-----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, FQNHAZgp5X54ZV6F/AE0knq93dtTUdzouoLYaEwPx22bVmZvuWwrC9zjmWtXRxmK 5cZq47u3pT/reThUdZQl7w== /in/edgar/work/20000821/0001010549-00-000537/0001010549-00-000537.txt : 20000922 0001010549-00-000537.hdr.sgml : 20000922 ACCESSION NUMBER: 0001010549-00-000537 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FULLNET COMMUNICATIONS INC CENTRAL INDEX KEY: 0001092570 STANDARD INDUSTRIAL CLASSIFICATION: [7389 ] IRS NUMBER: 731473361 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27031 FILM NUMBER: 707083 BUSINESS ADDRESS: STREET 1: 200 N. HARVEY STREET 2: SUITE 1704 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102 BUSINESS PHONE: 4052320958 MAIL ADDRESS: STREET 1: 200 N HARVEY STREET 2: SUITE 1704 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102 10QSB 1 0001.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended June 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _____________________. Commission File Number: 000-27031 FullNet Communications, Inc. ---------------------------- (Exact name of registrant as specified in its charter) Oklahoma 73-1473361 ---------- ------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 200 N. Harvey, Suite 1704,Oklahoma City, Oklahoma 73102 ------------------------------------------------------- (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (405) 232-0958 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the Issuer's Common Stock, $.00001 par value, as of August 10, 2000 was 3,365,827 Transitional Small Business Disclosure Format (check one): Yes No X --- --- FORM 10-QSB TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - June 30, 2000 (unaudited) and December 31, 1999.............................................. 3 Consolidated Statements of Operations - Three months and six months ended June 30, 2000 and 1999 (unaudited)............ 4 Consolidated Statement of Stockholders' Equity (Deficit) - Six months ended June 30, 2000 (unaudited)..................... 5 Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and 1999 (unaudited)............................. 6 Notes to Consolidated Financial Statements (unaudited) ........ 8 Item 2. Management's Discussion and Analysis or Plan of Operation....... 11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders............. 21 Item 6. Exhibits and Reports on Form 8-K................................ 21 Signatures............................................................... 22 - 2 -
FullNet Communications, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS ASSETS JUNE 30, DECEMBER 31, 2000 1999 (Unaudited) ------------ ------------ CURRENT ASSETS: Cash $ 41,261 $ 12,671 Accounts receivable, net 143,521 70,306 Inventory 13,459 - Prepaid and other current assets 42,594 15,491 ------------ ------------ Total current assets 240,835 98,468 PROPERTY AND EQUIPMENT, net 405,059 117,262 COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED, net of accumulated amortization of $196,798 In 2000 and $93,512 in 1999 2,474,962 295,084 OTHER ASSETS Deferred income taxes 17,500 17,500 Deferred offering costs 20,000 30,899 Other 7,552 5,000 ------------ ------------ 45,052 53,399 ------------ ------------ $ 3,165,908 $ 564,213 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable - trade $ 290,971 $ 100,684 Accrued liabilities 66,153 42,424 Notes payable, current portion 1,054,023 58,949 Capital lease obligations 8,654 - Deferred revenue 126,696 74,720 ------------ ------------ Total current liabilities 1,546,497 276,777 NOTES PAYABLE, less current portion 602,462 586,922 CAPITAL LEASE OBLIGATIONS, less current portion 12,953 - DEPOSITS 44,500 - STOCKHOLDERS' EQUITY (DEFICIT) Commonstock - $.00001 par value and 10,000,000 shares Authorized; 3,201,677 and 2,088,928 shares issued and outstanding, respectively 32 21 Common stock issuable, 237,348 and 318,709 shares in 2000 and 1999, respectively 370,700 318,709 Additional paid-in capital 3,012,702 429,295 Accumulated deficit (2,423,938) (1,047,511) ------------ ------------ Total stockholders' equity (deficit) 959,496 (299,486) ------------ ------------ TOTAL $ 3,165,908 $ 564,213 ============ ============
See accompanying notes to financial statements. -3-
FullNet Communications, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended -------------------------- -------------------------- June 30, June 30, June 30, June 30, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- REVENUES: Access service revenues $ 301,201 $ 160,750 $ 477,347 $ 289,441 Network solutions and other revenues 223,198 220,591 387,055 345,618 ----------- ----------- ----------- ----------- Total revenues 524,399 381,341 864,402 635,059 OPERATING COSTS AND EXPENSES: Cost of access service revenues 134,214 66,703 221,406 114,249 Cost of network solutions and other revenues 88,782 65,572 150,663 112,496 Selling, general and administrative expenses 709,060 335,755 1,173,101 478,792 Depreciation and amortization 203,560 19,503 333,745 49,050 ----------- ----------- ----------- ----------- Total operating costs and expenses 1,135,616 487,533 1,878,915 754,587 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (611,217) (106,192) (1,014,513) (119,528) INTEREST EXPENSE (281,370) (21,553) (343,701) (44,845) OTHER EXPENSE (13,724) (19,296) (18,213) (34,738) ----------- ----------- ----------- ----------- NET LOSS $ (906,311) $ (147,041) $(1,376,427) $ (199,111) =========== =========== =========== =========== Net loss per common share: Basic $ (.28) $ (.07) $ (.48) $ (.12) Diluted $ (.28) $ (.07) $ (.48) $ (.12) Weighted average number of common shares outstanding: Basic 3,205,319 2,010,116 2,883,182 1,695,058 Diluted 3,205,319 2,010,116 2,883,182 1,695,058
See accompanying notes to financial statements. -4-
FullNet Communications, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity (Deficit) Six Months Ended June 30, 2000 (Unaudited) Common Stock Common Additional ------------ Stock Paid-in Accumulated Shares Amount issuable capital deficit Total ----------- ----------- ----------- ----------- ----------- ----------- Balance at January 1, 2000 2,088,928 $ 21 $ 318,709 $ 429,295 $(1,047,511) $ (299,486) Issuance of common stock in conjunction with acquisitions 580,244 6 -- 1,740,727 -- 1,740,733 Common stock issuable in conjunction with acquisition -- -- 89,050 -- -- 89,050 Common stock issued, net of offering expenses 45,200 -- -- 122,809 -- 122,809 Exercise of stock options issued relating to services performed for offering -- -- 34,830 -- -- 34,830 ----------- Warrant exercise relating to bridge financing 206,250 2 -- 2,061 -- 2,063 Common stock issued for employee bonuses 181,055 2 (181,055) 181,053 -- -- Common stock issued in exchange for services 100,000 1 109,166 99,999 -- 209,166 Warrants to purchase common stock issued relating to bridge financing -- -- -- 413,320 -- 413,320 Compensation from issuance of stock options -- -- -- 23,438 -- 23,438 Net loss -- -- -- -- (1,376,427) (1,376,427) ----------- ----------- ----------- ----------- ----------- ----------- Balance at June 30, 2000 $ 3,201,677 $ 32 $ 370,700 $ 3,012,702 $(2,423,938) $ 959,496 =========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements. -5-
FullNet Communications, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended -------------------------- June 30, June 30, 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,376,427) $ (199,111) Adjustments to reconcile net loss to net cash used in operating activities Noncash compensation expense 23,438 -- Depreciation and amortization 333,745 49,050 Stock issued for services 192,500 -- Amortization of discount relating to bridge financing 271,381 -- Provision for non-collection of accounts receivable 10,605 -- Net (increase) decrease in Accounts Receivable (40,759) 28,060 Prepaid expenses and other current assets (5,055) (418) Other assets (2,552) (1,438) Net increase (decrease) in Accounts payable - trade 22,397 (17,834) Accrued and other liabilities 16,195 (2,595) Cash overdraft -- (8,061) Deferred revenue (29,677) 16,817 Deposits 44,500 -- ----------- ----------- Net cash used in operating activities (539,708) (135,530) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (184,017) (5,936) Proceeds from sale of property, net of closing costs 110,122 -- Acquisitions of businesses, net of cash acquired (127,057) -- ----------- ----------- Net cash used in investing activities (200,952) (5,936) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Deferred offering costs 10,899 -- Principal payments on borrowings under notes payable (148,903) (29,234) Principal payments on note payable to related party -- (43,891) Principal payments on borrowings related to purchase of subsidiary -- (122,405) Proceeds from issuance of bridge financing and warrants, net of offering costs 745,000 -- Proceeds from exercise of stock options 34,830 -- Proceeds from exercise of warrants 2,061 -- Principal payments on capital lease obligations (2,940) (6,580) Proceeds from issuance of notes payable 5,494 -- Proceeds from borrowings under convertible notes payable -- 50,000 Issuance of common stock, net of offering costs 122,809 541,375 ----------- ----------- Net cash provided by financing activities 769,250 389,265 ----------- ----------- NET INCREASE (DECREASE) IN CASH 28,590 247,799 Cash at beginning of year 12,671 198 ----------- ----------- Cash at end of period $ 41,261 $ 247,997 =========== =========== (continued)
-6-
FullNet Communications, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended -------------------------- June 30, June 30, 2000 1999 ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 43,298 $ 43,308 NONCASH INVESTING AND FINANCING ACTIVITIES Conversion of debt to equity -- 50,000 Fair value of liabilities assumed in conjunction with the acquisition of Harvest Communications 73,062 -- Fair value of common stock issued to purchase Harvest Communications 1,612,500 -- Note payable issued in conjunction with the acquisition of Harvest Communications 175,000 -- Fair value of liabilities assumed in conjunction with the acquisition of FullNet of Bartlesville 1,754 -- Fair value of common stock issued to purchase FullNet of Bartlesville 128,232 -- Note payable issued in conjunction with FullNet of Bartlesville acquisition 50,168 -- Acquisition of net assets of FullNet of Tahlequah 6,763 -- Note payable issued in conjunction with FullNet of Tahlequah acquisition 61,845 -- Common stock issuable in conjunction with FullNet of Nowata acquisition 89,050 -- Acquisition of net assets of FullNet of Nowata 15,366 -- Note payable issued in conjunction with FullNet of Nowata acquisition 47,950 -- Assets acquired through issuance of capital lease 24,548 -- (concluded)
See accompanying notes to financial statements. -7- FullNet Communications, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. UNAUDITED INTERIM FINANCIAL STATEMENTS The unaudited financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto for the year ended December 31, 1999. The information furnished reflects, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of the interim periods presented. Operating results of the interim period are not necessarily indicative of the amounts that will be reported for the year ending December 31, 2000. 2. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. STOCKHOLDERS' EQUITY (DEFICIT) In February 2000, the Company raised an aggregate $135,600 in an offering of its common stock. The offering was made pursuant to an exemption from the registration requirements of the Securities Act pursuant to Rule 504 of Regulation D of such act. In April, 2000, the Company amended its contract with its investment bank, which entitled the investment bank to an additional 100,000 shares of common stock. 4. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per common share is computed based upon net earnings (loss) divided by the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per common share is computed based upon net earnings (loss) divided by the weighted average number of common shares outstanding during each period adjusted for the effect of dilutive potential common shares calculated using the treasury stock method. The basic and diluted earnings (loss) per common share are the same since the Company had a net loss for 2000 and 1999 and the inclusion of stock options and warrants would be anti-dilutive. -8- 5. NOTES PAYABLE In February, March and June 2000, the Company obtained bridge loans totaling $300,000 through the issuance of 14% promissory notes to 10 accredited investors. The terms of the financing additionally provided for the issuance of five year warrants to purchase an aggregate of 150,000 shares of the Company's common stock at $0.01 per share, and provided for certain registration rights. The promissory notes require monthly interest payments, mature in six months, and are extendible for two 90-day periods upon issuance of additional warrants for an aggregate 150,000 shares exercisable at $0.01 per share for each extension. Warrants to purchase 106,250 shares of common stock were exercised as of June 30, 2000 at an aggregate exercise price of $1,063. In March 2000, the Company obtained bridge loans totaling $500,000 through the issuance of 14% promissory notes to two accredited investors. The terms of the financing additionally provided for the issuance of five year warrants to purchase 100,000 shares of the Company's common stock at $0.01 per share, and provided for certain registration rights. The promissory notes require quarterly interest payments, mature in six months, and are extendible for two 90 day periods upon issuance of additional warrants for an aggregate 10,000 shares exercisable at $0.01 per share for each extension. On March 8, 2000, the bridge loan investors exercised their warrants and purchased 100,000 shares of common stock of the Company at an aggregate exercise price of $1,000. A portion of the proceeds of the bridge loans has been allocated to the warrants and accounted for as additional paid-in capital. The allocation was based on the estimated relative fair values of the bridge loans and the warrants and resulted in a discount on the bridge loans of approximately $413,000. This discount is being amortized as interest expense over the life of the bridge loans using the interest method. A building acquired in conjunction with the merger of Harvest Communications, Inc. and the Company was sold in June 2000. The sale was a cashless transaction, and the net proceeds from the sale were applied to the SBA loan that originally provided the proceeds to purchase the building. Net proceeds from the transaction exceeded the carrying value of the building by approximately 5,000. This amount was recorded as a reduction of cost in excess of net assets of businesses acquired. 6. ACQUISITIONS On January 25, 2000, the Company entered into an Asset Purchase Agreement with FullNet of Tahlequah, Inc. ("FOT"), an Oklahoma corporation, in which the Company purchased substantially all of FOT's assets, including approximately 400 individual and business Internet access accounts. The Company paid FOT an aggregate amount of $97,735, comprised of $35,890 in cash and a note payable for $61,845. The note is payable in eighteen monthly installments. On February 4, 2000, the Company entered into an Asset Purchase Agreement with David Looper, d/b/a FullNet of Bartlesville ("FOB"), an Oklahoma sole proprietorship in which the Company purchased substantially all of FOB's assets, including approximately 400 individual and business Internet access accounts. The Company paid FOB an aggregate amount of $178,400, payable in 42,744 shares of the Company's common stock (valued for purposes of the acquisition at $3.00 per share) and a note payable for $50,168. The note bears an interest rate of 8% per annum, with the principal and interest thereon payable on the earlier to occur of (a) the closing of any private equity placement in excess of $351,000, (b) the closing of any underwritten offering of the Company's common stock, or (c) one year from the closing date of the Asset Purchase Agreement. -9- On February 29, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Harvest Communications, Inc., ("Harvest") an Oklahoma corporation, pursuant to which Harvest merged with and into FullNet. Harvest had approximately 2,500 individual and business dial up Internet access accounts, 15 wireless Internet access accounts and 35 Web hosting accounts. Pursuant to the terms of the Merger Agreement, the Company paid the shareholders of Harvest an aggregate amount of $1,912,500 payable in 537,500 shares of the Company's common stock (valued for purposes of the merger at $3.00 per share), a note payable for $175,000 and $125,000 in cash. The note bears an interest rate of 8% per annum, with the principal and interest thereon payable on the earlier to occur of (a) the closing of any single funding (whether debt or equity) obtained by the Company subsequent to the date of the Merger Agreement in an aggregate amount of at least $2,000,000, (b) the closing of any underwritten offering of the Company's common stock, or (c) March 6, 2001. On June 2, 2000, the Company entered into an Asset Purchase Agreement with Lary Smith, d/b/a FullNet of Nowata ("FON"), an Oklahoma sole proprietorship, in which the Company purchased substantially all of FON's assets, including approximately 300 individual and business Internet access accounts. Pursuant to the terms of the Agreement, the Company agreed to pay FON an aggregate purchase price of $137,000, payable in 38,198 shares of the Company's common stock (valued for purposes of the acquisition at $2.33125 per share) and a note payable for $47,950. The note bears an interest rate of 8% per annum with the principal and interest thereon payable on the earlier to occur of (a) the closing of any single funding (whether debt or equity) obtained by the Company subsequent to the date of the Agreement in an aggregate amount of $2,000,000, or (b) one year from the closing date of the Agreement. These acquisitions were accounted for as purchases. The aggregate purchase price has been allocated to the underlying net assets purchased or net liabilities assumed based on their estimated fair values at the respective acquisition date. This allocation results in cost in excess of net assets of businesses acquired of $2,433,000, which is being amortized over the estimated periods benefited of three to five years. Prior to the acquisitions, each of FOT, FOB, Harvest and FON was a customer of the Company's Internet service provider access services. The unaudited pro forma combined historical results, as if the entities listed above (excluding FOT and FON) had been acquired at the beginning of the six months ended June 30, 2000 and 1999, respectively, are included in the table below. Six Months Ended June 30, 2000 1999 ----------- ----------- Revenue $ 994,778 $ 1,037,980 Net loss $(1,469,465) $ (294,013) Basic and diluted loss per share $ (0.51) $ (0.17) The pro forma results above include amortization of cost in excess of net assets of businesses acquired and interest expense on debt assumed issued to finance the acquisitions. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been completed as of the beginning of each of the fiscal periods presented, nor are they necessarily indicative of future consolidated results. 7. MANAGEMENT'S PLANS The planned expansion of the Company's business will require significant capital to fund capital expenditures, working capital needs, debt service and the cash flow deficits generated by operating losses. Current cash balances will not be sufficient to fund the Company's current business plan beyond the next three months. As a consequence, the Company is currently seeking convertible debt and/or equity financing as well as the placement of a credit facility to fund the Company's liquidity. There can be no assurance that the Company will be able to raise additional capital on satisfactory terms or at all. -10- Item 2. Management's Discussion and Analysis or Plan of Operation The following discussion is qualified in its entirety by the more detailed information in the Company's Form 10-KSB and the financial statements contained therein, including the notes thereto, and the Company's other periodic reports and all Current Reports on Form 8-K filed with the Securities and Exchange Commission since December 31, 1999 (collectively referred to as the "Disclosure Documents"). Certain forward-looking statements contained herein and in such Disclosure Documents regarding the Company's business and prospects are based upon numerous assumptions about future conditions which may ultimately prove to be inaccurate and actual events and results may materially differ from anticipated results described in such statements. The Company's ability to achieve such results is subject to certain risks and uncertainties, such as those inherent generally in the Integrated Communications Provider industry, the impact of competition and pricing, changing market conditions, and other risks. Any forward-looking statements contained herein represent the Company's judgment as of the date hereof. The Company disclaims, however, any intent or obligation to update these forward-looking statements. As a result, the reader is cautioned not to place undue reliance on these forward-looking statements. As used herein, the word "Company" means FullNet Communications, Inc. and its wholly owned subsidiaries, FullNet, Inc. ("FullNet"), FullSolutions, Inc. ("FullSolutions"), FullTel, Inc. ("FullTel") and FullWeb, Inc. ("FullWeb"), a wholly owned subsidiary of FullSolutions, unless the context indicates otherwise. Overview FullNet Communications Inc. (the "Company") is a regional integrated communications provider ("ICP") offering integrated communications and network solutions to individuals, businesses, organizations, educational institutions, and government agencies. Through its subsidiaries, the Company provides high quality, reliable and scaleable Internet, telephony, and network solutions designed to meet customer needs. Services include: o High margin carrier-neutral telecommunications grade co-location facilities o Dial-up and direct high-speed connectivity to the Internet under the FullNet brand name o Web site design, hosting and server co-location for businesses o Wireless broadband Internet, voice and data access services o Network design, management, optimization, and ongoing support and maintenance for businesses o Backbone services to small Internet Service Providers ("ISPs") and businesses o Global domain name registration services (expected to commence during the third quarter of 2000) The Company's principal executive offices are located at 200 North Harvey Avenue, Suite 1704, Oklahoma City, Oklahoma 73102, and its telephone number is (405) 232-0958. We also maintain an Internet site on the World Wide Web ("WWW") at www.fullnet.net. Information contained on the Company's Web site is not, and should not be deemed to be, a part of this Form 10-QSB. Company History The Company was founded in 1995 as CEN-COM of Oklahoma, Inc., an Oklahoma corporation, to bring dial-up Internet access and education to rural locations in Oklahoma that did not have dial-up Internet access. The Company changed its name to FullNet Communications, Inc. in December 1995, and shifted its focus from offering dial-up services to providing wholesale and private label network connectivity and related services to other ISPs. During 1995 and 1996, the Company furnished wholesale and private label network connectivity services to ISPs in Bartlesville, Cushing, Durant, Perry, Tahlequah, and Tulsa. During 1996, the Company sold its ISP operations in Enid, Oklahoma and began ISP operations in Ponca City, Oklahoma. -11- In 1997 the Company continued its focus on being a backbone provider by upgrading and acquiring more equipment. The Company also started offering its own ISP brand access and services to its wholesale customers. As of June 30, 2000, there were two ISPs in Oklahoma that used the FullNet brand name where the Company provides the backbone to the Internet. There are an additional two ISPs that use a private label brand name, where the Company is their access backbone and provides their technical support, managing and operating their systems on an outsource basis. Additionally, the Company provides high-speed broadband connectivity, website hosting, network management and consulting solutions to over 50 businesses in Oklahoma. In 1998 the Company's gross revenues exceeded $1,000,000 and the Company made the Metro Oklahoma City Top 50 Fastest Growing Companies list. In 1998 the Company commenced the process of organizing a competitive local exchange carrier ("CLEC") through FullTel, and acquired Animus Communications, Inc. ("Animus"), a wholesale Web-service company, thereby enabling the Company to become a total solutions provider to individuals and companies seeking a "one-stop shop" in Oklahoma. Animus was renamed FullWeb in January 2000. With the incorporation of FullTel and the acquisition of FullWeb, the Company's current business strategy is to become the dominant ICP in Oklahoma and surrounding states, focusing on rural areas. The Company expects to grow through the commencement of providing carrier-neutral co-location space (expected revenue stream to start during the third quarter 2000), commencement of domain name registration (expected to begin during the third quarter 2000), acquisition of ISPs and network solutions providers, as well as through a FullNet brand marketing campaign. During the first six months of 2000, the Company has completed four separate acquisitions of ISP companies, operating in, respectively, Tahlequah, Oklahoma, Bartlesville, Oklahoma, Enid, Oklahoma and Nowata, Oklahoma. During the month of February 2000, trading of the Company's common stock began trading on the OTC Bulletin Board under the symbol FULO. When a stock begins to trade on the OTC Bulletin Board, it initially has a single market maker. Although many stocks have several market makers, while the Company's common stock trades on the OTC Bulletin Board, there can be no assurance as to whether additional market makers will quote the common stock. Hence, there can be no assurance that stockholders will be able to sell their shares should they desire to do so. Any market for the common stock that may develop, in all likelihood, will be a limited one, and if such a market does develop, the price may be volatile. Recent Developments On June 20, 2000, the Company entered into a contract to provide co-location services to KMC Telecom V, Inc. ("KMC"), a facilities-based competitive local exchange carrier ("CLEC"). The agreement extends until January 31, 2004. Under the terms of the contract, KMC will pay the Company $44,500 per month to provide co-location and support services for KMC's telecommunications equipment at the Company's Network Operations Center ("NOC") in Oklahoma City, Oklahoma. The Company is building out its NOC and expects to complete the project and commence providing co-location services during the third quarter 2000. The Company plans to market additional carrier neutral co-location solutions in its NOC to other CLECs, Internet Service Providers and Web Hosting companies. The Company's co-location facility will be carrier neutral, so customers may choose among competitive offerings rather than being restricted to one carrier. When completed, the NOC will be Telco-grade, so as to provide customers the highest level of operative reliability and security. The Company will offer flexible space arrangements for customers, 24 hour onsite support and both battery and generator backup. -12-
On August 2, 2000, the Company obtained a bridge loan of $100,000 from Timothy J. Kilkenny, Chairman of the board and CEO, through the issuance of a 14% promissory note. The terms of the financing additionally provided for the issuance of five year warrants to purchase an aggregate of 50,000 shares of the Company's common stock at $0.01 per share, and provided for certain registration rights. The promissory note requires monthly interest payments, matures in six months, and is extendible for two 90 day periods upon issuance of additional warrants for an aggregate 50,000 shares exercisable at $0.01 per share for each extension. Results of Operations The following table sets forth certain statement of operations data as a percentage of revenues for the three and six months ended June 30, 2000 and 1999: Three Months Ended Six Months Ended ------------------------ -------------------------- June 30, June 30, June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Access service revenues 57.4% 42.2% 55.2% 45.6% Network solutions and other revenues 42.6 57.8 44.8 54.4 -------- -------- -------- -------- Total revenues 100.0 100.0 100.0 100.0 Cost of access service revenues 25.6 17.5 25.6 18.0 Cost of network solutions and other revenues 16.9 17.2 17.5 17.7 Selling, general and administrative expenses 135.3 88.0 135.7 75.4 Depreciation and amortization 38.8 5.1 38.6 7.7 -------- -------- -------- -------- Total operating costs and expenses 216.6 127.8 217.4 118.8 Loss from operations (116.6) (27.8) (117.4) (18.8) Interest expense 53.7 5.7 39.7 7.1 Other expense 2.5 5.1 2.1 5.5 -------- -------- -------- -------- Net loss (172.8)% (38.6)% (159.2)% (31.4)% ======= ======== ======== ========
Three Months Ended June 30, 2000 compared to Three Months Ended June 30, 1999 Revenues Access service revenues increased $140,000 to $301,000 for the three months ended June 30, 2000 from $161,000 for the three months ended June 30, 1999. This additional revenue is due to the acquisition of three ISPs in the first quarter 2000 and one ISP in June 2000. Network solution and other revenues increased $3,000 to $223,000 for the three months ended June 30, 2000 from $220,000 for the three months ended June 30, 1999. The Company acquired Harvest Communications, an authorized Voice Stream agent, on February 29, 2000. Voice stream phone sales were $21,000 for the three months ended June 30, 2000. Equipment sales decreased $35,000 from $92,000 for the three months ended June 30, 1999 to $57,000 for the three months ended June 30, 2000. The Company historically has not actively marketed its network solutions sales, and has typically made such sales to its existing customer base. Revenues from server co-location grew $30,000 from $23,000 for the three months ended June 30, 1999 to $53,000 for the three months ended June 30, 2000 due substantially to the addition of one significant client during 2000. -13- Operating costs and Expenses Cost of access service revenues increased $67,000 from $67,000 for the three months ended June 30, 1999 to $134,000 for the three months ended June 30, 2000. The increase in costs is attributable primarily to $58,000 of connectivity costs incurred in conjunction with the access service customers acquired during 2000 in four Oklahoma towns: Enid, Bartlesville, Nowata and Tahlequah. Cost of network solutions and other revenues increased $23,000 from $66,000 for the three months ended June 30, 1999 to $89,000 for the three months ended June 30, 2000. This increase is primarily due to the increase in costs of bandwidth of $15,000 incurred by FullWeb for the increase in the number of web hosting and co-location customers over the prior comparative quarter. The Company acquired Harvest Communications, an authorized Voice Stream agent, on February 29, 2000. Voice stream cost of sales were $16,000 for the three months ended June 30, 2000. Equipment cost of sales decreased $10,000 for the six months ended June 30, 2000 due to the decrease in equipment sales as discussed above. Selling, general and administrative expenses increased $373,000 to $709,000 for the three months ended June 30, 2000 from $336,000 for the three months ended June 30, 1999. This increase is comprised principally of an increase in professional fees of $245,000 from $19,000 for the three months ended June 30, 1999 to $264,000 for the three months ended June 30, 2000. Of the increase in professional fees, $190,000 is related to cash and the fair value of common stock issued to the Company's investment bank pursuant to its agreement dated September 1999 and as amended in April 2000. The Company also incurred additional rent expense of $16,000 over the prior comparative quarter related to the new office space that was rented in 2000 which will house the Company's Network Operations Center. Approximately $48,000 of the increase is attributable to SG&A expenses incurred during the quarter related to the Harvest Communications merger. Payroll expenses decreased $40,000 from $284,000 for the three months ended June 30, 1999 to $244,000 for the three months ended June 30, 2000. This decrease is due to a one time charge of $181,000 during June 1999 for a stock grant approved by the board of directors. Excluding the stock grant, payroll expenses increased $141,000 due to the increase in personnel over the prior quarter. Advertising expense, insurance premiums, repair expense, bad debt expense and supplies expense increased $11,000, $10,000, $10,000, $10,000 and $8,000, respectively for the three months ended June 30, 2000 over the prior comparative quarter. Depreciation and amortization expense increased $184,000 from $20,000 for the three months ended June 30, 1999 to $204,000 for the three months ended June 30, 2000. Of this increase, $129,000 is attributable to the amortization of cost in excess of net assets of businesses acquired relating to the four ISP acquisitions closed in 2000. An increase of $16,000 of amortization of cost in excess of net assets of businesses acquired is attributable to the effect of shortening the estimated period of benefit to five years for the acquisition of FullWeb in 1998 that was originally being amortized over fifteen years. Interest Expense Interest expense increased $260,000 to $281,000 for the three months ended June 30, 2000 from $22,000 for the three months ended June 30, 1999. This increase is due to $231,000 of interest expense recorded for the three months ended June 30, 2000 associated with amortization of the loan discount relating to bridge financing issued with warrants, and $29,000 of interest expense on bridge financing obtained in 2000. Six months Ended June 30, 2000 compared to Six months Ended June 30, 1999. Revenues Access service revenues increased $188,000 from $289,000 for the six months ended June 30, 1999 to $477,000 for the six months ended June 30, 2000. This additional revenue is due to the acquisition of four ISPs during the first six months of 2000 which accounts for an increase in dial-up Internet access revenue of approximately $215,000, and growth in ISDN services of $10,000 from $15,000 for the six months ended June 30, 1999 to $25,000 for the six months ended June 30, 2000. The Company realized a decrease in Internet backbone service revenues of approximately $38,000 during the six months ended June 30, 2000 compared to the six months ended June 30, 1999 relating to amounts charged in 1999 to the four ISPs that were acquired during 2000. -14- Network solution and other revenues increased $41,000 from $346,000 for the six months ended June 30, 1999 to $387,000 for the six months ended June 30, 2000. The increase is attributable to growth in server co-location of $50,000 and $32,000 of installation revenues related to carrier neutral premise co-location for the six months ended June 30, 2000 over the previous comparable period. Equipment sales decreased $37,000 from $125,000 for the six months ended June 30, 1999 to $88,000 for the six months ended June 30, 2000. The Company historically has not actively marketed its network solutions sales, and has typically made such sales to its existing customer base. The Company acquired Harvest Communications, an authorized Voice Stream agent, on February 29, 2000. Voice stream phone sales were $23,000 for the six months ended June 30, 2000. Operating Costs and Expenses Cost of access service revenues increased $107,000 from $114,000 for the six months ended June 30, 1999 to $221,000 for the six months ended June 30, 2000, due to the increased costs of providing Internet access in Tahlequah, Bartlesville, Enid and Nowata relating to the acquisition of ISPs in those towns during the six months ended June 30, 2000. Cost of network solutions and other revenues increased $38,000 from $112,000 for the six months ended June 30, 1999 to $150,000 for the six months ended June 30, 2000. This increase is primarily due to the increase in costs of bandwidth of $21,000 incurred by FullWeb for the increase in the number of web hosting and co-location customers over the prior comparative quarter. The Company acquired Harvest Communications, an authorized Voice Stream agent, on February 29, 2000. Voice stream cost of sales were $17,000 for the six months ended June 30, 2000. Selling, general and administrative expenses increased $694,000 from $479,000 for the six months ended June 30, 1999 to $1,173,000 for the six months ended June 30, 2000. The increase is partially comprised of an increase in payroll costs of $76,000 related to the hiring of additional personnel. Professional fees increased $394,000 to $425,000 during the six months ended June 30,2000 from $31,000 for the six months ended June 30, 1999. Professional fees include legal, accounting, investment banking and consulting fees. Approximately $193,000 of the $425,000 of professional fees for the six months ended June 30, 2000 is attributable to noncash expenses relating to the fair value of common stock issued for investment banking services. Rent expense, advertising, dues and subscriptions, insurance premiums and repairs and maintenance expense increased $35,000, $24,000, $21,000 $22,000 and $12,000, respectively, for the six months ended June 30, 2000 over the prior comparable period. Additionally, there were various other expenses that increased for the six months ended June 30, 2000 over the prior comparable period in respective amounts less than $10,000, including office supplies, postage and delivery, equipment rental, operating leases, long distance, computer supplies and utility expenses. Depreciation and amortization expense increased $285,000 from $49,000 for the six months ended June 30, 1999 to $334,000 for the six months ended June 30, 2000. This increase is attributable substantially to the amortization of cost in excess of net assets of businesses acquired related to the four ISP acquisitions of $244,000 to $255,000 for the six months ended June 30, 2000 from $11,000 for the six months ended June 30, 1999. The remainder of the increase is attributable to depreciation expense related to the purchase of equipment and equipment acquired through acquisition during the six months ended June 30, 2000. -15- Other Expense Other expense decreased $17,000 from $35,000 for the six months ended June 30, 1999 to $18,000 for the six months ended June 30, 2000. Other expenses were higher for the six months ended June 30, 1999 due to one time costs of $31,000 incurred related to FullTel. Acquisitions The Company's acquisition strategy is designed to leverage its existing network backbone and internal operations to enable it to enter new markets in Oklahoma, Arkansas and Kansas, as well as to expand its presence in existing markets, and to benefit from economies of scale. The Company has acquired four Internet service provider businesses in Oklahoma during the six months ended June 30, 2000. On January 25, 2000, the Company entered into an Asset Purchase Agreement with FullNet of Tahlequah, Inc. ("FOT"), an Oklahoma corporation, in which the Company purchased substantially all of FOT's assets, including approximately 400 individual and business Internet access accounts. The Company paid FOT an aggregate amount of $97,735, comprised of $35,890 in cash and a note payable for $61,845. The note is payable in eighteen monthly installments. On February 4, 2000, the Company entered into an Asset Purchase Agreement with David Looper, d/b/a FullNet of Bartlesville ("FOB"), an Oklahoma sole proprietorship, in which the Company purchased substantially all of FOB's assets, including approximately 400 individual and business Internet access accounts. The Company paid FOB an aggregate amount of $178,400, payable in 42,744 shares of the Company's common stock (valued for purposes of the acquisition at $3.00 per share) and a note payable for $50,168. The note bears an interest rate of 8% per annum, with the principal and interest thereon payable on the earlier to occur of (a) the closing of any private equity placement in excess of $351,000, (b) the closing of any underwritten offering of the Company's common stock, or (c) one year from the closing date of the Asset Purchase Agreement. On February 29, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Harvest Communications, Inc., ("Harvest") an Oklahoma corporation, pursuant to which Harvest merged with and into FullNet. Harvest had approximately 2,500 individual and business dial up Internet access accounts, 15 wireless Internet access accounts and 35 Web hosting accounts. Pursuant to the terms of the Merger Agreement, the Company paid the shareholders of Harvest an aggregate amount of $1,912,500 payable in 537,500 shares of the Company's common stock (valued for purposes of the merger at $3.00 per share), a note payable for $175,000 and $125,000 in cash. The note bears an interest rate of 8% per annum, with the principal and interest thereon payable on the earlier to occur of (a) the closing of any single funding (whether debt or equity) obtained by the Company subsequent to the date of the Merger Agreement in an aggregate amount of at least $2,000,000, (b) the closing of any underwritten offering of the Company's common stock, or (c) March 6, 2001. On June 2, 2000, the Company entered into an Asset Purchase Agreement with Lary Smith, d/b/a FullNet of Nowata ("FON"), an Oklahoma sole proprietorship, in which the Company purchased substantially all of FON's assets, including approximately 300 individual and business Internet access accounts. Pursuant to the terms of the Agreement, the Company agreed to pay FON an aggregate purchase price of $137,000, payable in 38,198 shares of the Company's common stock (valued for purposes of the acquisition at $2.33125 per share) and a note payable for $47,950. The note bears an interest rate of 8% per annum with the principal and interest thereon payable on the earlier to occur of (a) the closing of any single funding (whether debt or equity) obtained by the Company subsequent to the date of the Agreement in an aggregate amount of $2,000,000, or (b) one year from the closing date of the Agreement. -16- These acquisitions were accounted for as purchases. The aggregate purchase price has been allocated to the underlying net assets purchased or net liabilities assumed based on their estimated fair values at the respective acquisition date. This allocation results in cost in excess of net assets of businesses acquired of $2,433,000, which is being amortized over the estimated periods benefited of three to five years. Prior to the acquisitions, each of FOT, FOB FON and Harvest was a customer of the Company's ISP access services. Liquidity and Capital Resources The Company used $540,000 and $136,000 of cash for operating activities for the six months ended June 30, 2000 and 1999, respectively, as a result of a net loss for the periods. As of June 30, 2000, the Company had $41,000 in cash and $1,546,000 in current liabilities, including $800,000 of bridge financing that was negotiated with six month terms and $127,000 of deferred revenues which will not require settlement in cash. Capital expenditures relating to business acquisitions net of cash acquired were $127,000 for the six months ended June 30, 2000. In addition, property, plant and equipment purchases amounted to $184,000 for the six months ended June 30, 2000, including $106,000 related to construction in progess on the Company's NOC, which is expected to be completed during the third quarter 2000. The Company also received net proceeds of $110,000 from the sale of a building acquired in conjuction with the Harvest Communications merger. Proceeds received from the sale were used to repay the note payable relating to the building. Net cash provided by financing activities was $769,000 and $389,000 for the six months ended June 30, 2000 and 1999, respectively. The cash provided in 2000 is due primarily to the issuance of bridge notes payable and the sale of equity securities pursuant to Rule 504 of Regulation D of the Securities Act of 1933. The Company received net proceeds of $745,000 from the bridge financing and $123,000 from the 504 offering. The planned expansion of the Company's business will require significant capital to fund capital expenditures, working capital needs, debt service and the cash flow deficits generated by operating losses. The Company's principal capital expenditure requirements will include: * the completion of the Company's Network Operations Center * the purchase and installation of telephone switches in Oklahoma, Arkansas and Kansas * purchase and installation of wireless and DSL Internet access equipment * mergers and acquisitions * further development of operations support systems and other automated back office systems * domain name registration startup costs The Company expects to make additional capital outlays exceeding $2 million during 2000 in order to continue activities called for in its current business plan and to fund expected operating losses. As the Company's cost of developing new networks and services, funding other strategic initiatives and operating its business will depend on a variety of factors (including, among other things, the number of subscribers and the service for which they subscribe, the nature and penetration of services that may be offered by the Company, regulatory changes, and actions taken by competitors in response to the Company's strategic initiatives), it is almost certain that actual costs and revenues will vary from expected amounts, very likely to a material degree, and that such variations are likely to affect the Company's future capital requirements. Current cash balances will not be sufficient to fund the Company's current business plan beyond the next three months. As a consequence, the Company is currently seeking convertible debt and/or equity financing as well as the placement of a credit facility to fund the Company's liquidity. There can be no assurance that the Company will be able to raise additional capital on satisfactory terms or at all. In the event that the Company is unable to obtain such additional capital or to obtain it on acceptable terms or in sufficient amounts, the Company will be required to delay the development of its network or take other actions. This could have a material adverse effect on the Company's business, operating results and financial condition and its ability to achieve sufficient cash flow to service debt requirements. -17- The ability of the Company to fund the capital expenditures and other costs contemplated by its business plan and to make scheduled payments with respect to bank borrowings will depend upon, among other things, its ability to seek and obtain additional financing within the next year. Capital will be needed in order to implement its business plan, deploy its network, expand its operations and obtain and retain a significant number of customers in its target markets. Each of these factors is, to a large extent, subject to economic, financial, competitive, political, regulatory and other factors, many of which are beyond the Company's control. No assurance can be given that the Company will be successful in developing and maintaining a level of cash flow from operations sufficient to permit it to pay the principal of, and interest and any other payments on, outstanding indebtedness. If the Company is unable to generate sufficient cash flow from operations to service its indebtedness, it may have to modify its growth plans, limit its capital expenditures, restructure or refinance its indebtedness or seek additional capital or liquidate its assets. There can be no assurance (i) that any of these strategies could be effected on satisfactory terms, if at all, or (ii) that any such strategy would yield sufficient proceeds to service the Company's debt or otherwise adequately fund operations. Financing Activities In February, March and June 2000, the Company obtained bridge loans totaling $300,000 through the issuance of 14% promissory notes to 10 accredited investors. The terms of the financing additionally provided for the issuance of five year warrants to purchase an aggregate of 150,000 shares of the Company's common stock at $0.01 per share, and provided for certain registration rights. The promissory notes require monthly interest payments, mature in six months, and are extendible for two 90-day periods upon issuance of an additional warrants for an aggregate 150,000 shares exercisable at $0.01 per share for each extension. Warrants to purchase 106,250 shares of common stock were exercised as of June 30, 2000 at an aggregate exercise price of $1,063. In March 2000, the Company obtained bridge loans totaling $500,000 through the issuance of 14% promissory notes to two accredited investors. The terms of the financing additionally provided for the issuance of five year warrants to purchase 100,000 shares of the Company's common stock at $0.01 per share, and provided for certain registration rights. The promissory notes require quarterly interest payments, mature in six months, and are extendible for two 90 day periods upon issuance of additional warrants for an aggregate 10,000 shares exercisable at $0.01 per share for each extension. On March 8, 2000, the bridge loan investors exercised their warrants and purchased 100,000 shares of common stock of the Company at an aggregate exercise price of $1,000. In February 2000, the Company raised an aggregate $135,600 in an offering of its common stock. The offering was made pursuant to an exemption from the registration requirements of the Securities Act pursuant to Rule 504 of Regulation D of such act. On August 2, 2000, the Company obtained a bridge loan of $100,000 from Timothy J. Kilkenny, Chairman of the board and CEO, through the issuance of a 14% promissory note. The terms of the financing additionally provided for the issuance of five year warrants to purchase an aggregate of 50,000 shares of the Company's common stock at $0.01 per share, and provided for certain registration rights. The promissory note requires monthly interest payments, matures in six months, and is extendible for two 90 day periods upon issuance of additional warrants for an aggregate 50,000 shares exercisable at $0.01 per share for each extension. Proceeds from the bridge loans and the 504 offering were used for acquisitions, working capital and general corporate purposes. -18- PART II-OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Exhibit - ------------ ------------------------------------------------------------------ *10.1 Master License Agreement For KMC Telecom V, Inc., dated June 20, 2000, by and between FullNet Communications, Inc. and KMC Telecom V, Inc. *10.2 Domain Registrar Project Completion Agreement, dated May 10, 2000, by and between FullNet Communications, Inc., FullWeb, Inc. d/b/a FullNic and Think Capital. *10.3 Amendment to Financial Advisory Services Agreement between the Company and National Securities Corporation, dated April 21, 2000 (Financial Advisory Services Agreement between the Company and National Securities Corporation, dated September 17, 1999 filed as Exhibit 10.1 to the Company's Form 10-KSB dated March 30, 2000 and incorporated herein by reference). #10.4 Asset Purchase Agreement dated June 2, 2000, by and between Lary Smith, d/b/a FullNet of Nowata and FullNet Communications, Inc. (filed as Exhibit 99.1 to the Company's Form 8-K dated June 19, 2000 and incorporated herein by reference). *27.1 Financial Data Schedule. - ------------------------ *Filed electronically herewith. # Incorporated by reference. (b) Reports on Form 8-K On April 19, 2000, the Company filed a Form 8-K/A reporting the Pro Forma Consolidated Condensed Financial Statements with respect to the Form 8-K that the Company filed on February 18, 2000, reporting that, on February 4, 2000, the Company entered into an Asset Purchase Agreement with David Looper, d/b/a FullNet of Bartlesville, an Oklahoma sole proprietorship ("Seller"), in which the Company purchased substantially all of Seller's assets. On May 11, 2000, the Company filed a Form 8-K/A reporting the Pro Forma Consolidated Condensed Financial Statements with respect to the Form 8-K that the Company filed on March 9, 2000 reporting that, on February 29, 2000, the Company entered into an Agreement and Plan of Merger with Harvest Communications, Inc., ("Harvest") an Oklahoma corporation, pursuant to which Harvest merged with and into FullNet, Inc., a wholly owned subsidiary of the Company. On June 20, 2000, the Company filed a Form 8-K reporting that, on June 2, 2000, the Company entered into an Asset Purchase Agreement (the "Agreement") with Lary Smith, d/b/a FullNet of Nowata, an Oklahoma sole proprietorship ("Seller"), in which the Registrant purchased substantially all of Seller's assets. -19- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FULLNET COMMUNICATIONS, INC., An Oklahoma corporation Date: August 18, 2000 /s/ Timothy J. Kilkenny ------------------------------------------ Timothy J. Kilkenny Chairman of the Board of Directors; President and Chief Executive Officer Date: August 18, 2000 /s/ Travis Lane ------------------------------------------ Travis Lane Vice-President and Chief Financial Officer (Chief Accounting Officer) -20- EX-10.1 2 0002.txt MASTER LICENSE AGREEMENT FOR KMC TELECOMY, INC. Exhibit 10.1 ------------ EXECUTION COPY -------------- MASTER LICENSE AGREEMENT FOR KMC TELECOM V, INC. This Master License Agreement (the "Agreement") made this 20th day of June 2000 by and between Fullnet Communications, Inc., an Oklahoma corporation, having an address at 201 Robert S. Kerr, Suite 210, Oklahoma City, OK 73102 ("Licensor") and KMC Telecom V, Inc., a Delaware corporation, having an address at 1545 Route 206, Suite 300, Bedminster NJ 07921 ("Licensee"). WITNESSETH WHEREAS, Licensor has entered into leases with landlords of premises, each of whom has been made a party to the respective Co-Location Schedules (each, a "Co-Location Schedule", a form of which is attached hereto as Exhibit D) and Licensor is a tenant in the premises identified under the leases covering the leasing of portions of office buildings located at certain sites ("Sites"); WHEREAS, Licensee wishes to operate its communications systems at the Sites, and Licensor is willing to grant to Licensee a license to use a portion of each Site for such purposes under the terms and conditions contained herein. NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter contained and for other good and valuable consideration, Licensor and Licensee hereby agree as follows: 1. Use of Space. Licensor hereby grants to Licensee a license to use a part of Licensor's premises at each Site (each, a "Space") to accommodate the number of equipment cabinets or the square footage as set forth in the Co-Location Schedules (the "License"). Licensor shall designate the exact location of the Space, which location shall be reasonably acceptable to the Licensee. Licensor will supply power of the type and in the amount designated as set forth in Exhibit C. The Space shall be used solely for the installation and operation of telecommunications equipment which complies with National Electric Code Standards and provides "telecommunications services" or "information services" as those terms are defined in the Communications Act of 1934, as amended, (the "Equipment") set forth in Exhibit A which may be amended by Licensee at any time and from time to time, in connection with Licensee's business. Licensee covenants and agrees that Licensee shall not use the Space for any other purposes whatsoever unless otherwise specifically authorized in writing by Licensor. Licensee's use of the Space is to be conducted in accordance with all security procedures adopted by Licensor, a copy of which shall have been delivered to Licensee, provided that Licensor's security procedures shall not in any way limit Licensee's access to the Space as set forth in Section 3. Licensee acknowledges that the other licensees may use parts of the Site (but not the Space) for collocation and other related activities, but Licensee does not assume any liability for any act or omission of such other licensees. Licensor may, at its option, upon at least fifteen (15) days prior notice to Licensee, substitute for the Space other space at any of the Sites set forth in the respective Co-Location Schedules, provided that the substitute space contains approximately an equal area of space and has substantially similar configuration and is otherwise reasonably acceptable to Licensee. In addition, the move shall be performed during off peak hours as Licensee may designate in its sole discretion in order to avoid service interruption of Licensee's business. Expenses for such move will be borne by Licensor. 2. Prohibited Uses. Licensee shall not at any time use or allow any person to use the Space or do or permit anything to be done or kept in or about the Space that: (a) violates any certificate of occupancy in force for such Site, provided a copy of such certificate has been delivered to Licensee; (b) causes or is likely to cause damage to a Site or the Space, any equipment, facilities or other systems therein; (c) constitutes a material violation of any applicable law; (d) violates a requirement or condition of the standard fire insurance policy issued for office or data processing buildings at such Site, provided a copy of such policy has been delivered to Licensee; or (e) materially interferes with or disrupts the use or occupancy of any area of a Site, other than a Space, by other lessees, licensees or occupants of such other areas. 3. Services Provided. Licensor shall provide the support (collectively, the "Services") for the Licensee's Equipment installed in the Space as set forth below: a. Installation Support. Installation support ("Installation Services") including necessary power connections, floor tile cutouts or ceiling conduit, equipment and terminal connections as detailed in the Installation Support Work Description attached hereto as Exhibit B; b. Conditioned Environment. Conditioned environment with controlled access for operation on shared, no-wall basis, including adequate UPS backed electricity, generator backed electricity, or building standard commercial power and computer air conditioning as described in Exhibit C; c. Security. High-level security at the Space, twenty-four (24) hours a day, seven (7) days a week, three hundred and sixty five (365) days per year at each Site which will protect Licensee's Equipment, critical systems, services and information resources; d. Fire Suppression. Fire suppression equipment and services, twenty-four (24) hours a day, seven (7) days a week, three hundred and sixty five (365) days per year, which will protect Licensee's Equipment, critical systems, services and information resources; e. Access to Space. Licensee and its designated representatives shall have access to the Space twenty-four (24) hours a day, seven (7) days a week, three hundred and sixty five (365) days per year; and f. Any Additional Services. Any additional services other than the Services set forth herein provided that the fees to be paid for such additional services shall be mutually agreed upon by Licensor and Licensee pursuant to a written amendment of this Agreement. Licensee acknowledges that Licensor may temporarily interrupt the Services as necessary for the reasons of mandate by applicable law, utility stoppage beyond its control, or inspection and repair required to operate and maintain the plumbing, mechanical and electrical systems of the Site. Licensor shall provide a fifteen (15) day prior written notice to Licensee of any scheduled inspections and repairs. Licensor agrees to minimize any interruption of Services. 4. Licensor Representations and Covenants. a. Organization; Powers. (i) Licensor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and is qualified or licensed to conduct business in the jurisdiction in which its principal place of business is located and in every other jurisdiction where such qualification is necessary, including but not limited to the jurisdictions set forth in the Co-Location Schedules; (ii) Licensor has the power and authority to carry on its business as now conducted; and (iii) Licensor has the power and authority to execute and deliver this Agreement, the Co-Location Schedules and any other documents to which it is a party, and will have the power to execute and deliver any other instruments to be delivered by it subsequent to the date hereof. b. Corporate Authorizations. The execution, delivery and performance of this Agreement, the Co-Location Schedules and any other documents to which Licensor is a party: i. have been duly authorized by Licensor's Board of Directors or managers and, if necessary, Licensor's shareholders; ii. do not violate (1) any law applicable to Licensor; (2) Licensor's Certificate of Incorporation or other organization documents, as the case may be; or (3) any applicable order of any court or other governmental agency; iii. do not or will not conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under leases or any other agreement to which Licensor is or may become a party; iv. do not violate or conflict with the respective leases which Licensor entered into with the landlords identified in the Co-Location Schedules, which landlords have granted Licensor express authority and permission to enter into this Agreement, the Co-Location Schedules and any other agreement with Licensee; v. constitute legal, valid and binding obligations of Licensor, enforceable against Licensor in accordance with their terms. c. Quiet Enjoyment. Licensor covenants that, if and so long as Licensee shall fully and faithfully perform and comply with the provisions set forth under this Agreement, Licensee shall and may peaceably and quietly have, hold and enjoy the Space for the Term, free from interference from Licensor, its successors, assigns and transferees and any other third party claiming by or through Licensor. Licensor further covenants that it will use its best efforts to obtain a covenant of quiet enjoyment for Licensee from each landlord of each Site. d. Notice of Default. Licensor covenants to provide a copy of all notices delivered to Licensor from any landlord relating to a possible or actual default or threat to remove Licensor from any Site under Licensor's lease with such landlord immediately upon receipt thereof (the "Lease Default Notice"). 5. Equipment Installation and Removal. Licensee shall install the Equipment in the space. Within 60 days after the expiration or termination of the License for the Space, Licensee, at its expense, shall remove from the Space, all of Licensee's property, and Licensee shall repair any damage to the Space or the Site resulting from the installation or removal of Licensee's property. 6. Term. The term of the License with respect to each Space shall commence on the day Licensee first installs Equipment in that Space, as notified in writing by Licensee to Licensor (the "Commencement Date") and terminate on the date specified in the respective Co-Location Schedule (the "Expiration Date"), unless earlier terminated pursuant to the terms of this Agreement (the "Term"). On or after the Commencement Date, Licensor shall execute a Memorandum of License Commencement, which shall specify the Commencement Date. The failure by Licensor or Licensee to execute a Memorandum of License Commencement shall not affect the occurrence of the Commencement Date. The term of this Agreement shall commence on the date hereof and terminate on the later to occur of (i) January 31, 2004 or (ii) the latest Expiration Date of the Co-Location Schedule(s) then in effect. 7. License Fees. Licensee shall pay to Licensor the License Fees set forth on Section 4 of each Co-Location Schedule as consideration for the License granted and all Services provided to Licensee. All recurring License Fees are payable monthly in advance on the first day of each month during the Term with respect to such Co-Location Schedule. In the event the Commencement Date is not the first day of a month, the License Fee shall be pro rated for such month. Nonrecurring fees are due and payable 30 (thirty) days after receipt of invoice by Licensee. In addition to any fees specified herein, Licensee shall also be responsible for the payment of sales and/or use taxes, if any, imposed by any governmental authority or agency in connection with the license granted hereunder or Services performed hereunder. In the event that Licensee fails to pay the License Fees set forth in this Section 7 within ten (10) days after such payment is due, then Licensee shall pay Licensor a late charge equal to 1% per month as an agreed liquidated amount and as compensation for Licensor's additional reasonable administrative expense relating to such late payment. 8. Power. Charges for power are set forth in Exhibit C. Licensor will, at Licensee's request, provide a DC power plant capable of operating on batteries for not less than 4 four hours. Licensor will, at Licensee's request, provide generator back up power. In addition, Licensor will build a DC plant to accommodate the Licensee's consumption needs for DC power. 9. Security Deposit. Simultaneously with the execution of each Co-Location Schedule, Licensee will deposit with Licensor the security deposit set forth in Section 5 of such Co-Location Schedule ("Security Deposit"). Each Security Deposit shall bear interest and shall be deposited in a segregated interest bearing account at a financial institution disclosed to Licensee and shall be security for the payment and performance by Licensee of all of Licensee's obligations, covenants, conditions and agreements under this Agreement. Promptly upon expiration or termination of the Term (or any renewals and extensions thereof), and in no event later than 75 days after the expiration or termination of the Term, Licensor shall, (provided the Licensee is not in default under the terms hereof) return such security deposit to Licensee with accrued interest, less any reasonable amounts appropriated and properly documented by Licensor to make good on Licensee's obligations hereunder. 10. Insurance. At its expense, Licensor shall maintain in full force and effect at all times while it has any obligations remaining under this Agreement, policies of insurance written as primary coverage and not contributing with or in excess of any coverage Licensee may carry. These policies will be issued by an insurance carrier with a Best's rating of at least A X which afford the following: a. All-Risk Property Insurance to insure physical loss or damage, at replacement value, to the Space. Licensor will be responsible for insuring its own personal property, machinery and equipment. b. Commercial General Liability Insurance, including coverage for Bodily Injury, Property Damage, Personal Injury and Contractual Liability in an amount not less than $1,000,000 per occurrence with an annual aggregate of $2,000,000. A claims made policy is not permitted. c. Workers' Compensation Insurance in Statutory amounts and Employer's Liability Insurance in an amount not less than $500,000 per occurrence. At its expense, Licensee shall maintain in full force and effect at all times while it has any obligations remaining under this Agreement, policies of insurance written as primary coverage and not contributing with or in excess of any coverage Licensor may carry. These policies will be issued by an insurance carrier with a Best's rating of at least A X which afford the following: a. All-Risk Property Insurance to insure physical loss or damage, at replacement value, to the Equipment. b. Commercial General Liability Insurance, including coverage for Bodily Injury, Property Damage, Personal Injury and Contractual Liability in an amount not less than $1,000,000 per occurrence with an annual aggregate of $2,000,000. A claims made policy is not permitted. c. Workers' Compensation Insurance in Statutory amounts and Employer's Liability Insurance in an amount not less than $500,00 per occurrence. Certificates of Insurance, evidencing the above coverages with limits not less than those specified above, shall be delivered to Licensor and Licensee upon execution of this Agreement and annually thereafter. Such Certificates of Insurance, with the exception of Workers' Compensation Insurance, will confirm that each policy listed above has been endorsed to name KMC Telecom V, Inc., Licensor, their respective subsidiaries, affiliates, directors, officers, agents, assigns, financing parties and employees as additional insured. All Certificates of Insurance shall expressly provide that not less than (30) days prior written notice be given to Licensee in the event of a material alteration to or cancellation of the coverage's evidenced by such certificates with no disclaimer. The limits of insurance required shall not limit Licensor and Licensee's liability under Section 11. Failure by Licensee to receive or request such Certificates does not represent a waiver of the requirements for insurance coverage noted above. 11 Indemnity. Licensee shall, subject to Section 12 below, indemnify and hold harmless Licensor against all claims, suits, expenses, losses, liabilities or damages resulting from any breach by Licensee of any material provision of this Agreement or from any gross negligence or willful misconduct of Licensee. Licensor shall, subject to Section 12 below, indemnify and hold harmless Licensee against all claims, suits, expenses, losses, liabilities or damages resulting from any breach by Licensor of any material provision of this Agreement or from any gross negligence or willful misconduct of Licensor. 12 Limitation of Liability. Notwithstanding Section 11 above, in no event shall either party be liable for incidental, consequential, indirect damages, lost profits, lost information or any damages to the other or any of such party's customers' business or property caused by any error in judgment of, or any action taken or omitted by, the other party, or any interruption of the Services, unless such error, action, omission or interruption constitutes or results from gross negligence or willful misconduct of the other party. Neither party shall be liable for any claims, suits, expenses, losses, liabilities or damages caused by the other party's failure to perform its obligations under this Agreement or by its failure to fulfill its obligations under this Agreement due to causes beyond its control, including, but not limited to: acts of God, interruption of power or other utilities, interruption of transportation or communication services, acts of civil or military authority, national emergencies, or strike. 13 Confidentiality. Each party, for itself, its agents, employees and representatives agrees that it will not divulge any confidential or proprietary information as identified below which it receives from the other party, except as may be required in the performance of the Services or the implementation of the project with respect to which the Services are rendered; provided, however, that no liability shall arise hereunder as a result of the dissemination of any information which (i) was in the possession or control of one party prior to the date of disclosure to that party by the other party hereunder, or (ii) was in the public domain or enters the public domain through no improper act by the party to which such information was disclosed or any of that party's agents or employees, or (iii) was rightfully given to a party by a source independent of the other party, and provided further, that each party shall be permitted to disclose any information to the extent required by applicable law or governmental authorities. Any information received by Licensor from Licensee in connection with Licensee or Licensor's performance of Services to Licensee under this Agreement shall be deemed confidential information hereunder as well as any information Licensee may receive concerning any third party in the Space shall be deemed confidential information hereunder. Any report or other document prepared by Licensor in connection with Licensor's performance of the Services to Licensee shall be deemed to be confidential information hereunder. 14 Binding Agreement; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Licensee shall not be permitted to assign this Agreement or any interest herein without the prior written consent of Licensor, which consent shall not be unreasonably withheld. Licensee will remain fully liable for the payment of fees and for the performance of all the other obligations of Licensee contained in this Agreement. The consent by Licensor to any assignment shall not relieve Licensee of the obligation to obtain the consent of Licensor to any future assignment. Notwithstanding the foregoing, Licensor acknowledges and agrees that Licensee may assign or collaterally assign, in whole or in part, its rights, interests and obligations hereunder without limitation to any of its affiliates, any party providing financing to the Licensee, and any successors and assigns of the foregoing without the consent of the Licensor. Licensee will provide Licensor with notice of any assignment. Licensor agrees that the holder of any security interest shall not be prevented or impeded by Licensor from enforcing such security interest and Licensor shall not terminate any License or this Agreement without the prior written consent of the assignee. Licensor shall execute all consents to assignment and/or acknowledgements of any security interest as are requested by Licensee to give effect to the foregoing. Such acknowledgements may contain an agreement to allow the holder of such security interest to cure defaults by Licensee under this Agreement and a consent to allow the assignment to the successors-in-interest of the holder of such security interest. 15 Mutual Cooperation. Licensee shall cooperate with Licensor in connection with Licensor's performance of the Services. Licensee shall, with reasonable promptness, provide all information reasonably required by Licensor for its performance of the Services, and shall make designated representatives available for regular consultation at such times and places as Licensor shall reasonably request. Licensor shall cooperate with Licensee in connection with Licensee's use of the Space. Licensor shall, with reasonable promptness, provide all information reasonably required by Licensee for its use of the Space, and shall make designated representatives available for regular consultation at such times and places as Licensee shall reasonably request. 16 No Agency Relationship Implied. It is acknowledged and agreed by Licensee that Licensor performs the Services hereunder solely as an independent contractor and that no joint venture, partnership, employment, agency or other relationship is intended, accomplished or embodied in this Agreement. Licensor shall have the sole and exclusive right to supervise, manage, control and direct its performance of this Agreement. 17 Default by Licensor. In the event Licensor fails to perform or comply with any provision of this Agreement within twenty (20) days of Licensee's written notice to Licensor of its failure to perform or comply with any other provision of this Agreement, Licensee may terminate the License for the subject Space for which nonperformance or noncompliance has occurred. If Licensor is unable to cure within the prescribed twenty (20) days or if the nonperformance or noncompliance is of a nature that cannot be cured within twenty (20) days, Licensor shall so notify Licensee and Licensee shall give Licensor a reasonable amount of time to cure such nonperformance or noncompliance. If Licensor fails to cure within a reasonable amount of time, Licensee may terminate the License for the applicable Space. Upon receipt of a Lease Default Notice which Licensee reasonably believes will result in a termination of Licensor's lease within thirty (30) days thereafter, Licensee may immediately notify Licensor of its intention to terminate the License for the Space covered by such notice and unless Licensor provides evidence in support of the lease continuing beyond such 30 day period within five (5) days after receipt of such notice, the Licensee may immediately terminate the License with respect to such Space. Licensor shall in any event remain fully liable for damages as provided by law and or all costs and expenses incurred by Licensee on account of any default, including reasonable attorneys' fees, subject to the limitation of liability set forth in Section 12. Licensor's obligation to pay all fees and charges that have been accrued shall survive any termination of any License. 18 Default by Licensee. In the event Licensee fails to pay monthly or other fees required to be paid hereunder within fifteen (15) days of Licensor's written notice to Licensee of its failure to pay when due and demand for the immediate payment thereof, Licensor may terminate the License for the subject Space for which fees have not been paid. In the event Licensee fails to perform or comply with any other provision of this Agreement within twenty (20) days of Licensor's written notice to Licensee of its failure to perform or comply with any other provision of this Agreement, Licensor may terminate the License for the subject Space for which nonperformance or noncompliance has occurred. If Licensee is unable to cure within the prescribed twenty (20) days or if the nonperformance or noncompliance is of a nature that cannot be cured within twenty (20) days, Licensee shall so notify Licensor and Licensor shall give Licensee a reasonable amount of time to cure such nonperformance or noncompliance. If Licensee fails to cure within a reasonable amount of time, Licensor may terminate the License for the applicable Space. Licensee shall in any event remain fully liable for damages as provided by law and or all costs and expenses incurred by Licensor on account of such default, including reasonable attorneys' fees, subject to the limitation on liability set forth in Section 12. Licensee's obligation to pay all fees and charges that have been accrued shall survive any termination of any License. Upon such termination of any License pursuant to this Section 18, Licensee shall remain fully liable for all License Fees under such License from such date of termination through the Expiration Date of the relevant License. All such amounts shall become immediately due and payable. 19 Notices. All notices, reports, requests or other communications given pursuant to this Agreement shall be made in writing, shall be delivered by hand delivery, overnight courier service or fax, shall be deemed to have been duly given when delivered, and shall be addressed as follows or to such other location as either party shall designate via certified return receipt notification: To Licensee: KMC Telecom V, Inc. 1545 Route 206 Suite 300 Bedminster, NJ 07921 Attn: Alan M. Epstein, Esq. Telephone: (908) 470-2100 Fax: (908) 470-8776 With a copy to: Scott Stinson KMC Contract Manager 4250 International Boulevard Suite B Norcross, Georgia 30093 Tel: (678) 206-9551 Fax: (678) 206-9596 To Licensor: Wallace L. Walcher Fullnet Communications, Inc. 201 Robert S. Kerr Suite 210 Oklahoma City, OK 73102 Tel.: (405) 232-0958 Fax: (405) 236-8201 20 Governing Law. This Agreement shall be governed by the laws of the State of New York, without regard to any conflict of laws principles that would require applying another State's laws. 21 Jurisdiction and Venue. Each of the parties hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York City for the purposes of all legal proceedings relating to the execution, validity or enforcement of this Agreement. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 22 Entire Agreement. The Agreement constitutes the entire agreement between Licensor and Licensee with respect to the use of the Space and the Services, and may be modified only by a written instrument signed by a duly authorized officer on behalf of each party. Any representation or statement not contained in this Agreement shall not be binding upon Licensor or Licensee. IN WITNESS WHEREOF, an authorized representative of each of the parties hereof have executed this Agreement on the day and year first written above. FULLNET COMMUNICATIONS INC. By: /s/ Wallace L. Walcher ------------------------------ Name: Wallace L. Walcher Title: Chief Operating Officer KMC TELECOM V, INC., a Delaware corporation By: ------------------------------ Name: Title: LIST OF ATTACHMENTS ------------------- Schedule 1 - Sites Exhibit A - Licensee's Equipment List Exhibit B - Installation Support Work Exhibit C - Miscellaneous and Support Charges Exhibit D - Form of Co-Location Schedule SCHEDULE 1 ---------- SITES ----- 201 Robert S. Kerr, Suite 210, Oklahoma City, OK 73102 EXHIBIT A --------- EQUIPMENT LIST -------------- Licensee's Name: KMC TELECOM V, INC. By (signature): Name: Title: City/Site Cabinet ID Equipment Power Heat (BTU) Size Weight ID (Kva) (HxWxD) (pounds) Equipment at the sole discretion of KMC Telecom V, Inc. EXHIBIT B --------- INSTALLATION SUPPORT WORK ------------------------- Licensor will provide the following Installation Services: 1. Site Preparation 1.1. Licensor will provide circuit convenience outlets within the vicinity of Licensee's Space, including for Licensee's use of test equipment. 1.2. Licensor will supply overhead cable ladders in proximity to Licensee's cabinets for the running of communication circuits. 1.3. Licensor will supply Licensee's cage with adequate amps of DC power A and B feed (s) and UPS backed AC power to be terminated on a power distribution frame, with specifications to be provided in the Co-Location Schedule. 2. Equipment 2.1. Licensee is responsible for all Equipment installation. 2.2. Licensee will provide cabinets at its own expense. 2.3. Licensee to install cabinets at its own expense. EXHIBIT C --------- MISCELLANEOUS AND SUPPORT CHARGES --------------------------------- 1. Licensor will supply technical support using the Hands, Eyes and Ears approach. This approach will consist of the following: 1.1. Reporting of the visual status of lights, switches and printed outputs. 1.2. Re-setting of Equipment, cycle power, review connectors for physical integrity. 1.3. Reporting to the Licensee any Equipment alarms. 1.4. Swapping of cards and/or plug-ins under Licensee supervision. 1.5. At Licensee's request, Licensor will provide cabling support. 2. Licensor shall provide fire detection, alarm and suppression equipment and services at all times to protect Licensee's equipment in the Space. 3. Licensor will charge on an hourly basis for additional services not included in the Services; the actual rate will vary according to location. 3.1. Minimum charge of 1 hour, at the following rates: 3.2. Normal business hours: $95/hr 3.3. Nights and weekends: $135/hr 4. If the hands, eyes and ears approach does not remedy the problems, the Licensee may bring in Sub-Contractors to perform additional support services: 4.1. At the Licensee's request, Licensor may provide a list of recommended Sub-Contractors for each Site. 4.2. Where the Licensee directs Licensor to bring in an outside vendor for Equipment repair or reconfiguration: 1) this expense will generally be billed directly to the Licensee by the vendor or 2) where Licensor is the billed entity it will charge actual cost plus 25%. 5. Flat Fee Power Charges - specifications to be provided by Licensee: 5.1. Non-UPS backed power is charged at 100% x $12 x per amp of circuit capacity. 5.2. UPS AC backed power is charged at 100 % x $25 x per amp of circuit capacity. 5.3. DC power is charged at 100% x $20 x per amp of circuit capacity. 5.4. Rate Increases: In the event that power rates charged Licensor increase more than 5% above current levels, Licensor reserves the right to increase the rate proportionately. 6. Cable/Cross Connection Fees: 6.1. Direct Connection Fees: 6.1.1. Cable charges are the responsibility of the Licensee and may be directly negotiated with the carrier concerned. Within each Licensor facility, the following cross connection fees apply: 6.1.2. To Carriers: Currently no charge 6.1.3. To other Licensees: $30 per month 6.2. Cross-Connect Fees. Within each Licensor facility, the following cross connection fees apply: 6.2.1. Install fee per DS1: $25 6.2.2. Install fee per DS3: $75 6.2.3. Install fee per OCX: $250 6.2.4. DS1 monthly charge: $40 6.2.5. DS3 monthly charge: $80 6.2.6. OCX monthly charge: $125 EXHIBIT D --------- FORM OF CO-LOCATION SCHEDULE Site Name: 201 Robert S. Kerr, Suite 210, Oklahoma City, OK 73102 THIS CO-LOCATION SCHEDULE (the "Co-Location Schedule") dated June 20, 2000, shall be attached to and become a part of the MASTER LICENSE AGREEMENT dated June 20, 2000 by and between KMC Telecom V, Inc., as Licensee and Fullnet Communications Inc., as Licensor ("Licensor") ("Master License Agreement"). WITNESSETH: WHEREAS, Licensor has entered into the Master License Agreement with KMC Telecom V, Inc., a Delaware corporation; and WHEREAS, Licensor has entered into a lease with BOK Plaza Associates, LLC covering the leasing of 201 Robert S. Kerr, Suite 210, Oklahoma City, OK 73102; and WHEREAS, Licensee wishes to operate its Equipment located at the Licensor's premises in 201 Robert S. Kerr, Suite 210, Oklahoma City, OK 73102 and Licensor is willing to grant to Licensee a license to use a portion of the Licensor premises for such purposes under the terms and conditions contained herein. NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter contained and for other good and valuable consideration, Licensor and Licensee hereby agree as follows: 1. Defined Terms. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed thereto in the Master License Agreement. 2. Term. The term of this License (the "Term") shall commence on the Commencement date and terminate on January 31, 2004. 3. Space. Licensee shall use a part of Licensor's premises (the "Space") to accommodate five hundred square feet (500 sq. ft.) of caged space at $45/square foot. Licensor will supply power of the type and designated in Exhibit B of the Master License Agreement and in the following amounts: DC Power: A and B feeds each, 1000 amps; AC Power: 80 amps. 4. License Fees. Licensee shall pay to Licensor the following fees (License Fees) in accordance with Section 7 of the Master License Agreement: (i) commencing on the Commencement Date $44,500.00 per month for the Space and the Services (except the Installation Services) which includes 100% of the usage of the type of power, as provided in Exhibit B of the Master License Agreement; and (ii) upon initiation of installation of Equipment, a one time payment of $32,700.00 for Installation Services as provided in Exhibit B of the Master License Agreement. 5. Security Deposit. Simultaneously with the execution of the License, Licensee will deposit with Licensor the sum of $44,500.00 to be held as Security Deposit in accordance with Section 9 of the Master License Agreement. 6. Subordination/Conflict. This Co-Location Schedule is in all respects subject to and subordinate to the terms and conditions of the Master License Agreement. In the event of inconsistency between any terms of this Co-Location Schedule and any terms of the Master License Agreement, the terms of the Master License Agreement shall control. IN WITNESS WHEREOF, the parties hereto have duly executed this License as of the day and year first above written. By: ______________________________ Name: Title: KMC TELECOM V, INC., a Delaware corporation By: ______________________________ Name: Wallace L. Walcher Title: Chief Operating Officer Fullnet Communications, Inc., an Oklahoma corporation The foregoing is acknowledged and consented to: BOK Plaza Associates, LLC - ------------------------------------ Name: Title: EXECUTION COPY -------------- ACKNOWLEDGMENT AND CONSENT AGREEMENT ACKNOWLEDGMENT AND CONSENT AGREEMENT (this ("Agreement"), dated as of June 20, 2000, by and among Fullnet Communications, Inc. an Oklahoma Corporation (the "Licensor"), KMC TELECOM V, INC., a Delaware corporation (the "Licensee"), and [TELECOM V INVESTOR TRUST 2000-A], a [ ] (the "Lessor"). WHEREAS, the Licensee has entered into certain agreements with the Lessor (the "Financing Documents") pursuant to which the Lessor and certain other financing parties have agreed to provide lease financing for the acquisition of certain equipment (the "Equipment") to be used by the Licensee to provide media gateway services (the "Services"); WHEREAS, in connection with the performance of the Services, the Licensee and the Licensor have entered into the Master License Agreement, dated as of June 20, 2000 (the "Master License Agreement"), pursuant to which the Licensor has granted the Licensee a license to use a portion of certain premises leased by it to accommodate a portion of the Equipment; WHEREAS, in order to secure the Licensee's obligations under the Financing Documents, the Licensee has agreed irrevocably to transfer and assign for security purposes, and grant a first priority security interest in, all of its right, title and interest in, to and under (among other things) the Master License Agreement to the Lessor, pursuant to a security agreement (dated on or about the date hereof) between the Licensee and the Lessor (the "Security Agreement"); and WHEREAS, it is a condition precedent to the consummation of the lease financing under the Financing Documents that the Licensor shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Definitions; Interpretation. Capitalized terms used in this Agreement without definition shall have the respective meanings ascribed thereto in the Master License Agreement. In this Agreement, unless the context expressly indicates otherwise, terms defined in the singular shall have the same meanings when used in the plural and vice versa; references to any law (whether statutory, administrative or otherwise) shall include all provisions amending, replacing, succeeding or supplementing such law; references to agreements or other contractual instruments shall include all amendments, modifications and supplements thereto; and references to persons or entities shall include such person's or entity's successors and assigns. 2. Undertakings Relating to the Financing. The Licensor hereby acknowledges and agrees for the benefit of the Lessor that: (a) Consent to Assignment. The Licensor irrevocably consents to the transfer and assignment for security purposes of the Licensee's right, title and interest in, and rights and obligations under, the Master License Agreement to the Lessor pursuant to the Security Agreement. (b) Cure Rights. Upon receipt by the Licensor of written notice from the Lessor that an event of default has occurred and is continuing under the Financing Documents, the Lessor shall be entitled to exercise any and all rights of the Licensee under the Master License Agreement in accordance with its terms. Until such time as the Lessor seeks to exercise remedies under the Security Agreement in respect of the Master License Agreement and gives written notice as provided herein, the Licensor shall continue to deal directly with the Licensee with respect to its obligations to the Licensee under each of the Master License Agreement. Upon receipt of written notice from the Lessor that an event of default has occurred and is continuing under the Financing Documents and that the Lessor is exercising rights of the Licensee under the Master License Agreement, the Licensor shall deal exclusively and directly with the Lessor or its designee(s) or assignee(s), as the case may be, and not the Licensee. The Licensor will not, without the prior written consent of the Lessor, exercise any of its rights set forth in the Master License Agreement to cancel or terminate, or suspend performance under, the Master License Agreement due to the Licensee's breach of or failure to perform any of its obligations under the Master License Agreement: (1) with respect to a payment default, unless the Licensor shall have delivered to the Lessor prior written notice declaring its intention to terminate the Master License Agreement as a result of a payment default beyond the cure period provided in Section 18 of the Master License Agreement and specifying the payment default giving rise thereto, and before exercising any of its rights set forth in the Master License Agreement shall have permitted the Lessor or their designee(s) or assignee(s) an additional cure period of 30 days in which either (x) to cure any such payment default or (y) to assume liability for the Master License Agreement pursuant to Section 2(c) below; and (2) with respect to any breach or default, other than a payment default, unless the Licensor shall have delivered to the Lessor prior written notice of its intent to exercise such right, specifying the nature of the breach or default giving rise to such right and before exercising any of its rights set forth in the Master License Agreement shall have permitted the Lessor or their designee(s) or assignee(s) an additional cure period of 60 days in which either (x) to cure any such default by remedying such breach or event or performing or causing to be performed the obligation in default or (y) to assume liability for the Master License Agreement pursuant to Section 2(c) below; The cure periods set forth in this Agreement shall in no way limit the Licensor's rights to interest on overdue amounts at the rate and time provided for in the Master License Agreement, rights to claim compensation for Licensee events of default or rights to cure any failure of the Licensee and seek reimbursement therefor. Except as otherwise expressly provided pursuant to this Section 2, no curing of or attempt to cure any of the Licensee's defaults under the Master License Agreement shall be construed as an assumption by the Lessor of any obligations of the Licensee. (c) Replacement of Current Licensee by Direct Assumption of Liabilities. The Lessor or its designee(s) or assignee(s) may elect by written notice delivered to the Licensor to assume liability for the Licensee's obligations under the Master License Agreement; provided, however, that the Lessor or its designee(s) or assignee(s) shall agree to cure any existing payment default, and non-payment defaults which are capable of cure by a party other than the Licensee, in each case within the time periods set forth in subsection (b) above. Except as set forth in the preceding sentence, the Lessor shall not be liable for the performance or observance of any of the obligations or duties of the Licensee under the Master License Agreement, and the assignment of the Master License Agreement by the Licensee to the Lessor pursuant to the Security Agreement shall not give rise to any duties or obligations whatsoever on the part of the Lessor owing to the Licensor. In the event that the Lessor assumes or is liable under the Master License Agreement, liability in respect of any and all obligations of any such person or entity under the Master License Agreement shall be limited solely to such person's or entity's interest in the Equipment (and no officer, director, employee, shareholder, affiliate or agent thereof shall have any liability with respect thereto). In the event that there are multiple designees or assignees of the Lessor, then each designee or assignee shall be jointly and severally liable for the Licensee's obligations under said Master License Agreement. Upon the exercise by the Lessor of any of the remedies under the Security Agreement in respect of the Master License Agreement, the Lessor may assign its rights and interests and the rights and interests of the Licensee under the Master License Agreement to any person or entity pursuant to a form of assignment and assumption agreement reasonably satisfactory to the Licensor, if such person or entity shall assume liability for all past and future obligations of the Licensee under the Master License Agreement. Upon such assignment and assumption, the Lessor shall be relieved of all obligations under the Master License Agreement assumed pursuant to the preceding paragraph. (d) Changes to Master License Agreement. The Licensor will not, without the prior written consent of the Lessor: (i) consent to or accept any cancellation, termination or suspension of the Master License Agreement by the Licensee; (ii) amend, supplement or otherwise modify any provision of the Master License Agreement (as in effect on the date hereof); or (iii) sell, assign, delegate or otherwise dispose of (by operation of law or otherwise) any part of its interest in the Master License Agreement. (e) Replacement of Master License Agreement in Bankruptcy. In the event that (i) the Master License Agreement is rejected by a trustee, liquidator, debtor-in-possession or similar person or entity in any bankruptcy, insolvency or similar proceeding involving the Licensee, or (ii) the Master License Agreement is terminated as a result of any bankruptcy, insolvency or similar proceeding involving the Licensee and, if within 90 days after such rejection or termination, the Lessor or its designee(s) or assignee(s) shall so request, the Licensor will execute and deliver to the Lessor or such designee(s) or assignee(s) a new Master License Agreement which shall be for the balance of the remaining term under the original Master License Agreement before giving effect to such rejection or termination and shall contain the same conditions, agreements, terms, provisions and limitations as the original Master License Agreement (except for any requirements which have been fulfilled by the Licensee and the Licensor prior to such rejection or termination); provided that the Lessor or such designee(s) or assignee(s) (i) shall have cured any existing payment default, and non-payment defaults which are capable of cure by a party other than the Licensee, in each case within the 90 day time period set forth above, and (ii) shall execute and deliver the new Master License Agreement. References in this Agreement to an "Master License Agreement" shall be deemed also to refer to the new Master License Agreement in replacement thereof. (f) Liabilities Limited to Master License Agreement. In connection with any cure pursuant to this Section 2 of the Licensee's default(s) under the Master License Agreement or any assumption pursuant to this Section 2 by any person of the Licensee's liabilities thereunder, only those obligations and liabilities arising expressly under the Master License Agreement shall be required to be cured or assumed, as the case may be. 3. Miscellaneous. (a) No failure or delay on the part of the Licensor, the Licensee or the Lessor or any agent or designee of any of the foregoing to exercise, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof, and no single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. (b) The remedies of the Lessor, its designee(s) and/or assignee(s) and the Licensor provided herein are cumulative and not exclusive of any remedies provided by law. (c) Any notice, request, proposal for changes or correspondence required or permitted under the terms and conditions of this Agreement shall be in writing and (i) delivered personally, (ii) transmitted by facsimile and either (x) recipient acknowledges receipt to sender or (y) sender is able to deliver to recipient a transmission confirmation, or (iii) sent by an internationally recognized overnight mail or courier service, with delivery receipt requested, to the following addresses: If to Licensee: KMC Telecom V, Inc 1545 Route 206 Suite 300 Bedminster, NJ 07921 Attn: Alan M. Epstein, Esq. Tel.: (908) 470-2100 Fax: (908) 470-8776 With copy to: Scott Stinson KMC Contract Manager 4250 International Blvd. Suite B Norcross, Georgia 30093 Tel: (678) 206-9551 Fax: (678) 206-9596 If to Licensor: Wallace L. Walcher Fullnet Communications, Inc. 201 Robert S. Kerr Suite 210 Oklahoma City, OK 73102 Tel.: (405) 232-0958 Fax: (405) 236-8201 If to Lessor: [Telecom V Investor Trust 2000-A] [address] Attn: ___________ Tel: ___________ Fax: ___________ All notices shall be deemed to have been duly given or made when delivered, or, in the case of telecopy notice, when received. (d) This Agreement may be amended, waived or modified only by an instrument in writing signed by the Licensor and the Lessor. Any waiver shall be effective only for the specified purpose for which it is given. (e) This Agreement may be executed in any number of counterparts, all of which when taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. (f) If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction, (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, and (iii) to the extent practicable, invalid or unenforceable provisions shall be replaced by valid and enforceable solutions having the same economic effect on the parties as was intended by the invalid or unenforceable provisions. (g) Headings appearing herein are used solely for convenience and are not intended to affect the interpretation of any provision of this Agreement. (h) The agreements of the parties hereto are solely for the benefit of the Licensor, the Licensee, the Lessor, and shall be binding upon and inure to the benefit of the respective permitted successors and assigns of each of the foregoing parties. No other person or entity (other than the foregoing parties, including their respective permitted successors and assigns) shall have any rights hereunder. (i) This Agreement shall be governed by, and construed in accordance with the law of the State of New York. (j) Each of the parties hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York City for the purposes of all legal proceedings relating to the execution, validity or enforcement of this Agreement. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. (k) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. IN WITNESS WHEREOF, the undersigned by its officer duly authorized has caused this Agreement to be duly executed and delivered as of the date first written above. FULLNET COMMUNICATIONS, INC. By____________________________________ Name: Wallace L. Walcher Title: Chief Operating Officer KMC TELECOM V, INC. By____________________________________ Name: Title: [TELECOM V INVESTOR TRUST 2000-A] By____________________________________ Name: Title: CO-LOCATION SCHEDULE Site Name: 201 Robert S. Kerr, Suite 210, Oklahoma City, OK 73102 THIS CO-LOCATION SCHEDULE (the "Co-Location Schedule") dated June 20, 2000, shall be attached to and become a part of the MASTER LICENSE AGREEMENT dated June 20, 2000 by and between KMC Telecom V, Inc., as Licensee and Fullnet Communications Inc., as Licensor ("Licensor") ("Master License Agreement"). WITNESSETH: WHEREAS, Licensor has entered into the Master License Agreement with KMC Telecom V, Inc., a Delaware corporation; and WHEREAS, Licensor has entered into a lease with BOK Plaza Associates, LLC covering the leasing of 201 Robert S. Kerr, Suite 210, Oklahoma City, OK 73102; and WHEREAS, Licensee wishes to operate its Equipment located at the Licensor's premises in 201 Robert S. Kerr, Suite 210, Oklahoma City, OK 73102 and Licensor is willing to grant to Licensee a license to use a portion of the Licensor premises for such purposes under the terms and conditions contained herein. NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter contained and for other good and valuable consideration, Licensor and Licensee hereby agree as follows: 7. Defined Terms. Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed thereto in the Master License Agreement. 8. Term. The term of this License (the "Term") shall commence on the Commencement date and terminate on January 31, 2004. 9. Space. Licensee shall use a part of Licensor's premises (the "Space") to accommodate five hundred square feet (500 sq. ft.) of caged space at $45/square foot. Licensor will supply power of the type and designated in Exhibit B of the Master License Agreement and in the following amounts: DC Power: A and B feeds each, 1000 amps; AC Power: 80 amps. 10. License Fees. Licensee shall pay to Licensor the following fees (License Fees) in accordance with Section 7 of the Master License Agreement: (i) commencing on the Commencement Date $44,500.00 per month for the Space and the Services (except the Installation Services) which includes 100% of the usage of the type of power, as provided in Exhibit B of the Master License Agreement; and (ii) upon initiation of installation of Equipment, a one time payment of $32,700.00 for Installation Services as provided in Exhibit B of the Master License Agreement. 11. Security Deposit. Simultaneously with the execution of the License, Licensee will deposit with Licensor the sum of $44,500.00 to be held as Security Deposit in accordance with Section 9 of the Master License Agreement. 12. Subordination/Conflict. This Co-Location Schedule is in all respects subject to and subordinate to the terms and conditions of the Master License Agreement. In the event of inconsistency between any terms of this Co-Location Schedule and any terms of the Master License Agreement, the terms of the Master License Agreement shall control. IN WITNESS WHEREOF, the parties hereto have duly executed this License as of the day and year first above written. By: ______________________________ Name: Title: KMC TELECOM V, INC., a Delaware corporation By: ______________________________ Name: Wallace L. Walcher Title: Chief Operating Officer Fullnet Communications, Inc., an Oklahoma corporation The foregoing is acknowledged and consented to: BOK Plaza Associates, LLC - ------------------------------------ Name: Title: EX-10.2 3 0003.txt DOMAIN REGISTRAR PROJECT COMPLETION AGREEMENT DOMAIN REGISTRAR PROJECT COMPLETION AGREEMENT This Domain Registrar Project Completion Agreement (the "Agreement") is made and entered into this 10th day of May, 2000, between FullNet Communications, Inc., an Oklahoma corporation ("FullNet"), FullWeb, Inc., an Oklahoma corporation dba FullNic ("FullNic") and Think Capital, Inc., an Oklahoma corporation ("Think Capital"). RECITALS WHEREAS, FullNic is in the process of becoming a domain name registrar and wishes to retain the services of Think Capital; and WHEREAS, Think Capital wishes to provide certain services to FullNic to enable it to become a domain registrar; NOW THEREFORE, in light of the foregoing and the mutual consideration provided for herein, the parties agree as follows: 1. Term and Termination. -------------------- 1.1 This Agreement shall be effective as of the date first written above and shall continue for a period of sixty days, subject to the provisions hereinafter. 1.2 Upon written notice by either party of the other party's failure to abide by its covenants herein or otherwise default in the performance of any of its obligations under this Agreement, the party receiving such notice (the "Defaulting Party") shall have forty-eight hours to correct or remedy such deficiency. Any such notice shall describe in detail the basis upon which the party providing notice (the "Non-defaulting Party") believes such termination is justified. Upon receipt of such notice, the Defaulting Party shall have forty-eight (48) hours during which to attempt to cure any alleged default under this Agreement, and upon such cure being effected, the Non-defaulting Party's rights to terminate the Agreement by virtue of such default shall cease and this Agreement will continue in full force and effect. In the event that any such deficiency or default is not corrected within such forty-eight hour period, the Non-defaulting Party may terminate this Agreement effective immediately; provided, however, if the Defaulting Party has diligently attempted to effect such a cure within such forty-eight hour period but cannot complete such cure because of the failure of a third-party to act within such period, as evidenced in writing by such third party to the Non-defaulting Party, then the Defaulting Party shall have such additional time beyond such forty-eight hour period as may be agreed between the Defaulting Party and the Non-defaulting Party to cure the deficiency or default; provided, further, in no event shall such additional time exceed forty-eight hours. 1.3 Upon termination of this Agreement, Think Capital shall be entitled to immediately receive payment of all accrued and unpaid amounts then due Think Capital pursuant to the terms of this Agreement at the date of termination, and neither party shall have any further obligations whatsoever under this Agreement, except pursuant to the indemnity provisions herein. If, after prior written demand, either party hereto brings an action because of the termination of this Agreement, the non-prevailing party agrees to pay all costs and reasonable attorneys' fees incurred by the prevailing party in connection with such action. No right or remedy herein conferred upon or reserved to either of the parties hereto is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder, or now or hereinafter legally existing upon the termination of this Agreement. 1.4 The term "Preliminary Project Completion" shall hereinafter be defined as the date at which Think Capital has performed in good faith all the requirements of section 6 below. "Project Completion" shall hereinafter be defined as the date at which domain names are first registered via the FullNic web site. 2. Consideration for Services Rendered by Think Capital. ---------------------------------------------------- 2.1 Upon execution of this Agreement ("Execution Date"), FullNic shall pay to Think Capital the sum of $6,500.00. Sixty days after the Execution Date (the "Preliminary Project Due Date"), FullNic shall pay to Think Capital the sum of $6,500.00, subject to the provisions of Section 4. FullNet hereby guarantees payment of FullNic's obligations under this Agreement. 2.2 Subject to the provisions of Sections 4 and 5, in addition to the consideration payable pursuant to Section 2.1 above, FullNet agrees to issue to Think Capital, as additional compensation, warrants to purchase 25,000 shares ("Original Warrants") of FullNet's $0.00001 common stock ("Common Stock"), at an exercise price per share equal to the market price of the Common Stock on the date of the issuance of the warrants, and pursuant to the other terms set forth in the Warrant Agreement, a form of which is attached hereto as Exhibit "A" (the "Warrant Agreement"). The Original Warrants will be issued to Think Capital on the Preliminary Project Due Date, subject to the provisions of Section 4. 3. Bonus Compensation. ------------------ 3.1 If the total number of ".com," ".net," and ".org" domains registered by FullNic on or prior to the twelve-month anniversary of Project Completion is equal to or greater than 85,000, FullNet agrees to issue to Think Capital, as bonus compensation, an additional 55,000 warrants (the "Bonus Warrants"), giving Think Capital the right to purchase from FullNet 55,000 shares of Common Stock at an exercise price per share equal to the market price of the Common Stock on the date of the issuance of the warrants, and pursuant to the other terms as set forth in the Warrant Agreement; provided, however, Think Capital may request that the Bonus Warrants be issued at either (1) the last day of the month in which the 85,000th domain is registered, or (2) the last day of the twelfth month following Project Completion. 3.2 If, subsequent to Preliminary Project Completion, FullNet (a) liquidates, discontinues, sells, effects a spinoff of or otherwise disposes of FullNic, (b) fails to provide adequate funding to allow FullNic to remain a going concern, (c) fails to pursue Project Completion in accordance with the reasonable recommendations provided by Think Capital and agreed to by both parties pursuant to Think Capital's provision of services in accordance with Section 6, or (d) otherwise improperly impedes Think Capital's provision of services in accordance with Section 6, FullNet and FullNic shall, notwithstanding the failure of Project Completion to occur, pay to Think Capital upon demand the bonus compensation set forth in Section 3.1 hereof. 4. If, on the Preliminary Project Due Date, Preliminary Project Completion has not occurred due to the failure of Think Capital to perform in good faith all services described in Section 6 hereof for the account of and as agent of FullNic, and FullNic elects to waive its right to terminate the Agreement pursuant to Section 1.2 hereof with respect to such default, the following adjustments to compensation will be made: 4.1. The number of Original Warrants to be issued pursuant to the terms of Section 2.2 will be adjusted downward by 250 Warrants for each day the date of Preliminary Project Completion extends beyond the Preliminary Project Due Date; 4.2. Notwithstanding the provisions of Section 2.1 and Section 2.2 of this Agreement, the Original Warrants, as adjusted pursuant to Section 4.1, shall not be issued, and the second cash payment of $6,500 will not be paid, until the earlier to occur of (a) the date of Preliminary Project Completion, or (b) Think Capital's performance in good faith of the services described in Section 6 hereof; and 4.3. Think Capital's rights to receive the Bonus Warrants pursuant to Section 3 shall not be affected by any adjustment effected to the Original Warrants pursuant to this Section 4. 5. If, on the Preliminary Project Due Date, Preliminary Project Completion has not occurred due to the failure of FullNic to perform in good faith all services required of it pursuant to this Agreement and, notwithstanding FullNic's default, and Think Capital elects to (i) waive its right to terminate the Agreement pursuant to Section 1.2 hereof with respect to such default and (ii) continue to perform in good faith the services described in Section 6 hereof, the compensation set forth in Section 2 will be paid, with the following adjustment: 5.1. Additional warrants will accrue at the rate of 250 each day until Preliminary Project Completion. These additional warrants will be issued as of Preliminary Project Completion and pursuant to the terms of the Warrant Agreement. 6. Duties of Think Capital. The services to be provided by Think Capital with respect to Preliminary Project Completion will consist of the following: 6.1. A written, detailed marketing outline. 6.2. A written, detailed marketing advertising budget. 6.3. Specifications for back-end and site development delivered and clearly explained to contract developers, as well as on-going discussions and consultation with lead developers. 6.4. Complete of Network Solutions' requirements, or, in the alternative, prepare comprehensive and detailed instructions to FullNic on how to complete the requirements. Network Solution's testing will be scheduled at the earliest possible date given the status of the contract developers. 6.5. Think Capital will develop contracts and paperwork for Value Added Resellers and volume discount customers. Think Capital will proactively solicit and attempt to sign such clients. 6.6. Written potential advertising locations and rates. 6.7. Various consultations with FullNet and FullNic executives regarding the direction, needs and objectives of FullNic. 6.8. All such further action as may reasonably be required and agreed to by both parties. 7. Miscellaneous. ------------- 7.1 Authorization. Each party warrants and represents that it is fully entitled and duly authorized to enter into this Agreement. 7.2 Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement. This Agreement may not be amended except in a writing signed by both of the parties. 7.3 Successors and Assigns This Agreement is binding upon and shall inure to the benefit of each party to this Agreement and to any successors in interest or assigns of any party to this Agreement. 7.4 Governing Law. This Agreement shall be interpreted in accordance with the laws of the State of Oklahoma without reference to conflicts of laws principles thereof. 7.5 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but such counterparts together shall constitute one and the same instrument. 7.6 Expenses. FullNet shall be responsible for all reasonable out-of-pocket expenses incurred by Think Capital in connection with the performance of its obligations under this Agreement, including, but not limited to, contract programming and development, marketing and advertising expenses; provided, however, FullNet will be notified in advance of the incurrence of expenses and shall have consented to their incurrence, such consent not to be unreasonably withheld. Any reasonable out-of-pocket expenses that are incurred by ThinkCapital pursuant to the provisions of this Section 7.6 will be reimbursed within 30 days by FullNet. 7.7 Partnership. Think Capital, FullNet and FullNic affirmatively state that they do not have the intention to form a joint venture or partnership for tax or any other purpose, nor have they done so. 7.8 Indemnification. In accordance with customary practices associated with the retention of an adviser, FullNet will indemnify and hold harmless Think Capital and its personnel from any claims, liabilities, cost and expenses, including without limitation reasonable attorneys' fees and related expenses relating to Think Capital's services under this Agreement, except to the extent determined to have resulted from the intentional misconduct or gross negligence of Think Capital personnel. Under all circumstances, Think Capital's maximum liability to FullNet arising for any reason relating to services rendered under this letter shall be limited to the amount of the fees paid for these services. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be signed all as of the date first above written. FULLWEB, INC. FULLNET COMMUNICATIONS, INC. dba FullNic By: /s/ Jason Ayers By: /s/ Timothy J. Kilkenny ----------------------------- --------------------------------------- Jason Ayers, President Timothy J. Kilkenny, President THINK CAPITAL, INC. By____________________________ Name:______________________ Title:_____________________ EXHIBIT A FULLNET COMMUNICATIONS, INC. (an Oklahoma corporation) WARRANT AGREEMENT ______, 2000 [Name of Warrant Holder] [Address] Mr. __________: FullNet Communications, Inc., an Oklahoma corporation (the "Company"), agrees to issue to you warrants (the "Warrants") to purchase the number of shares of common stock, par value $0.00001 per share (the "Common Stock"), of the Company set forth herein, subject to the terms and conditions contained herein. 1. Issuance of Warrants; Exercise Price. The Warrants, which shall be certificated in the form attached hereto as EXHIBIT "B" (each, a "Warrant Certificate"), shall be issued to you concurrently with the execution hereof in consideration of the Domain Registrar Project Completion Agreement dated _________________ (the "Registrar Agreement"). The Warrants shall provide that you, or such other holder or holders of the Warrants to whom transfer is authorized in accordance with the terms of this Agreement, shall have the right to purchase an aggregate of ________ shares of Common Stock for an exercise price equal to the average of the daily closing prices of the Common Stock as listed on the OTC Bulletin Board for the ten (10) consecutive trading days immediately preceding the date of this Warrant Agreement for which there were shares of the Company's Common Stock traded on the OTC Bulletin Board (the "Exercise Price"). 2. Exercise of Warrants. At any time and from time to time after the date hereof and expiring on the third anniversary of the effective date of this Warrant Agreement at 5:00 p.m., Central Standard Time, Warrants may be exercised as to all or any portion of the whole number of shares of Common Stock covered by the Warrants by the holder thereof by surrender of the Warrants, accompanied by a subscription for shares to be purchased in the form attached to each Warrant Certificate and by payment to the Company as set forth in the Warrant Certificate in the amount required for purchase of the shares as to which the Warrant is being exercised, delivered to the Company at its principal office at 200 North Harvey Avenue, Suite 1704, Oklahoma City, Oklahoma 73102, Attention: President. Upon the exercise of a Warrant, in whole or in part, the Company will, within ten (10) days thereafter, at its expense (including the payment by the Company of any applicable issue or transfer taxes), cause to be issued in the name of and delivered to the holder a certificate or certificates for the number of fully paid and non-assessable shares of Common Stock to which such holder is entitled upon exercise of the Warrant. In the event such holder is entitled to a fractional share, in lieu thereof, such holder shall be paid a cash amount equal to such fraction, multiplied by the Current Value (as hereafter defined) of one full share of Common Stock on the date of exercise. Certificates for shares of Common Stock issuable by reason of the exercise of the Warrant or Warrants shall be dated and shall be effective as the date of the surrendering of the certificates for the shares so purchased. In the event a Warrant is exercised, as to less than the aggregate amount of all shares of Common Stock issuable upon exercise of all Warrants held by such person, the Company shall issue a new Warrant to the holder of the Warrant so exercised covering the aggregate number of shares of Common Stock as to which Warrants remain unexercised. For purposes of this section, Current Value is defined (i) in the case for which a public market exists for the Common Stock at the time of such exercise, the average of the daily closing prices of the Common Stock for twenty (20) consecutive business days commencing thirty (30) business days before the date of exercise, and (ii) in the case no public market exists at the time of such exercise, at the Appraised Value. For the purposes of this Agreement, "Appraised Value" is the value determined in accordance with the following procedures. For a period of five (5) days after the date of an event (a "Valuation Event") requiring determination of Current Value at a time when no public market exists for the Common Stock (the "Negotiation Period"), each party to this Agreement agrees to negotiate in good faith to reach agreement upon the Appraised Value of the securities or property at issue, as of the date of the Valuation Event, which will be the fair market value of such securities or property, without premium for control or discount for minority interests, illiquidity or restrictions on transfer. In the event that the parties are unable to agree upon the Appraised Value of such securities or other property by the end of the Negotiation Period, then the Appraised Value of such securities or property will be determined for purposes of this Agreement by a recognized appraisal or investment banking firm mutually agreeable to the holders of the Warrants and the Company (the "Appraiser"). If the holders of the Warrants and the Company cannot agree on an Appraiser within two (2) business days after the end of the Negotiation Period, the Company, on the one hand, and the holders of the Warrants, on the other hand, will each select an Appraiser within ten (10) business days after the end of the Negotiation Period and those two (2) Appraisers will select ten (10) days after the end of the Negotiation Period an independent Appraiser to determine the fair market value of such securities or property, without premium for control or discount for minority interests, illiquidity or restrictions on transfer. Such independent Appraiser will be directed to determine fair market value of such securities as soon as practicable, but in no event later than thirty (30) days from the date of its selection. The determination by an Appraiser of the fair market value will be conclusive and binding on all parities to this Agreement. Appraised Value of each share of Common stock at a time when (i) the Company is not a reporting company under the Exchange Act and (ii) the Common Stock is not traded in the organized securities markets, will, in all cases, be calculated by determining the Appraised Value of the entire Company taken as a whole and dividing that value by the number of shares of Common Stock then outstanding, without premium for control or discount for minority interests, illiquidity or restrictions on transfer. The costs of the Appraiser will be borne by the Company. In no event will the Appraised Value of the Common Stock be less than the per share consideration received or receivable with respect to the Common Stock or securities or property of the same class in connection with a pending transaction involving a sale, merger, recapitalization, reorganization, consolidation, or share exchange, dissolution of the Company, sale or transfer of all or a majority of its assets or revenue or income generating capacity, or similar transaction. 3. Protection Against Dilution. The Exercise Price for the shares of Common Stock and number of shares of Common Stock issuable upon exercise of the Warrants is subject to adjustment from time to time as follows: (a) Stock Dividends, Subdivisions, Reclassifications, Etc.. In case at any time or from time to time after the date of execution of this Agreement, the Company shall (i) take a record of the holders of Common Stock for the purpose of entitling them to receive a dividend or a distribution on shares of Common Stock payable in shares of Common Stock or other class of securities, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, then, and in each such case, the Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted in such a manner that the Exercise Price for the shares issuable upon exercise of the Warrants immediately after such event shall bear the same ratio to the Exercise Price in effect immediately prior to any such event as the total number of shares of Common Stock outstanding immediately prior to such event shall bear to the total number of shares of Common Stock outstanding immediately after such event. (b) Adjustment of Number of Shares Purchasable. When any adjustment is required to be made in the Exercise Price under this Section 3, (i) the number of shares of Common Stock issuable upon exercise of the Warrants shall be changed (upward to the nearest full share) to the number of shares determined by dividing (x) an amount equal to the number of shares issuable pursuant to the exercise of the Warrants immediately prior to the adjustment, multiplied by the Exercise Price in effect immediately prior to the adjustment, by (y) the Exercise Price in effect immediately after such adjustment, and (ii) upon exercise of the Warrant, the holder will be entitled to receive the number of shares of other securities referred to in Section 3(a) that such holder would have received had the Warrant been exercised prior to the events referred to in Section 3(a). (c) Adjustment for Reorganization, Consolidation, Merger, Etc.. In case of any reorganization or consolidation of the Company with, or any merger of the Company with or into, another entity (other than a consolidation or merger in which the Company is the surviving corporation) or in case of any sale or transfer to another entity of the majority of assets of the Company, the entity resulting from such reorganization or consolidation or surviving such merger or to which such sale or transfer shall be made, as the case may be, shall make suitable provision (which shall be fair and equitable to the holders of Warrants) and shall assume the obligations of the Company hereunder (by written instrument executed and mailed to each holder of the Warrants then outstanding) pursuant to which, upon exercise of the Warrants, at any time after the consummation of such reorganization, consolidation, merger or conveyance, the holder shall be entitled to receive the stock or other securities or property that such holder would have been entitled to upon consummation if such holder had exercised the Warrants immediately prior thereto, all subject to further adjustment as provided in this Section 6. (d) Certificate as to Adjustments. In the event of adjustment as herein provided in paragraphs of this Section 3, the Company shall promptly mail to each Warrant holder a certificate setting forth the Exercise Price and number of shares of Common Stock issuable upon exercise after such adjustment and setting forth a brief statement of facts requiring such adjustment. Such certificate shall also set forth a brief statement of facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which the Warrants shall be exercisable after any adjustment of the Exercise Price as provided in this Agreement. (e) Minimum Adjustment. Notwithstanding the foregoing, no certificate as to adjustment of the Exercise Price hereunder shall be made if such adjustment results in a change in the Exercise Price then in effect of less than five cents ($0.05) and any adjustment of less than five cents ($0.05) of any Exercise Price shall be carried forward and shall be made at the time of and together with any subsequent adjustment that, together with the adjustment or adjustments so carried forward, amounts to five cents ($0.05) or more; provided however, that upon the exercise of a Warrant, the Company shall have made all necessary adjustments (to the nearest cent) not theretofore made to the Exercise Price up to and including the date upon which such Warrant is exercised. 4. Registration Rights. (a) S-3 Registration Rights. The Company will register the shares of Common Stock underlying the Warrants (the "Warrant Shares") within thirty (30) days following the date upon which the Company shall become eligible to register its securities on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act") or any successor to such form in a manner that will, upon being declared effective, constitute a "shelf" registration for purposes of Rule 415 under the Securities Act, pursuant to which the Warrant Shares may be sold from time to time and in such amounts as the holder(s) thereof may hereafter determine, all in a manner consistent with all applicable provisions of the Securities Act; provided, however, if at the time of such S-3 eligibility, the Company has formulated plans to file within 60 days thereof a registration statement covering the sale of any of its securities in a public offering under the Securities Act, no registration of the Warrant Shares shall be initiated under this Section 4(a) until 90 days after the effective date of such registration statement unless the Company is no longer proceeding diligently to secure the effectiveness of such registration statement; provided that the Company shall provide the Warrant holder(s) the right to participate in such public offering pursuant to, and subject to, Section 4(b). The Company will use its best efforts to have the Form S-3 declared effective. At its expense, the Company will keep such registration effective for a period of one hundred eighty (180) days or until the holder or holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; and furnish such number of prospectuses and other documents incident thereto as a holder from time to time may reasonably request. (b) Piggyback Registration Rights. At any time following the date hereof, whenever the Company proposes to register any Common Stock for its own or the account of others under the Securities Act for a public offering, other than (i) any shelf registration of shares to be used solely as consideration for acquisitions of additional businesses by the Company and (ii) registrations relating solely to employee benefit plans, the Company shall give each Warrant holder prompt written notice of its intent to do so. Upon the written request of any Warrant holder given within 15 business days after receipt of such notice, the Company shall cause to be included in such registration all Warrant Securities (including any shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange for, or in replacement of such Warrant Securities) which any Warrant holder requests; provided, however, if the Company is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 4(b) that the number of shares to be sold by persons other than the Company is greater than the number of such shares which can be offered without adversely affecting the offering, the Company may reduce pro rata the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter. (c) Lock-up Agreement. In consideration for the Company's agreeing to its obligations under this Section 4, each Warrant holder agrees that, effective upon the request of the underwriters managing the Company's initial public offering, such holder shall be obligated, so long as all executive officers and directors of the Company are bound by a comparable obligation, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of Common Stock underlying the Warrants (other than those included in the registration) without the prior written consent of such underwriters, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such initial public offering as the underwriters may specify. (d) Indemnification; Contribution. (i) The Company will indemnify and hold harmless each holder and each affiliate thereof of Common Stock registered pursuant to this Agreement with the Commission, or under any Blue Sky Law or regulation against any losses, claims, damages, or liabilities, joint or several, to which such holder may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, registration statement, prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such holder and affiliate for any legal or other expenses reasonably incurred by such holder in connection with investigating or defending any such action or claim regardless of the negligence of any such holder or affiliate; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus, registration statement or prospectus, or any such amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by any such holder expressly for use therein. (ii) Each holder of Common Stock registered pursuant to this Agreement will indemnify and hold harmless the Company against any losses, claims, damages, or liabilities to which the Company may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, registration statement or prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any preliminary prospectus, registration statement or prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such holder expressly for use therein. (iii) Promptly after receipt by an indemnified party under Sections 4(d)(i) or (ii) above of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under either such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability that it may otherwise have to any indemnified party. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof the indemnifying party shall be entitled to assume the defense thereof by notice in writing to the indemnified party. After notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under either of such subsections for any legal expenses of other counsel or any other expense, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation incurred prior to the assumption by the indemnifying party, unless such expenses have been specifically authorized in writing by the indemnifying party, the indemnifying party has failed to assume the defense and employ counsel, or the named parties to any such action include both the indemnified party and the indemnifying party, as appropriate, and such indemnified party has been advised by counsel that the representation of such indemnified party has been advised by counsel that the representation of such indemnified party and the indemnifying party by the same counsel would be inappropriate due to actual or potential differing interests between them, in each of which cases the fees of counsel for the indemnified party will be paid by the indemnifying party. (iv) If the indemnification provided for in this Section 4(d) is unavailable or insufficient to hold harmless an indemnified party under Section 4(d)(i) or (ii) in respect of any losses, claims, damages, or liabilities (or action in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the holder or holders from this Agreement and from the offering of the shares of Common Stock. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the holders in connection with the statement or omissions that resulted in such losses, claims, damages, or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the holders agree that it would not be just and equitable if contribution pursuant to this Section 4(d)(iv) were determined by pro rata allocation (even if the holders were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to above in this subsection 4(d)(iv). Except as provided in Section 4(d)(iii), the amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above in this Section 4(d)(iv) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigation or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any provision in this Section 4(d)(iv) to the contrary, no holder shall be liable for any amount, in the aggregate, in excess of the net proceeds to such holder from the sale of such holder's shares (obtained upon exercise of Warrants) giving rise to such losses, claims, damages, or liabilities. (v) The obligations of the Company under this Section 4(d) shall be in addition to any liability that the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any holder of Warrants within the meaning of the Securities Act. The obligations of the holders of Common Stock under this Section 4(d) shall be in addition to any liability that such holders may otherwise have and shall extend, upon the same terms and conditions to each person, if any, who controls the Company within the meaning of the Securities Act. 5. Stock Exchange Listing. In the event the Company lists its Common Stock on any national securities exchange, the Company will, at its expense, also list on such exchange, upon exercise of a Warrant, all shares of Common Stock issuable pursuant to such Warrant. 6. Specific Performance. The Company stipulates that remedies at law, in money damages, available to the holder of a Warrant, or of a holder of Common Stock issued pursuant to exercise of a Warrant, in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Agreement are not and will not be adequate. Therefore, the Company agrees that the terms of this Agreement may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 7. Successors and Assigns; Binding Effect. This Agreement shall be binding upon and insure to the benefit of you and the Company and their respective successors and permitted assigns. 8. Notices. Any notice hereunder shall be given by registered or certified mail, if to the Company, at its principal office, and, if to the holders, to the respective addresses shown in the Warrant ledger of the Company, provided that any holder may at any time on three (3) days' written notice to the Company designate or substitute another address where notice is to be given. Notice shall be deemed given and received after a certified or registered letter, properly addressed with postage prepaid, is deposited in the U.S. mail. 9. Severability. Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the remainder of this Agreement. 10. Assignment; Replacement of Warrants. If the Warrant or Warrants are assigned, in whole or in part, the Warrants shall be surrendered at the principal office of the Company, and thereupon, in the case of a partial assignment, a new Warrant shall be issued to the holder thereof covering the number of shares not assigned, and the assignee shall be entitled to receive a new Warrant covering the number of shares so assigned. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant and appropriate bond or indemnification protection, the Company shall issue a new Warrant of like tenor. The Warrants will not be transferred, sold, or otherwise hypothecated by you or any other person and the Warrants will be nontransferable, except to (i) one or more persons, each of which on the date of transfer is an officer, shareholder, or employee of you; (ii) a partnership or partnerships, the partners of which are you and one or more persons, each of whom on the date of transfer is an officer of you; (iii) a successor to you in merger or consolidation; (iv) a purchaser of all or substantially all of your assets; (v) a person that receives a Warrant upon death of a holder pursuant to will, trust, or the laws of intestate succession; or (vi) otherwise in compliance with the requirements of Section 4(1) or Section 5 of the Securities Act. 10. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Oklahoma without giving effect to the principles of choice of laws thereof. 11. Definition. All references to the word "you" in this Agreement shall be deemed to apply with equal effect to any persons or entities to whom Warrants have been transferred in accordance with the terms hereof, and, where appropriate, to any persons or entities holding shares of Common Stock issuable upon exercise of Warrants. 12. Headings. The headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning of any of the provisions hereof. 13. Counterparts. This Agreement may be executed in two or more counterparts, and it will not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof. Each counterpart will be deemed an original, but all counterparts together will constitute one and the same instrument. The parties agree that a facsimile of this Agreement signed by the parties will constitute an agreement in accordance with the terms hereof as if all of the parties had executed an original of this Agreement. Very truly yours, FULLNET COMMUNICATIONS, INC. By: /s/ Timothy J. Kilkenney ---------------------------------------- Timothy J. Kilkenney, President and CEO ACCEPTED AS OF THE __ DAY OF ________: [NAME OF WARRANT HOLDER] - --------------------------------------- EXHIBIT B WARRANT CERTIFICATE ------------------- THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. FULLNET COMMUNICATIONS, INC. No.: W-00-15 __________Warrants Date: ____________ THIS IS TO CERTIFY that ____________ or its assigns, as permitted in that certain Warrant Agreement (the "Warrant agreement"), dated of even date herewith, by and among FullNet Communications, Inc. (the "Company") and ___________ is entitled to purchase at any time or from time to time on or after ________, 200_, until 5:00 p.m., Central Standard Time on _________, 200_, an aggregate of __________________________________________________ (___________) shares of common stock, par value $0.00001 per share, of the Company, for an exercise price per share as set forth in the Warrant Agreement referred to herein. This Warrant is issued pursuant to the Warrant Agreement, and all rights of the holder of this Warrant are further governed by, and subject to the terms and provisions of such Warrant Agreement, copies of which are available upon request to the Company. The holder of this Warrant and the shares issuable upon the exercise hereof shall be entitled to the benefits, rights and privileges and subject to the obligations, duties and liabilities provided for in the Warrant Agreement. The issuance of this Warrant and the shares issuable upon the due and timely exercise hereof have not been registered under the Securities Act of 1933, as amended (the "Act"), or any similar state securities law or act, and, as such, no public offering of either this Warrant or any of the shares of common stock issuable upon exercise of this Warrant may be made other than under an exemption under the Act or until the effectiveness of a registration statement under such Act covering such offering. Transfer of this Warrant is restricted pursuant to the terms of Section 8 of the Warrant Agreement. Subject to the provisions of the Act, of the Warrant Agreement and of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, only to the extent expressly permitted in such documents and then only at the office of the Company at 200 North Harvey Avenue, Suite 1704, Oklahoma City, Oklahoma 73102, Attention President, by the holder hereof or by a duly authorized attorney-in-fact, upon surrender of this Warrant duly endorsed, together with the Assignment hereof duly endorsed. Until transfer hereof on the books of the Company, the Company may treat the registered holder hereof as the owner hereof for all purposes. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE COMPANY AND THE HOLDER HEREOF SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF OKLAHOMA, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES OF OKLAHOMA LAW. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and its corporate seal to be hereunto affixed by its proper corporate officers thereunto duly authorized. FULLNET COMMUNICATIONS, INC. By: /s/ Timothy J. Kilkenney --------------------------------------- Timothy J. Kilkenney, President and CEO (SEAL) Attest: /s/ Jeanette C. Timmons - ---------------------------------- Jeanette C. Timmons, Secretary FULLNET COMMUNICATIONS, INC. SUBSCRIPTION ------------ To Be Signed Only Upon Exercise (in whole or in part) of the Warrants TO: FULLNET COMMUNICATIONS, INC. 200 North Harvey, Suite 1704 Oklahoma City, Oklahoma 73102 Attention: President 1. The undersigned, _________________________________, pursuant to the provisions of the Warrant Agreement dated as of ___________ and the attached Warrant Certificate, hereby agrees to subscribe for the purchase of _______ shares of the common stock of FullNet Communications, Inc. covered by the attached Warrant Certificate, and makes payment therefor in full at the price per share provided by the Warrant Agreement. 2. The undersigned Holder elects to pay the aggregate purchase price for such shares of common stock (i) by lawful money of the United States or the enclosed certified or official bank check payable in United States dollars to the order of the Company in the amount of $______________, or (ii) by wire transfer of United States funds to the account of the Company in the amount of $___________, which transfer has been made before or simultaneously with the delivery of this Subscription pursuant to the instructions of the Company. 3. Please issue a stock certificate or certificates representing the appropriate number of shares of common stock in the name of the undersigned or in such other name(s) as is specified below: - -------------------------------------- -------------------------------------- (Name) (Social Security or Fed ID #) - -------------------------------------- -------------------------------------- (Signature) (Address) - -------------------------------------- -------------------------------------- (Date) (Address) ASSIGNMENT ---------- FOR VALUE RECEIVED ____________________________ hereby sells, assigns and transfer unto ______________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint ________________________, attorney, to transfer said Warrant on the books of FullNet Communications, Inc. - -------------------------------------- ----------------------------------------- (Name) (Name of Assignee) - -------------------------------------- ----------------------------------------- (Signature) (Signature of Assignee) - -------------------------------------- ----------------------------------------- (Social Security or Fed ID #) (Social Security or Fed ID # of Assignee) - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- (Address) (Address of Assignee) - -------------------------------------- (Date) PARTIAL ASSIGNMENT ------------------ FOR VALUE RECEIVED ____________________________ hereby sells, assigns and transfer unto ______________________ the right to purchase _____ shares of the common stock of FullNet Communications, Inc. by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint ________________________, attorney, to transfer that part of said Warrant on the books of FullNet Communications, Inc. - ------------------------------------- ----------------------------------------- (Name) (Name of Assignee) - ------------------------------------- ----------------------------------------- (Signature) (Signature of Assignee) - ------------------------------------- ----------------------------------------- (Social Security or Fed ID #) (Social Security or Fed ID # of Assignee) - ------------------------------------- ----------------------------------------- - ------------------------------------- ----------------------------------------- (Address) (Address of Assignee) - ------------------------------------- (Date) EX-10.3 4 0004.txt AMENDMENTS TO FINANCIAL ADVISORY SERVICES Exhibit 10.3 ------------ Fullnet Communications, Inc. 200 North Harvey Street, Suite 1704 Oklahoma City, OK 73102 Attn: Mr. Timothy J. Kilkenny, President and Chief Executive Officer Re: Amendments to Financial Advisory Services and Private Placement Engagement Agreements Dear Tim: This letter serves as an amendment ("Amendment") to the Financial Advisory Services Engagement Agreement and the Private Placement/Financings Engagement Agreement both dated September 17, 1999 (the "Agreements") entered into by and between National Securities Corporation ("National") and Fullnet Communications, Inc. ("FullNet"). Capitalized terms not otherwise defined herein shall have the meaning ascribed thereto as set forth in the Agreements. This Amendment confirms that in consideration of the change in scope of services provided to Fullnet by National (the sufficiency and receipt of such services and their change in scope is hereby acknowledged by Fullnet), that the parties hereto mutually agree and intend to be legally bound, for themselves and their respective heirs, legal representatives, successors and assigns, to amend such Agreements as follows: 1. Upon execution of this Amendment, that the Financial Advisory Services Agreement will be amended to include Section 3 Subsection A.(ix) which shall read as follows: "Provide advice on market-makers and listing assistance for the NASD Bulletin Board, which may include such services as due diligence, peer group valuation analysis, negotiations, coordination and strategic advice to the Company." 2. Upon execution of this Amendment, that the Financial Advisory Services Agreement will be amended to include Section 3 Subsection A.(x) which shall read as follows: "Provide opinion letters, valuation opinions and fairness opinion for which National will be separately compensated." 3. Upon execution of this Amendment, that the Financial Advisory Services Agreement will be amended to include Section 3 Subsection A.(xi) which shall read as follows: "Provide such other services as shall be agreed between the parties from time to time." 4. Upon execution of this Amendment, that Section 3 B.(i) of the Financial Advisory Services Agreement will be partially amended to provide for the issuance of 200,000 Shares of Common Stock of the Company to National, not 100,000 Shares as that the Financial Advisory Services Agreement presently states in compensation for services previously rendered under the services set forth in item one and two of this Amendment and in Section 3(a) of the Private Placement/Financing Agreement. 5. Upon execution of this Amendment, that the Financial Advisory Services Agreement will be amended to include Section 3 Subsection B.(iii) which shall read as follows: "The Company agrees to pay National additional fees for any and all services performed by National at the request of the Company that are not specifically included as Financial Advisory Services as provided for in Section 3 A. of this Agreement. Such additional fees shall be set forth in an additional engagement letter to be executed by the parties hereto at the commencement of services to be rendered by National." 6. Upon execution of this Amendment, that the Financial Advisory Services Agreement will be amended to include Section 4 Subsection B.(v) which shall read as follows: "The Company agrees to pay National additional fees for any and all services performed by National at the request of the Company that are not specifically included as Merger/Acquisition Services as provided for in Section 4 A. of this Agreement. Such additional fees shall be set forth in an additional engagement letter to be executed by the parties hereto at the commencement of services to be rendered by National." 7. Upon execution of this Amendment, that Section 3.(a) of the Private Placement/Financings Agreement will be amended to include the following sentences to be inserted after the last previously existing sentence: "By no means shall such initial Financing of equity or equity-related mezzanine debt exceed $10 million or a separate transaction for senior debt securities exceed $10 million. Any amounts to be raised or placed in excess of $10 million for each Financing shall be attributed to an additional Financing and be subject to a additional engagement letter to be executed by the parties hereto at the commencement of services to be rendered." 8. Upon execution of this Amendment, that Section 3.(b) and 3.c) of the Private Placement/Financings Agreement are hereby deleted in their entirety and replaced by the following: "(b) Upon consummation of the Initial Private Placement of $10 million contemplated by this Agreement, the Company shall pay to National a cash placement fee (the "Placement Fee") equal to seven percent (7.0%) of the dollar value of the Initial Private Placement and a five-year warrant for 70,000 shares of common stock with an exercise price equal to the equity related share price paid by the investors in the Initial Private Placement. The Company agrees that National shall have a first right of refusal to represent the Company in any dditional Private Placements and/or public offerings and that such Private Placements or public offerings shall be subject to a separate engagement letter to be executed by the parties hereto at the commencement of services to be rendered." "(c) National shall be paid three per cent (3%) on the initial senior debt financing of $10 million ("Initial Senior Debt Financing"). Additionally, National and the Company agree that National shall have a first right of refusal to represent the Company in its undertaking of any and all additional Debt Financings. Such Debt Financings shall be subject to a separate ngagement letter to be executed by the parties hereto at the commencement of services to be rendered by National." [Signature Page to Follow] In all other respects, the Agreements shall remain unchanged and in full force and effect. Please signify your agreement with the foregoing by countersigning this letter in the space provided below. Very truly yours, NATIONAL SECURITIES CORPORATION By: /s/ Steven A. Rothstein -------------------------------- Steven A. Rothstein Chairman Agreed to and Accepted this day of , 2000. ---------------- ---------- FULLNET COMMUNICATIONS, INC. By: /s/ Timothy J. Kilkenny ----------------------------------- Name: Timothy J. Kilkenny Title: President and CEO EX-27 5 0005.txt FDS
5 0001092570 FullNet Communications, Inc. 1 US DOLLARS 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 1 1 41,261 41,261 0 0 143,521 143,521 (10,605) (10,605) 13,459 13,459 240,835 240,835 731,431 731,431 (326,372) (326,372) 3,165,908 3,165,908 1,546,497 1,546,497 659,915 659,915 0 0 0 0 32 32 959,464 959,464 3,165,908 3,165,908 63,413 87,998 524,399 864,402 55,366 65,340 1,135,616 1,878,915 13,724 18,213 10,605 10,605 281,370 343,701 (906,311) (1,376,427) 0 0 (906,311) (1,376,427) 0 0 0 0 0 0 (906,311) (1,376,427) (.28) (.48) (.28) (.48)
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