilities. 60 However, a new Board was elected in late January 2000, which hired a new management team. The new management installed management practices, which resulted in a substantial reduction of corporate expenses. New management also negotiated settlements on a substantial portion of corporate debt, decreasing debt by over $112,000 in the first quarter. To overcome the shortfall in operating expenses, management has raised over $250,000 in operating capital through private placements of preferred stock. Total assets at March 31, 2000 increased by $274,964 compared to December 31, 1999. Management believes that actions presently being taken to obtain additional equity financing through a secondary offering will provide adequate working capital over the next 12 months, without creating new debt. Acquisitions and increasing sales in the technology sector will provide the opportunity for the Company to continue as a going concern. A more complete profile of management plans is shown in the 1st quarter 10QSB, Item 2. (6) SUBSEQUENT EVENTS On May 12, 2000, the shareholders voted to increase the number of authorized shares of the Company's common stock from 30,000,000 shares to 100,000,000 shares. In addition, the shareholders also approved a performance based stock option plan for the Company. The Board of Directors gave authorization for management to proceed with the preparation of SEC Form SB-2 to register a certain number of shares of common stock to be sold to obtain funds for working capital, retire debt and for use in making acquisitions of technology related entities, some of which the Company has already signed letters of intent to purchase. An investment banking firm has been engaged to assist with this placement of stock. ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 Total revenues for the three months ended March 31, 2000 and 1999 were $525,162 and $459,295, respectively, which is an increase of $65,867 or approximately 14%. Net earnings (loss) from continuing operations for the three months ended March 31, 2000 and 1999 was $19,330 and $(28,001) respectively, which represents a increase of $47,331. The increase in net earnings for this period is primarily attributable to new management implementation of a plan to reduce operating expenses and increasing revenue at the four remaining subsidiaries. LIQUIDITY AND CAPITAL RESOURCES During February and March 2000, the Company raised $200,000 through a private placement. The Company sold 2,000 shares of its Class E preferred stock at $100 per share. The funds were used to pay for corporate operations. The Company is currently in negotiations with a current investor to raise additional equity capital for the Company. The Company also plans to obtain additional equity financing through a secondary offering within the next sixty days. There can be no assurance that the Company will be successful in these efforts. SUBSIDIARY OVERVIEW NETWORKS ON-LINE, INC. (NOL) is a wholly owned subsidiary of Comtech whose primary business is providing high speed Internet Access, Video Conferencing, Web Hosting and other bundled Internet Services. Management's goal is to build the revenue base of Networks On-line, Inc. from its current base of approximately $550,000 annually, to over $2 million annually during the next twelve months. To accomplish this task, management will hire an experienced ISP operator whose compensation will be performance based and incentive laden to promote achievement of Company's goals. Comtech will also seek to grow NOL through acquisitions and groom NOL for a potential spin-off to increase shareholder value. A1-BAYOU is a wholly owned subsidiary of Comtech. A-1 Bayou operates in the home health care industry. A-1 Bayou has grown its current operations to generate annual revenues of approximately $1.5 million. Last year the company opened a second office in the Jeanerette, Louisiana area. A-1 Bayou is managed and operated by Karvett Queen. Ms. Queen is responsible for the growth of A-1 Bayou, having opened the second branch office last year and continues to manage the day-to-day operations of A-1 Bayou. 61 E-MEDICAL/HME-DME DIVISION (E-MEDICAL) - Comtech currently has an outstanding letter of Intent to acquire all the operating assets of Gold Cross Medical and affiliated web sites. E-Medical will concentrate its efforts on the development of Independenceworld.com and Drynight.com. E-Medical will seek to build independenceworld.com into the Web's most successful healthcare superstore, taking a "clicks and bricks" approach to the business. A chain of retail facilities located strategically as necessary will support both sites. The Web superstore currently offers thousands of name brand products for sales in a secure environment. Shoppers can view products' detailed photos, descriptions and pricing information from the Web's superstore 24 hours a day, seven day's a week. This subsidiary has the potential to contribute tremendous revenue growth to ComTech's bottom line. MARKETING ANALYSIS Comtech subsidiaries operate in two basic market segments: technology and healthcare. Each segment is highly fragmented with the major players putting tremendous pressure on the smaller companies to complete. As a Micro-cap company, Comtech is always searching for under served or niche sectors of the market. By identifying these opportunities, Comtech seeks to provide the consumer with superior service while also partnering with the smaller retailers nationally, giving them a competitive edge as they compete for market share against the larger companies. One such sector management has identified is the e-medical sector. This sector has been slow to see the value of the New Economies convergence of "clicks and bricks." Due to the tremendous pressure e-commerce only companies are currently experiencing management feels that the predictable revenue stream the retail locations will provide should help offset those net-only challenges. This strategy will also give Comtech a national distribution channel for the Web sites. Comtech mission in the e-medical sector is to provide the consumer with the benefits of the Internet without losing the personal service touch and local feel of the business. The expertise of the professionals in the field will be an invaluable resource to the success of the Web superstore. Comtech will build a national support channel of retail DME/HME retail locations to support the Web e - medical superstore through organic growth as well as acquisitions. Management will also build out a business-to-business opportunity by providing smaller DME/HME facilities with the ability to auction off used equipment or excess inventory to other operators nationally. In addition to the auction capabilities of the site, Comtech will buy and sell used and excess inventory as needed. The site will also provide customers with valuable regional content targeted at the problems facing today's senior population. MARKETING PLAN NETWORKS ON-LINE, INC. The Company intends to increase marketing efforts across the board for all subsidiaries in a cost-effective manner. Management will develop a defined and targeted marketing campaign for Networks On-Line, Inc. through a variety of print and media advertising and marketing programs. These programs will be designed to grow the subscriber base of NOL, while seeking to develop added revenue streams available to the company. E-MEDICAL DIVISION Comtech will seek to market this division mainly through the Internet and targeted Media. As this division develops into an e-medical portal site, Comtech will implement marketing programs and partnerships designed to drive significant Internet traffic to these sites. The company is currently planning to leverage the talent of Web developer and Internet marketing firm Interlucent.com in addition to Networks On-Line, Inc. to complete an overhaul of the current sites and implement an Internet marketing strategy. FINANCIAL PLAN Management's goals are to increase revenues to $10 to $12 million dollars over the next 12-month period, with revenues increasing to over $20 million dollars in 24 months. The company plans to grow revenue through internal growth and acquisitions, with the acquisitions financed primarily through the issuance of 62 restricted common shares or preferred stock. Management plans to complete a private placement of common stock to properly fund the operations of the parent company. The increase in profits generated by acquiring profitable companies and providing superior, cost effective management and back office functions will provide Comtech with the necessary capital to grow the company. CONCLUSION By successfully executing the company's business plan Comtech will be able to grow the company into a valuable profitable entity. With the tremendous consolidation and spin-off opportunities available to the Company and its shareholders, Comtech will play a major role in revolutionizing the e-medical industry and at the same time provide its customers the best service and content in the industry. 63 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICER 1. Section 145 of the Delaware General Corporation Laws ("DGCL") provides, in relevant part, as follows: "(a) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful. (b) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. (d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such 64 determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by the stockholders. (e) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys' fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems appropriate." 2. Comtech Consolidation Group, Inc. (the "Registrant") has not provided for indemnification of its directors or officers in its organizing documents. 3. The Registrant may purchase and maintain insurance, at its expense, on behalf of any indemnitee against any liability asserted against him or her and incurred by him or her in such a capacity or arising out of his or her status as a representative of the Registrant, whether or not the Registrant would have the power to indemnify such person against such expense, liability or loss under the DGCL. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated expenses to be incurred in connection with the distribution of the securities being registered. The expenses shall be paid by the Registrant. SEC Registration Fee. . . . . . . . . . . . . . . . $ 1,069 NASD Filing Fee . . . . . . . . . . . . . . . . . . --- Legal Fees and Expenses . . . . . . . . . . . . . . 30,000 Accounting Fees and Expenses. . . . . . . . . . . . 20,000 Blue Sky Fees and Expenses (including counsel fees) 3,500 Federal Taxes . . . . . . . . . . . . . . . . . . . --- State Taxes and Fees . . . . . . . . . . . . . . . --- Printing and Engraving Expenses . . . . . . . . . . 5,000 Transfer Agent and Registrar Fees and Expenses. . . 2,000 Expenses by Selling Shareholders. . . . . . . . . . --- Miscellaneous . . . . . . . . . . . . . . . . . . . --- Total . . . . . . . . . . . . . . . . . . $61,569 ======= ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES Between March 31, 2000 and June 30, 2000, the Company raised $40,500 through the private sale of Common Stock to existing shareholders of the Company. During February and March 2000, the Company raised $200,000 through a private placement. The Company entered into an agreement with Jim Thuney, a Comtech shareholder, to sell Mr. Thuney up to 2,000 shares of its Class E preferred stock at $100 per share. Each share of the Class E preferred stock, has an annual cumulative dividend equal to 8%, a term of 12 months, and is convertible into 650 shares of the Company's Common Stock. 65 Effective January 1, 1999, the Company, through its wholly-owned subsidiary, PMP, issued 1,000 shares of its Class B preferred stock (see note 6) for all of the outstanding stock of Clinical Concepts, Inc., a Louisiana health care corporation. On the same day, the Company sold Clinical Concepts Inc. to an individual for a long-term note receivable in the amount of $30,000. The note receivable is due in six annual installments of $5,000. Effective March 26, 1999, the Company, through its wholly-owned subsidiary, Unique Dawning, Inc., issued 2,500 shares of its Class B preferred stock (see note 6) for all of the outstanding stock of two Texas health care corporations. Effective February 15, 1998, the Company issued 500,000 shares of its common stock in exchange for all of the outstanding stock of Professional Management Providers, Inc. (PMP), a Louisiana health care management corporation. Effective April 1, 1998, the Company issued 500,000 shares of its common stock in exchange for all of the outstanding stock of Unique Dawning, Inc., a Texas health care corporation. Effective June 30, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 2,000 shares of its Class B preferred stock for all of the outstanding stock of Superior Quality Health Care, Inc., a Texas health care corporation. Effective July 30, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 11,000 shares of its Class B preferred stock for all of the outstanding stock of Home Care Center, Inc., a Louisiana health care corporation (see note 11). Effective August 13, 1998, the Company, through its wholly owned subsidiary, PMP, issued 1,300 shares of its Class B preferred stock for all of the outstanding stock of Magnolia Home Health, Inc., a Louisiana health care corporation. Effective October 3, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 600 shares of its Class B preferred stock for all of the outstanding stock of A-1 Bayou Health 2000, Inc., a Louisiana health care corporation. Between July 1, 1998 and December 29, 1998, the Company, through its wholly-owned subsidiary, PMP, issued 16,550 shares of its Class B preferred stock for certain net assets of twelve Louisiana health care corporations. All of the above acquisitions have been accounted for using the purchase method with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition dates. Such allocations were based on evaluations and estimations. A valuation adjustment in the amount of $2,000,000 has been assigned to the value of existing contracts for entities acquired in 1998. ITEM 27. EXHIBITS 3.1 Certificate of Incorporation of the Registrant, as amended. 3.2 Bylaws of the Company. 5.1 Opinion of Warner & Washington L.L.P. 10.1 Lease Agreement dated as of June 19, 1998, between the Registrant and Mack-Call Texas Property, L.P. 66 10.2 Stock Subscription Agreement, dated February 23, 2000, by and between the Registrant and Jim Thuney for the sale of up to 2,000 shares of Class E Preferred Stock. 10.3 DSL Partnership Program Agreement, dated May 24, 1999, by and between the Networks On-Line, Inc. and Southwestern Bell Telephone Company. 10.4 Database Access Agreement, dated September 2, 1999, by and between Networks On-Line, Inc. and Southwestern Bell Telephone Company. 10.5 Ascend Lease Agreement, dated June 12, 1998, by and between Networks On-Line, Inc. and Ascend Credit Corporation. 10.6 Basic Internet Service Agreement, dated April 30, 1998, by and between Networks On-Line, Inc. and Savvis Communications Corporation. 10.7 Receipt, Release and Indemnity Agreement dated as of March 10, 2000, among the Registrant, Neva Kannon Durbin, John L. Fontana, Phyllisine C. Glass, Shelisi Oliver, Barbara Culberson, Lizzie Jefferson, Anita Jones, Kimberly Rankin, and CCGI Settlement Group, L.L.C. (to be filed) 10.8 Comtech Consolidation Group, Inc. 2000 Stock Option Plan (to be filed) 21.1 List of Subsidiaries of the Registrant. 23.1 Consent of R.E. Bassie & Co., P.C. 23.2 Awareness Letter R.E. Bassie & Co., P.C. 23.3 Consent of Warner & Washington L.L.P. ITEM 28. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, the "Securities Act"), may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: i. To include any prospectus required by Section 10(a)(3) of the Securities Act; ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and 67 iii. To include any additional or changed material information with respect to the plan of distribution. 2. That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 68 SIGNATURES In accordance with the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorizes this registration statement to be signed on its behalf by the undersigned, in the City of Houston State of Texas on August 30, 2000. Comtech Consolidation Group, Inc. By: /s/ Walter D. Davis ---------------------- Walter D. Davis, Chief Executive Officer In accordance with the requirements of the Securities Act, this registration statement was signed by the following persons in the capacities and on the dates stated: Signature Date - ------------------------- ------------------------- By: /s/ Walter D. Davis August 30, 2000 ------------------------ Walter D. Davis By: /S/ Lamont J. Waddell August 30, 2000 ------------------------ Lamont J. Waddell By: August __, 2000 ------------------------ Vincent E. Alexander By: /s/ Dr. Beatrice Beasley August 30, 2000 ------------------------ Dr. Beatrice Beasley By: /s/ Jesse Funchess August 30, 2000 ------------------------ Jesse Funchess, JD 69 EX-3.1 2 0002.txt EXHIBIT 3.1 3.1 Articles of Incorporation of the Registrant, as amended. STATE OF DELEWARE OFFICE OF SERETARY OF STATE ----------------- I MICHAEL HARKINS, SECRETARY OF THE STATE OF THE STATE OF DELAWARE DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF THE VENDING GROUP, INC. FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF JULY. A.D. 1987. AT 9 O'CLOCK | | | | | | | | | | | | RECEIVED FOR RECORD AUG 7 1987 William M. Honey, Recorder /s/ Michael Harkins ----------------------------------- Michael Harkins, Secretary of State [SEAL] AUTHENTICATION: :1318271 [777194003] DATE: 07/16/1987 DOCUMENTARY CERTIFICATE OF INCORPORATION SURCHARE OF FILED PAID $3.00 THE YENNING GROUP, INC. JUL 13, 1987 A STOCK CORPORATION Michael Harkins 25464 9 AM SECRETARY OF STATE FIRST: The name of this Corporation is .THE YENNING GROUP, INC. ---------------------------------- - -------------------------------------------------------------------------------- SECOND: Its Registered Office in the state of Delaware is to be located at Coffee Run Professional Centre Lancaster Pike & Loveville Road in the City of Hockessin - ----------------------------------- --------- County of NewCastle Zip Code 19707 . The Registered Agent in charge --------------- ------------- thereof is .The Incorporators Ltd - ---------------------------------------------------- -------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The amount of the total authorized capital stock of this corporation is Three Hundred Thousand Dollars---------------------Dollars ($300,000.00) divided - --------------------------------------------------- ------------- into shares, of (.00l Cent Each) Dollars ($0.001) each. ------------------ -------- FIFTH: The name and mailing address of the incorporator are as follows: Name L. H. Joseph Jr. - ---------------------------------------------------- -------------------- Mailing Address 8344 Melrose Ave. #23 - ---------------------------------------------------- -------------------- Los Angeles, California ZIP CODE 90069 - ---------------------------------------------------- -------------------- I THE UNDERSIGNED, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate. and do certify that the facts herein stated are true. and I have accordingly hereunto set my hand this 8th day of July A.D. 1987. ------- ------- ---- /s/ -------------------------------- STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 11/22/1996 960342552 - 2131817 STATE OF DELAWARE CERTIFICATE FOR RENEWAL AND REVIVAL OF CHARTER THE VENDING GROUP, INC. , a - ----------------------------------------------------------------------------- corporation organized under the laws of Delaware, the charter of which was voided for nonpayment of taxes, now desires to procure a restoration, renewal and revival of Its charter, and hereby certifies as follows: 1. The name of this corporation is THE VENDING GROUP, INC. -------------------------------- ------------------------------------------------------------------- 2. Its registered office in the State of Delaware Is located 3422 Old --------- Capitol Trail, #700 Street, City of Wilmington Zip Code 19808-6192 ------------------- ---------- ----------- County of New Castle the name and address of its registered ------------ agents is Delaware Business Incorporators, Inc. ---------------------------------------------------------- 3. The date of filing of the original Certificate of Incorporation in Delaware was July 13, 1987. ------------------------------------------------------ 4. The date when restoration, renewal, and revival of the charter of this company is to commence the 29th day of February 1996 same ------- ---------------- being prior to the date of the expiration of the charter. This renewal and revival of the charter of this corporation Is to be perpetual. 5. This corporation was duly organized and carried on the business authorized by its charter until the 1st day of March A.D. 1996, at ----- ------ ---- which time its charter became inoperative and void far non-payment of taxes and this certificate for renewal and revival is filed by my authority of the duly elected directors of the corporation in accordance with the laws of the State of Delaware. IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312 of the General Corporation Law of the State of Delaware, as amended, providing for the renewal. extension and restoration of charters, Richard Unwin -------------- the last and acting authorized officer hereunto act his/her hand to this certificate this 18th day of November 1996. ---- --------------- BY: /s/ Richard Unwin ---------------------------- TITLE OF OFFICER: President ---------------------------- STATE OF DELAWARE Office of the Secretary of State -------------------------------- I, EDWARD J. FREEL, SECRETARY OF THE STATE OF DELAWARE, DO HEREBY CERTIFY "COMTECH CONSOLIDATION GROUP, INC." IS DULY INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND WAS A LEGAL CORPORATE EXISTENCE SO FAR AS THE RECORDS OF THE OFFICE SHOW, AS OF THE 23RD DAY OF JULY A.D. 1987. [SEAL] /s/ EDWARD J. FREEL ------------------------------------------- [SEAL] EDWARD J. FREEL, Secretary of State 2130817 8300 AUTHENTICATION: 8572389 971245210 DATE: 07-23-97 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 07/22/1997 971242672 - 2131819 CERTIFICATE OF AMENDMENT OF ------------------------------ CERTIFICATE OF INCORPORATION ------------------------------ THE VENDING GROUP, INC., a corporation organized and existing under and by - -------------------------- virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That a meeting of the Board of Directors of said corporation, resolutions were duly adopted setting froth a proposed amendment of the Certificate of Incorporation of said corporation. declaring such amendment to be advisable and calling a meeting of the stockholders of such corporation for consideration thereof. The resolution setting froth the proposed amendment is as follows: Resolved, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "FIRST" so that, as amended, ------- said Article shall be and read as follows: "THE NAME OF THIS CORPORATION IS COMTECH CONSOLIDATION GROUP, INC." SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statue were voted in favor of the amendment. THIRD: That said amendment was duly adapted in accordance with the provisions of Section 262 pf tje General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of such amendment. IN WITNESS WHEREOF, said corporation has caused this certificate to be signed on this date of July 21, 1997. ------------------ BY: /s/ MARY JACKSON --------------------------------------------- SIGNATURE - AUTHORIZED OFFICER MARY JACKSON, SECRETARY --------------------------------------------- PRINT NAME & TITLE OF OFFICER DEI: 1690 EX-3.2 3 0003.txt EXHIBIT 3.2: BY-LAWS -------------------- BY-LAWS OF COMTECH CONSOLIDATION GROUP, INC ARTICLE I - OFFICES ------------------- The office of the Corporation shall be located in any City and State designated by the Board of Directors. The Corporation may also maintain other offices at such other places within or without the United States as the Board of Directors may, from time to time, determine. ARTICLE II- STOCKHOLDERS ------------------------ 1. ANNUAL MEETING. The annual meeting 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 10 per cent of all the outstanding shares of the corporation entitled to vote at 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 for by the directors, and shall be called by the president at the request of the holders of not less than 10 percent 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 ma 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 were 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 10 nor more than 50 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 1 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 stuck transfer books of the corporation, with postage thereon prepaid. 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, 30 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 15 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 45 days and, in case of a meeting of stockholders, not less than fifteen (15) 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 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 entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof. 6. QUORUM. At any meeting of stockholders 50% 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. 7. PROXIES. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholders 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. 2 8. 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 for any question before the meeting shall be by ballot. All elections for directors shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of this state. 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 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 be a minimum of one and a maximum of twenty-five. 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 any other notice than these by-laws 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 two directors. 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. 5. NOTICE. Notice of any special meeting shall be given at least five (5) 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 3 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 transactions of any business because the ----------------------------------------------------------------------- meeting is not lawfully called or convened. - ------------------------------------------------ 6. QUORUM. At any meeting of the directors a majority of the directors shall constitute a quorum for the transaction of business, but if less than said number if present at a meeting, a 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 and 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. 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, 4 but by resolution of the board a fixed sum and expenses for actual attendance at each regular or special meeting of the board nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefore. 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 by registered mail tot he 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 of the corporation shall be a president, a vice-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. Any two or more offices may be held by the same person. 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the directors shall be elected at a meeting of the directors held when determined by the directors. Each officer shall hold office until his successor shall have been duly elected 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. 4. VACANCIES. 5 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. 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. 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 6 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 alike 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 therefore upon such terms and indemnity to the corporation as the directors may prescribe. 2. TRANSFER 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 shares 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 3 l day of December in each year. ARTICLE VIII- DIVIDENDS ------------------------ The directors may from home 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 shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the words, "Corporate Seal". ARTICLE X - WAIVER OF NOTICE ---------------------------- 7 Unless otherwise provided by law, whenever any notice is required to be given to any stockholder or director if 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 state 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 a vote of the stockholders representing a majority of all the shares issued and outstanding, at any annual stockholders' meeting or at any special stockholders' meeting when the proposed amendment has been set out in the notice of such meeting, or by a unanimous vote of the Board of directors provided that the amendment is not inconsistent with the powers provided the Board of Directors by the Articles of Incorporation. 8 EX-5.1 4 0004.txt EXHIBIT 5.1 Warner & Washington L.L.P. A Limited Liability Partnership Attorneys at Law 4410 Montrose Blvd. Houston, Texas 77006 Telephone Facsimile (713) 807-1007 (713) 807-1024 August 30, 2000 Comtech Consolidation Group, Inc. 10497 Town & Country Way Suite 460 Houston, Texas 77024 Gentlemen: We have acted as counsel to Comtech Consolidation Group, Inc. (the "Company") in connection with the Company's Registration Statement on Form SB-2 (the "Registration Statement") relating to the registration under the Securities Act of 1933, as amended, of 23,000,000 shares of the Company's Common Stock, par value $.00967 (the "Common Stock"). As the basis for the opinion hereinafter expressed, we have examined such statutes, regulations, corporate records and documents, certificates of corporate and public officials, and other instruments as we have deemed necessary or advisable for the purposes of this opinion. In such examination we have assumed the authenticity of all documents submitted to us as originals and the conformity with the original documents of all documents submitted to us as copies. Based on the foregoing and on such legal considerations as we deem relevant for purposes of this opinion, we are of the opinion that the Common Stock has been duly and validly authorized by all necessary corporate action by the Company and, assuming the sale of such securities and effectiveness of the Registration Statement, will be validly issued and fully paid and non-assessable. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and reference to our firm under the caption "Legal Matters" therein. Very truly yours, /s/ T. Deon Warner EX-10.1 5 0005.txt EXHIBIT 10.1 10.1 Lease Agreement dated as of June 19, 1998, between the Registrant and Mack-Cali Texas Property, L.P. ASSIGNMENT OF LEASE THIS ASSIGNMENT OF LEASE (this "Assignment") is executed by Kevin R. Petterson -------------------- Sam L Little d/b/a Networks-on Line. ("Assignor") ,and Comtech Consolidation - -------------------------------------------------------------------------------- Group - (Inc.,"Assigneee") - -------------------------- RECITALS: A. Pursuant to the agreement(s) attached her as Exhibit A. (the "Lease"), Assignor is currently leasing from Mack-Cali Texas Proper. LP. as ------------------------------ successor in interest to Town and Country Central One Investors. LP. - -------------------------------------------------------------------------------- ("Landlord") certain Premises generally described as follows: Suite 460 at 10497 Town and Country Way Houston, Harris County. Texas 77024. B. Assignor desires in the Lease to Assignee and Assignee desires to accept such assignment, all on the terms and conditions hereafter set forth. NOW THEREFORE, inconsideration of the agreements herein, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged. Assignor and Assignee spec as follows: 1. Assignor assigns and transfers to Assignee all of its rights, title, and interest in and to the Lease and Assignee hereby accepts such assignment mid Sistine. and agrees to perform and be bound by all the terms, covenants and, conditions of the Lease. 2. Assignor represents mid warrants to Auspice and Landlord that (a) the Lease is in lull force and effect and has not previously been amended or modified as reflected in Exhibit A. and (b) there exists no event or circumstance that with or without notice, or the passage of time, or both, could constitute a default or breach of the Lease by Landlord or by Assignor. 3. All notices or other communication from Landlord to the Tenant under the Lease are to be delivered to Assignee at the following address: 10497 Town and Country, Way, Suite 460 -------------------------------------- Houston, Texas 77024 ---------------------- 4. Landlord shall deal solely with Assignee in all matters relating to the Lease. Any amendment, writing, waiver, or other act relating to the Lease by Assignee will bind only the Assignee and Landlord. This agreement constitutes a novation of the Lease, and assignors are released from any obligations and liabilities under the lease. EXECUTED by Assignor and Assignee on March___ 1992, to be effective only if and when Landlord executes the Landlord's consent to Assignment below. ASSIGNOR: ASSIGNEE: Kevin R. Petters and Sam L little Comtech Group, INC. D/b/a Networks on Line By:/s/ Kevin R. Peterson By: /s/ Richard A. Belhman --------------------------- ------------------------------------ Name: Kevin R. Peterson Name: Richard A. Behlman ----------------------------------- Title: Individual Title: President By: /s/ Sam L Little ----------------------------- Name: Sam L Little Title: Individually Landlord consents to the foregoing Assignment effective March___ 1992 Mack-Call Texas Property, L.L.P. through its General Partner. Mack-Call Sub XVII, Inc. By:_______________________________ Name: James L Metlz, Jr. Its: Vice President & COO FIRST AMENDMENT TO LEASE AGREEMENT ---------------------------------- THIS FIRST AMENDMENT TO LEASE AGREEMENT ("First Amendment") is made as of October ,1994, by and been TOWN AND COUNTRY CENTRAL ONE INVESTORS, L.P., (hereinafter "Landlord"), with an address of 3030 LBJ Freeway, Suite 1500, Dallas, Texas 75234, and Kevin R. Petterson and Sam L. Little d/b/a Networks On-Line (hereinafter "Tenant"). W I T N E S S E T H: -------------------- RECITALS: - --------- WHEREAS, Landlord and Tenant hereby confirm and ratify, except as modified below, all of the terms, conditions and covenants in that certain written Lease Agreement dated March 7, 1994, (hereinafter the "Lease"), between Landlord and Tenant for the rental of the following described property; Approximately 1,440 rentable square feet of office space designated as Suite 460, situated on the fourth floor of the office building located at 10497 Town & Country Way, Houston, Hams County, Texas and more commonly known as Town and Country Central One; WHEREAS, Landlord and Tenant desire to amend the Lease in order to reflect certain agreements concerning the Leased Premises; NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as follows: AGREEMENTS: - ----------- 1. Additional Source. Effective on the Additional Space Commencement ------------------ Date (hereinafter defined) the parties hereby add to the Leased Premises an additional 1,528 square feet of net rentable area (the "Additional Space") contiguous to the Leased Premises and shown on Exhibit 'A-i" and 'A-2" attached hereto and incorporated herein for all purposes. After the Additional Space Commencement Date, the Leased Premises shall contain 2,968 square feet of net rentable area. 2. Additional Source Commencement Date. The "Additional Space -------------------------------------- Commencement Date" shall be the first occurring of (i) December 1, 1994, or (ii) the date on which the Additional Premises are substantially complete and ready for occupancy by Tenant. 3. Base Rental. Effective with the Additional Space Commencement Date, ----------- the new monthly Base Rental payment shall be increased as a result of this expansion as follows: $ 9,893.32 (Nine thousand eight hundred ninety-three and 32/100 Dollars) ($10.00 per rest, payable in monthly installments of $2,473.33 (Two thousand four hundred seventy-three and 33/100 Dollars) per month beginning on the Additional Space Commencement Date through March 31, 1995; $ 31,164.00 (Thirty-one thousand one hundred sixty-four and 00/100 Dollars) per year, ($10.50 per rsf), payable in monthly installments of $2,597.00 (Two thousand five hundred ninety-seven and 00/100 Dollars) per month beginning April 1, 1995 through March 31, 1996; $ 38,089.38 (Thirty-eight thousand eighty-nine and 38/100 Dollars) per year, ($11.00 per rsf), payable in monthly installments of $2,720.67 (Two thousand seven hundred twenty and 67/100 Dollars) per month beginning April 1, 1996 through May 31, 1997. $ 35,616.00 (Thirty-five thousand six hundred sixteen and 001100 Dollars) per year, ($12.00 per rsf), payable in monthly installments of $2,968.00 (Two thousand nine hundred sixty-eight and 00/100 Dollars) per month beginning June 1, 1997 through May 31,1998. 4. Extension of Term. The Additional Space is added to the Leased ------------------- Premises for the entire Term of this Lease which is hereby extended by this First Amendment to Lease Agreement for twelve (12) additional months and now expires on May 31, 1998. 5. Improvements. Landlord agrees to provide Tenant with turnkey ------------ construction of the improvements outlined on the construction documents prepared by Architectural and Engineering Associates, dated September 26, 1994, a copy of which is attached hereto by reference. 6. Guaranty of Lease. Guaranty of Lease executed by Kevin and applies ------------------- to the Lease, as amended. 7. Except as modified herein all other Agreement shall remain in full force and effect. LANDLORD TENANT - -------- ------ Town and Country Central One Investors, L.P. Kevin R. Petters and Sam L little through its General Partner, D/b/a Networks on Line Town and Country Operating Corporation By: /s/ James L Mertz BY: /s/ Kevin R. Peterson --------------------------- ------------------------------ Name: James L Mertz Name: Kevin R. Peterson Title: Vice President Title: An Individual By: /s/ Sam L. Little ------------------------------ Name: Sam L. Little Title: An Individual SECOND AMENDMENT TO LEASE AGREEMENT INITIAL INITIAL -------- -------- | | | | | RB | | JM | | | | | -------- -------- THIS SECOND AMENDMENT TO LEASE AGREEMENT ("Second Amendment") Is made as Of June 19, 1998, by and between Mack-Call Texas Property, L. P., as successor -- In Interest to TOWN At4D COUNTRY CENTRAL ONE INVESTORS, LP., (hereinafter "Landlord") with an address of 3030 LBJ Freeway, Suite 1500, Dallas, Texas 75234, and Comtech Consolidation Group, Inc., as successor In Interest to Kevin R. Petterson and Sam L Little d/b/a Networks on Line, (hereinafter 'Tenant"). A. Tenant occupies the Leased Premises containing 2,968 square feet of Net Rentable Area designated as Suite 460 In the Building known as Town and Country Central One, located at 10497 Town and Country Way. Houston, Harris County. Texas, under the terms of that certain Lease Agreement dated March 7, 1994. (the Lease). B. Landlord and Tenant desire to extend the Term of the Lease and make certain other related changes to the Lease. NOW THEREFORE, In consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which Is hereby acknowledged, Landlord and Tenant agree as follows: 1. Extension Of Lease Term The Term of the Lease is hereby extended ----------------------- for an additional thirty-six (36) months and shall now expire on May 31.2001. 2. Base Rental Effective June 1. 1998 the Base Rental shall Increase to ---------- forty six thousand four and 04/100 Dollars ($46,004.04) annually ($15.50 RSF), payable In monthly Installments of three thousand eight hundred thirty-three and 67/100 Dollars ($3,833.67). 3. Lease Hold Improvements Landlord shall provide a refurbishment ------------------------ allowance to provide for the construction of permanent Improvements to the Leased Premises in accordance with the provisions of Rider 1 attached hereto. 4. Operating Expense Base. Effective June 1, 1998, the Basic Cost ------------------------ Component, Tax Component and Utilities Component shall be modified to be the amount of Basic Costs, Tax Costs and Utility Costs for the calendar year 1998 calculated per square foot of Net Rentable Area in the Leased Premises. 5. Parking. Landlord shall provide a total of thirteen (13) parking ------ spaces In the Building's parking garage for Tenants use on an unreserved basis. 6. Except as expressly amended hereby, all terms and provisions of the Lease remain unchanged, and as amended, the Lease continues In full force and effect. Terms used and not otherwise defined In this Second Amendment have the same meanings as In the Lease itself. IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date first above written. LANDLORD TENANT - -------- ------ Mack-Call Texas Property, L.P. Comtech Consolidated Group, Inc. through Its General Partner, Mack-Call Sub XVII, Inc. By: /s/James L. Mertz Jr. By: /s/ Richard A. Behlmann --------------------------- -------------------------------- Name: James L. Mertz Jr. Name: Richard A. Behlmann Title: Vice President Title: President FLOOR PLAN PRELIMINARY FLOOR PLAN #4 ================================================================================ NOTE: ALL ROOM SIZES ARE APPROXIMATE [PRELIMINARY FLOOR PLAN #4 GRAPHIC OMITED] EX-10.2 6 0006.txt EXHIBIT 10.2 10.2 Stock Subscription Agreement, dated February 23, 2000, by and between the Registrant and Jim Thuney for the sale of up to 2,000 shares of Class E Preferred Stock STOCK SUBSCRIPTION AGREEMENT THIS STOCK SUBSCRIPTION AGREEMENT IS ENTERED INTO THIS 23RD DAY OF FEBRUARY, ---- 2000, BY AND BETWEEN COMTECH CONSOLIDATION GROUP, INC., A DELAWARE CORPORATION ("CORPORATION") AND JIM THUNEY, AN INDIVIDUAL AS FOLLOWS: Section 1. ComTech Consolidation Group, Inc. has the authority and power to entered into this Agreement and has duly authorized the issuance of up to 2,000 shares of Class E Preferred Stock (hereinafter "Stock") to Subscriber with the following terms: 1) Each Class E Preferred share shall have a face value of $100.00 per share: 2) Each share shall pay an annual dividend equal to $96: 3) The term of the Stock shall be for a period of 12 months "Term", after which time, each share of the Stock shall be immediately converted to 650 shares of Corporation common stock: 4) Subscriber shall have the option to convert the Stock at any time with written notice to Corporation under the terms described in section 3) herein above: 5) Corporation may redeem any Stock not converted by Subscriber at anytime within twelve (12) months of issuance by Corporation, in exchange for payment of the full face amount of funds delivered by Subscriber, plus any accrued interest: 6) Any Stock purchased shall carry "piggy back" registration rights, such that if Corporation registers any stock of the Corporation, it shall be obligated to also register the Stock and any underlying common stock converted by Subscriber within two years of issuance: and 7) For purposes of Rule 144, the calculation of the "holding" period for all common stock underlying the Stock shall begin upon issuance of the Stock to Subscriber. Section 2 Subscriber hereby desires to purchase 2,000 shares of the Stock Section 3. Corporation shall provide copies of all Articles of Incorporation and Board Minutes authorizing this Agreement. Section 4. Upon acceptance of the Stock Subscription Agreement by the Corporation, the Subscriber shall remit to the Corporation, $75,000 during the month February, 2000, and $125,000.00 during the month of March, 2000, the total subscription amount against which the Corporation shall issue and deliver to the Subscriber, certificates representing the Stock for the number of shares purchased. Notwithstanding the foregoing, should Corporation: 1) fail to timely ----------------- file any necessary report as required by the rules and regulations of the - -------------------------------------------------------------------------------- Securities and Exchange Act: 2) file or be placed into Bankruptcy or similar - -------------------------------- state remedy: 3) be "de-listed" by the NASDAQ from the Over-the-Counter market: or 4) should the common stock of the Corporation for any other reason become unable to trade on the Over the Counter Bulletin Board Market OTCBB, Subscriber's obligations hereunder shall immediately cease. Section 5. It is specifically agreed between the parties that the fulfillment of the total obligation of Subscriber related to this agreement fully satisfies any and all requirments of Jim Thuney, Foothill Equities Corporation, Arlie Enterprises, Inc.Hancock Invetments Corp, Bryan A. Gianensin and Suarro Communications, Inc. (NKA E-Net Finanacial Corporation), a Nevada corporation, under that certain Settlement Agreement and Mutual Release, dated February 8th, 2000. Section 6. It is also specifically agreed between the parties, that upon conversion of any Class E Preferred Shares to Common Shares, the Corporation shall instruct it's transfer agent to issue Common Stock Certificates in the name if the Subscriber (or his nominee) in such denominations to be specified herein, representing the number of Common Stock issues upon such conversion. Section 7. In the event of any dispute hereunder, the parties hereto agree that the matter shall be submitted to binding arbitration in Vancouver, Washington and that the prevailing party shall be entitled to its attornies fees and costs. Accepted and Agreed: /s/ Jim Thuney - ---------------------------------- Jim Thuney, an Individual 11017 NE Sherwood Drive Vancouver, Washington 98686 ComTech Consolidation Group, Inc. "Corporation" By: /s/ Walter D. Davis - --------------------------------- Walter Davis Its: President ComTech Consolidation Group, Inc. 10497 Town & Country Way, Ste. 460 Houston TX 77024 EX-10.3 7 0007.txt EXHIBIT 10.3 10.3 DSL Partnership Program Agreement. DSL PARTNERSHIP PROGRAM ----------------------- AGREEMENT --------- THIS AGREEMENT is by and between Southwestern Bell Telephone Company, a Missouri corporation ("Company "), and Networks On-line, a Texas Corp. ----------------- ---------- ("Partner"). This Agreement replaces any and all previous agreements between Company and Partner with respect to the subject matter and term contained herein, and any and all such agreements are hereby terminated. WHEREAS, Company is engaged in the business of marketing and providing telecommunications services; WHEREAS Partner is an Internet access service provider and/or a network integrator and desires to become a sales representative for certain of Company's services; WHEREAS Company wishes to engage Partner to promote the sale of such services; NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties agree as follows: I. EFFECTIVE DATE AND TERM OF AGREEMENT - ------------------------------------------------ The term of this Agreement shall commence as of the date of the last signature hereon or January 1, 1999, whichever is later, and shall continue: (i) through December 31, 1999; or (ii) until the effective date of any written notice of termination, whichever is earlier. Such notice shall be effective thirty days from the date of mailing except where the end of the year terminates the Agreement earlier or for terminations as otherwise provided herein. II. SERVICES - ---------------- 1. The services subject to this Agreement ("Services") are listed in Exhibit C, attached hereto and incorporated herein by reference. 2. Company reserves the right to modify Exhibit C, including, but not limited to, modifying, adding to, and/or deleting Services and commissions, at any time effective upon written notice. Company further reserves the right at any time to seek regulatory approval to change the specifications of any Services as shown in the tariffs, to alter or eliminate any Services or any aspects thereof, and to change any Service rates. Tariff changes become effective on the 2 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement environment. New commission structures, and any changes thereto, will become part of this Agreement. 6. Partner represents that it is not an Authorized Sales Representative of Company under Company's Sales Agency Program. If, during the term of this Agreement, Partner or an affiliate should become an Authorized Sales Representative or part of any other compensation! commission program offered currently or in the future by Company, this Agreement will be terminated immediately. 7. Each party agrees that during the term of this Agreement it will not solicit any employee of the other party to terminate his/her employment to become an employee of the first party. This provision does not apply to situations in which an employee of one party initiates contact with the other party with regard to possible employment. 8. Partner agrees if Company identifies a situation in which Partner's activities are violating this Agreement, Company may (1) withhold payment of commission during the investigation such violation, and (2) require Partner to cease all activities hereunder. Failure to cease the activities hereunder as directed by Company is cause for immediate termination of this Agreement. Partner shall work with Company to resolve the issues causing Company to impose such requirement(s), and shall not resume activities hereunder until such issues are resolved. 9. Company may, as Company deems appropriate, make available to Partner additional opportunities including, but not limited to: contests, advertising, lists of leads for sales of Services, referrals for sales of Services, and participation in other similar programs which Company may from time to time deem appropriate. Such opportunities shall be offered solely at Company's discretion and shall be defined by Company if and when offered. 10. Company shall supply Partner, from time to time, with a reasonable number of brochures, price lists and other material necessary for promoting the sale of Services, and with reasonable support for training Partner's personnel. If Partner requires unusual support or excess services, a charge may be applied for such support or services. Any portion of the foregoing material for which Partner has been charged which remains unused at the time Company makes changes in any Services when such changes make such material unusable, or upon the termination of this Agreement, except where such termination results from Partner's acts or omissions, may be promptly returned to Company for credit. IV. Partner's Responsibilities - ----------------------------------- Partner agrees: 1. To act as a single point of contact for the customer's Services needs. 4 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement 2. To only submit orders for Services on behalf of customers who have requested Partner to place bondable orders on their behalf after being fully informed of the related charges, terms, and conditions. 3. Before requesting information from Company about a customer's account. to provide Company with a letter of authorization signed by the customer authorizing such disclosure. Such letter of authorization will be in a format approved by Company. 4. If Partner is ordering Digital Subscriber Line ("DSL") Service on behalf of its subscriber(s), it must obtain a written or electronic letter of agency ("LOA" or "Authorization Letter"), in conformance with Company's business practices in effect at the time of such authorization, from the end user subscriber customer; Partner shall store the Loans in a secure location and shall immediately produce them for Company's inspection and review upon request. If requested by Company, Partner shall also send such Loans to Company as part of the ordering and qualification process. If Partner obtains written Loans, Partner shall store the same in a secure place and retain them pursuant to the provisions of Section VIII, and additionally shall provide the original to Company immediately upon Company's request for a period of up to one year following the termination of the customer's subscription to Partners s services. 5. Partner shall obtain written or electronic permission ("Premise Permission"), in conformance with Company's business practices in effect at the time of such authorization, from the end user subscriber customer for Company 's agents or employees to enter the customer's designated premises at any reasonable hour for the purpose of installing, inspecting, repairing, or upon termination of the service, removing the service components of Company. Partner shall store the Premise Permissions in a secure location and shall immediately produce them for Company's inspection, review, and use upon request. 6. Upon notification from Company, Partner shall put in place and use a designated electronic funds transfer and/or electronic data interchange capability. Partner shall enter into an agreement with Company with respect to use of such capabilities. 7. Partner is responsible for providing its personnel with sufficient training that Company reasonably deems necessary to maintain a staff of competent sales personnel conversant in the specifications, features and advantages of Services. Such training will include instruction as to the proper use of, and restrictions on. the use of information as set forth in Section VIII herein. Partner agrees that if it schedules any training with Company and fails to cancel such training at least three business days before the class date, or fails to attend, Company may, at its sole discretion, charge Partner a minimum of $150 per person per day - higher charges may apply depending on the specifics of the training session. 8. Not to use random or sequential dialers or automatic dialing and announcing devices ("ADADS") in placing calls to customers. 5 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement 9. To sell Services to customers regardless of whether such customers purchase CPE or other services from Partner. 10. If required by Company pursuant to Company 's internal rules and practices, to submit to Company a Minority, Women, and Disabled Veteran Business Enterprise subcontracting plan. 11. Upon request from Company, to provide Company with the Federal Taxpayer Identification Number and/or, as appropriate, the Social Security number, for Partner to be used for tax reporting purposes. 12. If Partner elects to telemarket any of the services listed in Exhibit C, Partner must first secure written permission from Company. The employees engaged in telemarketing must be physically located upon Partner's business premises unless authorized in writing in advance by Company. 13. Partner shall market Services to customers strictly in accordance with the prices, terms, and conditions set forth in applicable Company tariffs, policies, and customer service standards for the sale of the Services hereunder. Should the Services be offered under an eligible contract, Partner shall offer such Services subject to the applicable terms and conditions contained in such contract. 14. If Partner provides CPE, it must coordinate its installation of CPE for all of Partner's Services customers with installation of any services to be provided by Company, in a manner and within installation intervals acceptable to Company, and in conformance with any agreements between Partner and such customers with respect to due date. Partner will employ sufficient technical staff to provide service and support for such CPE. 15. Partner will provide Services sales support functions including, but not limited to: providing to customers with information regarding Services (i.e. brochures, pricing); managing client implementation issues for Services sold under this Agreement; and answering customer billing questions regarding Partner's products and Services Partner has sold to customer. Partner shall refer all other customer questions on Services, including billing questions not associated with Services sold under this Agreement, to Company. 16. Partner will take action as needed to meet customer service requirements and to ensure that its activities are properly coordinated to customers' and Company's satisfaction. Partner is responsible for the prompt reporting to Company of customer complaints. Partner agrees to escalate customer issues following Company's escalation procedures. 17. Each party shall submit to the other for approval prior to use all advertising material and customer collateral that refer in any way to the other's services or products or to this Agreement. Any advertising performed by Partner to promote the Services covered by this Agreement shall be done at Partner's own expense, with the only exception being any authorized 6 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement cooperative advertising programs offered by Company. Any advertising copy outside the scope of the material provided by Company to Partner (i.e. new copy or entirely new advertisements such as Directory ads, direct mail, flyers, etc.) must be submitted to Company for its prior review and written approval, at least thirty days before use, or such shorter period as agreed to by Company, and Partner shall, solely at Partner's expense and prior to use of any such advertising material, make any and all changes. corrections or alterations to such material that Company, in its sole discretion, deems necessary or advisable. Advertising and promotional materials will be created and used in accordance with all applicable laws and regulations, including those on false advertising and unfair competition and in accordance with Section IX herein. It is expressly understood and agreed that Company may offer or Partner may request the right to use promotional materials developed by Company covering Services included in this Agreement. If such promotional material is provided, at Company's sole discretion, to Partner, Partner shall abide by any rules regarding the use of said material as Company shall establish from time to time. 18. Partner agrees at all times to act in a professional and ethical manner and maintain a level of quality of service to its customers satisfactory to Company in its sole discretion in accordance with standards established by Company and then in effect. Partner agrees that it will not use commissions earned under this Agreement to offer customers rebates or discounts which are contingent upon the purchase of Services, make misleading statements to customers, give money, gifts or any other consideration to Company 's employees, do anything that will dishonor, discredit, reflect adversely on. or injure the reputation of Company, or create sales that do not provide value to the customer and Company, or to manipulate the compensation system. Partner further agrees to comply with all statutes, rules, regulations, and decisions which apply to Company's employees marketing similar products to similar customers. 19. Partner will take and permit to be taken by Company all actions reasonably requested in order to ensure adequate opportunity for review of Partner's performance by Company, including, but not limited to. observation by Company of Partner's employees in their performance of the duties and obligations of this Agreement and periodic review and analysis by Company of the customer service provided by Partner. V. Orders - ----------- 1. Partner agrees to place orders only with the channel(s) designated by Company, in a manner consistent with the then current documented standards, order format, data requirements, method of transmission of orders. procedures and time frames, set by Company. Partner agrees not to place orders with other Company internal sales channels, unless otherwise authorized in writing in advance by Company, or with other Partners. Partner will receive compensation only on orders it places as prescribed. unless otherwise authorized in writing in advance by Company. 2. All orders entered by Partner from customers shall be in accordance with Section IV. Partner shall determine availability of Services on the basis of information received from Company. All orders shall be subject to the availability of suitable facilities, which shall be determined in the sole discretion of Company. All orders for Services shall be further subject to 7 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement approval and acceptance by Company. In the event an order submitted by Partner is rejected, Company will supply Partner with a specific reason for such rejection. 3. In the event that Company has indicated that it is willing to extend credit to a customer or customers, Partner shall obtain accurate and appropriate credit information as specified by Company, which it shall forward to Company with the order involving the extension of credit. All extensions of credit must be approved by Company, and Company reserves the right to deny credit to any customer. Company further reserves the right to require a deposit and/or advance payment from any customer in any amount which it, in its sole discretion, will determine in accordance with applicable tariff provisions. Partner does not hereby guarantee the credit of any customer, but does agree that it will use commercially reasonable efforts to obtain accurate credit information. Partner shall inform customer that an order for service may not be considered binding upon Company until received and approved by Company, including receipt of any applicable deposit. 4. Each party shall maintain records of all sales made pursuant to this Agreement. A Service Application/Authorization Letter, in a form approved by Company, must be signed by each customer, maintained as part of Partner's records, and made available for review upon request. All such records and all other records pertaining to its performance under this Agreement shall be retained by each party for a reasonable period of time, for at least four years from the date of final payment by Company for services rendered under this Agreement. Each party and its authorized agents and representatives shall have access to such records of the other party for purposes of audit during normal business hours during the term of this Agreement and for four years from the date of final payment. A party shall notify the other party in writing at least seven days before it intends to conduct such an audit, except that such audit may be required on 24 hours notice to comply with regulatory requirements or in circumstances adversely affecting customer(s) services. VI. Commissions - ---------------- 1. Subject to the restrictions regarding sales of Services to the entities specified in 4(c) below, and provided that Partner has fulfilled its obligations under this Agreement, for each completed Service sale made by Partner, Company shall pay to Partner the commission provided for in Exhibit C for the particular Service ordered. If the customer terminates its Services within the time period specified in Exhibit C any such commission shall be, at Company's choice, refunded to Company within thirty days or deducted from later commissions otherwise due Partner. Company shall pay commissions only for qualifying orders placed by Partner during the term of this Agreement. 2. After termination of this Agreement, any debit commission balance for Partner shall be paid by Partner to Company within thirty days written notice of such debit commission status. Until such debit balance is paid to Company, Partner will not be considered for participation in any Company channel program. 8 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement 3. Upon termination of this Agreement, Partner's final commission check may, at the discretion of Company, be held by Company for up to six months from the termination date. 4. Partner will receive no commissions for Partner's sales of Services to: (i) Partner or to affiliates (as defined in Section XII) of Partner; (ii) Any business or individual under contract with Company to market Services; (iii) Resellers of Services; or (iv) Company or its affiliates. Notwithstanding the foregoing, Partner will receive commissions for Partner's sales of Services that are ordered by and billed to the Partner when all of the following conditions are met: (i) Partner is ordering and billing Service as a means to facilitate the sale of another service which is not telecommunications service (e.g. information access, network management); (ii) Partner is ordering a Service that originates or terminates with an end user who is not affiliated with Partner; and (iii) The Service ordered is either a private line or a virtual private line. The commissions on such sales shall be computed on the basis of the circuit terminating at the end user's site. 5. No commission shall be paid to Partner for any orders for Services sold to a customer directly by Company or sold to a customer by any entity other than Partner. Company shall pay commissions only for qualifying order(s) placed by Partner during the term of this Agreement. 6. Subject to Company's rights under Section II, the applicable commission rate will be based on the commission rate in effect on the date of service order completion in Company's billing system. 7. Partner's eligibility for a commission based on a sale of Services accrues as of the date of service order completion or upon payment for prepaid eligible contracts, whichever is later. Except as otherwise provided herein or as specified in Exhibit C, amounts due hereunder shall be paid by Company to Partner on or before the last day of the month following the month in which Company bills the customer. 9 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement 8 Company shall have the right to deduct from payments to Partner any amounts owed to it by Partner, including, but not limited to, customer account adjustments (including those due to incorrect or inappropriate use of promotions), amounts due for advertising, or amounts due for failure to attend scheduled training or other seminars or workshops. Company shall also have the right to require Partner to pay to Company any amounts owed to Company by Partner. 9. Partner shall have one year from the date of completion of a service order in which to claim payment for such sale of Services, to raise any discrepancies regarding such payments, or to otherwise raise any issues regarding commissions on sales of Services. Such claims shall be made with specificity in writing and shall include all supporting documentation. Company shall have no obligation to make payments or adjustments beyond such one year period. VII. Exclusivity - ---------------- 1. Partner shall specify by initialing below whether it elects to market the Services specified in Exhibit C exclusively on behalf of Company or to also market or otherwise promote the functionally similar services of other providers. A Partner that designates itself as "exclusive" and is subsequently determined by Company to be "non-exclusive" shall be subject to immediate termination and will be liable for any past commissions received over and above those owed per the "non-exclusive" schedule in Exhibit C. Company's determination of whether an Partner is "exclusive" shall be final. If Partner requests to change from "exclusive" to "non-exclusive", this Agreement will be terminated as of the effective date of such request. Partner may, if new participants are being accepted, reapply to participate in the Partner Partnership Program. Partner hereby makes an election by initialing below: ( ) Exclusive - Partner elects to market or otherwise promote exclusively the Services specified in Exhibit C and to obtain from Company and use Company's services to meet its administrative business service requirements. Partner will not use the services of another provider, for its administrative business service requirements, except in those instances where Company does not provide a functionally similar service in which case Partner may, only for so long as Company does not have a functionally similar service, use the service of another provider. Partner will not take any action, in return for compensation of any type from another provider, which would result in an end user's service being provided in any way using the services of any provider other than Company, unless a functionally similar service is not available from Company. If approved in writing by Company, Partner may purchase or submit orders for network facilities from another provider to serve strictly as redundant network facilities in case of network failure. Partner shall receive payment of commissions on a per unit basis, as described in Exhibit C, and Partner may use Company's logo, trademarks, and/or service marks in conjunction with Company's Services, as provided herein. 10 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement (DB) Non-Exclusive - Partner elects not to market or otherwise promote exclusively the services specified in Exhibit C. Partner shall receive payment of commissions on a per unit basis, as described in Exhibit C, and Partner may use Company's logo, trademarks, and/or service marks in conjunction with Company's Services as provided herein. Partner shall specify by initialing below whether it elects to market the eligible services specified in Exhibit C on a branded or a non-branded basis as described in Exhibit C. branded. Branded - Partner elects to market the eligible services specified in Exhibit C on a (DB) Branded - Partner elects to market the eligible services specified in Exhibit C on a branded basis. ( ) Non-Branded - Partner elects to market the eligible services specified in Exhibit C on a non-branded basis. 2. During the effective period of this Agreement, an Partner may change, with the appropriate notice, from non-exclusive to exclusive and from non-branded to branded. Such changes shall be prospective only. VIII. Confidentiality - ------------------------- 1. Partner acknowledges that 1) Company is a regulated telecommunications company with a duty not to release confidential customer information without prior written consent, and that (2) unauthorized release of confidential customer information may result in Company suffering significant injury including, but not limited to, monetary damages and impairment of Company's relationship with its regulators, customers, and potential customers. 2. All information relating to either party's customers and business, including but not limited to the terms and conditions of this Agreement, and all information that is marked confidential and/or proprietary or is designated as confidential and/or proprietary when disclosed. which is disclosed by either party to the other pursuant to this Agreement, other than such information as may be generally available to the public or the industry, is and will be disclosed in confidence solely for use in the conduct of business hereunder. Nothing contained herein shall grant either party any right, title, or interest to any information provided by the other party hereunder. Each party agrees to keep such information secret and confidential and not to disclose it to any other person or use it during the term of this Agreement or after its termination except in carrying out its obligations hereunder or in response to obligations imposed by tariff or order of a court or regulatory body. 3. Each party shall take effective precautions, contractual and otherwise, reasonably calculated to prevent unauthorized disclosure or misuse of such information by any of its employees or by any other person having access to such information. 11 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement 4. Within thirty days after the termination of this Agreement, by either party and for any reason, each party shall notify the other which specific information disclosed by it pursuant to this Agreement is to be returned. Each party agrees promptly to return to the other any physical or written records containing such specifically identified information then in its possession, regardless of whether such physical or written records were prepared by Partner or by Company. The duty to keep information confidential shall continue notwithstanding the termination of this Agreement. Upon the termination of this Agreement, all confidential information in tangible form provided to Partner by Company shall be returned to Company. IX. Trademarks and Trade Names; Invention and Patent Rigts - ---------------------------------------------------------------------- 1. Partner shall not be deemed by anything contained in this Agreement or done pursuant to it to acquire any right, title or interest in or to the use of the name "Bell", the Bell symbol, nor in or to any other trademark or service-mark now or hereafter owned by Company or SBC Communications Inc. ("SBC"), or any affiliate or parent thereof (for the purposes of this section, collectively "the Company"). Partner shall not use in its business or trade or corporate name the name "Bell", "SBC", or the Company's names or the Bell, SBC, or the Company's symbols, nor shall it use any trademark or service-mark owned by the Company, or adopt or use any similar mark or symbol without the express written consent of the Company. Any such consent given is subject to the Company's subsequent right to review and forbid any such use from time to time. Partner agrees that it will comply with any standards for usage of such names, trademarks and service-marks issued or to be issued by the Company. Immediately upon termination of this Agreement, Partner will destroy or turn over to the Company any materials using any trademark or service-mark of the Company, unless the Company has consented to such use pursuant to a separate agreement. 2. The Company shall not be deemed by anything contained in this Agreement or done pursuant to it to acquire any right, title or interest in or to the use of Partner's name, trademarks and service-marks. Subject to Partner's right to review and forbid any such use from time to time, the Company may, during the term of this Agreement or until the Company is notified to the contrary by Partner, use such names, trademarks and service-marks in its advertising. The Company agrees that it will comply with any standards for usage of such names, trademarks and service-marks issued or to be issued by Partner. Immediately upon termination of this Agreement, the Company will destroy or turn over to Partner any materials using any trademark or service-mark of Partner, unless Partner has consented to such use pursuant to a separate agreement. 3. Company may withhold payment of commissions if, and for so long as, Partner fails to comply with this section and any standards provided to Partner with respect to use of any names, trademarks, or service-marks. 4. Invention and Patent Rights. Neither party shall be deemed by ------------------------------ anything contained in this Agreement or done pursuant to it to acquire any right, title or interest in or to any design, invention, improvement process or system now or hereafter embodied in any services or products 12 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement provided by the other party, whether or not such design, invention, improvement, process or system is patented or patentable under the laws of any country. X. Indemnification I Liability I Insurance - ------------------------------------------------ 1. Indemnification. Each party agrees to indemnify and hold the other --------------- party harmless from any and all claims, actions, damages, expenses and other liabilities, including reasonable attorneys' fees and costs, resulting from the first party's acts, omissions or misrepresentations, including but not limited to the indemnifying party's failure to perform any of its obligations hereunder, from any defect or failure of any kind in any product or service provided by the indemnifying party, or from infringement by the indemnifying party of any copyright, trademark, service mark, trade name or similar proprietary rights. 2. Exclusion of Damages. In no event shall either party be liable to ---------------------- the other for consequential, indirect, special or incidental damages resulting from breach of this Agreement even if such party had been advised of the possibility of such potential loss or damage. 3. Insurance. Without limiting the obligation to indemnify, each party --------- shall maintain sufficient liability insurance, or provide a certificate of self-insurance, to protect themselves and the other party from any and all claims, demands, expenses, costs and other liabilities arising out of their acts, omissions and/or misrepresentations. Partner shall provide a copy of such insurance to Company upon request. 4. Partner will be responsible for obtaining, at its own expense, any applicable permits, licenses, bond, or other necessary legal authorization for work it is to perform. XI. Termination - ---------------- 1. This Agreement may be terminated by one party immediately upon the giving of notice of any of the following events: (i) If the other party fails to perform or to observe, or commits a breach of any section. provision or covenant of this Agreement, including, but not limited to, the volume expectations set forth in Exhibit D, and the quality targets, if any, established by Company, and fails to cure such breach or failure to perform within thirty days, except as set forth below, or such lesser period as Company may require because of legal, business, or regulatory restrictions applicable to Company, following delivery to such defaulting party of a written notice of the alleged breach. However, Company may terminate this Agreement or withdraw any offer of an agreement immediately without providing a period to cure such breach if the breach is a failure to meet the volume expectations for the preceding calendar year, or is a failure to return to Company a fully executed Agreement and any subsequent modifications thereof, within 60 days of receipt from Company, a violation by an Partner of any legal or regulatory restriction, policies, rules, orders, or other requirements, such as. but not limited to, placing orders for customers who have 13 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement not requested service, misrepresentation of Company or Company's Services (including but not limited to installation and service charges), charging customers for or accepting fees for adjustments to which the customers are entitled, failing to obtain and maintain the required LOAs, failing to obtain the required Premises Permissions, failing to immediately produce the original signed LOAs and Premises Permissions for Company's inspection, review, and use upon request, misrepresentation of Partner's relationship with Company, actions which dishonor, discredit, reflect adversely on or injure the repl4ation of Company, or is a breach of Sections IV.2., IV.3, IV.4., IV.5., IV.12., IV.13., IV.14., LV.15., IV.17., IV.18., IV.19., VII, VIII, orIX of this Agreement; or (ii) If the other party becomes insolvent or makes an assignment for the benefit of its creditors, or if a committee of creditors or other representative is appointed to represent its business, and that party fails within thirty days following the appointment of such committee or representative or the filing of any such involuntary petition to cause the discharge of such committee or representative or the dismissal of such involuntary petition. 2. If the cause of a breach or failure to perform is an act of God, fire or other casualty, strike, material shortages or other cause similar or dissimilar to the foregoing that is beyond the control of the defaulting party, the period for remedying such breach or failure to perform shall be extended by the time measured by any such cause of delay and for a reasonable time thereafter, and the defaulting party shall not be liable for damages to the other party to the extent they result from such cause. 3. No delay by either party in sending any notice specified herein shall constitute a waiver of its rights to terminate this Agreement. 4. Without waiving any of its rights under this Agreement, Company may do any of the following short of termination if Partner violates any of the terms of this Agreement: at its sole discretion, (1) withhold or cease paying commission payments, and (2) prohibit Partner from using Company's logos, trademarks, and service marks, and from participation in any additional opportunities including, but not limited to, contests, advertising, lists of leads for sales of Services, referrals for sales of Services, and participation in other similar programs, until such time as the violation(s) of this Agreement are cured. 5. Subject to Company's right of counterclaim or setoff, Partner shall be entitled to commissions earned by it under Section VI based only on sales of Services for which the Partner placed an order with Company prior to the termination of this Agreement and which are completed in Company's billing system within six months of termination. Any commissions owed and outstanding at the time of termination of this Agreement shall be paid to Partner by Company within six months following the date of termination. No commissions will be due on any Services ordered from Company after termination. 14 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement 6. The parties agree that any termination of this Agreement according to the formalities specified herein shall not constitute an unfair or abusive termination or create any liability not set forth in this Agreement. 7. The right of either party to terminate this Agreement is not an exclusive remedy, and either of them shall be entitled, alternatively or cumulatively, to remedies as determined pursuant to Section XII of this Agreement. 8. Survivability. The terms and conditions contained in this Agreement ------------- and its exhibits, including but not limited to those contained in Sections IV.4., V.4VI, VIII, IX, K, XI.5, and Exhibit C, that by their sense and context are intended to survive the performance hereof by either or both parties hereunder shall so survive the completion of performance or termination of this Agreement. XII. General Provisions - ------------------------ 1. Assignment. Partner acknowledges that it has been specifically ---------- selected to participate in Company's Sales Agency Program after careful evaluation by Company of Partner s financial stability, product line and reputation in the business community, as well as the individual abilities and reputation of Partner's management and sales force. Accordingly, the parties agree that neither this Agreement, nor any right or obligation hereunder is assignable, in whole or in part, whether by operation of law or otherwise, by Partner without the prior written consent Company. Changes of the form in which Partner does business (including but not limited to sole proprietorships, partnerships, limited liability partnerships, and corporations, and changes due to mergers or being acquired), shall be considered to be assignments which will require the prior written consent of Company and requalification of Partner in its new form under the then existing qualification requirements. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. If Partner assigns the Agreement pursuant to this provision, the existing Agreement shall be terminated and a new Agreement shall be entered into with Partner's qualified assignee. 2. Transfers. Partner customer accounts may only be transferred --------- pursuant to a written signed agreement between existing Partners in good standing, provided Company's prior written permission is obtained. 3. Subcontracting. Partner agrees that it will not subcontract or -------------- attempt to subcontract any of its duties or obligations under this Agreement without the prior written consent of Company. 4. Affiliates. For the purposes of this Agreement, an "affiliate" of ---------- any entity shall respectively mean: - - for Company: a) any corporation or business entity in which SBC Communications Inc. or any subsidiary of SBC Communications Inc., any successor corporation SBC 15 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement Communications Inc. or any subsidiary of such successor, or any corporation Of which SBC Communications Inc. becomes a wholly owned subsidiary or any subsidiary of such corporation, has any ownership interest; and - - for Partner: b) any corporation or business entity in which Partner has any ownership or potential ownership in any form or from which Partner receives or has the option to receive any profits generated by such corporation or business entity. Upon request, each party shall provide the other party with a list of its affiliates. 5. Notices and Other Communications. Every notice, consent, approval or other communication required or contemplated by this Agreement by either party shall be in writing and shall be delivered in person, by postage prepaid mail, by overnight courier service, by facsimile or by electronic messaging addressed to the party for whom intended at the address specified below or at such other address as the intended recipient previously shall have designated by written notice to the other party; provided, however, that any notices with respect to Partner's status as such may not be given by electronic messaging. Where specifically required, notices shall be by certified or registered mail. Unless otherwise provided in this Agreement, notice by mail shall be effective on the date it is officially recorded as delivered by return receipt or equivalent, and, in the absence of such record of delivery, it shall be presumed to have been delivered the fifth day, or next business day thereafter, after it was deposited in the mails. Notice given by overnight courier service shall be effective on the date it is recorded by such courier service as delivered. Notice given by facsimile shall be effective on the date noted on the facsimile log as the date sent. Notice given by electronic messaging shall be effective on the date sent, as indicated by the electronic messaging system. Except for notice given by electronic messaging, notice not given in writing shall be effective only if acknowledged in writing by a duly authorized officer of the party to whom it was given. To: Partner: To: Company: ------- -------- Southwestern Bell 530 McCullough, Room 5G04 San Antonio, TX 78215 Attn.: Attn.: John Robers-RVP BCS Complementary Channels 6. No Waiver of Rights. Failure of either party at any time to require -------------------- the other party's performance of any obligation under this Agreement shall not affect the right to require performance of that obligation or any other obligation. Any waiver by either party of any breach of any provision hereof shall not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver or modification of the provision itself, or a waiver or modification of any right under this Agreement. 16 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement 7. Dispute Resolution. -------------------- (a) If a dispute arises out of or relates to this Agreement, and if such dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation, before resorting to arbitration, litigation, or some other dispute resolution procedure. (b) If the parties cannot resolve the dispute by mediation, any controversy or claim arising out of or relating to this Agreement shall be submitted to non-binding arbitration. (c) Nothing in the above shall prevent the parties from mutually agreeing to use an alternative means to resolve the dispute, such as a "mini-trial" or other procedure. However, if the parties cannot mutually agree to such an alternative procedure, the proceeding paragraphs are binding. (d) If either party institutes suit to enforce or interpret this Agreement. the prevailing party in any such proceeding shall be entitled to recover from the losing party its costs, including reasonable attorneys' fees. 8. Governing Law. This Agreement will be governed by and construed in ------------- accordance with the Laws of Missouri, excluding its rules governing conflict of laws. If any provision of this Agreement is not valid, it will not affect other provisions and the parties agree that, if that invalidity reveals a situation not provided for by this Agreement, they will jointly seek an agreement having a valid legal and economic effect as similar as possible to the ineffective provision and covering the scope of any missing provision in a manner reasonably directed to the purpose of this Agreement. 9. Regulatory Changes. This Agreement shall at all times be subject to ------------------ such changes or modifications by the Public Utilities Commissions of the states in which Services are offered or by the Federal Communications Commission as said Commissions may from time to time direct in the exercise of their jurisdiction. Company reserves the right to amend or terminate this Agreement to conform it to any requirement of applicable laws or regulations or to any requirement imposed by the a state's Public Utilities Commission or the Federal Communications Commission in the exercise of their jurisdiction over Company, or to any requirement of the United States Department of Justice or the state or federal courts in connection with the Telecommunications Act of 1996. Partner shall have the right within thirty days of receipt of notice of any amendments made pursuant to this section to terminate this Agreement. 10. Discontinuance of Program. Company reserves the right, on three --------------------------- months notice to Partner, to discontinue its Partner Partnership program on a prospective basis. 11. Compliance with Laws. Each party will comply with any and all ---------------------- applicable tariffs, rules and orders of judicial and regulatory bodies, and local, state, and federal laws, including 17 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement specifically, but not limited to, laws, rules and orders relating to monitoring of employees' telephone conversations with customers, and shall defend, indemnify and hold the other party harmless from and against any and all loss, cost, damage or liability, including but not limited to reasonable attorneys fees and costs, arising from or in connection with any failure of the first party to so comply. 12. If any work to be performed by Partner under this Agreement is at variance with any law, ordinance, order, regulation, or safety or health standards, Partner shall properly notify Company before performance of the work. 13. Partner expressly agrees not to discriminate against any employee or applicant because of race, color, religion, age, sex, national origin or physical handicap during the performance of this Agreement and to comply with the applicable provisions of Exhibit A (Nondiscrimination Compliance Requirements), incorporated herein and made a part of this Agreement. As used in Exhibit A, "Contractor" shall refer to Partner. Partner agrees to submit to Company, on Company's request, a statement that it is in compliance with this subsection. 14. Modification. No modification or amendment of this Agreement shall ------------ be valid or binding on the parties unless such modification or amendment is made by Company in accordance with Sections II or XII hereof or is in writing and duly executed by the authorized representative of each party. 15. Entire Agreement. This Agreement sets forth the entire ----------------- understanding and supersedes prior agreements between the parties relating to the subject matter contained herein and merges all prior discussions between them. 18 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement IN WITNESS WHEREOF, the parties have executed this Agreement. Southwestern Bell Telephone Company Partner: Networks On-Line, Inc. ---------------------- By: By: /s/ Don Brown ------------------------------ ------------------------- Don Brown ------------------------------ ------------------------- (Print Name) (Print Name) Title: Title: President ------------------------------ ------------------------- ------------------------------ ------------------------- Date Signed: Date Signed: 5/24/99 ------------------------------ ------------------------- Partner Federal Taxpayer ID No: 76-0488521 ------------------------------ ------------------------- 19 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement EXHIBIT A - NONDISCRIMINATION COMPLIANCE REQUIREMENTS Work under this contract may be subject to the provisions of certain Executive Orders, federal laws, state laws. and associated regulations governing performance of this contract including, but not limited to: Executive Order 11246. Executive Order 11625, Executive Order 11701, and Executive Order 12138, Section 503 of the Rehabilitation Act of 1973 as amended and the Vietnam Era Veteran's Readjustment Assistance Act of 1974. To the extent that such Executive Orders, federal laws, state laws, and associated regulations apply to the work under this contract, and only to that extent, Contractor agrees to comply with the provisions of all such Executive Orders. federal laws, state laws, and associated regulations, as now in force or as may be amended in the future, including, but not limited to the following: 1. EQUAL EMPLOYMENT OPPORTUNITY DUTIES AND PROVISIONS OF GOVERNMENT CONTRACTORS In accordance with 41 C.F.R.60- 1.4(a), the parties incorporate herein by this reference the regulations and contract clauses required by that section. including but not limited to, Contractor's agreement that it will not discriminate against any employee or applicant for employment because of race, color, religion, sex, or national origin. The Contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex, or national origin. 2. AGREEMENT OF NON SEGREGATED FACILITIES In accordance with 41 C.F.R.60-1.8. Contractor agrees that it does not and will not maintain or provide for its employees any facilities segregated on the basis of race, color, religion, sex, or national origin at any of its establishments, and that it does not and will not permit its employees to perform their services at any location. under its control. where such segregated facilities are maintained. The term "facilities" as used herein means waiting rooms. work areas, restaurants and other eating areas, time clocks, rest rooms, wash rooms, locker rooms and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment areas. transportation, and housing facilities provided for employees; provided, that separate or single-user restroom and necessary dressing or sleeping areas shall be provided to assure privacy between the sexes. 3. AGREEMENT OF Affirmative ACTION PROGRAM Contractor agrees that it has developed and is maintaining an Affirmative Action Plan as required by 41 4. AGREEMENT OF FILING Contractor agrees that it will file, per current instructions, complete and accurate reports on Standard Form 100 (EEO-1), or such other forms as may be required under 41 C.F.R.60-1.7(a). 5. AFFIRMATIVE ACTION FOR HANDICAPPED PERSONS AND DISABLED VETERANS, VETERANS OF THE VIETNAM ERA. In accordance with 41 C.F.R.60-250.20. and 41 C.F.R60-741.20. the parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of government contracts and subcontracts. 6. UTILIZATION OF SMALL, SMALL DISADVANTAGED AND WOMEN-OWNED SMALL BUSINESS CONCERNS As prescribed in 48 C.F.RCh. 1. 19.708(a): (a) It is the policy of the United states that small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals and small business concerns owned and controlled by women shall have the maximum practicable opportunity to participate in performing contracts let by any Federal agency, including contracts and sub-contracts for systems. assemblies, components, and related services for major systems. It is further the policy of the United States that its prime contractors establish procedures to ensure the timely payment amounts due pursuant to the terms of the subcontracts with small business concerns. small business concerns owned and controlled by socially and economically disadvantaged individuals and small business concerns owned and controlled by women. (b) The Contractor hereby agrees to carry out this policy in the awarding of subcontracts to the fullest extent consistent with efficient contract performance. The Contractor further agrees to cooperate in any studies or surveys as may be conducted by the United States Small Business Administration or the awarding agency of the United States as may be necessary to determine the extent of the Contractor's compliance with this clause. 20 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement (c) As used in this contract, the term small business concern shall mean a small business as defined pursuant to section 3 of the Small Business Act and relevant regulations promulgated pursuant thereto. The term small business concern owned and controlled by social(v and economically disadvantaged individuals shall mean a small business concern which is at least 51 percent unconditionally owned by one or more socially and economically disadvantaged individuals: or. in the case of any publicly owned business, at least 51 per centum of the stock of which is unconditionally owned by one or more socially and economically disadvantaged individuals: and (2) whose management and daily business operations are controlled by one or more such individuals. This term also means small business concern that is at least 51 percent unconditionally owned by an economically disadvantaged Indian tribe or Native Hawaiian Organization, or a publicly owned business having at least 51 percent of its stock unconditionally owned by one of these entities which has its management and daily business controlled by members of an economically disadvantaged Indian tribe or Native Hawaiian Organization, and which meets the requirements of 13 C.F.R part 124. The Contractor shall presume that socially and economically disadvantaged individual include Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans. Subcontinent Asian Americans, and other minorities, or any other individual found to be disadvantaged by the Administration pursuant to section 8(a) of the Small business Act. The Contractor shall presume that socially and economically disadvantaged entities also include Indian Tribes and Native Hawaiian Organizations. (d) The term small business concern owned and controlled by women" shall mean a small business concern (i) which is at least 51 percent owned by one or more women, or. in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more women, and (ii) whose management and daily business operations are controlled by one or more women: and (e) Contractors acting in good faith may rely on written representations by their sub-contractors regarding their status as a small business concern, a small business concern owned and controlled by socially and economically disadvantage individuals or a small business concern owned and controlled by women. 7. SMALL, SMALL DISADVANTAGED AND WOMEN-OWNED SMALL BUSINESS SUBCONTRACTING PLAN. The sub-contractor will adopt a plan similar to the plan required by 48 C.F.R. Ch. 1 at 52.2 19-9. 21 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement EXHIBIT C PARTNER PARTNERSHIP PROGRAM SERVICES, COMMISSIONS, TERMS AND CONDITIONS PRODUCT EXCLUSIVE NON-EXCLUSIVE - -------------------------------------------------------------------------------- Southwestern Bell - ----------------- Telephone Company BRANDED NON- BRANDED NON- - ----------------- BRANDED BRANDED Tariff F.C.C. No.73 - ------------------- ADSL - ---- - -------------------------------------------------------------------------------- Option I 1.544 Mbps-384 Kbps/ 128 Kbps Month-to-Month $ 40 $ 30 $ 25 $ 18 1 yr term contract $ 60 $ 40 $ 35 $ 25 3 yr contract $ 100 $ 70 $ 60 $ 45 Option II 6 Mbps-1.544Mbps/ 384 Kbps Month-to-Month $ 70 $ 50 $ 40 $ 30 1 yr term contract $ 150 $ 100 $ 90 $ 60 3yr contract $ 250 $ 175 $ 150 $ 100 1. Commissions will be paid on or before the last day of the month following the month in which Company bills for the Service. 2. Commissions for Services which do not stay in service for six months from the date of service order completion will be deducted from amounts owed to the Partner, or the Partner will be required to repay the amount to Company. 3. In order to qualify for commissions at the "Branded" level, Partner must meet all requirements as described under the "Company Branding" guidelines described below, or sell DSL service directly to the end user customer where Company bills such end user customer directly for the DSL service. 4. Company shall only pay commissions for DSL New orders (order type N), Change orders resulting in incremental inward lines (order type C), and From and To orders resulting in the move of a customer's DSL service from one location to another (order type F and T). 23 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement Company Branding - ------------------ Description: Partner buys DSL service from Company, at tariffed rates, ----------- and repackages the service as part of a total Internet Package to sell to end users. "Company Branding" refers to the identification of Company as the provider of the DSL service associated with an Internet Package sold by an Partner who has signed an Partner Partnership Agreement with Company and who has selected branding participation. Requirements: Each instance of such branding must be expressly approved ------------- in writing by Company in advance. a) Company's brand (graphics standards to be supplied by Company) must appear on any literature, brochures, proposals (letterhead etc.), packaging or other collateral used to sell an Partner's internet package sold under the terms of this Agreement. b) Company's brand (oral and graphics standards to be supplied by Company) must appear in any advertising in which DSL is being sold under the terms of this Agreement. This includes any type of printed advertising or promotion, or verbal mention in any radio or television advertising. c) Company's brand (graphics standards to be supplied by Company) must appear on the Partner's Web site if the Partner provides public access to such site. Partners who have designated themselves as "exclusive" under the terms of this Agreement may not advertise or otherwise promote any other provider of DSL service on their Web or other Internet site). 24 PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement EXHIBIT B MARKET AREA The geographic market area(s), in which Partner is authorized to market, promote the sale of, and be the procuring cause of orders for Services, is defined as follows: The State(s) of TX ---- PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. DSL Partnership Agreement EXHIBIT D PARTNER PARTNERSHIP PROGRAM VOLUME EXPECTATIONS PRODUCT VOLUME - -------------------------------------------------------------------------------- DSL-Southwestern Bell Telephone Company Tariff F.C.C. No. 73 Option 1:1.544 Mbps-384 Kbps/128 Kbps ** Option II: 6 Mbps-1.544 Mbps/384 Kbps ** ** Total minimum volume expectation is 1000 per year or per month ------- ----- - -------------------------------------------------------------------------------- Note that in connection with these volume expectations, this Agreement permits Company to terminate this Agreement under certain conditions. PROPRIETARY AND CONFIDENTIAL INFORMATION Not for use or disclosure outside Company and Partner except under written agreement approved in writing by Company. FIRST AMENDMENT TO ------------------ DSL PARTNERSHIP PROGRAM AGREEMENT --------------------------------- THIS FIRST AMENDMENT TO DSL PROGRAM AGREEMENT ("this Amendment") is entered into as of this 1st day of February, 2000 by and between Southwestern ----- Bell Telephone Company (hereinafter referred to as the "Company") a Missouri corporation, and Networks On-Line, a Texas Corp. ("DSL Partner" or "Partner"). ------------------ ------------ This Amendment revises and replaces the specified terms pf the DSL Partnership Program Agreement entered into between the parties on or about 5/24/99 ("the ---------- Original Agreement") only to the extent recited herein. All other terms Conditions of the Original Agreement remain in full force and effect. WHEREAS, the Company and DSL Partner entered into the Original Agreement which, by its terms, expired on January 1, 2000; WHEREAS, the Company and DSL Partner desire to continue the relationship created by the Original Agreement for an additional year under the same terms and conditions; NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereby amend the Original Agreement as follows: 1. Section I of the Original Agreement is hereby amended and restated in its Entirety as follows: I. EFFECTIVE DATE AND TERM OF AGREEMENT The term of this Agreement shall commence as of 1st Feruary, 2000 ------------------ and shall continue: (a) through January 1,2001; or (b) until either party provides written notice of termination, whichever is earlier. Such notice shall be effective thirty days from the date of mailing except where the end of the term terminates the Agreement earlier, for terminations under Section XI below, or as otherwise provided herein. 2. All remaining terms and conditions set forth in the Original Agreement remain in full force and effect as written. [N WITNESS WHEREOF, the undersigned have executed this First Amendment to DSL Partnership Program Agreement as of the date hereinabove first written. SOUTHWESTERN BELL TELEPHONE CO. NETWORKS ON-LINE, INC. ------------------------------------ By: By: Don Brown, President - --------------------------------- ------------------------------------ (print name and title) (print name and title) Date: Date: 1/1/2000 - --------------------------------- ------------------------------------ (DSL PARTNER) AGREEMENT BETWEEN SOUTHWESTERN BELL AND NETWORKS ON-LINE, INC. REGARDING THE --------------------- SOUTHWESTERN BELL DSL WEBSITE AND INTERNET SERVICE PROVIDER LISTINGS FOR DSL ACCESS This Agreement ("Agreement") sets forth the terms and conditions under which South eastern Bell, a Missouri corporation for its and its affiliates (hereinafter "Company") will be permitted by N.O.L. INC., a TEXAS CORP. ----------- ------------ ("Applicant"), an Internet Service Provider (collectively the "Parties") to post its name and HTML link ("hyperlink") on Company web pages pertaining to Company's Digital Subscriber Line related services ("DSL related services"). Whereas; Company offers DSL related services from designated central offices to customers with qualified local loops and provides a Company Website with DSL related services information and ordering forms for use by Customers ("Company Website"); and Whereas, Applicant has purchased Asynchronous Transfer Mode ("ATM") services from Company, and represents that it is ready and able to provide Internet Services and that it desires to be listed as a DSL-enabled Internet Service Provider on Company Website; The parties agree as follows: 1. Purpose. The purpose of this Agreement is to establish the guidelines ------- whereby Company is permitted to post Applicant's hyperlink on Company's Website such that Company's established End User Customers ("Customers") who initiate a request from Company's Website to Company to check whether Customer's telephone line(s) prequalify for DSL related services, may link to Applicant's Website to review Applicant's Internet access charges and other pricing information, and, if appropriate, may initiate a request to Company to designate Applicant as Customer's intended Internet Services Provider. 2. Term. This Agreement shall become effective the 1st day of July, ---- ------ ----- 1999, and shall remain in effect thereafter until terminated as provided herein ("Term"). day of 3. Applicant here authorizes Company to use Applicant's name and --------- hyperlink to Applicant's designated Website on the Company Website. 4. Applicant's Representations and Responsibilities. ---------------------------------------------------- a) Intellectual Property Rights. Applicant represents that it is ------------------------------- responsible for any intellectual property rights, including but not limited to service names, service marks, trademarks and trade names ("Marks") of Applicant's company or respective companies, and has all the necessary rights, titles, permissions and privileges to use any information appearing on, or disclosed to third parties by virtue of any hyperlink access to Applicant's Website. b) Website Product Information. Applicant represents and agrees that it is ------- responsible for the content and accuracy of Applicant's name and product information appearing on Applicant's Website accessed by Applicant's hyperlink. Applicant agrees that it will provide a hyperlink which will connect to Applicant's pricing information on Applicant's Website. c) Indemnification. Applicant agrees to indemnify and defend Company, --------------- its affiliates, and the officers, directors, employees and agents of any of them ("Indemnities"), from and against any loss, cost, damage, claims, expense, fines, penalties, or liability, including costs of defense and attorneys' fees, arising from Applicant's failure to adhere to any of terms and conditions of this Agreement or Applicant's failure to comply with any applicable law, rule or regulation, including, but not limited to, any injury to any person or damage to any property, except to the extent that such loss, cost, damage, claim, expense or liability arises from the active negligence or willful misconduct of Company or its employees. Applicant will also keep Company informed as to the progress of such defense and afford Company an opportunity to participate on an equal basis in the defense or settlement of such claim. 1 5. Company's Representations and Responsibilities. -------------------------------------------------- a) Intellectual Property Rights. Company represents that Southwestern ------------------------------ Bell Internet is an affiliate of Southwestern Bell, that Southwestern Bell is the trademark and service mark of Southwestern Bell, that FasTrak is the service mark of SBC Communications, Inc. Company represents that it is not responsible for the content or accuracy of Applicant's name or logo, or any information available via Applicant's hyperlink. b) DSL Prequalification Phase. After Customer has designated Applicant --------------------------- as the Customer's intended Internet Service Provider, Company will notify Applicant that it has been selected as the ISP. c) Company reserves the right in its sole discretion to modify or discontinue the use of the Website and/or ordering mechanism as it deems appropriate, provided however, that Company shall provide the Applicant reasonable prior written notice of any plan to discontinue the Website and/or ordering mechanism or of any significant system modification. d) COMPANY MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY AS TO MERCHANTABILITY OR FiTNESS FOR INTENDED OR PARTICULAR PURPOSE WITH RESPECT TO THE WEBSITE SERVICES PROVIDED HEREIN AND SHALL NOT BE RESPONSIBLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR RELATED TO SAID WEBSITE. 6. Termination. ------------ a) Either party may terminate this Agreement for convenience upon 15 days prior written notice to the other Party. The right of either party to terminate this Agreement is not an exclusive remedy, and either party shall be entitled to other remedies as provided by law or in equity. b) Company may terminate this Agreement immediately, without liability, upon the delivery of written notice to Applicant if in Company's reasonable opinion the Agreement or any actions or omissions by Applicant violates any laws or regulations, subjects Company or others to any disparagement, provides customers with false or misleading information, would subject Company to incur additional expenses or forego opportunities if it were to comply with those laws and regulations, or which causes or may cause Company to be subject to any review, inquiry or proceeding regarding its regulatory or legal requirements or obligations. 7. Miscellaneous. ------------- a) Assignment. The parties agree that neither this Agreement, nor any ---------- right or obligation hereunder, is assignable by Applicant, in whole or in part, whether by operation of law or otherwise, by Applicant without the prior written consent of Company. b) No Proprietary Rights Conferred. Nothing contained in the Agreement -------------------------------- shall be construed as conferring to either party by implication, estoppel, or otherwise, any license, right or title, under any patent, Mark or other proprietary right of Company or Applicant. In providing hyperlinks to Applicant's Website, Company shall be authorized to use the logos, hyperlinks, Marks and domain names of Applicant as specified in accordance with the terms specified in this Agreement. c) Compliance with Laws and Choice of Law. Each party will comply with --------------------------------------- any and all applicable tariffs, rules and orders of judicial and regulatory bodies, and local, state, and federal laws. This Agreement will be governed by the laws of the State of Missouri, excluding its choice of law provisions. d) Modification. No modification or amendment of this Agreement shall ------------ be valid or binding on the parties unless such modification or amendment is made in writing and duly executed by the authorized representative of each party. e) Entire Agreement. This Agreement sets forth the entire understanding ---------------- between the parties relating to the subject matter contained herein. IN WITNESS WHEREOF, the duly authorized persons below have executed this Agreement as of the date first above written on behalf of the parties. Southwestern Bell Applicant: NETWORKS ON-LINE, INC. ---------------------------- By: Amy E. Cook By: Don Brown - ------------------------------- --------------------------------------- Amy E. Cook - ------------------------------- --------------------------------------- (Print Name) (Print Name) Title: Area Manager Sales Agency Title: DB - ------------------------------- --------------------------------------- Southwestern Bell - ------------------------------- --------------------------------------- Date Signed: 7/7/99 Date Signed: 7/1/99 - ------------------------------- --------------------------------------- URL WWW.NOL.NET/DSL.HTML SURCHARGE EXEMPTION CERTIFICATE COMPANY NAME: Networks On Line CONTACT NAME: Keith Crabtree TELEPHONE NUMBER: 713-554-7100 The circuit listed below is exempt from the ICC special access Surcharge because the facility termination is on the following: -- (A) An open-end termination in a Telephone Company switch of an Fl line, including CC8A and CCSA-equivalent ONAL's or -- (B) An analog channel termination that Is used for full-time radio or television program transmission; or -- (C) A termination used for TELEX service; or -- (D) A termination that by the nature of its operating characteristics could not make use of Telephone Company common lines; or -- (E) A termination that interconnects either directly or Indirectly to the local exchange network whore the usage is subject to Common Carrier Line charges such as, where the special access facility accesses only -FGA and no local exchange lines, or -special access facility between customer points of termination, or -special access facility connecting CCSA or CCSA-type equipment (Intermachine trunks), or X (F) A termination that the customer certifies to the Telephone --- Company is not connected to a PBX or other device capable of Interconnecting the special access facility to a local exchange subscriber line, or the PBX or other device has been rendered incapable of Interconnection by software or hardware changes. BILLING NAME: Networks On Line CIRCUIT ADDRESS: 10497 Town & Country Way Suite 460 EFFECTIVE DATE: I Thereby certify that this circuit is exempt from the Special Access Surcharge for the reason indicated above. I recognize that It is the responsibility of this company to notify Southwestern Bell Telephone Company in writing of a ingest that affect this status. AUTHORIZED REPRESENTATIVE: DB (Don Brown) ---------------------------------------------------- TITLE: President Date: 7/13/99 ------------------------------------------------ --------------------- (TO BE FILLED BY SWBT) SWBT CONTACT: Lauren D Blumenfeld TITLE: Senior Account Manager 713-567-4184 [DSL ON BOARD LOGO] [SOUTHWESTERN BELL LOGO] ISP Co-op Advertising Plan WHAT IS THE ISP CO-OP ADVERTISING PLAN? One of the many benefits of partnering with Southwestern Bell for DSL! The ISP Co-op Ad Plan gives you the opportunity to further market DSL to your customers. WHO IS ELIGIBLE? All ISPs who have partnered with Southwestern Bell by signing the DSL Partnership Program Agreement or the Authorized Sales Representative (ASR) Agreement and are connected to the Southwestern Bell ATM network. HOW DO WE GET STARTED? ISPs will be awarded $2500 once the following criteria have been met: ------ (a) ISP Partnership/ASR contract is signed. (b) The ATM connection is completed. (c) ISP's advertising has been submitted for review by Southwestern Bell. (Advertising can be emailed to ac7705@sbc.com or faxed to 913-676-0940) -------------- HOW DO WE EARN CO-OP AD MONEY? ANNUALIZED DSL REVENUE CO-OP AD MONEY AWARDED - -------------------------------- ------------------------------------- $25,000 - $124,999 0.4% of revenue $125,000 - $249,999 0.8% of revenue $250,000 + 1.2% of revenue Notes: (1) ISP will be awarded co-op ad money on a quarterly basis. (2) Maximum amount to be awarded annually per ISP is $25,000. WHAT ADVERTISING CRITERIA MUST BE FOLLOWED? The guidelines outlined in Section IV ("Partner's/ASR's Responsibilities) of the DSL Partnership Program Agreement/Authorized Sales Representative Agreement must be followed. The criteria outlined in the Branding Guidelines, Exhibit C of the DSL Partnership Program Agreement, must be met by all ISP Partners that have elected to market the DSL services under the branded option. If you have any questions about the ISP Co-op Ad Program, please contact Amy Cook at ac7705@sbc.com or 913-676-1572. -------------- EX-10.4 8 0008.txt EXHIBIT 10.4 10.4 Database Access Agreement. AGREEMENT BETWEEN SOUTHWESTERN BELL TELEPHONE COMPANY AND NETWORKS ON-LINE FOR CPSOS DATABASE ACCESS ---------------- This Agreement ("Agreement') sets forth the terms and conditions under which (Southwestern Bell Telephone Company a corporation. (Pacific Bell, a California corporation.) for itself and its affiliates (hereinafter Company') will allow N.O.L., a TEXAS CORP. ("Applicant), (collectively the Verities) access to - ------ ----------- Company's proprietary Complex Products Service Order System ("CPSOS') database. Whereas; Company offers Digital Subscriber Use (DSL") related services from designated central offices to customers with qualified local loops; and Whereas, Applicant desires to access and Company desires to facilitate Applicant's use of Company's csos database to assist in placing authorized queries regarding loop qualification status and authorized orders for the provisioning of DSL; and Whereas, Applicant understands that Company's CPSOS database provides preliminary information concerning the basic services (e.g. individual line fiat rated residential service- IFR; individual line measured business service - 1MB) provided to Company's end user customers ('Customers'); The parties agree as follows: 1 Term. This Agreement shall become effective the 2 day of Sept, 1999, and ---- --- ----- shall remain in effect thereafter until terminated as provided herein ("Term'). 2. Applicant's Representations and Responsibilities. a) Confidentiality. By signing this Agreement Applicant acknowledges and agrees that, in the performance of this Agreement. Applicant may receive or have access to technical, customer (including but not limited to CPNI, customer proprietary information, non-published or any other customer information which is protected by law or regulation), personnel and business information in written, graphic. oral or other tangible or intangible forms, including, but not limited to, ideas, discoveries, concepts. techniques, know-how, trade secrets, designs, specifications, records, data, computer programs, drawings, models, business, product, engineering and deployment plans, reports and samples (collectively referred to as information') owned or controlled by Company. In addition, such Information may contain proprietary or confidential Information, disclosures of patentable inventions with respect to which patents may not have been issued or for which patent applications may not have been filed, or material which is subject to applicable laws regarding secrecy of communications or trade secrets. Applicant agrees: (i) that all such Information and data so acquired or accessed by Applicant which is owned by Company will be and will remain Company's Exclusive property; (ii) to inform its employees engaged in the handling of such Information of its confidential character and of the existence of The requirements to maintain its confidentiality and to employ the same degree of care used in the protection of its own confidential information to protect and maintain the confidentiality of such Information; (iii) to stratify maintain the confidentiality of the data stored within CPSOS and to use it only for the performance of this Agreement and no other purpose. Information stored in CPSOS includes customer record information, and restricted and confidential Information that Applicant also agrees to protect from unauthorized access by Applicant's employees; (iv) to prohibit access to the CPSOS database or to any information derived from the CPSOS database by any agents or third parties of Applicant; and (v) to keep any and all such Information and data confidential in perpetuity after termination of this Agreement b) CPSOS Database Access and Use. Applicant shall use Company's CPSOS ------------------------------- database only to assist in placing authorized queries regarding loop qualification status and authorized orders for the provisioning of DSL. Prior to initiating a CPSO query concerning customer information or qualification status stored on CPSOS, Applicant shall either first (1) obtain the bona tide name, address and telephone number for each customer about whom the information will be sought, or (2) obtain explicit written consent from each customer authorizing the release of such information. Nothing contained herein shall be deemed to authorize Applicant to access customer information for which Applicant does not have the requisite customer authorization, Any breach of this section is a material breach of this Agreement and Company shall have the right to immediately terminate this Agreement CPSOS agreement c) Ordering. Applicant acknowledges that DSL is available only to Company's -------- customers with qualified loops and equipment served out of DSL enabled central offices. Applicant will accurately and completely disclose to customers all relevant restrictions, rates and charges applicable to Company's OSL service. Applicant shall only place orders for DSL service pursuant to a bona tide request from the customer, after the customer has been thoroughly informed of all pertinent restrictions, rates, charges, terms, conditions and Customer obligations. d) Letters of Authorization. If Applicant is ordering DSL on behalf of its ------------------------ subscriber(s), it must obtain a written or electronic letter of agency ('LOA"), in conformance with Company's business practices in effect at the time of such authorization, from the customer. Applicant shall store all original written or electronic LOAS in a secure location for four (4) years following the end of the Term and shall produce the same for SBC'slPaaftc's inspection within twenty tour (24) hours of written notice in response to a legal, regulatory or customer service review or investigation, or within two (2) days of written notice in the event of an audit of the Company. e) Software and Hardware. Applicant is responsible for obtaining all ----------------------- necessary approvals, operating support system software and hardware to access CPSOS functionality, and all orders initiated through CPSOS must comply with the requirements set forth in the CPSOS training manual and in the SBC Toolbar. f) Indemnification. Applicant agrees to indemnify and defend Company, its --------------- affiliates, and the officers, directors, employees and agents of any of them ('Indemnities'), from and against any loss, cost, damage, claims, expense, fines, penalties, or liability, including costs of defense and attorneys' fees, arising from Applicant's failure to adhere to any of terms and conditions of this Agreement and specifically Applicant's access and use of the CPSOS database, or Applicant's failure to comply with any applicable law, rule or regulation, including, but not limited to, any injury to any person or damage to any property, except to the extent that such loss, cost, damage, claim, expense or liability arises from the active negligence or willful misconduct of Company or its employees. Applicant will also keep Company informed as to the progress of such defense and afford Company an opportunity to participate on an equal basis in the defense or settlement of such claim. g) Audit. Applicant hereby agrees that Company may inspect and audit its ----- activities to ensure compliance with this Agreement during regular business hours with advanced notice and Applicant will make any pertinent records and flies available to Company. 3. Company's Representations. a) CPSOS Access. Company shall endeavor to provide secure limited access ------------ to CPSOS functionality during normal business hours. Applicant must obtain confidential identification and password, documentation and CPSOS training prior to being allowed to utilize CPSOS. b) Company reserves the night in its sole discretion to modify or discontinue the use of any system or interface as it deems appropriate, provided however, that Company shall provide the Applicant reasonable prior written notice of any plan to discontinue the system, interface or of any significant system modification. c) COMPANY MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR INTENDED OR PARTICULAR PURPOSE WITH RESPECT TO THE CPSOS SERVICES PROVIDED HEREIN. d) COMPANY RESERVES THE RIGHT TO MONITOR IN ITS SOLE DISCRETION. WITHOUT NOTICE OR REPORT TO APPLICANT, ACCESS TO AND USE OF THE CPSOS DATABASE BY APPLICANT, FOR COMPLIANCE WITH THE TERMS OF THIS AGREEMENT. 4. Termination. ------------- a) Either party may terminate this Agreement for convenience upon 30 days prior written notice to the other Party. This Agreement may be terminated by either party upon providing notice to the other of the following events: b) If the other party fails to perform or to observe, or commits the breach of any representation, obligation, or covenant of Agreement, and fails to cures such breach or failure to perform within 15 days, except as set forth below. c) Company may terminate this Agreement immediately upon the delivery of written notice to Applicant for Applicants breach which implicates Company's legal or regulatory obligations or restrictions, including but not limited to an act or omission by Applicant which causes or may cause Company to be subject to any review, inquiry or proceeding regarding its regulatory or legal requirements or obligations, including but not limited to: initiating unauthorized queries of the CPSOS database; placing unauthorized orders for customers; failing to obtain, maintain, or provide to Company or any authorized third party upon request any required LOAs; misrepresentation of Applicant's relationship with Company; or actions or omissions which dishonor, discredit, reflect adversely upon or injure the reputation of Company d) The right of either party to terminate this Agreement is not an exclusive remedy. and either party shall be entitled to other remedies as provided by law or in equity 5. Miscellaneous. -------------- a) Assignment. The parties agree that neither this Agreement, nor any right ---------- or obligation hereunder, is assignable by Applicant, in whole or in part, whether by operation of law or otherwise, by Applicant without the prior written consent of Company. b) Notices arid Other Communications. Every notice, consent, approval or ------------------------------------ other communication required or contemplated by this Agreement by either party shall be in writing arid shall be delivered in person, by postage prepaid mail or by overnight courier service addressed to the party for whom intended at the address specified below or at such other address as the intended recipient previously shall have designated by written notice to the other party. To: Applicant: NetWorks Online, Inc. To: Company --------- 5400 Foxridge 10497 Town & Country Way #460 Room 240 Houston TX 77024 Mission, KS 66202 ATTN: Don Brown Attention: Kimberly Poores, Manager - Sales Agency Phone: 713-554-7100 Phone: (913) 676-6308 Fax: 713-554-0488 Fax: (913) 676-0940 E-mail: DONB@NOL.NET E-mail: kp5575@sbc.com c) Waiver of Rights. Failure of either party at any time to require the ------------------ other party's performance of any obligation under this Agreement shall not affect the right to require performance of that obligation. Any waiver by either party of any breach of any provision hereof shall not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver or modification of the provision itself, or a waiver or modification of any right under this Agreement. d) Regulatory Changes. Company reserves the right to amend or terminate ------------------- this Agreement to conform it to any requirement of applicable laws or regulations or to any requirement imposed by the California Public Utilities Commission or the Federal Communications Commission in the exercise of their jurisdiction over Company, or to any requirement of the United States Department of Justice or the state or federal courts in connection with the Telecommunications Act of 1996. e) Compliance with Laws. Each party will comply with any and all ---------------------- applicable tariffs, rules and orders of judicial and regulatory bodies, and local, state. and federal laws. f) No Proprietary Rights Conferred. Nothing contained in the Agreement ---------------------------------- shall be construed as conferring to either party by implication. estoppel, or otherwise,, any license or right, under any patent, trademark, service mark, trade name, copyright, or other proprietary right of Company or Applicant. g) Modification. No modification or amendment of this Agreement shall be ------------ valid or binding on the parties unless such modification or amendment is made in writing and duly executed by the authorized representative of each party. h) Entire Agreement. This Agreement sets forth the entire understanding ----------------- between the parties relating to the subject matter contained herein and merges all prior discussions between them. IN WITNESS WHEREOF, the duly authorized persons below have executed this Agreement as of the date first above written on behalf of the parties. Southwestern Bell Telephone Applicant: NETWORKS ON-LINE, INC. ---------------------------- By: Amy E. Cook By: Don Brown - ------------------------------- --------------------------------------- Amy E. Cook - ------------------------------- --------------------------------------- (Print Name) (Print Name) Title: Area Manager Sales Agency Title: DB - ------------------------------- --------------------------------------- Southwestern Bell - ------------------------------- --------------------------------------- Date Signed: 9/7/99 Date Signed: 9/2/99 - ------------------------------- --------------------------------------- EX-10.5 9 0009.txt EXHIBIT 10.5 10.5 Ascend Lease Agreements. ================================================================================ || ASCEND CREDIT CORPORATION GRAND SLAM LEASE AGREEMENT # GS-130 || ================================================================================ US. Version GS Lease -30 Month Term - -------------------------------------------------------------------------------- Legal Business Name (Lessee): Networks On-Line - -------------------------------------------------------------------------------- D.B.A. (if any): Subsidiary of Comtech Consolidation Group, Inc. - -------------------------------------------------------------------------------- Lessee Address: 10497 Town & Country Way #460 Houston, TX 77024 - -------------------------------------------------------------------------------- Equipment Location (if different from above): - -------------------------------------------------------------------------------- This Lease Agreement ("Lease") is entered into by and between Ascend Credit Corporation ("ACC"), a California Corporation, and Lessee. Lessee and ACC may. from time to time, enter into similar Lease agreements for the Lease of equipment which collectively with this Lease arc Leases ("Leases"). LEASE: ACC agrees to Lease to Lessee, and Lessee agrees to Lease from ACC, the equipment referenced herein ("Equipment"). LEASE COMMENCEMENT DATE: The tease Commencement Date shall be the date the Equipment is shipped by Ascend Communications. Inc. ("Ascend") or its authorized reseller ("Reseller") as evidenced-by a shipping document provided by Ascend or Reseller related to the Equipment. LEASE TERM: Lessee will pay Lease payments on a prorated monthly basis for the period beginning 90 days after the Lease Commencement Date until the next l5" day of the calendar month and thereafter for each consecutive month of the Lease Term. After the initial Term, and until Lessee returns the Equipment to ACC, the Lease shall continue on a month-to-month basis, unless Lessee has notified ACC of its intent to purchase the equipment by paying the then Fair Market Value (FMV) of the Equipment The FMV of the Equipment shall be equal to the value of the Equipment installed and in use, with consideration given to the age, condition, utility and replacement costs for the Equipment. WARRANTIES. ACC MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND. EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS Merchantability. OR ITS FITNESS FOR A PARTICULAR PURPOSE. ACC SHALL NOT BE LIABLE TO LESSEE OR ANY OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL. INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM LESSEE'S USE OF THE EQUIPMENT. OR FOR DAMAGES BASED ON STRICT OR ABSOLUTE TORT LIABILITY OR ACC'S PASSIVE NEGUGENCE. LESSEE HEREBY ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIER'S WARRANTIES WITH RESPECT TO THE EQUIPMENT ARE FOR THE BENEFIT OF Both ACC AND LESSEE. NOTWITHSTANDING THE FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH LEASE PAYMENT DUE, OR OTHERWISE PERFORM ITS OBLIGATIONS, UNDER THIS LEASE ARE ABSOLUTE AND UNCONDITIONAL. TITLE TO AND LOCATION OF EQUIPMENT. ACC shall retain title to each item of Equipment Lessee, at its expense, shall protect ACC's title and keep the Equipment free from all claims, liens. encumbrances and legal processes. The Equipment is personal property and is not to be regarded as part of the real estate on which it may be situated. ACC is authorized to file financing statements signed only by the ACC in accordance with the Uniform Commercial Code or financing statements signed by ACC as Lessee's attorney-in-fact The Equipment shall not be moved without the written consent of ACC. Lessee shall, upon ACCs request, affix and maintain plates, tags or other indenting labels, showing ACCs ownership of the Equipment in a prominent position on the Equipment. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to indemnify protect and hold harmless. ACC, and its agents, employees. officers. directors, partners and successors and assigns, from and against, all liabilities. obligations, losses. damages. injuries, claims. demands, penalties, actions, costs and expenses, including, without limitation, reasonable attorneys fees, of whatever kind and nature, in contract or in tort, arising out of the use, condition, operation, ownership, selection, delivery, lease or return of any item of Equipment, regardless of when, how and by whom operated, or any failure on the part of Lessee to perform or comply with any of its obligations under this Lease, excluding, however, any of the foregoing which result from the gross negligence or willful misconduct of ACC. Such indemnities and assumptions of liabilities and obligations shall continue in lull force and effect, notwithstanding the expiration or other termination of this Lease. Nothing contained in this Lease shall authorize Lessee to operate the Equipment so as to incur or impose any liability on, or obligation for or on behalf of ACC. NO OFF-SET. All Leases shall be paid by Lessee irrespective of any off-set, counterclaim, recoupment, defense or other right which Lessee may have against ACC, the manufacturer or supplier of the Equipment or any other party. This includes, but is not limited to, any claim Lessee may have against any supplier or manufacturer's reseller. ASSIGNMENT BY LESSEE. Lessee shall not, without ACCs prior written consent, (a) sell, as tgn, transfer, pledge, hypothecate, or otherwise dispose of encumber or suffer to exist a lien upon or against, any of the Equipment or any Lease or any interest therein, by operation of law or otherwise, or (b) sublease or lend any of the Equipment or permit any of the Equipment to be used by anyone other than Lessee. ASSIGNMENT BY ACC ACC may assign, sell or encumber its interest in any of the Equipment and any Lease. Upon ACC's written consent, Lessee shall pay directly to the assignee of any such interest all Lease and other sums due under an assigned Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE SUBJECT TO ANY ABATEMENT, DEDUCTION, OFF-SET, COUNTERCLAIM RECOUPMENT, DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST ACC OR ANY OTHER PERSON OR ENTITY. Notwithstanding the foregoing, any such assignment (a) shall be subject to Lessee's right to possess and use the Equipment subject to a Lease so long as Lessee is not in default thereunder, and (b) shall not release any of ACCs obligations hereunder. RETURN OF EQUIPMENT. After the initial Term, upon which time Lessee has exercised its option to terminate the Lease, Lessee shall, at its expense, cause such Equipment to be removed, disassembled, and placed in the same condition as when delivered to Lessee (reasonable wear and tear excepted) and properly crate such Equipment for shipment and deliver it to a common carrier designated by ACC. Lessee will ship such Equipment, F.O.B. destination, to any address specified in writing by ACC within the continental United States. All additions, attachments. alterations and repairs made or placed upon any of the Equipment shall become part of such Equipment and shall be the property of ACC. EVENTS OF DEFAULT. The occurrence of any of the following shall be deemed to constitute an Event of Default hereunder with respect to this Lease or any of the Leases: (a) Lessee fails to pay Lease payments, any other amount it is obligated to pay under a Lease, or any other amount it is obligation pay to ACC and does not cure such failure within 10 days of such amount becoming due, (b) Lessee fails to perform or observe any obligation or covenant to be performed or observed by Lessee hereunder, including, without limitation, supplying all requested documentation, and does not cure such failure within 10 days of receiving written notice thereof from ACC; (c) any warranty, representation or statement made or furnished to ACC by or on behalf of Lessee is proven to have been false in any material respect when made or furnished. (d) the attempted sale or encumbrance by Lessee of the Equipment, or the making of any levy, seizure or attachment thereof or thereon; or (e) the dissolution, termination of existence, discontinuance of business, insolvency, or appointment of a receiver of any part of the property of Lessee, assignment by Lessee for the benefit of creditors, the commencement of proceedings under any bankruptcy, reorganization or arrangement laws by or against Lessee, or any other act of bankruptcy on the pert of Lessee. REMEDIES OF ACC At any time after the occurrence of any Event of Default, ACC may exercise one or more of the following remedies with respect to this Lease or any of the Leases: (a) ACC may terminate this Lease or any or all of the Leases with respect to any or all items of Equipment subject thereto; (b) ACC may recover from Lessee all Lease payments and other amounts then due and to become due under any or all of the Leases; (c) ACC may take possession of any or all items of Equipment subject to this Lease or any of the Leases, wherever the same may be located, without demand or notice, without any court order or other process of law and without liability to Lessee for any damages occasioned by such taking of possession, and any such taking of possession shall not constitute a termination of any Lease; (d) ACC may demand that Lessee return any or all items of Equipment subject to this Lease or any Leases to ACC in accordance with the provisions described herein; and (e) ACC may pursue any other remedy available at law or in equity, including, without limitation, seeking damages, specific performance or an injunction. Upon repossession or return of any item of the Equipment, ACC shall sell, Lease or otherwise dispose of such item in a commercially reasonable manner, with or without notice and on public or private bid, and apply the net thereof (after deducting the estimated fair market value of such item at the expiration of the term of the applicable Lease, in the case of a sale, or the payments due for any period beyond the scheduled expiration of such Lease, in the case of any subsequent Lease of such item, and all expenses, including, limitation, reasonable attorneys' fees, Page 1 of 3 Grand Slam Lease Agreement #GS-130 Lessee Initials: DB -- incurred in connection therewith) towards the Lease payable and other amounts duo under such Lease with any excess net proceeds to be retained by ACC. Each of the remedies under this Lease shall be cumulative, 'and not exclusive, and in addition to any other remedy referred to herein or otherwise available to ACC in law or in equity. Any repossession or subsequent sah or Lease by ACC of any item of Equipment shall not bar an action for a deficiency as herein provided, and the bringing of an action or the enter judgment against Lessee shall not bar ACC's right to repossess any or all items of Equipment the Term of this Lease INSURANCE. As of the date that the Equipment is shipped from the manufacturer, Lessee shall obtain and maintain during (as extended), at its own expense, property damage and personal liability insurance and insurance against loss or damage to the Equipment, including, without limitation, loss by fire, theft and other such risks. Lessee shall give ACC prompt notice of any damage to, or loss of any of the Equipment, or any part thereof or any personal injury or property damage occasioned by the use of any of the Equipment. TAXES. Lessee hereby assumes liability for, and shall pay when due, and, on a net after-tax basis, shall indemnify, protect and hold harmless ACC against all fees, taxes and governmental charges (including, without limitation, interest and penalties) of any nature imposed on or in any way relating to ACC, Lessee, any item of Equipment or any Lease, except state and local taxes on or measured by ACCs net income (other than any such tax which is in substitution for or relieves Lessee from the payment of taxes it would otherwise be obligated to pay or reimburse to ACC as herein provided) and federal taxes on ACCs net income. Lessee shall, at its expense, file when due with the appropriate authorities any and all tax and similar returns, and reports required to be filed with respect thereto, for which it has indemnified ACC hereunder or, if requested by ACC, notify ACC of all such requirements and furnish ACC with all information required for ACC to effect such filings. Any fees, taxes or other charges paid by ACC upon failure of Lessee to make such payments shall, at ACC's option, become immediately due from Lessee to ACC and shall be subject to the Overdue Charge from the date paid by ACC until the date reimbursed by Lessee. NOTICES. All notices hereunder shall be in writing and shall ,be deemed given when sent by certified mail, postage prepaid, return receipt requested, addressed to the party to which it is being sent at its business address set forth in this doc4ment or to such other address as such party may designate in writing to the other party. GENERAL If any provision of any Lease is held to be invalid by a court of competent jurisdiction, such invalidity shall not affect the other provisions of such Lease or any provision of any other Lease. This Lease shall be governed by and construed in accordance with the internal laws, but not the choice of laws provisions, of the State of California. An overdue charge will be assessed and Lessee agrees to pay an amount equal to 2% per month of any payment which is past due under this Lease or ("Overdue Charge"). The titles of the sections of this Lease Agreement are for convenience only and shall not define or limit any of the terms or provisions hereof. No provision of any Lease may be changed, waived, amended or terminated except by a written agreement signed by both ACC and Lessee, except that ACC may insert missing or corrected information in the sections entitled "Direct Debit/Payment Information" and "Agreement Details" and also in the "Grand Slam Lease Application" form. Time is of the essence in each of the provisions hereof. This Lease shall be binding upon, and inure to the benefit o the permitted assigns, representatives and successors of ACC and Lessee. If there is more than one Lessee named in this Lease Agreement, the liability of each shall be joint and several. AGREEMENT DETAILS. Equipment Description: See Schedule A. Equipment Sales Price: $21,760 (exclusive of sales and/or use tax) -------- Monthly Lease Payment: $ 904 (exclusive of sales and/or use tax) -------- Payment: $ 1,088 (exclusive of sales and/or use tax) -------- Lease Term: 30 Months -------- THIS DOWN PAYMENT AMOUNT WILL BE DIRECT DEBITED FREES YOUR BANK ACCOUNT BEFORE EQUIPMENT CAN BE SHIPPED. LESSEE WILL PAY LEASE PAYMENTS ON A PRORATED MONTHLY BASIS FOR THE PERIOD BEGINNING 90 DAYS AFTER THE LEASE COMMENCEMENT DATE UNTIL THE NEXT 151B DAY OF THE CALENDAR MONTH AND THEREAFTER FOR EACH CONSECUTIVE MONTH OF THE LEASE. APPLICABLE SALES TAXES WILL BE INCLUDED ON THE DIRECT DEBIT WHEN APPLICABLE. The person executing this Agreement on behalf of Lessee hereby certifies that the Lessee is a duly constituted business entity and that he or she has read, and is duly authorized to Lease. Accepted by: Less Ascend Credit Corporation X DB By:_________________________________ Name: Don Brown Name:_______________________________ Title: PRESIDENT Title:______________________________ Date: 5/20/98 Date:_______________________________ ================================================================================ DIRECT DEBIT PAYMENT INFORMATION: This information must be completed and to fill your order. Bank Name: BANK ONE Bank Address: 910 TRAVIS 9th FLOOR, HOUSTON TX.77008 ---------------- --------------------------------------- Bank Contact Name:SHARON REYNOLDS Bank Phone 713-751-3804 ----------------- --------------------------------- Bank Routing#(9digits): 1 1 1 0 0 0 6 1 4 Account#: 18424132615 - - - - - - - - - ------------------- Exact Account Name: NETWORKS ON-LINE ----------------------------------------------------------- Account Category (circle one): I - Individual (C) - Commercial Account Type (circle one): (C) - Checking S - Savings By completing this information, I hereby authorize Ascend Credit Corporation, its assignee, and its bank to initiate ACM Debit entries to the financial institution account indicated above, for payment of all charges concerning this Lease Agreement. I further authorize the financial institution named above to debit such entries in the account indicated above. This authorization is to remain in full force and effect until Ascend Credit Corporation or its assignee have received written notification\n me of termination in such time and in such manner as to afford a reasonable opportunity to act on it. Signature X /s/ DB Name: DON B BROWN Date: 5/20/98 --------------- -------------------------- ---------------- Page 2 of 3 Grand Slam Lease Agreement #GS-130 Lessee Initials DB ---- ================================================================================ || ASCEND CREDIT CORPORATION GRAND SLAM LEASE AGREEMENT # GS-155 || ================================================================================ US. Version GS Lease -30 Month Term - -------------------------------------------------------------------------------- Legal Business Name (Lessee): Comtech Consolidastion Group - -------------------------------------------------------------------------------- D.B.A. (if any): Subsidiary of Comtech Consolidation Group, Inc. - -------------------------------------------------------------------------------- Lessee Address: 10497 Town & Country Way #460 Houston, TX 77024 - -------------------------------------------------------------------------------- Equipment Location (if different from above): - -------------------------------------------------------------------------------- This Lease Agreement ("Lease") is entered into by and between Ascend Credit Corporation ("ACC"), a California Corporation, and Lessee. Lessee and ACC may. from time to time, enter into similar Lease agreements for the Lease of equipment which collectively with this Lease arc Leases ("Leases"). LEASE: ACC agrees to Lease to Lessee, and Lessee agrees to Lease from ACC, the equipment referenced herein ("Equipment"). LEASE COMMENCEMENT DATE: The tease Commencement Date shall be the date the Equipment is shipped by Ascend Communications. Inc. ("Ascend") or its authorized reseller ("Reseller") as evidenced-by a shipping document provided by Ascend or Reseller related to the Equipment. LEASE TERM: Lessee will pay Lease payments on a prorated monthly basis for the period beginning 90 days after the Lease Commencement Date until the next l5" day of the calendar month and thereafter for each consecutive month of the Lease Term. After the initial Term, and until Lessee returns the Equipment to ACC, the Lease shall continue on a month-to-month basis, unless Lessee has notified ACC of its intent to purchase the equipment by paying the then Fair Market Value (FMV) of the Equipment The FMV of the Equipment shall be equal to the value of the Equipment installed and in use, with consideration given to the age, condition, utility and replacement costs for the Equipment. WARRANTIES. ACC MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND. EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS Merchantability. OR ITS FITNESS FOR A PARTICULAR PURPOSE. ACC SHALL NOT BE LIABLE TO LESSEE OR ANY OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL. INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM LESSEE'S USE OF THE EQUIPMENT. OR FOR DAMAGES BASED ON STRICT OR ABSOLUTE TORT LIABILITY OR ACC'S PASSIVE NEGUGENCE. LESSEE HEREBY ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIER'S WARRANTIES WITH RESPECT TO THE EQUIPMENT ARE FOR THE BENEFIT OF Both ACC AND LESSEE. NOTWITHSTANDING THE FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH LEASE PAYMENT DUE, OR OTHERWISE PERFORM ITS OBLIGATIONS, UNDER THIS LEASE ARE ABSOLUTE AND UNCONDITIONAL. TITLE TO AND LOCATION OF EQUIPMENT. ACC shall retain title to each item of Equipment Lessee, at its expense, shall protect ACC's title and keep the Equipment free from all claims, liens. encumbrances and legal processes. The Equipment is personal property and is not to be regarded as part of the real estate on which it may be situated. ACC is authorized to file financing statements signed only by the ACC in accordance with the Uniform Commercial Code or financing statements signed by ACC as Lessee's attorney-in-fact The Equipment shall not be moved without the written consent of ACC. Lessee shall, upon ACCs request, affix and maintain plates, tags or other indenting labels, showing ACCs ownership of the Equipment in a prominent position on the Equipment. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to indemnify protect and hold harmless. ACC, and its agents, employees. officers. directors, partners and successors and assigns, from and against, all liabilities. obligations, losses. damages. injuries, claims. demands, penalties, actions, costs and expenses, including, without limitation, reasonable attorneys fees, of whatever kind and nature, in contract or in tort, arising out of the use, condition, operation, ownership, selection, delivery, lease or return of any item of Equipment, regardless of when, how and by whom operated, or any failure on the part of Lessee to perform or comply with any of its obligations under this Lease, excluding, however, any of the foregoing which result from the gross negligence or willful misconduct of ACC. Such indemnities and assumptions of liabilities and obligations shall continue in lull force and effect, notwithstanding the expiration or other termination of this Lease. Nothing contained in this Lease shall authorize Lessee to operate the Equipment so as to incur or impose any liability on, or obligation for or on behalf of ACC. NO OFF-SET. All Leases shall be paid by Lessee irrespective of any off-set, counterclaim, recoupment, defense or other right which Lessee may have against ACC, the manufacturer or supplier of the Equipment or any other party. This includes, but is not limited to, any claim Lessee may have against any supplier or manufacturer's reseller. ASSIGNMENT BY LESSEE. Lessee shall not, without ACCs prior written consent, (a) sell, assign, transfer, pledge, hypothecate, or otherwise dispose of encumber or suffer to exist a lien upon or against, any of the Equipment or any Lease or any interest therein, by operation of law or otherwise, or (b) sublease or lend any of the Equipment or permit any of the Equipment to be used by anyone other than Lessee. ASSIGNMENT BY ACC ACC may assign, sell or encumber its interest in any of the Equipment and any Lease. Upon ACC's written consent, Lessee shall pay directly to the assignee of any such interest all Lease and other sums due under an assigned Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE SUBJECT TO ANY ABATEMENT, DEDUCTION, OFF-SET, COUNTERCLAIM RECOUPMENT, DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST ACC OR ANY OTHER PERSON OR ENTITY. Notwithstanding the foregoing, any such assignment (a) shall be subject to Lessee's right to possess and use the Equipment subject to a Lease so long as Lessee is not in default thereunder, and (b) shall not release any of ACCs obligations hereunder. RETURN OF EQUIPMENT. After the initial Term, upon which time Lessee has exercised its option to terminate the Lease, Lessee shall, at its expense, cause such Equipment to be removed, disassembled, and placed in the same condition as when delivered to Lessee (reasonable wear and tear excepted) and properly crate such Equipment for shipment and deliver it to a common carrier designated by ACC. Lessee will ship such Equipment, F.O.B. destination, to any address specified in writing by ACC within the continental United States. All additions, attachments. alterations and repairs made or placed upon any of the Equipment shall become part of such Equipment and shall be the property of ACC. EVENTS OF DEFAULT. The occurrence of any of the following shall be deemed to constitute an Event of Default hereunder with respect to this Lease or any of the Leases: (a) Lessee fails to pay Lease payments, any other amount it is obligated to pay under a Lease, or any other amount it is obligation pay to ACC and does not cure such failure within 10 days of such amount becoming due, (b) Lessee fails to perform or observe any obligation or covenant to be performed or observed by Lessee hereunder, including, without limitation, supplying all requested documentation, and does not cure such failure within 10 days of receiving written notice thereof from ACC; (c) any warranty, representation or statement made or furnished to ACC by or on behalf of Lessee is proven to have been false in any material respect when made or furnished. (d) the attempted sale or encumbrance by Lessee of the Equipment, or the making of any levy, seizure or attachment thereof or thereon; or (e) the dissolution, termination of existence, discontinuance of business, insolvency, or appointment of a receiver of any part of the property of Lessee, assignment by Lessee for the benefit of creditors, the commencement of proceedings under any bankruptcy, reorganization or arrangement laws by or against Lessee, or any other act of bankruptcy on the pert of Lessee. REMEDIES OF ACC At any time after the occurrence of any Event of Default, ACC may exercise one or more of the following remedies with respect to this Lease or any of the Leases: (a) ACC may terminate this Lease or any or all of the Leases with respect to any or all items of Equipment subject thereto; (b) ACC may recover from Lessee all Lease payments and other amounts then due and to become due under any or all of the Leases; (c) ACC may take possession of any or all items of Equipment subject to this Lease or any of the Leases, wherever the same may be located, without demand or notice, without any court order or other process of law and without liability to Lessee for any damages occasioned by such taking of possession, and any such taking of possession shall not constitute a termination of any Lease; (d) ACC may demand that Lessee return any or all items of Equipment subject to this Lease or any Leases to ACC in accordance with the provisions described herein; and (e) ACC may pursue any other remedy available at law or in equity, including, without limitation, seeking damages, specific performance or an injunction. Upon repossession or return of any item of the Equipment, ACC shall sell, Lease or otherwise dispose of such item in a commercially reasonable manner, with or without notice and on public or private bid, and apply the net thereof (after deducting the estimated fair market value of such item at the expiration of the term of the applicable Lease, in the case of a sale, or the payments due for any period beyond the scheduled expiration of such Lease, in the case of any subsequent Lease of such item, and all expenses, including, limitation, reasonable attorneys' fees, Page 1 of 3 Grand Slam Lease Agreement #GS-130 Lessee Initials: DB -- 6/12/98 incurred in connection therewith) towards the Lease payable and other amounts duo under such Lease with any excess net proceeds to be retained by ACC. Each of the remedies under this Lease shall be cumulative, 'and not exclusive, and in addition to any other remedy referred to herein or otherwise available to ACC in law or in equity. Any repossession or subsequent sah or Lease by ACC of any item of Equipment shall not bar an action for a deficiency as herein provided, and the bringing of an action or the enter judgment against Lessee shall not bar ACC's right to repossess any or all items of Equipment the Term of this Lease. INSURANCE. As of the date that the Equipment is shipped from the manufacturer, Lessee shall obtain and maintain during (as extended), at its own expense, property damage and personal liability insurance and insurance against loss or damage to the Equipment, including, without limitation, loss by fire, theft and other such risks. Lessee shall give ACC prompt notice of any damage to, or loss of any of the Equipment, or any part thereof or any personal injury or property damage occasioned by the use of any of the Equipment. TAXES. Lessee hereby assumes liability for, and shall pay when due, and, on a net after-tax basis, shall indemnify, protect and hold harmless ACC against all fees, taxes and governmental charges (including, without limitation, interest and penalties) of any nature imposed on or in any way relating to ACC, Lessee, any item of Equipment or any Lease, except state and local taxes on or measured by ACCs net income (other than any such tax which is in substitution for or relieves Lessee from the payment of taxes it would otherwise be obligated to pay or reimburse to ACC as herein provided) and federal taxes on ACCs net income. Lessee shall, at its expense, file when due with the appropriate authorities any and all tax and similar returns, and reports required to be filed with respect thereto, for which it has indemnified ACC hereunder or, if requested by ACC, notify ACC of all such requirements and furnish ACC with all information required for ACC to effect such filings. Any fees, taxes or other charges paid by ACC upon failure of Lessee to make such payments shall, at ACC's option, become immediately due from Lessee to ACC and shall be subject to the Overdue Charge from the date paid by ACC until the date reimbursed by Lessee. NOTICES. All notices hereunder shall be in writing and shall ,be deemed given when sent by certified mail, postage prepaid, return receipt requested, addressed to the party to which it is being sent at its business address set forth in this doc4ment or to such other address as such party may designate in writing to the other party. GENERAL If any provision of any Lease is held to be invalid by a court of competent jurisdiction, such invalidity shall not affect the other provisions of such Lease or any provision of any other Lease. This Lease shall be governed by and construed in accordance with the internal laws, but not the choice of laws provisions, of the State of California. An overdue charge will be assessed and Lessee agrees to pay an amount equal to 2% per month of any payment which is past due under this Lease or ("Overdue Charge"). The titles of the sections of this Lease Agreement are for convenience only and shall not define or limit any of the terms or provisions hereof. No provision of any Lease may be changed, waived, amended or terminated except by a written agreement signed by both ACC and Lessee, except that ACC may insert missing or corrected information in the sections entitled "Direct Debit/Payment Information" and "Agreement Details" and also in the "Grand Slam Lease Application" form. Time is of the essence in each of the provisions hereof. This Lease shall be binding upon, and inure to the benefit o the permitted assigns, representatives and successors of ACC and Lessee. If there is more than one Lessee named in this Lease Agreement, the liability of each shall be joint and several. AGREEMENT DETAILS. Equipment Description: See Schedule A. Equipment Sales Price: $21,760 (exclusive of sales and/or use tax) -------- Monthly Lease Payment: $ 904 (exclusive of sales and/or use tax) -------- Payment: $ 1,088 (exclusive of sales and/or use tax) -------- Lease Term: 30 Months -------- THIS DOWN PAYMENT AMOUNT WILL BE DIRECT DEBITED FREES YOUR BANK ACCOUNT BEFORE EQUIPMENT CAN BE SHIPPED. LESSEE WILL PAY LEASE PAYMENTS ON A PRORATED MONTHLY BASIS FOR THE PERIOD BEGINNING 90 DAYS AFTER THE LEASE COMMENCEMENT DATE UNTIL THE NEXT 151B DAY OF THE CALENDAR MONTH AND THEREAFTER FOR EACH CONSECUTIVE MONTH OF THE LEASE. APPLICABLE SALES TAXES WILL BE INCLUDED ON THE DIRECT DEBIT WHEN APPLICABLE. The person executing this Agreement on behalf of Lessee hereby certifies that the Lessee is a duly constituted business entity and that he or she has read, and is duly authorized to Lease. Accepted by: Less Ascend Credit Corporation X DB By:_________________________________ Name: Don Brown Name:_______________________________ Title: EXEC V.P. Title:______________________________ Date: 6/12/98 Date:_______________________________ ================================================================================ DIRECT DEBIT PAYMENT INFORMATION: This information must be completed and to fill your order. Bank Name: Nations Bank Bank Address: 11288 WESTHIEMER, HOUSTON TX. ---------------- --------------------------------------- Bank Contact Name:SHARON REYNOLDS Bank Phone 713-751-3804 ----------------- --------------------------------- Bank Routing#(9digits): 1 1 3 0 0 0 0 2 3 Account#: 281-856-1901 - - - - - - - - - ------------------- Exact Account Name: NETWORKS ON-LINE ----------------------------------------------------------- Account Category (circle one): I - Individual (C) - Commercial Account Type (circle one): (C) - Checking S - Savings By completing this information, I hereby authorize Ascend Credit Corporation, its assignee, and its bank to initiate ACM Debit entries to the financial institution account indicated above, for payment of all charges concerning this Lease Agreement. I further authorize the financial institution named above to debit such entries in the account indicated above. This authorization is to remain in full force and effect until Ascend Credit Corporation or its assignee have received written notification\n me of termination in such time and in such manner as to afford a reasonable opportunity to act on it. Signature X /s/ DB Name: DON B BROWN Date: 6/12/98 --------------- -------------------------- ---------------- Page 2 of 3 Grand Slam Lease Agreement #GS-130 Lessee Initials: DB -- ================================================================================ || ASCEND CREDIT CORPORATION GRAND SLAM LEASE AGREEMENT # GS-164 || ================================================================================ US. Version GS Lease -30 Month Term - -------------------------------------------------------------------------------- Legal Business Name (Lessee): Comtech Consolidastion Group - -------------------------------------------------------------------------------- D.B.A. (if any): Subsidiary of Comtech Consolidation Group, Inc. - -------------------------------------------------------------------------------- Lessee Address: 10497 Town & Country Way #460 Houston, TX 77024 - -------------------------------------------------------------------------------- Equipment Location (if different from above): - -------------------------------------------------------------------------------- This Lease Agreement ("Lease") is entered into by and between Ascend Credit Corporation ("ACC"), a California Corporation, and Lessee. Lessee and ACC may. from time to time, enter into similar Lease agreements for the Lease of equipment which collectively with this Lease arc Leases ("Leases"). LEASE: ACC agrees to Lease to Lessee, and Lessee agrees to Lease from ACC, the equipment referenced herein ("Equipment"). LEASE COMMENCEMENT DATE: The tease Commencement Date shall be the date the Equipment is shipped by Ascend Communications. Inc. ("Ascend") or its authorized reseller ("Reseller") as evidenced-by a shipping document provided by Ascend or Reseller related to the Equipment. LEASE TERM: Lessee will pay Lease payments on a prorated monthly basis for the period beginning 90 days after the Lease Commencement Date until the next l5" day of the calendar month and thereafter for each consecutive month of the Lease Term. After the initial Term, and until Lessee returns the Equipment to ACC, the Lease shall continue on a month-to-month basis, unless Lessee has notified ACC of its intent to purchase the equipment by paying the then Fair Market Value (FMV) of the Equipment The FMV of the Equipment shall be equal to the value of the Equipment installed and in use, with consideration given to the age, condition, utility and replacement costs for the Equipment. WARRANTIES. ACC MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND. EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS Merchantability. OR ITS FITNESS FOR A PARTICULAR PURPOSE. ACC SHALL NOT BE LIABLE TO LESSEE OR ANY OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL. INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM LESSEE'S USE OF THE EQUIPMENT. OR FOR DAMAGES BASED ON STRICT OR ABSOLUTE TORT LIABILITY OR ACC'S PASSIVE NEGUGENCE. LESSEE HEREBY ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIER'S WARRANTIES WITH RESPECT TO THE EQUIPMENT ARE FOR THE BENEFIT OF Both ACC AND LESSEE. NOTWITHSTANDING THE FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH LEASE PAYMENT DUE, OR OTHERWISE PERFORM ITS OBLIGATIONS, UNDER THIS LEASE ARE ABSOLUTE AND UNCONDITIONAL. TITLE TO AND LOCATION OF EQUIPMENT. ACC shall retain title to each item of Equipment Lessee, at its expense, shall protect ACC's title and keep the Equipment free from all claims, liens. encumbrances and legal processes. The Equipment is personal property and is not to be regarded as part of the real estate on which it may be situated. ACC is authorized to file financing statements signed only by the ACC in accordance with the Uniform Commercial Code or financing statements signed by ACC as Lessee's attorney-in-fact The Equipment shall not be moved without the written consent of ACC. Lessee shall, upon ACCs request, affix and maintain plates, tags or other indenting labels, showing ACCs ownership of the Equipment in a prominent position on the Equipment. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to indemnify protect and hold harmless. ACC, and its agents, employees. officers. directors, partners and successors and assigns, from and against, all liabilities. obligations, losses. damages. injuries, claims. demands, penalties, actions, costs and expenses, including, without limitation, reasonable attorneys fees, of whatever kind and nature, in contract or in tort, arising out of the use, condition, operation, ownership, selection, delivery, lease or return of any item of Equipment, regardless of when, how and by whom operated, or any failure on the part of Lessee to perform or comply with any of its obligations under this Lease, excluding, however, any of the foregoing which result from the gross negligence or willful misconduct of ACC. Such indemnities and assumptions of liabilities and obligations shall continue in lull force and effect, notwithstanding the expiration or other termination of this Lease. Nothing contained in this Lease shall authorize Lessee to operate the Equipment so as to incur or impose any liability on, or obligation for or on behalf of ACC. NO OFF-SET. All Leases shall be paid by Lessee irrespective of any off-set, counterclaim, recoupment, defense or other right which Lessee may have against ACC, the manufacturer or supplier of the Equipment or any other party. This includes, but is not limited to, any claim Lessee may have against any supplier or manufacturer's reseller. ASSIGNMENT BY LESSEE. Lessee shall not, without ACCs prior written consent, (a) sell, assign, transfer, pledge, hypothecate, or otherwise dispose of encumber or suffer to exist a lien upon or against, any of the Equipment or any Lease or any interest therein, by operation of law or otherwise, or (b) sublease or lend any of the Equipment or permit any of the Equipment to be used by anyone other than Lessee. ASSIGNMENT BY ACC ACC may assign, sell or encumber its interest in any of the Equipment and any Lease. Upon ACC's written consent, Lessee shall pay directly to the assignee of any such interest all Lease and other sums due under an assigned Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE SUBJECT TO ANY ABATEMENT, DEDUCTION, OFF-SET, COUNTERCLAIM RECOUPMENT, DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST ACC OR ANY OTHER PERSON OR ENTITY. Notwithstanding the foregoing, any such assignment (a) shall be subject to Lessee's right to possess and use the Equipment subject to a Lease so long as Lessee is not in default thereunder, and (b) shall not release any of ACCs obligations hereunder. RETURN OF EQUIPMENT. After the initial Term, upon which time Lessee has exercised its option to terminate the Lease, Lessee shall, at its expense, cause such Equipment to be removed, disassembled, and placed in the same condition as when delivered to Lessee (reasonable wear and tear excepted) and properly crate such Equipment for shipment and deliver it to a common carrier designated by ACC. Lessee will ship such Equipment, F.O.B. destination, to any address specified in writing by ACC within the continental United States. All additions, attachments. alterations and repairs made or placed upon any of the Equipment shall become part of such Equipment and shall be the property of ACC. EVENTS OF DEFAULT. The occurrence of any of the following shall be deemed to constitute an Event of Default hereunder with respect to this Lease or any of the Leases: (a) Lessee fails to pay Lease payments, any other amount it is obligated to pay under a Lease, or any other amount it is obligation pay to ACC and does not cure such failure within 10 days of such amount becoming due, (b) Lessee fails to perform or observe any obligation or covenant to be performed or observed by Lessee hereunder, including, without limitation, supplying all requested documentation, and does not cure such failure within 10 days of receiving written notice thereof from ACC; (c) any warranty, representation or statement made or furnished to ACC by or on behalf of Lessee is proven to have been false in any material respect when made or furnished. (d) the attempted sale or encumbrance by Lessee of the Equipment, or the making of any levy, seizure or attachment thereof or thereon; or (e) the dissolution, termination of existence, discontinuance of business, insolvency, or appointment of a receiver of any part of the property of Lessee, assignment by Lessee for the benefit of creditors, the commencement of proceedings under any bankruptcy, reorganization or arrangement laws by or against Lessee, or any other act of bankruptcy on the pert of Lessee. REMEDIES OF ACC At any time after the occurrence of any Event of Default, ACC may exercise one or more of the following remedies with respect to this Lease or any of the Leases: (a) ACC may terminate this Lease or any or all of the Leases with respect to any or all items of Equipment subject thereto; (b) ACC may recover from Lessee all Lease payments and other amounts then due and to become due under any or all of the Leases; (c) ACC may take possession of any or all items of Equipment subject to this Lease or any of the Leases, wherever the same may be located, without demand or notice, without any court order or other process of law and without liability to Lessee for any damages occasioned by such taking of possession, and any such taking of possession shall not constitute a termination of any Lease; (d) ACC may demand that Lessee return any or all items of Equipment subject to this Lease or any Leases to ACC in accordance with the provisions described herein; and (e) ACC may pursue any other remedy available at law or in equity, including, without limitation, seeking damages, specific performance or an injunction. Upon repossession or return of any item of the Equipment, ACC shall sell, Lease or otherwise dispose of such item in a commercially reasonable manner, with or without notice and on public or private bid, and apply the net thereof (after deducting the estimated fair market value of such item at the expiration of the term of the applicable Lease, in the case of a sale, or the payments due for any period beyond the scheduled expiration of such Lease, in the case of any subsequent Lease of such item, and all expenses, including, limitation, reasonable attorneys' fees, Page 1 of 3 Grand Slam Lease Agreement #GS-130 Lessee Initials: DB -- incurred in connection therewith) towards the Lease payable and other amounts duo under such Lease with any excess net proceeds to be retained by ACC. Each of the remedies under this Lease shall be cumulative, 'and not exclusive, and in addition to any other remedy referred to herein or otherwise available to ACC in law or in equity. Any repossession or subsequent sah or Lease by ACC of any item of Equipment shall not bar an action for a deficiency as herein provided, and the bringing of an action or the enter judgment against Lessee shall not bar ACC's right to repossess any or all items of Equipment the Term of this Lease. INSURANCE. As of the date that the Equipment is shipped from the manufacturer, Lessee shall obtain and maintain during (as extended), at its own expense, property damage and personal liability insurance and insurance against loss or damage to the Equipment, including, without limitation, loss by fire, theft and other such risks. Lessee shall give ACC prompt notice of any damage to, or loss of any of the Equipment, or any part thereof or any personal injury or property damage occasioned by the use of any of the Equipment. TAXES. Lessee hereby assumes liability for, and shall pay when due, and, on a net after-tax basis, shall indemnify, protect and hold harmless ACC against all fees, taxes and governmental charges (including, without limitation, interest and penalties) of any nature imposed on or in any way relating to ACC, Lessee, any item of Equipment or any Lease, except state and local taxes on or measured by ACCs net income (other than any such tax which is in substitution for or relieves Lessee from the payment of taxes it would otherwise be obligated to pay or reimburse to ACC as herein provided) and federal taxes on ACCs net income. Lessee shall, at its expense, file when due with the appropriate authorities any and all tax and similar returns, and reports required to be filed with respect thereto, for which it has indemnified ACC hereunder or, if requested by ACC, notify ACC of all such requirements and furnish ACC with all information required for ACC to effect such filings. Any fees, taxes or other charges paid by ACC upon failure of Lessee to make such payments shall, at ACC's option, become immediately due from Lessee to ACC and shall be subject to the Overdue Charge from the date paid by ACC until the date reimbursed by Lessee. NOTICES. All notices hereunder shall be in writing and shall ,be deemed given when sent by certified mail, postage prepaid, return receipt requested, addressed to the party to which it is being sent at its business address set forth in this doc4ment or to such other address as such party may designate in writing to the other party. GENERAL If any provision of any Lease is held to be invalid by a court of competent jurisdiction, such invalidity shall not affect the other provisions of such Lease or any provision of any other Lease. This Lease shall be governed by and construed in accordance with the internal laws, but not the choice of laws provisions, of the State of California. An overdue charge will be assessed and Lessee agrees to pay an amount equal to 2% per month of any payment which is past due under this Lease or ("Overdue Charge"). The titles of the sections of this Lease Agreement are for convenience only and shall not define or limit any of the terms or provisions hereof. No provision of any Lease may be changed, waived, amended or terminated except by a written agreement signed by both ACC and Lessee, except that ACC may insert missing or corrected information in the sections entitled "Direct Debit/Payment Information" and "Agreement Details" and also in the "Grand Slam Lease Application" form. Time is of the essence in each of the provisions hereof. This Lease shall be binding upon, and inure to the benefit o the permitted assigns, representatives and successors of ACC and Lessee. If there is more than one Lessee named in this Lease Agreement, the liability of each shall be joint and several. AGREEMENT DETAILS. Equipment Description: See Schedule A. Equipment Sales Price: $11,208 (exclusive of sales and/or use tax) -------- Monthly Lease Payment: $ 465 (exclusive of sales and/or use tax) -------- Payment: $ 568 (exclusive of sales and/or use tax) -------- Lease Term: 30 Months -------- THIS DOWN PAYMENT AMOUNT WILL BE DIRECT DEBITED FREES YOUR BANK ACCOUNT BEFORE EQUIPMENT CAN BE SHIPPED. LESSEE WILL PAY LEASE PAYMENTS ON A PRORATED MONTHLY BASIS FOR THE PERIOD BEGINNING 90 DAYS AFTER THE LEASE COMMENCEMENT DATE UNTIL THE NEXT 151B DAY OF THE CALENDAR MONTH AND THEREAFTER FOR EACH CONSECUTIVE MONTH OF THE LEASE. APPLICABLE SALES TAXES WILL BE INCLUDED ON THE DIRECT DEBIT WHEN APPLICABLE. The person executing this Agreement on behalf of Lessee hereby certifies that the Lessee is a duly constituted business entity and that he or she has read, and is duly authorized to Lease. Accepted by: Less Ascend Credit Corporation X DB By:_________________________________ Name: Don Brown Name:_______________________________ Title: EXEC V.P. Title:______________________________ Date: 6/18/98 Date:_______________________________ ================================================================================ DIRECT DEBIT PAYMENT INFORMATION: This information must be completed and to fill your order. Bank Name: Bank One Bank Address: 910 Travis, HOUSTON TX.77002 ---------------- --------------------------------------- Bank Contact Name:SONYA BUNCH Bank Phone 713-751-3826 ----------------- --------------------------------- Bank Routing#(9digits): 1 1 1 0 0 0 6 1 4 Account#: 15601931920 - - - - - - - - - ------------------- Exact Account Name: NETWORKS ON-LINE ----------------------------------------------------------- Account Category (circle one): I - Individual (C) - Commercial Account Type (circle one): (C) - Checking S - Savings By completing this information, I hereby authorize Ascend Credit Corporation, its assignee, and its bank to initiate ACM Debit entries to the financial institution account indicated above, for payment of all charges concerning this Lease Agreement. I further authorize the financial institution named above to debit such entries in the account indicated above. This authorization is to remain in full force and effect until Ascend Credit Corporation or its assignee have received written notification\n me of termination in such time and in such manner as to afford a reasonable opportunity to act on it. Signature X /s/ DB Name: DON B BROWN Date: 6/18/98 --------------- -------------------------- ---------------- Page 2 of 3 Grand Slam Lease Agreement #GS-130 Lessee Initials: DB -- EX-10.6 10 0010.txt EXHIBIT 10.6 10.6 Savvis Internet Services Agreement. S A V V I S COMMUNICATIOMS BASIC INTERNET SERVICES AGREEMENT (Ethernet connection) This BASIC INTERNET SERVICES AGREEMENT (the "Agreement") is entered into this day of, 1991, between SAVE COMMUNICATIONS CORPORATION ("SAVVIS"), and ("You"). 1. SAVVIS shall provide You 1 dedicated 10 Mbps Ethernet connection(s) to the Internet through SAVVIS' network from SAVVIS' closest Point of Presence (POP) (the "connection"). You shall pay SAVVIS the sum of $ 5100.00 per --------- month for the Connection plus a one time installation fee of $5000.00. -------- SAVVIS will order and, configure an access device (the "Equipment") to be located at Your premises which Equipment will route traffic between the local loop and Your local Ethernet. You will receive from SAVVIS the requirements necessary to provide You with the Connection, which shall include, but not be limited to, Equipment configuration information, local loop information, Equipment telephone line information and the demarcation point (the "Requirements") and the date on which the Requirements must be fulfilled. The Ethernet port on the Equipment is the demarcation point. You acknowledge that You have received a Product Specification Sheet relating the Connection. 2. The Connection will be activated o or before 199 (the "Activation Date")and shall be for a period ending on the 'last day of the month which months subsequent to the Activation Date at which time this Agreement shall automatically renew for successive month terms unless terminated by either party at beast 30 days prior to the then current date of tenuination. SAVVIS re6rves1he right to change its rates for any renewal term by notifying You at least 60 days in advance of effective date of such rate change. You acknowledge that circumstances beyond the control of SAVVIS may cause a delay in turn. up the Connection in which case billing shall commence on the date the Connection is activated; provided, however, in the event delay in activating the Connection is the result of Your failure to comply with or provide any of the Requirements billing for Connection shall commence on the Activation Date. 3. This Agreement includes equipment, the terms and conditions of which are set forth on Exhibit A hereto. 4. You will be invoiced monthly in advance for all amounts due and owing to SAVVIS. All payments are due within 30 days after the date of such invoice. Your account will be deemed to be overdue if payment is not received within 30 days after the date of the invoice. If payment is not received within such 60-day period, You will be charged an interest rate equal to the lesser of 1-1/2% month or the maximum amount permitted by the law of Your state. 5. SAVVIS offers You access to the Internet. You hereby acknowledge that the Internet is not owned, operated, managed by or in any affiliated with SAVVIS or any of its affiliates, and that it is a separate network of computers independent of SAVVIS. Your use of Internet is solely at Your own risk and is subject to all applicable local, state, national and international laws and regulations. use the Internet is dependent on numerous factors, technologies and systems, many of which are beyond SAVVIS' authority and control 6. SAVVIS' network may only be used for lawful purposes. As such., SAVVIS reserves the right to, from time to time, monitor Ye activity. The transmission of any material in violation of any United States or state regulations is prohibited. This includes, but is r limited to. copyrighted material, material legally judged to be threatening or obscene, material protected by trade secret or mater that is otherwise deemed to be proprietary or judged by SAVVIS to be inappropriate or improper such as bulk e-mail messages. 7. Access to other networks connected to SAVVIS' network must comply with the rules appropriate for that other network. SAVVIS exercises no control whatsoever over the content of the information passing through its network. 8. SAVVIS MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THOSE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THIS INCLUDES LOSS OF DATA RESULTING FROM DELAYS, NON DELIVERIES, MIS DELIVERIES OR SERVICE INTERRUPTION HOWEVER CAUSED. USE OF A INFORMATION OBTAINED BY SAVVIS' NETWORK IS AT YOUR OWN RISK. SAVVIS SPECIFICALLY DISCLAIMS A RESPONSIBILITY FOR THE ACCURACY OR QUALITY OF INFORMATION OBTAINED THROUGH ITS SERVICES. 9. Routine maintenance and periodic system repairs, upgrades and reconfigurations may result in temporary impairment or interruption in service. As a result, SAVVIS does not guarantee continuous or uninterrupted service and reserves the right from time to time temporarily reduce or suspend service without notice. If You notify SAVVIS immediately in the event of the failure of Ye Connection and SAVVIS determines in its reasonable commercial judgment that the Connection is unavailable to You, SAVVIS w upon Your request credit Your account in the following manner: (1) if the Connection is unavailable for one (1) or more consecutive hours during any calendar month, SAVVIS will credit Your account for such month in an amount equal to l/30 of the amount due 2 0 (Aug. 97) for such month and (ii) if the Connection is unavailable for an aggregate of four (4) or more hours in any calendar month, SAVVIS will credit Your account in an amount equal 7/30ths of the amount due for such month. Scheduled or routine maintenance shall not be deemed to be the unavailability of Your Connection. The provisions set forth in this Paragraph 9 shall be Your sole and exclusive remedy in the event of the unavailability of Your Connection. 10. Upon the occurrence of a default by You of any provision hereunder, SAVVIS reserves the right, in addition to any other remedies which may be available to it, to terminate this Agreement and the services provided to You hereunder. In addition, upon the occurrence of any default hereunder, 75% of the cumulative total of the balance of all monthly payments remaining on this Agreement shall become due and payable as of that date as liquidated damages and not as a penalty. You acknowledge that the amounts payable pursuant to the preceding sentence are equitable compensation to SAVVIS, and are intended to reasonably compensate SAVVIS for the losses which are occasioned by Your failure to honor Your obligations hereunder and that the exact amount of damages is difficult or impractical to establish. 11. You shall indemnify SAVVIS, its affiliates, officers, directors, licensees and licensers from any and all claims and expenses, included without limitation, reasonable attorney's fees arising from Your breach of any provision of this Agreement. 12. This Agreement is deemed to be entered into in the State of Missouri and shall not become a binding obligation of SAVVIS until it 1-been executed by an officer of SAVVIS. The parties agree that any dispute arising under this Agreement shall have as its venue Louis County, Missouri and any such dispute shall be governed by and construed in accordance with the laws of the State of Missouri. 13. SAVVIS may assign this Agreement without Your prior consent and all of SAVVIS' rights, title and interest herein shall inure to benefit of such assignee, its successors and assigns. This Agreement shall not be assignable by You except with the written consent SAVVIS. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and the respective successors and assigns. 14 Neither party shall disclose any of the terms and conditions of this Agreement without the prior written consent of the other, provide. however, in any of its sales and marketing materials, SAVVIS may refer to You as its customer. 15. This Agreement may be modified only by a written instrument signed by the party against which the modification is being enforced. 16. Any notice required to be given hereunder shall be in writing and shall be deemed to have been delivered when deposited in the Urn States mail, registered or certified mail, return receipt requested with adequate postage affixed and addressed to the persons set forth the signature block hereto or to such other address as either party may provide to the other in accordance with the provisions hereof. copy of any notice to SAVVIS shall be sent to Vice President - General Counsel at the address set forth below. 17. This Agreement, together with Exhibit A hereto, contains the entire agreement of the parties hereto with respect to the matters cove: hereby and supersedes any other prior or simultaneous agreement related to such matters, including specifically, but not limited to Basic Internet Services Agreement between You and SAVVIS dated December 23, 1997. IN WITNESS WHEREOF, the undersigned have executed this Agreement as f and year first above written. SAVVIS COMMUNICATIONS CORPORATION BY: BY: Don Brown --------------------------------- ------------------------------------- Title: Title: EXEC. V.P. ----------------------------- ---------------------------------- Address: 7777 Binhomme, Suite 1000 Address: 10497 Town & Country Way #460 --------------------------------- Houston TX 77024 --------------------------------- 713-467-7281 --------------------------------- 18. Networks ON-LINE can cancel before installation by providing written notice to Savvis Communications their intent not to upgrade to the new service within 60 days of this agreement. EXHIBIT 10.6 10.6 Savvis Internet Services Agreement. S A V V I S COMMUNICATIOMS December 23, 1997 NETWORK ON-LINE INC ATTN: Sam Little 10497 Town & Country Way, SU 480 Houston, TX 77024 Network On-Line inc and SAVVIS Communication, Corporation ("SAVVIS") entered Iowa a 5asie internet Service Agreement (the "Agreement") pursuant to which You purchased services r SAVVIS. The Agreement provides that SAVVIS does ant provide the local loop and that You are to mike your own a local Loop. It Is our wide that you have chosen to use Southwestern Bell for your local loop. A cross Is in required between your local loop and the SAVVIS POP. In addition to lb. services being provided to you under 6. agreement, SAVVIS has managed to provide you the connection at a monthly . 10.00 return of 36 months per local mop, and a one ft. at 5540.00 per local loop. This amount will be added to the monthly invoice that You set to receive frown SAVVIS. If the foregoing is accertable to You, please indicate Your agreement to the same by executing the copy of this letter and returning it to Kathy Msekario at SAVVIS Communicatioin. Her fax number is 314-719-2442. Sincerely yours, SAVVIS Communications Corporation By: /s/ Gary Zimmerman ---------------------------------- Agreed to and accepted by: /s/ Sam L. Little - ------------------------------------ Sam L. Little - ------------------------------------ Vice President - ------------------------------------ Dated :12/24/97 S A V V I S COMMUNICATIONS BASIC INTERNET SERVICES AGREEMENT This BASIC INTERNET SERVICES AGREEMENT (the "Agreement") is entered into this 23rd day of Dec, 1991, between SAVVIS COMMUNICATIONS CORPORATION ("SAVVIS"), and - ---- --- ---- ("You"). 1. SAVVIS shall provide You 2 dedicated connection(s) to the Internet through - SAVVIS' network from SAVVIS' closest Point of Presence (POP) at 1.5 Mbps ----- bandwidth (the "connection"). You shall pay SAVVIS the sum of $3,600 per ------ month for the Connection plus a one time installation fee of $1,000 ------ which shall be due upon Your execution hereof. You shall also be responsible for all connection and local access charges incurred by SAVVIS and which apply to the Connection and You will be billed by SAVVIS for such amounts. In addition, this Agreement does not include the local loop charge. Upon Your request, SAVVIS will order and configure Your local loop connection and cause the loop provider to bill you for the local loop charge. Your local loop will be connected to our POP in Houston. You will ------- receive from SAVVIS the requirements necessary to provide You with the Connection, which shall include, but not be limited to, router configuration information, local loop information and the demarcation point (the "Requirements") and the date on which the Requirements must be fulfilled. If SAVVIS has not arranged for the local loop, the demarcation point is considered to be the port on SAVVIS's switch. If SAVVIS has arranged for the local loop, the WAN port on Your router is the demarcation point. You acknowledge that You have received a Product Specification Sheet relating to the Connection. 2. The Connection will be activated on or before Dec 30, 1997 (the "Activation ------ - Date") and shall be for a period ending on the last day of the month which is 36 months subsequent to the Activation Date at which time this Agreement -- shall automatically renew for successive 1 month terms unless terminated by - either party at least 30 days prior to the then current date of termination. SAVVIS reserves the right to change its rates for any renewal term by notifying You at least 60 days in advance of effective date of such rate change. You acknowledge that circumstances beyond the control of SAVVIS may cause a delay in turning up the Connection in which case billing shall commence on the date the Connection is activated; provided, however, in the event delay in activating the Connection is the result of Your failure to comply with or provide any of the Requirements billing for Connection shall commence on the Activation Date. 3. This Agreement does not include equipment. 4. You will be invoiced monthly in advance for all amounts due and owing to SAVVIS. All payments are due within 30 days after the date of such invoice. You will be deemed to be in default hereunder if payment is not received within 30 days after the date of such invoice and in addition to its other remedies, SAVVIS shall charge You an interest rate equal to the lesser 1-1/2% per month or the maximum amount permitted by the law of Your state. 5. SAVVIS offers You access to the Internet. You hereby acknowledge that the Internet is not owned, operated, managed by or in any affiliated with SAVVIS or any of its affiliates, and that it is a separate network of computers independent of SAVVIS. Your use of Internet is solely at Your own risk and is subject to all applicable local, state, national and international laws and regulations. Use the Internet is dependent on numerous factors, technologies and systems, many of which are beyond SAVVIS' authority and control 6. SAVVIS' network may only be used for lawful purposes. As such., SAVVIS reserves the right to, from time to time, monitor Your activity. The transmission of any material in violation of any United States or state regulations is prohibited. This includes, but is not limited to, copyrighted material, material legally judged to be threatening or obscene, material protected by trade secret or mater that is otherwise deemed to be proprietary or judged by SAVVIS to be inappropriate or improper such as bulk e-mail messages. 7. Access to other networks connected to SAVVIS' network must comply with the rules appropriate for that other network. SAVVIS exercises no control whatsoever over the content of the information passing through its network. 8. SAVVIS MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THOSE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THIS INCLUDES LOSS OF DATA RESULTING FROM DELAYS, NON DELIVERIES, MIS DELIVERIES OR SERVICE INTERRUPTION HOWEVER CAUSED. USE OF A INFORMATION OBTAINED BY SAVVIS' NETWORK IS AT YOUR OWN RISK. SAVVIS SPECIFICALLY DISCLAIMS A RESPONSIBILITY FOR THE ACCURACY OR QUALITY OF INFORMATION OBTAINED THROUGH ITS SERVICES. 9. Routine maintenance and periodic system repairs, upgrades and reconfigurations may result in temporary impairment or interruption in service. As a result, SAVVIS does not guarantee continuous or uninterrupted service and reserves the right from time to time temporarily reduce or suspend service without notice. If You notify SAVVIS immediately in the event of the failure of Your Connection and SAVVIS determines in its reasonable commercial judgment that the Connection is unavailable to You, SAVVIS will, upon Your request credit Your account in the following manner: (1) if the Connection is unavailable for one (1) or more consecutive hours during any calendar month, SAVVIS will credit Your account for such month in an amount equal to l/30 of the amount due for such month and (ii) if the Connection is unavailable for an aggregate of four (4) or more hours in any calendar month, SAVVIS will credit Your account in an amount equal 7/30ths of the amount due for such month. Scheduled or routine maintenance shall not be deemed to be the unavailability of Your Connection. The provisions set forth in this Paragraph 9 shall be Your sole and exclusive remedy in the event of the unavailability of Your Connection. 10. Upon the occurrence of a default by You of any provision hereunder, SAVVIS reserves the right, in addition to any other remedies which may be available to it, to terminate this Agreement and the services provided to You hereunder. In addition, upon the occurrence of any default hereunder, 75% of the cumulative total of the balance of all monthly payments remaining on this Agreement shall become due and payable as of that date as liquidated damages and not as a penalty. You acknowledge that the amounts payable pursuant to the preceding sentence are equitable compensation to SAVVIS, and are intended to reasonably compensate SAVVIS for the losses which are occasioned by Your failure to honor Your obligations hereunder and that the exact amount of damages is difficult or impractical to establish. 11. You shall indemnify SAVVIS, its affiliates, officers, directors, licensees and licensers from any and all claims and expenses, included without limitation, reasonable attorney's fees arising from Your breach of any provision of this Agreement. 12. This Agreement is deemed to be entered into in the State of Missouri and shall not become a binding obligation of SAVVIS until it 1-been executed by an officer of SAVVIS. The parties agree that any dispute arising under this Agreement shall have as its venue Louis County, Missouri and any such dispute shall be governed by and construed in accordance with the laws of the State of Missouri 13. SAVVIS may assign this Agreement without Your prior consent and all of SAVVIS' rights, title and interest herein shall inure to benefit of such assignee, its successors and assigns. This Agreement shall not be assignable by You except with the written consent SAVVIS. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and the respective successors and assigns. 14 Neither party shall disclose any of the terms and conditions of this Agreement without the prior written consent of the other, provide. however, in any of its sales and marketing materials, SAVVIS may refer to You as its customer. 15. This Agreement may be modified only by a written instrument signed by the party against which the modification is being enforced. 2.0 (Aug. 97) 16. Any notice required to be given hereunder shall be in writing and shall be deemed to have been delivered when deposited in the United States mail, registered or certified mail, return receipt requested with adequate postage affixed and addressed to the persons set forth the signature block hereto or to such other address as either party may provide to the other in accordance with the provisions hereof. A copy of any notice to SAVVIS shall be sent to Vice President - General Counsel at the address set forth below. 17. This Agreement contains the entire agreement of the parties hereto with respect to the matters covered hereby and supersedes any other prior or simultaneous agreement related to such matters. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. SAVVIS COMMUNICATIONS CORPORATION BY: /s/ Robert Murphy BY:/s/ Sam L. Little --------------------------------- ------------------------------------- Print name: Robert Murphy Print Name: Sam L. Little --------------------------------- ------------------------------------- Title: EVP, CFO Title: Vice President ----------------------------- ---------------------------------- Address: 7777 Bonhomme, Suite 1000 Address:10497 Town & Country Way, Ste 460 St. Louis MO 63105 --------------------------------- 314-727-5596 Houston TX 77024 --------------------------------- 713-467-7100 --------------------------------- EQUIPMENT EXHIBIT This is Exhibit A to the Basic Internet Services Agreement dated April 30, 1998 -- between SAVVIS Communications Corporation ("SAVVIS") and NETWORKS ON-LINE "You"), the terms and provisions of which are by this reference incorporated in full herein. 1. During the term of the Agreement, SAVVIS shall provide You with NetEdge Access Switch (the "Equipment"). 2. You acknowledge that the Equipment is owned by SAVVIS and You shall take such actions that are directed by SAVVIS to protect SAVVIS' interest in the Equipment and shall keep the Equipment free and clear from all liens, claims and encumbrances. You acknowledge that SAVVIS may take whatever steps are necessary to prefect and protect its interest in the Equipment, including, but not limited to the filing of a financing statement, with respect to which You hereby grant to SAVVIS a power of attorney to execute any such document on Your behalf 3. You shall maintain insurance on the Equipment in coverages that are acceptable to SAVVIS in its sole discretion and concurrently with the execution of this Agreement, You shall provide SAVVIS with a certificate of such insurance. 4. You shall not move, configure, reconfigure, program or otherwise effect the Equipment in any manner without the prior written consent of SAVVIS. 5. Upon the termination of this Agreement for any reason You shall return the Equipment to SAVVIS at your expense and the Equipment shall be in good condition, reasonable wear and tear expected. 6. SAVVIS makes no representation or warranty of any kind, express or implied, with respect to the Equipment, its merchantability, or its fitness for a particular purpose. SAVVIS shall not be liable to You or any other person for direct, indirect, special, incidental or consequential damages arising from your use of the Equipment, or for damages based on strict or absolute tort liability or SAVVIS' negligence. 7. You hereby acknowledge that any manufacturer's or supplier's warranties with respect to the Equipment are passed on to You by SAVVIS and that SAVVIS shall have no responsibility for maintaining the Equipment. ** PURCHASE ORDER ** PAGE: 1 NETWORKS ON-LINE P.O. NUMBER: 0070151 10497 TOWN & COUNTRY ORDER DATE: 04/30/98 STE 460 HOUSTON, TEXAS 77024 (713) 467-7100 VENDOR NO: 0O-SAVVIS VENDOR: SHIP TO: Savvis Communications NETWORKS ON-LINE 12770 Coit Road 10497 TOWN & COUNTRY WAY Ste 1121 SUITE 460 Dallas HOUSTON TX 77024 CONFIRM TO: TX 75251 - -------------------------------------------------------------------------------- REQUIRED DATE SHIP VIA F.O.B TERMS NET 30 DAYS - -------------------------------------------------------------------------------- ITEM NO. UNIT ORDERED RECEIVED BACK ORD UNIT COST AMOUNT - -------------------------------------------------------------------------------- INSTALL EACH 1.00 0.00 0.00 5,000.00 5,000.0 INSTALLATION of 1OBT Circuit WHSE: 000 NOL may cancel this P0 within 60 days of the Purchase Order date. ------------------- NET ORDER:5,000.00 SALES TAX: .00 FREIGHT: .00 ------------------- ORDER TOTAL: 5,000.00 REVIEWED BY: ______________ APPROVED BY: ______________ EX-21.1 11 0011.txt EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT Network On-Line, Inc. EISP Corporation A-1 Bayou Health 2000, Inc. EX-23.1 12 0012.txt EXHIBIT 23.1 R. E. BASSIE & CO., P.C. CERTIFIED PUBLIC ACCOUNTANTS A PROFESSIONAL CORPORATION - -------------------------------------------------------------------------------- 7171 Harwin Drive, Suite 306 Houston, Texas 77036-2197 Tel: (713) 266-0691 Fax: (713) 266-0692 E-Mail: Rebassie@aol.com INDEPENDENT AUDITORS' CONSENT ----------------------------- We consent to the use in this Amendment No.1 to this Registration Statement of ComTech Consolidation Group, Inc. on Form SB-2/A of our report dated March 24, 2000, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ R. E. Bassie and Co., P.C. Houston, Texas August 30, 2000 EX-23.2 13 0013.txt EXHIBIT 23.2 R. E. BASSIE & CO., P.C. CERTIFIED PUBLIC ACCOUNTANTS A PROFESSIONAL CORPORATION - -------------------------------------------------------------------------------- 7171 Harwin Drive, Suite 306 Houston, Texas 77036-2197 Tel: (713) 266-0691 Fax: (713) 266-0692 E-Mail: Rebassie@aol.com August 30, 2000 ComTech Consolidation Group 10497 Town & Country Way, Suite 460 Houston, Texas 77024 We have reviewed, in accordance with standards established by the American Institute of Certified Public Accountants, the unaudited interim financial information of ComTech Consolidation Group, Inc. and subsidiaries for the periods ended March 31, 2000 and 1999, and June 30, 2000 and 1999, as indicated in our reports dated May 13, 2000 and August 11, 2000, respectively; because we did not perform an audit, we expressed no opinion on that information. We are aware that our reports referred to above, which were included in your Quarterly Reports on Form 10-QSB for the quarters ended March 31, 2000 and June 30, 2000, are being used in this Amendment No. 1 to this Registration Statement. We also are aware that the aforementioned reports, pursuant to Rule 436(c) under the Securities Act of 1933, are not considered a part of this Registration Statement (Form SB-2/A) prepared or certified by an accountants or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /s/ R. E. Bassie & Co., P.C. EXHIBIT 23.2 Warner & Washington L.L.P. A Limited Liability Partnership Attorneys at Law 4410 Montrose Blvd. Houston, Texas 77006 Telephone Facsimile (713) 807-1007 (713) 807-1024 August 30, 2000 Comtech Consolidation Group, Inc. 10497 Town & Country Way Suite 460 Houston, Texas 77024 Gentlemen: We have acted as counsel to Comtech Consolidation Group, Inc. (the "Company") in connection with the Company's Registration Statement on Form SB-2 (the "Registration Statement") relating to the registration under the Securities Act of 1933, as amended, of 23,000,000 shares of the Company's Common Stock, par value $.00967 (the "Common Stock"). As the basis for the opinion hereinafter expressed, we have examined such statutes, regulations, corporate records and documents, certificates of corporate and public officials, and other instruments as we have deemed necessary or advisable for the purposes of this opinion. In such examination we have assumed the authenticity of all documents submitted to us as originals and the conformity with the original documents of all documents submitted to us as copies. Based on the foregoing and on such legal considerations as we deem relevant for purposes of this opinion, we are of the opinion that the Common Stock has been duly and validly authorized by all necessary corporate action by the Company and, assuming the sale of such securities and effectiveness of the Registration Statement, will be validly issued and fully paid and non-assessable. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and reference to our firm under the caption "Legal Matters" therein. Very truly yours, T. Deon Warner EX-27.1 14 0014.txt
5 1 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 64,082 0 273,578 1,000 0 402,660 241,917 107,632 1,203,035 1,003,664 0 0 316 235,064 2,351,071 1,203,035 525,162 525,162 0 505,771 0 0 61 19,330 0 19,330 0 0 0 19,330 0 0
EX-27.2 15 0015.txt
5 1 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 41,696 0 433,919 (1,000) 0 548,623 250,634 (119,843) 1,341,254 765,653 0 0 358 270,018 (295,448) 1,341,254 973,160 973,160 0 0 899,072 0 67 41,581 0 41,581 0 0 0 41,581 0 0
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