-----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, HvtemquE2qXLspRgpH2Y6Ok4n/ruqkh4/LmkNGO1Gsbq3vyUgagER1Opfzm2bZJp exzmsez5C0FzFda+QbARdQ== 0001125282-06-000181.txt : 20060112 0001125282-06-000181.hdr.sgml : 20060112 20060112130721 ACCESSION NUMBER: 0001125282-06-000181 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20060112 DATE AS OF CHANGE: 20060112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EPIXTAR CORP CENTRAL INDEX KEY: 0001099730 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 650722193 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-15489 FILM NUMBER: 06526592 BUSINESS ADDRESS: STREET 1: 11900 BISCAYNE BLVD SUITE 262 CITY: MIAMI STATE: FL ZIP: 33181 BUSINESS PHONE: 3055038600 MAIL ADDRESS: STREET 1: 11900 BISCAYNE BLVD SUITE 262 CITY: MIAMI STATE: FL ZIP: 33181 FORMER COMPANY: FORMER CONFORMED NAME: GLOBAL ASSET HOLDINGS INC DATE OF NAME CHANGE: 19991124 10-Q/A 1 b410993_10qa.txt FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q / A (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005 or |_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 011-15489 EPIXTAR CORP. ------------------------------------------------------ (Exact name of registrant as specified in its charter) FLORIDA 65-0722193 - ------------------------------------------------ ------------------------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 11900 BISCAYNE BOULEVARD, SUITE 700 MIAMI, FLORIDA 33181 - ------------------------------------------------ ------------------------------------- (Address of principal executive offices) (Zip Code)
305-503-8600 ------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5 (d) of the Securities Exchange Act of l934 during the preceding l2 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 |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| NO |X| The number of shares of the registrant's common stock, $0.001 par value, outstanding as of August 15, 2005, was 12,344,066 shares. 1 The Registrant's Form 10Q for the quarter ended June 30, 2005 has been amended in the following respects: o Management's Discussion and Analysis of the Results of Financial Condition and Results of Operations has been expanded to explain in more detail what steps management is taking to stem the recent losses from its BPO business activities and to explain why its reported number of "enabled seats" (call center seats) has declined from prior reports. o Certain reclassifications have been made in the 2004 financial statements to conform to 2005 presentation. EPIXTAR CORP. FORM 10-Q / A FOR THE QUARTER ENDED JUNE 30, 2005 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 7 - 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 - 31 Item 3. Quantitative and Qualitative Disclosures About Market Risk 32 Item 4. Controls and Procedures 32 PART II. OTHER INFORMATION Item 1. Legal Proceedings 34 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34 Item 5. Other Information 34 Item 6. Exhibits 34 Signatures 36 Exhibits Index 37
2 ITEM 1. FINANCIAL STATEMENTS EPIXTAR CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2005 2004 ----------------------- ---------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents (includes amounts held in escrow of $1,357,200 at June 30, 2005 and $1,110,000 at December 31, 2004) $ 1,437,065 $ 1,530,052 Restricted cash 175,000 175,000 Accounts receivable, net 5,383,510 4,454,152 Deferred loan costs, current portion 623,452 423,777 Prepaid expenses and other current assets 670,128 201,045 Deferred billing costs 68,465 70,454 -------------- ------------- Total current assets 8,357,620 6,854,480 Property and Equipment, net 7,267,995 5,103,409 Other Assets: Note receivable -- 900,000 Goodwill 4,275,987 3,360,272 Intangibles 5,348,500 - Deferred loan costs, net of current portion 784,958 540,886 Deposits and other 4,341,461 1,289,668 -------------- ------------- Total other assets 14,750,906 6,090,826 -------------- ------------- Total assets $ 30,376,521 $ 18,048,715 ============== ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accounts payable $ 4,279,173 $ 2,666,713 Accounts payable, related party 2,125,000 975,000 Deferred revenue 617,455 722,328 Accrued expenses and other liabilities 5,199,765 1,277,565 Accrued interest 661,155 460,104 Current portion of debt and capital leases 21,868,571 6,312,758 Note payable, stockholder 2,474,000 2,474,000 -------------- ------------- Total current liabilities 37,225,119 14,888,468 Long-Term Liabilities: Debt and capital leases, net of current portion 1,933,605 3,893,470 -------------- ------------- Total liabilities 39,158,724 18,781,938 -------------- ------------- Commitments and Contingencies - - Stockholders' Deficiency: Convertible preferred stock, $.001 par value; 10,000,000 shares authorized; 14,500 and 16,500 shares issued and outstanding (liquidation preference of $2,900,000 and $3,300,000) 15 17 Common stock, $.001 par value, 50,000,000 shares authorized; 12,271,643 and 11,544,219 shares issued and outstanding 12,272 11,544 Additional paid-in capital 26,512,398 22,114,353 Accumulated deficit (35,267,003) (22,838,853) Accumulated other comprehensive loss (39,885) (20,284) -------------- ------------- Total stockholders' deficiency (8,782,203) (733,223) -------------- ------------- Total liabilities and stockholders' deficiency $ 30,376,521 $ 18,048,715 ============== =============
See Notes to Consolidated Financial Statements. 3 EPIXTAR CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, 2005 2004 2005 2004 ------------ ------------ ------------ ----------- Revenues $ 9,099,332 $ 4,287,336 $ 18,179,406 $ 9,163,484 ------------ ------------ ------------ ------------ Cost of production employees 4,056,688 259,577 7,307,189 429,864 Billing costs 291,587 705,385 568,403 1,641,744 Other costs of revenue 1,439,242 268,114 2,106,106 465,822 ------------ ------------ ------------ ------------ Total costs of revenue 5,787,517 1,233,076 9,981,698 2,537,430 ------------ ------------ ------------ ------------ Gross profit 3,311,815 3,054,260 8,197,708 6,626,054 ------------ ------------ ------------ ------------ Expenses: Compensation and benefits 4,016,492 1,950,638 7,442,821 3,605,408 Other selling, general and administrative 2,108,665 1,428,834 5,207,474 2,998,441 Consulting fees and reimbursements - related party 2,001,250 675,000 3,126,250 1,350,000 Provision for doubtful accounts (25,866) 206,765 162,034 293,678 Depreciation and amortization 637,768 270,670 1,422,153 371,664 Amortization of intangible assets 373,250 -- 746,500 -- ------------ ------------ ------------ ------------ Total operating expenses 9,111,559 4,531,907 18,107,232 8,619,191 ------------ ------------ ------------ ------------ Loss from operations (5,799,744) (1,447,647) (9,909,524) (1,993,187) Other Income (Expense): Other income (expense) (12,319) (5,502) 29,593 (14,328) Gain on extinguishment of debt 56,267 281,250 56,267 281,250 Factoring fees on accounts receivable (96,479) (251,652) (150,103) (371,003) Interest expense (341,455) (118,258) (562,319) (480,827) Amortization, debt discounts (196,586) (442,917) (334,749) (356,226) Amortization, cost of borrowings (145,150) (234,814) (290,303) (234,814) Amortization of beneficial conversion feature of convertible debt (14,587) (1,248,975) (28,071) (1,248,975) Warrants issued in lieu of finance charges (303,073) -- (1,169,805) -- Other finance charges -- (1,971) (100,000) (1,971) ------------ ------------ ------------ ------------ Other income (expense), net (1,053,382) (2,186,148) (2,549,490) (2,530,212) ------------ ------------ ------------ ------------ Loss before income taxes (6,853,126) (3,663,795) (12,459,014) (4,523,349) Provision for income taxes -- -- -- -- Net loss $ (6,853,126) $ (3,663,795) $(12,459,014) $ (4,523,349) Cumulative dividends on preferred stock (38,795) (44,020) (85,813) (88,040) ------------ ------------ ------------ ------------ Loss Assignable to Common Stockholders $ (6,891,921) $ (3,707,815) $(12,544,829) $ (4,611,359) ============ ============ ============ ============ Loss per common share: Basic and Dilutive $ (0.56) $ (0.34) $ (1.05) $ (0.43) ============ ============ ============ ============
See Notes to Consolidated Financial Statements. 4 EPIXTAR CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 2005 2004 ------------ ------------ OPERATING ACTIVITIES: Net loss $(12,459,014) (4,523,349) Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: Depreciation and amortization 1,422,153 371,664 Provision for doubtful accounts 162,034 293,678 Stock-based compensation 1,086,800 159,375 Warrants issued in lieu of finance charges 1,169,805 -- Amortization of beneficial conversion feature 28,071 1,412,285 Amortization of discount on convertible debt 334,749 442,917 Amortization of cost of borrowings 290,303 234,815 Amortization of discount on stockholder loan -- 52,325 Amortization of intangible assets 746,500 -- Gain on extinguishment of debt (56,267) (281,250) Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 72,818 298,415 Prepaid expenses and other (450,299) (53,931) Deferred billing costs 1,989 132,786 Deposits and other 59,654 (70,604) Increase (decrease) in: Accounts payable, accrued expenses and other liabilities 2,631,690 (1,487,577) Accounts payable - related party 1,148,008 975,000 Accrued interest payable 201,051 -- Deferred revenues (104,872) (411,465) ------------ ------------ Net cash and cash equivalents used in operating activities (3,714,827) (2,454,918) ------------ ------------ INVESTING ACTIVITIES: Cash paid for acquisition of IMS (50,000) -- Cash paid for acquisition of property and equipment (622,164) (1,917,824) ------------ ------------ Net cash and cash equivalents used in investing activities (672,164) (1,917,824) ------------ ------------ FINANCING ACTIVITIES: Proceeds from the issuance of debt, net of loan costs 7,033,450 6,671,500 Repayment of notes payable and capital lease obligations (2,719,845) (1,105,298) ------------ ------------ Net cash and cash equivalents provided by financing activities 4,313,605 5,566,202 ------------ ------------ Net effect of exchange rates on cash (19,601) (23,190) ------------ ------------ Net (Decrease) Increase in Cash and Cash Equivalents (92,987) 1,170,270 Cash and Cash Equivalents, beginning of period 1,530,052 1,342,186 ------------ ------------ Cash and Cash Equivalents, ending of period $ 1,437,065 $ 2,512,456 ============ ============ (Cont.)
5 EPIXTAR CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Cont.)
Six Months Ended June 30, 2005 2004 ---------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Income Tax Paid $ -- $ -- ========== ========== Interest Paid $ 361,268 $ 111,570 ========== ========== Non Cash Transactions Issuance of 550,290 shares of common stock as part of guaranteed agreement related to the Company's acquistion of IMS $ 385,000 $ -- Conversion of 2,050 shares of preferred stock into 249,557 shares of common stock 265,000 -- Purchase commitment of equipment secured by promissory note 3,070,000 -- Equipment purchased under capital leases 247,832 339,476
See Notes to Consolidated Financial Statements. 6 EPIXTAR CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Epixtar Corp. (Epixtar) was incorporated in Florida in June 1994 and was previously known as Global Asset Holdings, Inc. (Global). Epixtar and its subsidiaries are collectively known as the "Company". Epixtar, through its subsidiaries, operates primarily in two lines of business: business process outsourcing and contact center services (BPO) and internet service provider services (ISP). SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The Company's basis of consolidation is to include in the consolidated financial statements all of the accounts of its wholly-owned subsidiaries and those of its more-than-50%-owned subsidiaries. All significant intercompany transactions and account balances have been eliminated. Basis of Presentation The accompanying unaudited consolidated financial statements of the Company as of and for the periods ended June 30, 2005 and 2004 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and changes in cash flows in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the SEC on April 15, 2004. Operating results for the three and six months ended June 30, 2005, are not necessarily indicative of the results expected for the year ending December 31, 2005. See Note 2. Stock-Based Compensation In accordance with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees", the Company currently uses the intrinsic-value method of accounting for its employee and board of director stock options and, accordingly, does not recognize compensation expense for stock option awards in the Consolidated Statement of Operations, as all option exercise prices are 100 percent of market value on the date the options are granted. See Recent Accounting Pronouncements below. The following table illustrates the pro forma effect on net loss and loss per share assuming we had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" to all previously granted stock-based awards after giving consideration to potential forfeitures. The fair value of each option grant is estimated at the grant date using the Black-Scholes option-pricing model. Reference is made to "Note 15: Stock Option Plan" in the Company's Annual Report on Form 10-K for Fiscal 2004, for the assumptions used in the Black-Scholes option-pricing model. The estimated fair value of options granted is amortized to expense over their vesting period, which is generally 3 years. 7
Three Months Ended Six Months Ended --------------------------- ----------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ----------- ----------- ------------- ----------- Net loss assignable to common shareholders $(6,891,921) $(3,707,815) $(12,544,829) $(4,611,389) Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (536,218) (969,788) (1,313,305) (1,928,003) ----------- ----------- ------------ ----------- Pro forma net loss $(7,428,139) $(4,677,603) $(13,858,134) $(6,539,392) =========== =========== ============ =========== Loss per share: Basic and Diluted As reported $ (0.56) $ (0.34) $ (1.05) $ (0.43) =========== =========== ============ =========== Pro forma $ (0.61) $ (0.43) $ (1.16) $ (0.61) =========== =========== ============ ===========
RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment" (SFAS 123R), which requires all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value and to recognize cost over the vesting period. In April 2005, the SEC announced that companies may implement SFAS 123R at the beginning of their next fiscal year starting after June 15, 2005 (or December 15, 2005 for small business issuers). This new rule moves the Company's implementation date for SFAS 123R to the first quarter of 2006. An illustration of the impact on the Company's net loss and loss per share is presented under "Stock-Based Compensation" in this Note, assuming the Company had applied the fair value recognition provisions of SFAS 123R using the Black-Scholes methodology. The Company has not yet determined whether it will use the Black-Scholes method upon adoption of Statement 123R. Also, the Company is unable to estimate the future impact that SFAS 123R will have on its financial position, results of operations or cash flows due to unknown events, such as the type and number of share-based payments that will be granted, their terms, and their vesting periods. In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections" (SFAS No. 154), which is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS 154 replaces APB Opinion No. 20, "Accounting Changes," and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements," and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to do so, in which case other alternatives are required. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, or for the Company's fiscal 2006. The Company is evaluating the effect that the adoption of SFAS No. 154 will have on its results of operations and financial position, but does not believe it will have a material impact. In April 2005, the SEC announced that companies may implement SFAS 123R at the beginning of their next fiscal year. In March 2005, the SEC released SEC Staff Accounting Bulletin No. 107, "Share-Based Payment" (SAB 107). SAB 107 provides the SEC staff's position regarding the application of SFAS 123R, which contains interpretive guidance related to the interaction between SFAS 123R and certain SEC rules and regulations, and also provides the staff's views regarding the valuation of share-based payment arrangements for public companies. SAB 107 highlights the importance of disclosures made related to the accounting for share-based payment transactions. The Company is currently reviewing the effect of SAB 107, but it does not believe SAB 107 will have a material impact on its financial position, results of operations or cash flows. 8 In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"), which clarifies the term "conditional asset retirement obligations" as used in FASB Statement No. 143, "Accounting for Asset Retirement Obligations." FASB Statement No. 143 refers to an entity's legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. If an entity can reasonably estimate a liability for the fair value of a conditional asset retirement obligation, the entity is required to recognize the fair value of the liability when incurred. A company normally incurs this liability upon acquisition, construction, or development of the asset at issue. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is currently reviewing FIN 47, and at the current time it does not believe that FIN 47 will have a material impact on its financial position, results of operations or cash flows. Reclassifications Certain reclassifications have been made in the 2004 financial statements to conform to the 2005 presentation. NOTE 2. GOING CONCERN CONSIDERATIONS At June 30, 2005, the Company reflected stockholders' deficiency of approximately $8,782,203 as a result of net losses in each period of operation except calendar year 2003. The Company had negative cash flows from operations for the six months ended June 30, 2005 and 2004. The Company reported net losses of $6,853,126 and $12,459,014 during the three and the six months ended June 30, 2005, respectively, compared with $3,663,795 and $4,523,349 during the same periods in 2004, respectively. The Company continues to experience certain liquidity issues primarily as a result of the Company's costs associated with the execution of its BPO operations business plan. All these factors raise significant concern about the Company's ability to continue as a going concern. The Company has taken several steps since April 2005 to ensure that it addresses and resolves its liquidity problems in order to continue with the planned expansion of its business outsourcing and call center segment as well as to retain its ISP customers. Since April 2005, management has (1) taken cost cutting procedures including a reduction in staff, (2) obtained additional debt financing, and (3) entered into a consulting agreement with a firm that specializes in companies with liquidity problems. The consulting company has been engaged to help develop a plan that is intended to bring the Company to a cash break-even level within the next three months. See Notes 5 and 11. The realization of assets and satisfaction of liabilities in the normal course of business is dependent upon the Company generating additional operating capital through debt and equity financing, and ultimately reaching profitable operations. No assurances can be given that the Company will be successful in these activities. Should any of these events not occur, the Company's financial condition and results of operations would be materially adversely affected. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. NOTE 3. ACQUISITION In November 2004, the Company entered into an agreement to purchase all of the outstanding common shares of Innovative Marketing Strategies, Inc. (IMS), a privately-held Florida corporation with six years experience providing business process outsourcing and contact center services to the financial services market. IMS customers include banks, credit card companies and mortgage companies. These services are delivered from three call center facilities located in the U.S. and one facility located in the Philippines. Select operational functions are conducted from its network operations center (NOC) in North Carolina. In July 2004, the Company had advanced IMS $600,000 and advanced an additional $300,000 in November 2004. On January 3, 2005, the Company completed the purchase of all of the outstanding common shares of IMS. This acquisition has been accounted for under the purchase method of accounting and accordingly, the results of operations of IMS have been included in the Company's consolidated financial statements since the date of acquisition. IMS is a wholly-owned subsidiary of Voxx Corporation, a majority-owned subsidiary of the Company, and is being operated within its BPO business segment. The purchase price of approximately $6.5 million, excluding net liabilities assumed of approximately $1.1 million, is calculated as follows: 9 Cash consideration paid $1,017,000 Non-interest bearing Collateral Promissory Note, payable over 24 months 5,105,000 Acquisition costs 375,000 ---------- $6,497,000 ========== As part of the acquisition of IMS, the Company issued on January 3, 2005, a $5,104,594 non-interest bearing Collateral Promissory Note payable to the IMS shareholders over two years. At June 30, 2005, the principal amount of the note was $4,593,828. On August 4, 2005, this Note was restructured. See Note 11. The amount of consideration to the former shareholders of IMS amounted to $6,121,884, including $50,000 paid at closing. The purchase price allocation of the IMS acquisition resulted in goodwill of approximately $1.0 million and identifiable intangible assets of $6.1 million. The identifiable intangible assets include customer relationships of approximately $4.0 million, non-compete contracts of approximately $1.7 million and value of call center locations of approximately $375,000 and these are being amortized on a straight-line basis over 5, 3 and 3 years, respectively. The IMS balance sheet as of acquisition date, January 3, 2005, is as follows: ASSETS Accounts Receivable - Net $ 1,164,000 Prepaid Expenses and Other Current Assets 68,000 ----------- Total current assets 1,232,000 Property and Equipment - Net 2,401,000 Goodwill 915,000 Intangible Assets 6,095,000 Other Assets 42,000 ----------- Total Assets $10,685,000 =========== LIABILITIES Accounts Payable $ 2,025,000 Accrued Expenses and Other Liabilities 1,385,000 Amounts due Epixtar and Voxx 1,050,000 Debt - Current 3,278,000 ----------- Total current liabilities 7,738,000 Debt - Long Term 2,947,000 ----------- TOTAL LIABILITIES $10,685,000 =========== Pro Forma Results The following summary, prepared on a pro forma basis, presents unaudited consolidated results of operations as if IMS had been acquired as of January 1, 2004, after including the impact of adjustments such as amortization of intangibles. This pro forma presentation does not include any impact of acquisition synergies. 10
Three Months Ended Six Months Ended June 30, 2004 June 30, 2004 ------------------ ---------------- Revenue - as reported $ 4,287,336 $ 9,163,484 Revenue- pro forma $ 8,441,878 $17,888,216 Net loss - as reported $(3,663,794) $(4,523,349) Net loss - pro forma $(4,477,100) $(6,251,233) Net income (loss) per diluted common share - as reported $ (0.34) $ (0.43) Net income (loss) per diluted common share - pro forma $ (0.39) $ (0.56)
The pro forma results are not necessarily indicative of the Company's results of operations had it owned IMS during the entire period presented. NOTE 4. ACCOUNTS RECEIVABLE Accounts receivable, net, amounted to $5,383,510 and $4,454,152 at June 30, 2005 and December 31, 2004, respectively. At June 30, 2005, $1,215,696 of the accounts receivable relates to Epixtar Marketing Corp., formerly IMS. The Company's accounts receivables serve as collateral for certain debt of the Company (see Note 5). NOTE 5. DEBT AND CAPITAL LEASES At June 30, 2005 and December 31, 2004, debt and capital leases consisted of the following:
June 30, December 31, 2005 2004 ----------- ----------- Non-interest bearing collateral promissory note due January 2007, payable in monthly installments, net of unamortized discount of $229,249 $4,364,579 $ -- 7% secured convertible notes due on demand, secured by accounts receivable 450,000 450,000 6% Notes due on demand, secured by equipment 500,000 500,000 8% unsecured convertible promissory notes, due April 2005, net of unamortized discount of $46,631 -- 953,369 Secured convertible term note due May 2007, payable in monthly installments of $ 90,909, commencing October 2004, bearing annual interest at 2.5% over prime, not to exceed 8%, collateralized by the assets of the Company, net of unamortized discount of $432,799 and $546,860 3,839,928 4,271,322 Secured convertible term note due April 2008, payable in monthly installments commencing November 2005, bearing annual interest at 2% over prime, collateralized by the assets of the Company, net of unamortized discount of $1,485,937 5,514,063 -- 5% unsecured joint and several subordinated convertible promissory notes, due May 2007, net of unamortized discount of $100,984 and $111,899 3,614,016 2,835,601
11
June 30, December 31, Debt and Capital Leases, Continued 2005 2004 - ---------------------------------- ----------- ----------- Non-interest bearing note payable, due June 2006, payable in monthly installments 127,487 127,487 Non-interest bearing promissory note, due September 2005, payable in monthly installments 323,893 404,762 Non-interest bearing assumption of equipment financing on acquisition of call center, payable through 2005 137,987 158,301 11.9% promissory notes due August 2007, secured by automobiles, payable in monthly installments 64,773 77,738 Non-interest bearing note pursuant to asset purchase agreement, payable on demand 88,692 88,692 11% equipment financing agreement, with maturities from September 2005 through March 2006 116,182 124,248 Notes assumed from IMS acquisition: 10% Note due August 2009, payable in monthly installments 271,203 -- Non-interest bearing Promissory Note, payable over 18 months, secured by certain equipment 3,423,000 -- Non-interest bearing equipment financing due March 2006, payable in monthly installments 206,715 -- Equipment financing Note due March 2007, bearing annual interest at 3.25% over prime 28,206 -- 4% West Virginia Economic Development Note due April 2008, secured by certain assets, as defined in security agreement 187,004 -- 5% Ohio Valley Industrial and Business Development Note due January 2013, secured by certain assets, as defined in security agreement 137,247 -- Non-interest bearing promissory note from the Kansas Department of Commerce & Housing due May 2005, forgiven if defined job creation requirements are met 65,702 -- Capitals leases, at interest rates ranging from 9.0% to 11% in 2004 and 7% to 14% in 2003 341,499 214,708 ----------- ----------- 23,802,176 10,206,228 Less current portion 21,868,571 6,312,758 ----------- ----------- $ 1,933,605 $ 3,893,470 =========== ===========
On January 3, 2005, the Company completed its purchase of all of the outstanding common shares of IMS. As part of the acquisition, the Company issued a $5,104,594 non-interest bearing Collateral Promissory Note payable to the IMS shareholders. This note is payable monthly over two years. At June 30, 2005, the note amounted to $4,364,579, net of unamortized discount of $229,249. On August 4, 2005, this Note was restructured. See Note 11. In December 2003, the Company issued 7% Secured Convertible Notes in the amount of $500,000 to accredited investors. During 2004, $50,000 was repaid and the remaining notes amounting to $450,000, matured in December 2004. In October 2004, in connection with the purchase of equipment related to the contact center business, the Company issued 6% Notes maturing in December 2004, in the amount of $500,000 to the same accredited investors. The Company obtained from these lenders extensions to the 7% Secured Convertible Notes and the 6% Notes through April 29, 2005. As consideration for the extension, on April 22, 2005, a related party to the Company transferred to the lender detachable warrants it held to purchase 200,000 shares of the Company's common stock for $0.50 per share, exercisable at any time over a five year period from the date of issuance. Using the Black-Scholes model the Company estimated the fair value of the 200,000 warrants and allocated $173,314, or $0.87 per common share to the warrants, which was recognized as expense on the accompanying Consolidated Statement of Operations for the six months ended June 30, 2005. Additionally, as part of the extension, the Company issued 145,000 shares of common stock, in Voxx, a majority-owned subsidiary of the Company for no additional consideration. The Company estimated the fair value of the 145,000 Voxx shares at $88,530, or $0.61 per common share which was expensed during the three months ended June 30, 2005. The extension to the Notes matured on April 29, 2005, and the Company is currently negotiating with the lenders to obtain another extension of the maturity date. To the extent the Company is unsuccessful in any such negotiations and/or the Company otherwise defaults on the terms of this or any of its other long term debt, the result of such default, if not cured in accordance with any applicable grace period, will be to accelerate the due date of all of the Company's other long term indebtedness with the result that all such debt will become immediately due and payable. 12 In May 2004, the Company issued 8% Unsecured Convertible Promissory Notes in the amount of $1,000,000 to accredited investors. As part of the issuance of the convertible notes, the Company issued detachable warrants to purchase 132,722 shares of the Company's common stock exercisable at any time over a five year period from the date of issuance. As of June 30, 2005 these warrants were exercisable at $1.58 per share. At December 31, 2004, these notes amounted to $953,369, net of unamortized discount of $46,631, resulting from the issuance of the warrants. On April 29, 2005, the Company repaid these notes, including interest of $82,789. On May 14, 2004, the Company issued a Secured Convertible Term Note in the amount of $5,000,000 at 2.5% over prime (not to exceed 8%) to an accredited institutional investor. As part of the convertible term note, the Company issued detachable warrants to purchase 492,827 shares of the Company's common stock exercisable at any time over a seven-year period from the date of issuance. As a result of financing facility entered into with Laurus Master Fund, Ltd and affiliates of Laidlaw & Company (UK) Ltd., on April 29, 2005 these warrants are now exercisable at $1.00 per share. In connection with the issuance of the convertible term note, the Company entered in to a registration rights agreement with the lender. Under the terms of the agreement, the Company was required to pay the lender $100,000 for each 30 day period after 120 days from the original issuance of the note if a registration statement filed with the Securities and Exchange Commission (SEC) covering the common stock underlying the convertible term note and detachable warrants was not declared effective (Liquidated Damages). Additionally, in accordance with the terms of the agreement, at December 31, 2004, approximately $1,110,000 of the principal amount of the note was held in a restricted account to be released upon the effectiveness of a registration statement filed with the SEC. On February 28, 2005, the Company entered into an Amendment and Waiver agreement with the lender, resulting in the waiver of the Liquidated Damages under the agreement and the authorization to release the $1,110,000 held in the restricted account at December 31, 2004. As consideration for the waiver, the Company issued to the lender warrants to purchase 1,900,000 shares of the Company's common stock at an exercise price of $2.15 per share, exercisable at any time over a seven-year period. Using the Black-Scholes model the Company estimated the fair value of the 1,900,000 warrants and allocated $1,101,049, or $0.58 per common share to the warrants. This amount, net of $193,333 of previously accrued Liquidated Damages was recognized as expense on the accompanying Consolidated Statement of Operations for the six months ended June 30, 2005. At June 30, 2005 and December 31, 2004, these notes amounted to $3,839,928 and $4,271,322, respectively, net of unamortized discount of $432,799 and $546,860, respectively, resulting from the issuance of warrants. Because of default provisions contained in the agreement, the entire principal balance as of June 30, 2005 is classified as current in the accompanying Consolidated Balance Sheet. On April 22, 2005, the Company issued an 8% Promissory Note in the amount of $280,000 to an accredited investor. The note was payable on demand and in the event the Company was unable to repay the note upon written demand, the interest rate on the unpaid amount would increase to 18% per annum. The Note was re-paid on May 2, 2005. On April 29, 2005, the Company, and its majority-owned subsidiary, Voxx Corporation, entered into a financing facility with Laurus Master Fund, Ltd and affiliates of Laidlaw & Company (UK) Ltd., pursuant to which the Company and Voxx borrowed $7,000,000 represented by Senior Secured Convertible Notes (the Notes) that mature on April 29, 2008, and bear annual interest at 2% over prime. Interest payments began June 1, 2005, and principal payments begin on October 29, 2005 at the monthly rate of $166,667 plus accrued but unpaid interest. Payments may, in certain circumstances, be made in shares of the Company and/or Voxx common stock, and the Notes may be prepaid at any time at 130% of the then outstanding principal balance due at the time of prepayment. The Notes are secured by all of the assets of Voxx Corporation and its subsidiaries, the Company's shareholdings in Voxx Corporation and significantly all of its other subsidiaries, by a pledge of the Company and Voxx's contract revenues from certain sources and by certain other assets of the Company and its subsidiaries. The Notes significantly restrict the ability of Epixtar, Voxx and their subsidiaries from borrowing additional monies without the consent of the lenders. 13 The Notes are convertible into the common stock of Epixtar at $1.00 per share and/or into the common stock of Voxx in the event Voxx conducts an initial public offering of its own securities at a 15% discount to the IPO price. As additional consideration for the making of the loan, the lenders received options to purchase 31% or 4,167,028 shares of Voxx Corporation common stock computed on a fully diluted basis at the time of closing at a price of $.001 per share, warrants to purchase 556,596 shares of Voxx common stock at a price, generally, equal to the IPO price, and payments and reimbursements to the lenders and related parties of approximately $640,000. The options and warrants both provide the holder with anti-dilution protection in the event of stock splits, stock dividends and other extraordinary corporate events. Using the Black-Scholes model the Company estimated the fair value of the options to purchase 4,167,028 shares of common stock and allocated $1,573,345 of the debt proceeds, which was recorded as a discount on the convertible notes, and is being amortized over the life of the Note. Prior to the Voxx IPO date, the warrants are exercisable at price per share equal to capitalization of Voxx, divided by the aggregate number of shares of Voxx common stock issued and outstanding on the date of exercise, calculated on a fully diluted basis. Based on this calculation, at June 30, 2005, the 556,596 warrants are estimated to be exercisable at $3.35 per share. As a condition of the making of this loan, the Company was also required to (1) amend the terms of its existing $5,000,000 loan facility with Laurus to reprice to $1.00 per common share approximately 3,148,144 of previously issued warrants originally issued at prices ranging from $2.15 to $4.66 per share, including 1.9 million warrants issued for the Company's common stock on February 28, 2005 in connection with the Amendment and Waiver agreement of the facility, and (2) to further secure the facility with certain additional contract revenues from the Company's ISP business. At June 30, 2005, approximately $1,357,200 of ISP contract revenue was being held in escrow. The Notes provide that it is an "event of default" in the event of, among other things, non-payment, a breach of a covenant or any other agreement made by the borrowers in the note purchase agreements, the appointment of a receiver, an unsatisfied money judgment against one of the borrowers or any of their subsidiaries in excess of $150,000 for more than 30 days, a change in control of the Company or Voxx (other than in connection with a Voxx IPO), the institution of a government regulatory proceeding which prevents the borrowers from utilizing a substantial portion of their assets , or the occurrence of an "event of default" in certain other agreements to which the borrowers are parties. If an "event of default" should occur and continue beyond any applicable grace period, 110% of the then outstanding principal balance of the Notes plus accrued but unpaid interest becomes immediately due and payable. Because of default provisions and lockbox requirements contained in the agreements, the entire outstanding principal amount as of June 30, 2005 is classified as current on the accompanying Consolidated Balance Sheet. During the three months ended March 31, 2005, the Company and its majority-owned subsidiary, Voxx, sold to accredited investors, in a private placement, an additional $767,500 principal amount of 5% Joint Unsecured Subordinated Convertible Promissory Notes due May 2007. Pursuant to the notes, in the event Voxx becomes a public company, the then outstanding notes are immediately converted into shares of Voxx common stock. The rate of interest will be increased to an annual rate of 10% if Voxx does not become a public corporation on or before October 15, 2005. Until Voxx is a public company a holder may convert his entire note into shares of the Company's Common Stock for one year at a fixed conversion price related to market but not less than $2.25. Thereafter the exercise price will be the lesser of $1.00 or the average market price for a period preceding the one-year anniversary of the notes, as specified in the agreement. The notes are subordinate in all respects to the senior debt. In addition to the note each unit also consists of the right to receive in the future (i) warrants to purchase the Company's Common Stock and/or (ii) warrants to purchase Voxx's common stock. Based on the terms of the conversion associated with the notes, there was an intrinsic value associated with the beneficial conversion feature of the additional $767,500 principal amount issued during the March 2005 quarter estimated at $12,153, which was recorded as deferred interest and presented as a discount on the convertible notes, net of amortization to be taken over the terms of the notes. At June 30, 2005 and December 31, 2004, these notes amounted to $3,614,016 and $2,835,601, respectively, net of unamortized discount of $100,984 and $111,899, respectively, resulting from the intrinsic value of the beneficial conversion feature. Because of default provisions contained in the agreement, the entire principal balance as of June 30, 2005 is classified as current in the accompanying Consolidated Balance Sheet. On June 23, 2005, the Company entered into an agreement with SER Solutions, Inc. (SER) that provides for the purchase by the Company of $3,070,000 of dialer equipment for its call centers over the next 18 months. In connection with the agreement, the Company has executed a non-interest bearing Promissory Note in the amount of $3,423,000, representing the purchase commitment of $3,070,000 and $353,000 due on prior note for dialer equipment. See Note 10. 14 NOTE 6. CAPITAL STOCK EPIXTAR Conversion of Preferred Stock During the three months ended June 30, 2005, a holder of the Company's preferred stock converted 1,050 shares of preferred stock into 121,287 shares of the Company's common stock. The holder of the preferred stock originally purchased the shares for $105,000, or $100 per share. Pursuant to the provisions of the Company's Amended Certificate of Incorporation relating to the preferred stock, cumulative dividends were added to the original purchase price and the adjusted value was converted into common stock using a conversion price of $1.00 per share. During the three months ended March 31, 2005, 1,000 shares of preferred stock were converted into 55,847 shares of the Company's common stock. These shares were originally purchased for $100,000, or $100 per share. Pursuant to the provisions of the Company's Amended Certificate of Incorporation relating to the preferred stock, cumulative dividends were added to the original purchase price and the adjusted value was converted into common stock using a conversion price of $2.00 per share. Common Stock On February 28, 2005, the Company issued 550,290 shares of common stock pursuant to its acquisition of IMS in January 2005. As part of the acquisition of IMS, the Company guaranteed an agreement for approximately $770,000 due an IMS shareholder for commissions, and issued the 550,290 shares of common stock as payment for $385,000 of the amount guaranteed. The valuation assigned to the common stock was based on the average volume and price of the Company's stock for the month of November 2004, as provided in the acquisition agreement. Warrants On April 22, 2005, a related party to the Company transferred to a lender detachable warrants it held to purchase 200,000 shares of the Company's common stock for $0.50 per share, exercisable at any time over a five year period from the date of issuance. The Company estimated the fair value of the warrants, using the Black-Scholes model at $173,314, or $0.87 per common share, which was recognized as expense on the accompanying Consolidated Statement of Operations during the three months ended June 30, 2005. See Note 5 On February 28, 2005, the Company issued warrants to purchase 1,900,000 shares of the Company's common stock at an exercise price of $2.15 per share, exercisable at any time over a seven-year period. In connection with the financing facility entered into with Laurus Master Fund, Ltd and affiliates of Laidlaw & Company (UK) Ltd., on April 29, 2005 the warrants became exercisable at $1.00 per share. The Company estimated the fair value of the warrants, using the Black-Scholes model, at $1,101,049, or $0.58 per common share. This amount, net of $193,333 of previously accrued fees was charged to earnings on the accompanying Consolidated Statement of Operations for the six months ended June 30, 2005. See Note 5. VOXX Common Stock On April 22, 2005, as consideration for extending the maturity date of certain notes, the Company issued 145,000 shares of Voxx common stock to lenders. The Company estimated the fair value of the 145,000 Voxx shares at $88,530, or $0.61 per common share. This amount was recognized as expense on the accompanying Consolidated Statement of Operations for the three months ended June 30, 2005. See Note 5. Options On April 29, 2005, in connection with the issuance of convertible debt, the Company granted to Laurus options to purchase 4,167,028, or 31% of Voxx common shares, at $0.001 per share, on a fully diluted basis. The options provide the holder with anti-dilution protection in the event of stock splits, stock dividends and other extraordinary corporate events. The Company estimated the fair value of the options to purchase stock using the Black-Scholes model and allocated $1,573,345, or $0.49 per common share, which was recorded as a discount on the convertible notes and is being amortized over the life of the Notes. See Note 5. 15 Warrants On April 29, 2005, in connection with the issuance of convertible debt, the Company issued warrants to purchase 556,596 shares of Voxx common stock at $3.35 per share. The warrants provide the holder with anti-dilution protection in the event of stock splits, stock dividends and other extraordinary corporate events. Prior to the Voxx IPO date, the warrants are exercisable at price per share equal to capitalization of Voxx, divided by the aggregate number of shares of Voxx common stock issued and outstanding on the date of exercise, calculated on a fully diluted basis. Based on this calculation, at June 30, 2005, the 556,596 warrants are estimated to be exercisable at $3.35 per share. See Note 5. Restricted Stock On April 20, 2005, the Board of Directors of the Company granted an aggregate of 2,000,000 shares of Voxx Corporation common stock owned by the Company (the Restricted Shares), to certain employees and consultants of the Company, including 1.5 million of the shares issued to a related party. As of June 30, 2005, there were 1,760,000 Restricted Shares outstanding. The Company estimated the fair value of the Restricted Shares at $1,086,800, or $0.62 per common share, which was recognized as expense on the accompanying Consolidated Statement of Operations during the three months ended June 30, 2005. Each grantee, as a condition of the grant, was required to elect, within 30 days of the date of grant, and upon written notice delivered to the Internal Revenue Service with a copy delivered to the Company, to recognize income for federal income tax purposes equal to the fair market value of the shares as of the date the shares were transferred to the grantee. Grantees that made the timely required election, will receive on December 31, 2005, as an additional incentive payment, an amount equal to $0.30 per Restricted Share. The Company accrued $600,000 related to the incentive payment. Incentive Stock Options On April 20, 2005, Voxx Corporation adopted the Voxx Corporation 2005 Stock Incentive Plan which permits the granting of awards of non-statutory stock options, incentive stock options, stock appreciation rights, restricted stock and performance shares with respect to Voxx common stock. The Incentive Plan was approved by the Company as the sole stockholder of Voxx on April 20, 2005. Awards under the Incentive Plan may be granted or awarded to employees of Voxx or its affiliates including the Company, persons who are hired to be employees of Voxx or its affiliates, non-employee directors of Voxx or any of its affiliates, and consultants and independent contractors who render key services to Voxx or its affiliates. The maximum number of shares of common stock of Voxx that may be issued under the Incentive Plan or pursuant to awards made under the plan is 2,375,000 shares, subject to adjustment in the event of a change in corporate capitalization of Voxx. The Incentive Plan will be administered by the Board of Directors of Voxx. On April 20, 2005, the Board of Directors of Voxx granted 2,000,000 options to purchase Voxx Corporation common stock at $3.00 per share. As of June 30, 2005, there were 1,675,000 incentive stock options outstanding. Dilutive Effect of Issuances The dilutive effect of the issuance of Epixtar Corp. equity securities and the re-pricing of certain previously issued securities, as per the $7,000,000 Senior Secured Convertible Notes (see Note 5), could, if all of the debt was converted and all of the warrants were exercised, result in an increase in the Company's issued and outstanding common stock by 10,249,345, shares or an increase of 83.5% of the number of common shares outstanding as of June 30, 2005. This dilutive effect includes the effects from re-pricing other equity securities, but it excludes the potential dilutive effect on the Company's percentage ownership of its Voxx subsidiary as a result of equity securities held by the lender to purchase Voxx common stock. 16 NOTE 7. RELATED PARTY TRANSACTIONS On October 31, 2001, the Company issued a 7% note in the amount of $2,474,000, collateralized by accounts receivable, to a then unrelated entity. In August 2002, the creditor became a stockholder of the Company and in. November 2002, the Company entered into an agreement whereby the stockholder agreed to release its security interest in the Company's accounts receivable to the extent required to secure additional debt financing and agreed not to demand payment before January 2005 in exchange for certain consideration. Except for the demand deferral and the release of the security interest, all other terms of the note stayed in effect. The consideration given consisted of warrants to purchase 4,000,000 shares of Company common stock at an exercise price of $0.50 per share for a term of three years beginning in May 2003. To the extent the Company is unsuccessful in negotiating an extension to the agreement and/or the Company otherwise defaults on the terms of this or any of its other long term debt, the result of such default, if not cured in accordance with any applicable grace period, will be to accelerate the due date of all of the Company's other long term indebtedness with the result that all such debt will become immediately due and payable. At June 30, 2005 and December 31, 2004, the outstanding principal balance of the Note was $2,474,000. In October 2001, the Company entered into an agreement with Transvoice, whereby Transvoice provided certain services related to the development of the Company's internet service provider business. The Company incurred expenses of $900,000 and $1,800,000 during the three and six months ended June 30, 2005, respectively, and $450,000 and $900,000, respectively, during the three and six months ended June 30, 2004, for services under this agreement. At June 30, 2005 and December 31, 2004, $1,800,000 and $750,000, respectively of these amounts remained unpaid and are included in accounts payable-related party. On April 20, 2005, Transvoice was granted an aggregate of 1,500,000 shares of Voxx Corporation common stock owned by the Company (the Restricted Shares). The Company estimated the fair value of the Restricted Shares, at $926,250, or $0.62 per common share, which was recognized as consulting fees and reimbursements-related party expense on the accompanying Consolidated Statement of Operations during the three months ended June 30, 2005. In April 2003, the Company entered into an agreement with Transvoice, whereby Transvoice provides consulting services related to the development of marketing and telemarketing aspects of the Company. Transvoice is not compensated for its services but is reimbursed for payments made to a related party subcontractor performing services associated with the agreement. The subcontractor is 100% owned, indirectly, or directly, by a previous executive of the Company. The Company incurred expenses of $225,000 and $400,000, respectively, for the three and six months ended June 30, 2005, and $225,000 and $450,000, respectively, for the three and six months ended June 30, 2004 for services under this agreement. At June 30, 2005 and December 31, 2004, $325,000 and $225,000 remained unpaid and is included in accounts payable-related party. The agreement was terminated during the second quarter of 2005. NOTE 8. EARNINGS (LOSS) PER SHARE The Company presents both basic and diluted EPS. Basic EPS is calculated by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the period which is calculated using the treasury stock method for stock options and warrants, and assumes conversion of the Company's convertible notes. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on EPS and, accordingly, are excluded from the calculation. Weighted average number of shares used to compute basic and diluted loss per share for the three and six months ended June 30, 2005 and 2004 is the same, since the effects of the preferred stock, common stock options, warrants and convertible debt were anti-dilutive. A reconciliation of net loss and the weighted average number of common and common equivalent shares outstanding for calculating diluted earnings per share is as follows: 17
Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ------------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Net loss $ (6,853,126) $ (3,663,795) $(12,459,014) $ (4,523,349) Preferred stock dividends (38,795) (44,020) (85,515) (88,040) ------------ ------------ ------------ ------------ Net loss for basic and diluted EPS calculations $ (6,891,921) $ (3,707,815) $(12,544,829) $ (4,611,389) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES FOR BASIC AND DILUTED EPS 12,231,658 10,899,305 11,993,906 10,787,920 LOSS PER SHARE Basic and Diluted $ (0.56) $ (0.34) $ (1.05) $ (0.43) ============ ============ ============ ============
NOTE 9. BUSINESS SEGMENTS The Company operates primarily in two segments: business process outsourcing and contact center operations (BPO) and internet service provider services (ISP). Information concerning the revenues and operating income for the three and six months ended June 30, 2005 and 2004, and the identifiable assets for the two segments in which the Company operates are shown in the following table:
BPO ISP Consolidated ------------ ------------ ------------ OPERATING REVENUE - SEGMENT (1) Quarter - June 2005 $ 6,581,190 $ 2,518,142 $ 9,099,932 Quarter - June 2004 103,810 4,183,526 4,287,336 Six Months - June 2005 12,561,705 5,617,701 18,179,406 Six Months - June 2004 292,031 8,871,453 9,163,484 INCOME (LOSS) FROM OPERATIONS Quarter - June 2005 (7,198,127) 1,398,382 (5,799,744) Quarter - June 2004 (2,170,804) 355,025 (1,815,779) Six Months - June 2005 (12,888,362) 2,978,838 (9,909,524) Six Months - June 2004 (4,005,309) 1,674,040 (2,331,269) DEPRECIATION AND AMORTIZATION Quarter - June 2005 607,800 29,968 637,768 Quarter - June 2004 206,552 64,118 270,670 Six Months - June 2005 1,363,433 58,720 1,422,153 Six Months - June 2004 243,394 128,270 371,664
18
(Cont.) BPO ISP Consolidated ------------ ------------ ------------ CAPITAL EXPENDITURES (2) Quarter - June 2005 543,829 1,476 545,305 Quarter - June 2004 1,694,319 179,370 1,873,689 Six Months - June 2005 3,419,693 140,827 3,560,520 Six Months - June 2004 2,492,178 179,370 2,671,548 IDENTIFIABLE ASSETS At June 30, 2005 20,167,767 10,208,754 30,376,521 At December 31, 2004 11,963,124 6,085,591 18,048,715
(1) The Company allocates its geographic revenue based on customer location. All of the Company's customers are U.S based companies. Services performed for call center customers are performed in the Philippines and three call centers in the U.S. (2) The six months ended June 30, 2005, includes capital assets of $2,401,415 acquired as a result of the IMS acquisition. NOTE 10. COMMITMENTS AND CONTINGENCIES Legal Proceedings All the Company's current significant legal proceedings arise out of its ISP business. The Company believes the proceedings and their settlement will not have a significant effect on its operations since the Company no longer actively markets its ISP business and the Company believes it is in substantial compliance with the law. In addition to the legal proceeding discussed above, the Company is exposed, from time to time, to other claims, legal actions, and regulatory actions in the normal course of business, some of which are initiated by the Company. Management believes that any such additional outstanding issues will be resolved without impairing the financial condition of the Company. Purchase Commitments On June 23, 2005, the Company entered into an agreement with SER Solutions, Inc. (SER) that provides for the purchase by the Company of $3,070,000 of dialer equipment for its call centers over the next 18 months. The agreement also resolved certain licensing and payment disputes between the parties related to previous purchases by the Company from SER. In connection with the agreement, the Company has executed a promissory note in the amount of $3,423,000 to SER, representing the purchase commitment of $3,070,000 and $353,000 due on prior purchases of dialer equipment. See Note 5. NOTE 11. SUBSEQUENT EVENTS 1. On July 15, 2005, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") and certain related agreements with Laurus Master Fund, Ltd. (Laurus) providing for the issuance to Laurus by the Company of a Secured Convertible Term Note in the aggregate principal amount of $6,200,000 (the "Note"). At June 30, 2005, Laurus and its affiliates held approximately $9,773,000 of outstanding convertible debt of the Company. Laurus may advance up to $6,200,000 to the Company for use by the Company for working capital and to continue the build out of its Philippine-based call center business. All advances under the Note are subject to the satisfaction of certain conditions. The note bears interest at the rate of 10% per annum. The Note may be prepaid at any time at 100% of the then outstanding principal balance at the time of prepayment plus accrued interest. See 6. below. 19 The outstanding principal due under the Note is convertible into common stock of the Company at a conversion price of $1.00 per share, which conversion price is subject to adjustment for stock splits, stock dividends or other similar transactions or if new rights to acquire common stock of the Company are issued at a price less than the then existing conversion price under the Note. Laurus has certain rights to require the Company to register the sale of the shares of common stock into which the principal of the Note is convertible under federal and state securities laws. In connection with the issuance of the Note, the Company has placed into escrow resignations from its existing directors and proxies in favor of Laurus from the holders of a majority of the Company's presently outstanding common stock. Such instruments are to be released to Laurus from escrow and may be exercised by Laurus in the event of a default by the Company under the Purchase Agreement or the Note or under any other agreement of the Company or its subsidiaries with Laurus. The effect of such instruments would be to allow Laurus to replace the board of directors of the Company with persons selected by it. The Note is secured by all of the assets of Voxx Corporation, a subsidiary of the Company, and the subsidiaries of Voxx Corporation, the Company's shareholdings in Voxx Corporation and significantly all of its other subsidiaries, by a pledge of the Company's contract revenues and those of its subsidiaries from all sources and by certain other assets of the Company and its subsidiaries. The Note significantly restricts the ability of the Company and its subsidiaries from borrowing additional monies without the consent of the Laurus. The Company is presently obligated to place all revenues from its internet service provider businesses into a lock box, which revenues may be used by the Company only with the prior approval for payment of expenses approved by Laurus and its affiliates. In connection with the Purchase Agreement and the Note, the Company and its subsidiaries have agreed to place all revenues from its call center business in a lock box as well and have agreed that such revenues may only be withdrawn from the lock box for payment of expenses approved by Laurus. 2. On January 3, 2005, as part of the acquisition of IMS, the Company issued a $5,104,594 non-interest bearing Collateral Promissory Note payable to the IMS shareholders over two years. At June 30, 2005, the principal amount of the note was $4,593,828. On August 4, 2005, this Note was restructured. The IMS shareholders have agreed to reduce the outstanding balance by 50% to $2,296,914 (the New Debt). The New Debt is payable in two installments of $112,691.41 in August 2005, and in weekly installments of $28,172.85 beginning September 5, 2005, until paid in full January 29, 2007. In August 2005, the Company paid the IMS shareholders $225,388.82. 3. On January 3, 2005, as part of the IMS acquisition, the Company guaranteed commissions payable owed by IMS under the DDM Consulting, Inc (DDM) agreement. At June 30, 2005, amounts due under DDM agreement totaled $192,601. On August 4, 2005, this agreement was restructured. DDM has agreed to reduce the outstanding balance by 50% to $96,301, (the New DDM Agreement). The New DDM Agreement is payable in two installments of $16,050.13 in August 2005, and in monthly installments of $16,050.13 beginning September 5, 2005, until paid in full December 5, 2005. In August 2005, the Company paid DDM $32,100.26. 4. On August 1, 2005, the Company entered into a new Broker Agreement with DDM whereby the service fee and commission structures were re-defined. At June 30, 2005, commissions due under the previous agreement totaled $629,175. As part of the new agreement, on August 4, 2005, DDM agreed to reduce the outstanding balance of commissions due by 50% to $314,587.50, (the New Broker Agreement), provided, however, that in the event Voxx Corporation and its subsidiaries are cash flow positive, exclusive of debt or equity financing, during any thirty (30) day period through December 12, 2005 and for the month of December 2005, an additional lump sum in the amount of $314,587.50 shall be paid to DDM. Such payment will be made on or before January 15, 2006. 20 The New Broker Agreement is payable in weekly installments of $50,000 until paid in full. Through August 12, 2005, the Company paid DDM $100,000. 5. On July 20, 2005, the Company entered into an agreement with Realization Services, Inc. (RS), a consulting firm. RS has been retained to develop a plan that will attempt to bring the Company's activities in the United States and the Philippines to a cash break-even level within three months and on an overall operating and non-operating basis by the end of 2005. In connection with such plan, RS will assist (1) in identifying the Company's customers that are profitable, (2) recommend reductions in operating expenses, (3) propose restructure of certain debt agreements and (4) assist in implementing the plan and improving the operating efficiencies. RS's role shall be strictly limited to that of an advisor to the Company. 6. On August 15, 2005, the Company entered into an Amendment Agreement with Laurus whereby the Securities Purchase Agreement entered into on July 15, 2005, was amended to increase the amount of the advance, from $6,200,000 to $14,200,000. All other terms, covenants and conditions of the Securities Purchase Agreement remain un-amended. 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The following Management's Discussion and Analysis (MD&A) is intended to help the reader understand Epixtar. MD&A is provided as a supplement to, should be read in conjunction with and is qualified in its entirety by reference to, the Company's Consolidated Financial Statements and related Notes to Consolidated Financial Statements (Notes) appearing under Item 1 in this report. In addition, reference is made to the Company's audited Consolidated Financial Statements and related Notes thereto and related MD&A included in its Annual Report on Form 10-K for Fiscal 2004. Except for the historical information contained herein, the discussions in MD&A contain forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under "Forward-Looking Statements" . The following are the sections of MD&A contained in this report, together with the Company's perspective on the contents of these sections of MD&A, which it hopes will make reading these pages and understanding of the Company's operations more beneficial. Recent Events - description of financing obtained on July 15, 2005 and of various debt agreements that were restructured, and consulting firm engaged to help develop a plan that is intended to bring the Company to a cash break-even level within the next three months. Operations Review - an analysis of the Company's consolidated results of operations and of the results in each of our two operating segments, to the extent the operating segment results are material to an understanding of the Company's business as a whole, for the periods presented in its Consolidated Financial Statements. Liquidity and Capital Resources - an analysis of cash flows, capital structure and resources, off-balance sheet arrangements, commercial commitments and contractual obligations. Discussion of Critical Accounting Policies and New Accounting Pronouncements - a discussion of accounting policies that require critical judgments and estimates, and of accounting pronouncements that have been issued but not yet implemented by the Company and their potential impact. Forward-Looking Statements - cautionary information about forward-looking statements. RECENT EVENTS On July 15, 2005, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") and certain related agreements with Laurus Master Fund, Ltd. (Laurus) providing for the issuance to Laurus by the Company of a Secured Convertible Term Note in the aggregate principal amount of $6,200,000 (the "Note"). At June 30, 2005, Laurus and its affiliates held approximately $9,773,000 of outstanding convertible debt of the Company. Laurus may advance up to $6,200,000 to the Company for use by the Company for working capital and to continue the build out of its Philippine-based call center business. All advances under the Note are subject to the satisfaction of certain conditions. The note bears interest at the rate of 10% per annum. The Note may be prepaid at any time at 100% of the then outstanding principal balance at the time of prepayment plus accrued interest. The outstanding principal due under the Note is convertible into common stock of the Company at a conversion price of $1.00 per share, which conversion price is subject to adjustment for stock splits, stock dividends or other similar transactions or if new rights to acquire common stock of the Company are issued at a price less than the then existing conversion price under the Note. Laurus has certain rights to require the Company to register the sale of the shares of common stock into which the principal of the Note is convertible under federal and state securities laws. 22 In connection with the issuance of the Note, the Company has placed into escrow resignations from its existing directors and proxies in favor of Laurus from the holders of a majority of the Company's presently outstanding common stock. Such instruments are to be released to Laurus from escrow and may be exercised by Laurus in the event of a default by the Company under the Purchase Agreement or the Note or under any other agreement of the Company or its subsidiaries with Laurus. The effect of such instruments would be to allow Laurus to replace the board of directors of the Company with persons selected by it. The Note is secured by all of the assets of Voxx Corporation, a subsidiary of the Company, and the subsidiaries of Voxx Corporation, the Company's shareholdings in Voxx Corporation and significantly all of its other subsidiaries, by a pledge of the Company's contract revenues and those of its subsidiaries from all sources and by certain other assets of the Company and its subsidiaries. The Note significantly restricts the ability of the Company and its subsidiaries from borrowing additional monies without the consent of the Laurus. The Company is presently obligated to place all revenues from its internet service provider businesses into a lock box, which revenues may be used by the Company only with the prior approval for payment of expenses approved by Laurus and its affiliates. In connection with the Purchase Agreement and the Note, the Company and its subsidiaries have agreed to place all revenues from its call center business in a lock box as well and have agreed that such revenues may only be withdrawn from the lock box for payment of expenses approved by Laurus. On August 15, 2005, the Company entered into an Amendment Agreement with Laurus whereby the Securities Purchase Agreement entered into on July 15, 2005, was amended to increase the amount of the advance, from $6,200,000 to $14,200,000. All other terms, covenants and conditions of the Securities Purchase Agreement remain un-amended. On January 3, 2005, as part of the acquisition of IMS, the Company issued a $5,104,594 non-interest bearing Collateral Promissory Note payable to the IMS shareholders over two years. At June 30, 2005, the principal amount of the note was $4,593,828. On August 4, 2005, this Note was restructured. The IMS shareholders have agreed to reduce the outstanding balance by 50% to $2,296,914 (the New Debt). The New Debt is payable in two installments of $112,691 in August 2005, and in weekly installments of $28,173 beginning September 5, 2005, until paid in full on January 29, 2007. In August 2005, the Company paid the IMS shareholders $225,388. On January 3, 2005, as part of the IMS acquisition, the Company guaranteed commissions payable owed by IMS under the DDM Consulting, Inc (DDM) agreement. At June 30, 2005, amounts due under DDM agreement totaled $192,601. On August 4, 2005, this agreement was restructured. DDM has agreed to reduce the outstanding balance by 50% to $96,301, (the New DDM Agreement). The New DDM Agreement is payable in two installments of $16,050 in August 2005, and in monthly installments of $16,050 beginning September 5, 2005, until paid in full on December 5, 2005. In August 2005, the Company paid DDM $32,100. On August 1, 2005, the Company entered into a new Broker Agreement with DDM whereby the service fee and commission structures were re-defined. At June 30, 2005, commissions due under the previous agreement totaled $629,175. As part of the new agreement, on August 4, 2005, DDM agreed to reduce the outstanding balance of commissions due by 50% to $314,587, (the New Broker Agreement), provided, however, that in the event Voxx Corporation, is cash flow positive, exclusive of debt or equity financing, during any thirty (30) day period through December 12, 2005 and for the month of December 2005, an additional lump sum in the amount of $314,587 shall be paid to DDM. Such payment will be made on or before January 15, 2006. The New Broker Agreement is payable in weekly installments of $50,000 until paid in full. Through August 12, 2005, the Company paid DDM $100,000. On July 20, 2005, the Company entered into an agreement with Realization Services, Inc. (RS), a consulting firm. RS has been retained to develop a plan that will attempt to bring the Company's activities in the United States and the Philippines to a cash break-even level within three months and on an overall operating and non-operating basis by the end of 2005. In connection with such plan, RS will assist (1) in identifying the Company's customers that are profitable, (2) recommend reductions in operating expenses, (3) propose restructure of certain debt agreements and (4) assist in implementing the plan and improving the operating efficiencies. RS's role shall be strictly limited to that of an advisor to the Company. 23 OPERATIONS REVIEW Highlights Operations highlights for the second quarter of fiscal 2005 include: Revenues increased 112.2% to $9,099,332 in the second quarter of fiscal 2005, from $4,287,336 in the second quarter of fiscal 2004. BPO segment achieved revenue growth of $6,477,380. The Company's new IMS acquisition contributed $5,972,716 to the increase. Operating income declined $5,027,323, compared to the second quarter of fiscal 2004 primarily as a result of costs associated with the Company's expansion of its BPO operations in 2004 and continuing through the first quarter of 2005. In the June 2005 quarter, the Company began to curtail its expansion efforts and is presently evaluating various cost reductions options and analyzing client profitability levels. ISP segment revenue declined $1,665,384 as a result of its declining customer base. Operating income increased $1,043,355, or 293.9%, compared to the second quarter of fiscal 2004 primarily due to lower direct and administrative costs as the Company has suspended its marketing efforts. Loss from continuing operations increased $3,533,968, to $5,799,744, in the second quarter of fiscal 2005, from $1,580,965 in the second quarter of fiscal 2004; In response to this situation, current management has embarked on an aggressive program intended to restore the Company to profitability. This program includes steps to (1) increase revenues and the profitability of its existing BPO programs, (2) accelerate the migration of BPO service contract fulfillment from the Company's U.S. call centers to its Philippine locations, (3) curtail costs and eliminate unnecessary expenses, (3) restructure the Company's payables and loan obligations (see Recent Events), and (4) temporarily suspend its plan for a rapid expansion of its Philippine call center operations pending the completion of additional financing. To date, this program has achieved an aggregate of approximately $600,000 per month in salary expense reductions and approximately $200,000 per month in selling, general and administrative cost reductions. Management anticipates that it will be able to achieve significant additional reductions in both of these expense categories in the months to come. To further assist it in the accomplishment of the objectives of this program, management has engaged the services of a consulting firm specializing in turnarounds to assist it with the implementation of its plan and the improvement of operational efficiencies in all of these areas. In cooperation with the consulting firm, the goal of management's near term program in this regard is to return the Company to a cash break-even position by the end of the year. Notwithstanding the Company's recent history of significant, recurring losses from operations, management continues to believe that the decision to get into the business of offshore call center operation was a sound one and that, when fully implemented and properly operated, will enable the Company to successfully execute its long term business plan and enable it to realize attractive returns for its investors. However, management can provide no assurance that it will be able to execute its long range business plan Business Segments The Company engages in two primary lines of business: business process outsourcing concentrating on contact center activities (BPO) and internet service provider services (ISP). Through 2003, the Company's revenues were primarily derived from its ISP business, which provides Internet services, including unlimited Internet access and email, to small business subscribers. As a result of the ISP's ongoing business interaction with the contact center industry, combined with extensive analysis of the contact center industry, management made the strategic decision to focus the Company's energies and resources in developing and operating offshore contact centers. BPO services complement the ISP business and consequently, the Company continues to maintain and service its ISP business customers while concentrating the Company's efforts in growing the business process outsourcing and contact center services business. Business Processing Outsourcing and Contact Center Business The Company began developing its contact center business in the latter part of 2003 and continued throughout 2004 and now has approximately 1,052 enabled seats in the Philippines and the United States, including approximately 384 seats added through the Company's acquisition of IMS which service several major clients, and encompasses supporting personnel. This number is somewhat below that reported in one or more prior periods because current management has elected to take a much more conservative view of what, in fact, constitutes an "enabled seat." Seats that now require any additional amount of investment to become fully operational, no matter how insignificant, are no longer categorized as "enabled." The Company continues to actively market its contact center services. Due to recent liquidity concerns the Company has recently delayed building out additional infrastructure. See Current Trends, below. Revenues from contact center operations are derived from telemarketing, tele-verification, and customer support services provided to clients based on individual business requirements. Depending on the contract under which services are provided, the company may earn revenues on a commission basis, a performance basis, an hourly basis, or a blend of the three. Cost of generating revenue consists of direct payroll costs, recruitment and training of personnel and communication costs. On an ongoing basis, the most significant expense of the Company's contact center business will be labor costs for agents, supervisors and administrators as well as commissions paid to brokers, and rental expense for leased facilities. 24 ISP Business While the Company is not presently marketing its ISP business, it is continuing to service its existing customer base. The Company's ISP operations consisted essentially of the marketing of value-added internet service provider services, primarily through third party facilities. The Company does not operate its own network but uses third parties to obtain access to the Internet for its clients. Prior to 2004 when the Company suspended its marketing efforts, the customer base kept growing as a direct result of the marketing efforts. ISP revenues are derived from monthly fees charged customers for value-added internet services. Cost of generating revenue associated with ISP operations include the costs of maintaining the Company's customer base including customer care and telecommunication costs for Internet access. Because the Company is not marketing the ISP business, cost of revenue has and should continue to decline thereby increasing gross profit margins for this business. The ISP customer base now consists of seasoned customers and based on current attrition rates the Company believes it will continue to derive revenues on a declining basis for several years. Current Trends The trend of the Company's revenue and income over the next several quarters depends upon several variables, some of which cannot at this time be ascertained definitively. Revenue from ISP sources will decline as a result of suspended ISP marketing activity and a declining customer base. The Company will continue to incur losses as a result of development costs associated with contact center operations. In January 2005, the Company acquired IMS to increase its contact center penetration. BPO revenues and overall revenue should continue to increase as a result of this acquisition; however, since IMS has been incurring losses, there is no assurance we will be able to operate this new subsidiary profitably. As a result of the IMS acquisition, and depending on obtaining additional new contracts and implementing existing ones, the Company believes revenue from its contact centers will increase, offsetting declining ISP revenues in the future. The Company's management is taking steps to curtail increasing costs and reduce its current losses. The Company has engaged a consulting firm that will assist it in implementing a plan that will improve the operational efficiencies of the Company by reducing costs, restructuring some or all of its debt agreements and identifying customers that are profitable. This is anticipated to bring the Company to a cash break-even position within the next three months. During this period of reorganization, the Company's is attempting to ensure that the quality and level of services provided to its customers are not adversely impacted. Results of Operations The Company reported a net loss of $6,853,126 or $0.56 per basic and diluted common share, for the three months ended June 30, 2005, compared with a net loss of $3,663,795, or $0.34 per basic and diluted common share for the comparable period in 2004. For the six month period of 2005, the Company reported a net loss of $12,459,014, or $1.05 per basic and diluted common share, compared with a net loss of $4,523,349, or $0.43 per basic and diluted common share for the comparable period in 2004. The increase in the losses for the three and six month periods on quarter compared with the same periods in 2004 was due to the Company's expansion during 2004 and the first quarter of 2005 of its business process outsourcing and contact center services operations (BPO), including its acquisition of IMS in January 2005, and a decline of approximately 37% in the gross profit of its internet service provider services operations (ISP) during the six month period of 2005, as a result of a declining customer base. In response to this situation, current management has embarked on an aggressive program intended to restore the Company to profitability. This program includes steps to (1) increase revenues and the profitability of its existing BPO programs, (2) accelerate the migration of BPO service contract fulfillment from the Company's U.S. call centers to its Philippine locations, (3) curtail costs and eliminate unnecessary expenses, (3) restructure the Company's payables and loan obligations (see Recent Events), and (4) temporarily suspend its plan for a rapid expansion of its Philippine call center operations pending the completion of additional financing. To date, this program has achieved an aggregate of approximately $600,000 per month in salary expense reductions and approximately $200,000 per month in selling, general and administrative cost reductions. Management anticipates that it will be able to achieve significant additional reductions in both of these expense categories in the months to come. To further assist it in the accomplishment of the objectives of this program, management has engaged the services of a consulting firm specializing in turnarounds to assist it with the implementation of its plan and the improvement of operational efficiencies in all of these areas. In cooperation with the consulting firm, the goal of management's near term program in this regard is to return the Company to a cash break-even position by the end of the year. Notwithstanding the Company's recent history of significant, recurring losses from operations, management continues to believe that the decision to get into the business of offshore call center operation was a sound one and that, when fully implemented and properly operated, will enable the Company to successfully execute its long term business plan and enable it to realize attractive returns for its investors. However, management can provide no assurance that it will be able to execute its long range business plan On a pro forma basis, assuming the acquisition of IMS had been in January 2004, the Company would have reported a net losses of $4,477,100, or $0.39 per basic and diluted common share, and $6,251,233, or $0.56 per share, respectively, during the three and six months ended June 30, 2004. IMS' gross profit margin for the three and six months period of 2004 were approximately $2,151,881, or 51.8%, and $3,975,182, or 45.6%, respectively; however, high administrative expenses resulted in a loss from operations of approximately $299,000 and $700,000, respectively, during the three and six month ended June 30, 2004. 25 Set forth below are comparisons of financial results of operations for the three months and six months ended June 30, 2005 and 2004. These comparisons are intended to aid in the discussion that follows. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and accompanying Notes, which appear in Item 1. Financial Statements, in this Quarterly Report on Form 10-Q/A. THREE AND SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH THREE AND SIX MONTHS ENDED JUNE 30, 2004
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ----------------------------------------------------- ----------------------------------------------------- Variance Variance 2005 2004 $ % 2005 2004 $ % ------------ ------------ ------------ ------- ------------ ------------ ------------ ------- Revenue $ 9,099,332 $ 4,287,336 $ 4,811,996 112.2% $ 18,179,406 $ 9,163,484 $ 9,015,922 98.4% Cost of revenue 5,787,517 1,233,076 4,554,441 369.4% 9,981,698 2,537,430 7,444,268 293.4% ------------ ------------ ------------ ------- ------------ ------------ ------------ ------- Gross profit 3,311,815 3,054,260 257,555 8.4% 8,197,708 6,626,054 1,571,654 23.7% ------------ ------------ ------------ ------- ------------ ------------ ------------ ------- Operating expenses (exclusive of depreciation, and amortization of intangibles) 8,100,541 4,364,555 3,735,986 85.6% 15,938,580 8,350,845 7,587,335 90.9% Depreciation, and amortization of intangibles 1,011,018 270,670 740,348 273.5% 2,168,653 371,664 1,796,989 483.5% Other non operating expenses, net 1,053,382 2,082,830 (1,029,448) -49.4% 2,549,489 2,426,894 122,595 5.1% ------------ ------------ ------------ ------- ------------ ------------ ------------ ------- Net loss $ (6,853,126) $ (3,663,795) $ (3,189,331) 87.0% $(12,459,014) $ (4,523,349) $ (7,485,665) 165.5% ------------ ------------ ------------ ------- ------------ ------------ ------------ ------- Net loss per share $ (0.56) $ (0.34) $ (1.05) $ (0.43) ============ ============ ============ ============
Revenue for the second quarter of 2005 increased to $9,099,332 in 2005 from $4,287,336, or 112.2%. The Company's BPO operations contributed $6,581,190 to the increase, partially offset by a decline of approximately $1,665,384 in revenue from ISP operations. For the six month period of 2005, revenue increased to $18,179,406 in 2005 from $9,163,484, or 98.4%. The Company's BPO operations provided $12,269,674 of the increase, partially offset by a decline of approximately $3,253,752, or 36.7%, in revenue from ISP operations. The increases for the three and six month periods of 2005 were primarily attributable to EMC, formerly IMS, the Company's acquisition in the first quarter, which contributed approximately $5,972,716 and $11,129,714, respectively, during the periods. The decline in ISP revenue reflects no growth in the ISP customer base as the Company is no longer marketing its ISP services. The Company expects a gradual continued decline of revenues from its ISP operations offset by growth in its BPO business revenue. Cost of revenue for the second quarter of 2005 increased to $5,787,517 in 2005 from $1,233,076 in 2004, or a 369.4% increase. The increase in the cost or revenue is due primarily to a $5,310,140 increase in costs associated with BPO operations, offset in part by reduced ISP costs of approximately $755,500. For the six month period of 2005 cost of revenue increased to $9,981,698 in 2005 from $2,537,430 in 2004, or a 293.4% increase, partially offset by a $1,516,570 decline in ISP costs. For the three and six months ended June 30, 2005, EMC's acquisition contributed $4,892,033 and $8,564,637, respectively, towards the increase in cost of revenue primarily due the costs associated with production personnel Gross profit for the second quarter of 2005 was $3,311,815 compared with $3,054,260 in 2004, or an increase of 8.4%. For the six month period of 2005, gross profit was $8,197,708 compared with $6,626,054 in 2004, or an increase of 23.7%. BPO gross profit increased approximately $1,167,240, of which $1,080,683 was attributable to EMC during the second quarter of 2005, and $3,305,836 during the six month period of 2005, of which $2,565,077 was contributed by EMC. The gross profit margin for ISP declined during the there and six months ended June 30, 20005, approximately $909,684 and $1,737,182, respectively, as a result of lower sales and fixed direct costs associated with the operations. 26 Operating expenses, exclusive of depreciation, and amortization of intangibles, were $8,100,541, or an 85.6% increase for the second quarter of 2005 compared with $4,364,555 in 2004. For the six months ended June 30, 2005, operating expenses, excluding depreciation, and amortization of intangibles, were $15,938,580 or a 90.9% increase for compared with $8,350,845 in the same period of 2004. Compensation and employees benefits increased $2,065,859 or 105.9%, to $4,016,492 during the June 2005 quarter, compared with $1,950,638, for the same period in 2004. For the six months ended June 30, 2005, compensation and employees benefits increased $3,837,413 or 106.4%, to $7,442,821, compared with $3,605,408, for the same period in 2004. These increases were primarily the result of a higher number of BPO sales, marketing and administrative employees, including 384 EMC employees added in 2005 through the Company's acquisition of IMS. Consulting fees-related party increased $1,326,250 and $1,776,250, respectively, during the three and six months ended June 30, 2005. On April 20, 2005, Transvoice, a related party, was granted an aggregate of 1,500,000 shares of Voxx Corporation common stock. The Company estimated the fair value of these shares at $926,250, or $0.62 per share, which was recognized as consulting fees. Occupancy, advertising and marketing, travel and professional fees contributed to the increases in other selling, general and administrative expenses during the June 2005 quarter and the six month period. The increases in these costs are reflective of the Company's expansion of its BPO operations in the Philippines and its acquisition of three call centers in the U.S. Depreciation and amortization expense increased $367,098, or 135.6%, and $1,050,489, or $282.6%, respectively, during the three and six months ended June 30, 2005. These increases reflect the significant acquisitions of property and equipment related to the development of call centers in the Philippines in 2004 and through the first quarter of 2005, and the acquisition of property and equipment on the IMS purchase. Amortization of intangibles resulting from the valuation of IMS acquired assets and liabilities amounted to $373,250 and $746,500 for the three and six months ended June 30, 2005. This represents the amortization of identifiable intangible assets, which include customer relationships, non-compete contracts and the value of call center locations. Non-operating expenses, net, are primarily comprised of expenses associated with the issuance of equity and debt securities during the first half of 2005 and 2004. Warrants issued in lieu of finances charges amounted to $303,073 and $1,169,805 during the three and six months ended June 30, 2005, respectively. Amortization of debt discounts was $1,605,201 for the three and six months ended June 30, 2004. On April 22, 2005, as consideration for the extension of certain debt agreements, warrants to purchase 200,000 shares of the Company's common stock for $0.50 per share, where given to the lender by a related party on behalf of the Company. The Company estimated the fair value of the 200,000 warrants at $173,314, or $0.87 per common share to the warrants, which was recognized as expense during the June 2005 quarter. Additionally, as part of the extension, the Company issued 145,000 shares of common stock, in Voxx, a majority-owned subsidiary of the Company for no additional consideration. On February 28, 2005, the Company entered into an Amendment and Waiver agreement with a lender. As consideration for this agreement, the Company issued to the lender warrants to purchase 1,900,000 shares of the Company's common stock at an exercise price of $2.15 per share. In connection with the financing facility entered into with Laurus Master Fund, Ltd and affiliates of Laidlaw & Company (UK) Ltd., on April 29, 2005 the warrants became exercisable at $1.00 per share. The fair value of these warrants were estimated to be approximately $1,101,049. This amount, net of $193,333 of previously accrued Liquidated Damages was recognized as expense during the six months ended June 30, 2005. During the second quarter of 2004, the Company entered into three convertible debt agreements. Purchasers of the convertible debt also received warrants to purchase 630,576 shares of the Company's common stock. The amortization of debt discounts was $1,605,201, which was charged to expense in the second quarter of 2004. Liquidity and Capital Resources The Company currently has significant liquidity problems. Cash from operations is inadequate to cover operating costs, past liabilities and past indebtness incurred in connection with the expansion of its call center business. The short fall is presently being covered by the expanded and revised financing arrangements with Laurus (see Notes 5 and 11), on which the Company is completely dependent upon for continued operations. The Company's present liquidity difficulties arose because it was unable to obtain substantial equity financing it thought was available to meet the expansion needs of the Company. As a result, the Company committed to the expansion without adequate financing. Indebtedness aggregating approximately $26,051,000 was outstanding at June 30, 2005, excluding related party financing of $2,474,000. See Recent Events. In response to this situation, current management has embarked on an aggressive program intended to restore the Company to profitability. This program includes steps to (1) increase revenues and the profitability of its existing BPO programs, (2) accelerate the migration of BPO service contract fulfillment from the Company's U.S. call centers to its Philippine locations, (3) curtail costs and eliminate unnecessary expenses, (3) restructure the Company's payables and loan obligations (see Recent Events), and (4) temporarily suspend its plan for a rapid expansion of its Philippine call center operations pending the completion of additional financing. To date, this program has achieved an aggregate of approximately $600,000 per month in salary expense reductions and approximately $200,000 per month in selling, general and administrative cost reductions. Management anticipates that it will be able to achieve significant additional reductions in both of these expense categories in the months to come. To further assist it in the accomplishment of the objectives of this program, management has engaged the services of a consulting firm specializing in turnarounds to assist it with the implementation of its plan and the improvement of operational efficiencies in all of these areas. In cooperation with the consulting firm, the goal of management's near term program in this regard is to return the Company to a cash break-even position by the end of the year. Notwithstanding the Company's recent history of significant, recurring losses from operations, management continues to believe that the decision to get into the business of offshore call center operation was a sound one and that, when fully implemented and properly operated, will enable the Company to successfully execute its long term business plan and enable it to realize attractive returns for its investors. However, management can provide no assurance that it will be able to execute its long range business plan 27 CASH SOURCES AND USES The primary sources of cash for the Company have been proceeds from the issuance of long-term debt and equity securities. The primary uses of cash have been working capital, and capital expenditures. Operations The Company's cash and cash equivalents as of June 30, 2005 were $1,437,065 compared with $1,530,052 at December 31, 2004. Amounts held in escrow at June 30, 2005 and December 31, 2004, were $1,537,200 and $1,100,000, respectively. The working capital deficit was approximately $28,867,500 as of June 30, 2005, compared with $8,033,988 at December 31, 2004, a 259.3% increase. During the six months ended June 30, 2005, the Company used $3,714,827 of cash for operations compared with $2,454,918 used during the comparable period of 2004. The increase in negative cash flow from operations for 2005 was primarily the result of a $12,459,014 loss from operations compared with a loss of $4,523,349 in 2004, a change of $7,935,665, which included increases in non cash charges of $1,050,489, $1,169,805, $1,086,800 and $746,500 relating to depreciation and amortization expense, to the issuances of warrants and restricted stock, and to the amortization of intangibles, respectively. An increase of $4,119,264 in accounts payable and accrued expenses partially offset the decline in cash resources during the quarter. INVESTING ACTIVITIES Net cash used for investing activities during the six months ended June 30, 2005, was $672,164 compared to $1,917,824 in 2004. The reduction in capital spending in 2005, compared to 2004 reflects the Company's intent to curtail costs and limit spending. FINANCING ACTIVITIES Net cash provided by financing activities during the six months ended June 30, 2005, was $4,313,605 compared with $5,566,202 in 2004. 2005 Financing 1. During the March 2005 quarter the Company sold to accredited investors, in a private placement, an additional $767,500 principal amount of 5% Joint Unsecured Subordinated Convertible Promissory Notes due May 2007. 2. On April 22, 2005, the Company issued an 8% Promissory Note in the amount of $280,000 to an accredited investor. The note was payable on demand and in the event the Company was unable to repay the note upon written demand, the interest rate on the unpaid amount would increase to 18% per annum. The Note was re-paid on May 2, 2005. 3. On April 29, 2005, the Company, and its majority-owned subsidiary, Voxx Corporation, entered into a financing facility with Laurus Master Fund, Ltd and affiliates of Laidlaw & Company (UK) Ltd., pursuant to which the Company and Voxx borrowed $7,000,000 represented by Senior Secured Convertible Notes (the Notes) that mature on April 29, 2008, and bear annual interest at 2% over prime. Interest payments began June 1, 2005, and principal payments begin on October 29, 2005 at the monthly rate of $166,667 plus accrued but unpaid interest. 28 2004 Financing 1. In April 2004, the Company issued unsecured convertible promissory notes in the amount of $1,500,000 to accredited investors. The notes accrue interest at 8% annually and mature in April 2005. 2. In May 2004, the Company issued 8% Unsecured Convertible Promissory Notes, maturing May 2005, in the amount of $1,000,000 to accredited investors. 3. On May 14, 2004, the Company issued a Secured Convertible Term Note, maturing May 2007, in the amount of $5,000,000 at 2.5% over prime (not to exceed 8%) to an accredited institutional investor. During the six months ended June 30, 2005 and 2004, the Company repaid approximately $2,719,845 and $1,105,298, respectively, of notes and capital leases. 29 Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. In addition, the Company has not entered into any derivative contracts. DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS Critical Accounting Policies The Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company included in its Annual Report on Form 10-K for the year ended December 31, 2004 a discussion of the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results of operations and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has not made changes in any critical accounting policies during the six months of 2005. Any changes in critical accounting policies and estimates are discussed with the Audit Committee of the Board of Directors of the Company during the quarter in which a change is made. New Accounting Pronouncements In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment" (SFAS 123R), which requires all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value and to recognize cost over the vesting period. In April 2005, the SEC announced that companies may implement SFAS 123R at the beginning of their next fiscal year starting after June 15, 2005 (or December 15, 2005 for small business issuers). This new rule moves the Company's implementation date for SFAS 123R to the first quarter of 2006. In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections" (SFAS No. 154), which is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS 154 replaces APB Opinion No. 20, "Accounting Changes," and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements," and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to do so, in which case other alternatives are required. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, or for the Company's fiscal 2006. The Company is evaluating the effect that the adoption of SFAS No. 154 will have on its results of operations and financial position, but does not believe it will have a material impact. In April 2005, the SEC announced that companies may implement SFAS 123R at the beginning of their next fiscal In March 2005, the SEC released SEC Staff Accounting Bulletin No. 107, "Share-Based Payment" (SAB 107). SAB 107 provides the SEC staff's position regarding the application of SFAS 123R, which contains interpretive guidance related to the interaction between SFAS 123R and certain SEC rules and regulations, and also provides the staff's views regarding the valuation of share-based payment arrangements for public companies. SAB 107 highlights the importance of disclosures made related to the accounting for share-based payment transactions. The Company is currently reviewing the effect of SAB 107, but it does not believe SAB 107 will have a material impact on its financial position, results of operations or cash flows. 30 In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"), which clarifies the term "conditional asset retirement obligations" as used in FASB Statement No. 143, "Accounting for Asset Retirement Obligations." FASB Statement No. 143 refers to an entity's legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. If an entity can reasonably estimate a liability for the fair value of a conditional asset retirement obligation, the entity is required to recognize the fair value of the liability when incurred. A company normally incurs this liability upon acquisition, construction, or development of the asset at issue. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is currently reviewing FIN 47, and at the current time it does not believe that FIN 47 will have a material impact on its financial position, results of operations or cash flows. Forward-Looking Statements This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All forward-looking statements which may be contained in this Quarterly Report on Form 10-Q, are made as of the date that such statements are originally published or made, and the Company undertakes no obligation to update any such forward-looking statements. No undue reliance should be placed on forward-looking statements, which reflect management's opinions only as of the date made. Forward-looking statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Private Securities Litigation Reform Act of 1995. Such forward looking statements are subject to various known and unknown risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause the Company's results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, statements: of the Company's plans, strategies and objectives for future operations; concerning new products, services or developments; regarding future economic conditions, performance or outlook, including statements relating to the outcome of contingencies; as to the value of Company contract awards and programs; of expected cash flows or capital expenditures; of belief or expectation; and of assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as "believes," "expects," "may," "should," "would," "will," "intends," "plans," "estimates," "anticipates" or similar words. The Company's consolidated results and the forward-looking statements could be affected by many factors, including: o the ability to achieve growth in markets that are highly competitive where the Company may be unable to compete with businesses that have greater resources; o the ability to raise capital, when needed; o participation in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth in the Company's markets and, as a result, future income and expenditures; o the consequences of future geo-political events, which may affect adversely the markets in which the Company operates, its ability to insure against risks, to protect its operations and profitability; o strategic acquisitions and the risks and uncertainties related thereto, including the Company's ability to manage and integrate acquired businesses and o customer credit risk. 31 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to certain market risks that arise in the ordinary course of business. A discussion of the Company's primary market risk exposure and interest rate risk is presented below. Interest Rate Sensitivity - At June 30, 2005, the Company had cash, cash equivalents totaling $1,437,065, of which $1,357,200 were held in escrow. These amounts were invested primarily in money market funds. The unrestricted cash and cash equivalents are held for working capital requirements, general corporate purposes and potential acquisition of assets. The Company does not enter into financial instrument transactions for trading or speculative purposes. Some of the Company's borrowings are through floating rate debt, subject to changes in the prime rate. Accordingly, the Company's interest expense will increase with any future increase in prime rates. The Company however, believes that it has no material exposure to changes in interest rates. Effect of Changing Prices - The principal effect of inflation on the Company's operating results is to increase costs. The Philippines has historically experienced periods of high inflation but the inflation rate has been below 10% since 1999. For the six months ended June 30, 2005, inflation averaged 8.3% and we anticipate this inflation trend to continue the remainder of 2005 The high inflation rates experienced in the Philippines have historically been offset the deflationary force on wages due to the fast growing population, high unemployment rate and high number of college graduates entering a market that can not absorb them. A reversal of this trend could result in increased costs that could harm the Company's operating results. However, subject to normal competitive market conditions, the Company believes it has the ability to raise selling prices to offset cost increases over time. In recent years the general rate of inflation has not had a significant adverse impact on the Company. Foreign Currency Exchange Risk - The Company's results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Philippine peso. The Company generates expenses in the Philippines, primarily in Philippine pesos and derives all of its revenues in U.S. dollars. An increase in the value of the U.S. dollar relative to the Philippine peso would reduce the expenses associated with the Company's Philippine operations, and conversely a decrease in the relative value of the U.S. dollar would increase the cost associated with these operations. Expenses relating to the Company's operations outside the United States have increased since June 30, 2004 due to increased costs associated with higher revenue generation and customer management services partially offset by the increase in the value of the U.S. dollar relative to the Philippine peso. The Company funds its Philippine operations through U.S. dollar denominated accounts held in the Philippines. Payments for employee-related costs, facilities management, other operational expenses and capital expenditures are converted into Philippine pesos on an as-needed basis. To date, the Company has not entered into any hedging contracts. Historically, the Company have benefited from the ongoing decline in the Philippine peso against the U.S. dollar. ITEM 4. CONTROLS AND PROCEDURES. a. Evaluation of disclosure controls and procedures: The Company maintains "disclosure controls and procedures," as such term is as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act that are designed to ensure that information required to be disclosed in reports that are filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified by the SEC rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. 32 In designing internal control over financial reporting and evaluating the Company's disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives, and management is required to use its judgment in evaluating the cost-benefit relationship of possible controls and procedures Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As required by the rules of the Exchange Act, as of the end of the June 30, 2005 quarter, management of the Company carried out an evaluation, with the participation of the Company's current CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Company's current CEO and CFO concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's disclosure controls and procedures were not adequate or effective, at a reasonable assurance level. At the same time, the Company's current CEO and CFO also concluded that there were material weaknesses in the Company's system of internal controls. These conclusions were arrived at based on management's determination that, prior to the recent departure of certain management personnel, there was an ineffective and/or improper "tone" at the executive management level of the Company at the time relating to the discouragement, prevention, detection and disclosure of actual and/or apparent improper transactions coupled with the ability of certain members of management to override legitimate concerns about such transactions, as well as inadequate emphasis by such departed management personnel on the requirements for a thorough and proper analysis of all accounts and financial transactions by or on behalf of the Company. Current management is convinced that the abrupt departure of certain of these management personnel has sent a clear and convincing message throughout the Company that these type practices will no longer be tolerated. Management has also conducted and is continuing to conduct various internal audits and considering the adoption of additional policies and procedures in order to be able to ensure itself and the Company's audit committee and board of directors that these instances of oversight and failures of properly functioning internal controls will not recur. b. Changes in Internal Control over Financial Reporting The Company reviews its internal control over financial reporting as part of its on going efforts to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In addition, the Company routinely reviews its system of internal control over financial reporting to identify potential changes to its processes and systems that may improve controls and increase efficiency, while ensuring that it maintains an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating the activities of acquired business units, formalizing policies and procedures, improving segregation of duties, and adding additional monitoring controls. In addition, when the Company acquires new businesses, it incorporates its controls and procedures into the acquired business as part of the Company's integration activities. Except as discussed in the immediately preceding paragraph, there have been no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in the Company's internal control over financial reporting during the quarter ended June 30, 2005, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company will be required to evaluate its internal controls over financial reporting in order to comply with the requirements of the Sarbanes-Oxley Act of 2002 and expects to incur significant costs in meeting these requirements. The Company is required to meet the requirements of the Sarbanes-Oxley Act by December 31, 2006. 33 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS All the Company's current materially significant legal proceedings arise out of its ISP business. While the results of these proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings and their settlement will not have a material adverse effect on the Company's consolidated financial statements, results of operations or cash flows, as the Company no longer actively markets its ISP business and the Company believes it is in substantial compliance with the law. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Please refer to Form 8-K filed with the Securities and Exchange Commission on July 15, 2005, which is incorporated herein by reference. ITEM 5. OTHER INFORMATION During the three months ended June 30, 2005, the Company filed with the Securities and Exchange Commission Current Reports on Form 8-K on April 26, May 5, June 28 and June 29, 2005. ITEM 6. EXHIBITS (a) Exhibits: The following exhibits are filed herewith: EXHIBIT NO. DESCRIPTION OF DOCUMENT - ----------- ----------------------- 4.14.1 Form of Epixtar Securities Purchase Agreement with Laurus Master Fund, Ltd. 4.14.2 Form of Epixtar Secured Convertible Term Note 4.15.1 Form of Amendment Agreement with Laurus 4.15.2 Form of Reaffirmation and Ratification Agreement with Laurus 10.18 Form of Epixtar Settlement Agreement with SER Solutions, Inc. 10.19 Form of Epixtar Consulting Agreement with Realization Services, Inc. 10.20.1 Form of Epixtar Payment Agreement with former Innovative Marketing Strategies, Inc. shareholders 10.20.2 Form of Epixtar Payment Agreement with DDM Consulting, Inc. re: Assumed Debt 10.20.3 Form of Epixtar Payment Agreement with DDM Consulting re: Commissions 10.20.4 Form of Epixtar Broker Agreement with DDM Consulting, Inc 11 Statement re Computation of Per Share Earnings is incorporated by reference to Part I., Item 1. Financial Statements, Note 8, Earnings (Loss) Per Share. 34 EXHIBIT NO. DESCRIPTION OF DOCUMENT - CONT. - ----------- ------------------------------- 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 35 SIGNATURES Pursuant to the requirements 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. EPIXTAR CORP. (Registrant) Dated: By: /s/ Irving Greenman August 23, 2005 Irving Greenman, ------------------------------------- President and Chief Financial Officer 36 EX-4.14.1 2 b410993_ex4-141.txt EXHIBIT 4.14.1 EXHIBIT 4.14.1 EPIXTAR CORP. SECURITIES PURCHASE AGREEMENT JULY 15, 2005 TABLE OF CONTENTS
PAGE ---- 1. Agreement to Sell and Purchase.........................................................................1 2. Fees...................................................................................................1 3. Closing, Delivery and Payment; Certain Closing Conditions..............................................1 3.1 Closing.......................................................................................1 3.2 Delivery......................................................................................1 4. Representations and Warranties of the Company..........................................................2 4.1 Organization, Good Standing and Qualification.................................................2 4.2 Subsidiaries..................................................................................2 4.3 Capitalization; Voting Rights.................................................................2 4.4 Authorization; Binding Obligations............................................................3 4.5 Liabilities...................................................................................3 4.6 Agreements; Action............................................................................3 4.7 Obligations to Related Parties................................................................4 4.8 Changes.......................................................................................4 4.9 Title to Properties and Assets; Liens, Etc....................................................5 4.10 Intellectual Property.........................................................................6 4.11 Compliance with Other Instruments.............................................................6 4.12 Litigation....................................................................................6 4.13 Tax Returns and Payments......................................................................6 4.14 Employees.....................................................................................7 4.15 Registration Rights and Voting Rights.........................................................7 4.16 Compliance with Laws; Permits.................................................................7 4.17 Environmental and Safety Laws.................................................................7 4.18 Valid Offering................................................................................8 4.19 Full Disclosure...............................................................................8 4.20 Insurance.....................................................................................8 4.21 SEC Reports...................................................................................8 4.22 Listing.......................................................................................8 4.23 No Integrated Offering........................................................................8 4.24 Stop Transfer.................................................................................9 4.25 Dilution......................................................................................9 4.26 Patriot Act...................................................................................9 5. Representations and Warranties of the Purchaser........................................................9 5.1 No Shorting...................................................................................9 5.2 Requisite Power and Authority.................................................................9 5.3 Investment Representations...................................................................10 5.4 Purchaser Bears Economic Risk................................................................10 5.5 Acquisition for Own Account..................................................................10 5.6 Purchaser Can Protect Its Interest...........................................................10 5.7 Accredited Investor..........................................................................10 5.8 Legends......................................................................................10 6. Covenants of the Company..............................................................................11 6.1 Stop-Orders..................................................................................11 6.2 Listing......................................................................................11 6.3 Market Regulations...........................................................................11 6.4 Reporting Requirements.......................................................................11 6.5 Use of Funds.................................................................................12 6.6 Access to Facilities.........................................................................12 6.7 Taxes........................................................................................12 6.8 Insurance....................................................................................13 6.9 Intellectual Property........................................................................13
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PAGE ---- 6.10 Properties...................................................................................13 6.11 Confidentiality..............................................................................14 6.12 Required Approvals...........................................................................14 6.13 Reissuance of Securities.....................................................................14 6.14 Opinion......................................................................................15 6.15 Margin Stock.................................................................................15 7. Covenants of the Purchaser............................................................................15 7.1 Confidentiality..............................................................................15 7.2 Non-Public Information.......................................................................15 7.3 Limitation on Acquisition of Common Stock of the Company.....................................15 8. Covenants of the Company and Purchaser Regarding Indemnification......................................15 8.1 Company Indemnification......................................................................15 8.2 Purchaser's Indemnification..................................................................16 9. Conversion of Convertible Note........................................................................16 9.1 Mechanics of Conversion......................................................................16 10. Registration Rights...................................................................................17 10.1 Registration Rights Granted..................................................................17 10.2 Offering Restrictions........................................................................17 11. Miscellaneous.........................................................................................17 11.1 Governing Law................................................................................17 11.2 Survival.....................................................................................18 11.3 Successors...................................................................................18 11.4 Entire Agreement.............................................................................18 11.5 Severability.................................................................................18 11.6 Amendment and Waiver.........................................................................18 11.7 Delays or Omissions..........................................................................18 11.8 Notices......................................................................................19 11.9 Titles and Subtitles.........................................................................20 11.10 Facsimile Signatures; Counterparts...........................................................20 11.11 Broker's Fees................................................................................20 11.12 Construction.................................................................................20
ii LIST OF EXHIBITS Form of Convertible Term Note Exhibit A iii SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into as of July 15, 2005 by and between EPIXTAR CORP., a Florida corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the "Purchaser"). RECITALS WHEREAS, the Company has authorized the sale to the Purchaser of a Convertible Term Note in the aggregate principal amount of Six Million Two Hundred Thousand Dollars ($6,200,000) (as amended, modified, restated or supplemented from time to time, the "Note"), which Note is convertible into shares of the Company's common stock, $0.001 par value per share ("Common Stock"), at the fixed conversion price set forth in the Note ("Fixed Conversion Price"); WHEREAS, Purchaser desires to purchase the Note on the terms and conditions set forth herein; and WHEREAS, the Company desires to issue and sell the Note to Purchaser on the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Agreement to Sell and Purchase. Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date (as defined in Section 3), the Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Company, a Note in the aggregate principal amount of $6,200,000 convertible in accordance with the terms thereof into shares of the Company's Common Stock in accordance with the terms of the Note and this Agreement. The Note purchased on the Closing Date shall be known as the "Offering." A form of the Note is annexed hereto as Exhibit A. The Note will mature on the Maturity Date (as defined in the Note) subject to certain extensions pursuant to the terms thereof. Collectively, the Note and Common Stock issuable in payment of the Note and upon conversion of the Note are referred to as the "Securities." Fees. On the Closing Date, the Company shall reimburse the Purchaser for its reasonable expenses (including attorney's fees) for services rendered to the Purchaser in preparation of this Agreement and the Related Agreements (as hereinafter defined). The expenses referred to in this Section 2 shall be paid at closing out of funds held pursuant to a Funds Escrow Agreement of even date herewith among the Company, Purchaser, and an Escrow Agent (the "Funds Escrow Agreement") and a disbursement letter between the Company and Purchaser (the "Disbursement Letter"). In addition, the Company shall pay to Laurus Capital Management, L.L.C., the manager of the Purchaser, a closing payment in an amount equal to four percent (4%) of the aggregate principal amount of the Note, which such payments shall be made simultaneously with each drawdown of the Note in an amount equal to four percent (4%) of the drawdown amount so advanced by the Purchaser to the Company. CLOSING, DELIVERY AND PAYMENT; CERTAIN CLOSING CONDITIONS. Closing. Subject to the terms and conditions herein, the closing of the transactions contemplated hereby (the "Closing"), shall take place on the date hereof, at such time or place as the Company and Purchaser may mutually agree (such date is hereinafter referred to as the "Closing Date"). Delivery. Pursuant to the Funds Escrow Agreement, at the Closing on the Closing Date, the Company will deliver to the Purchaser, among other things, a Note in the form attached as Exhibit A representing the aggregate principal amount of $6,200,000 and the Purchaser will deliver to the Company, among other things, the amounts set forth in the Disbursement Letter by certified funds or wire transfer. 1 Preferred Stock. On the Closing Date, as additional consideration for the purchase of the Note, the Company shall issue and deliver, and shall cause certain Subsidiaries of the Company to issue and deliver, to the Purchaser 1,000 shares of Series B Preferred Stock of the Company and 1000 shares of Series A Preferred Stock of each such Subsidiary, in each case, with a par value $0.001 per share. Irrevocable Proxies. On the Closing Date, as additional consideration for the purchase of the Note, the Company shall cause Trans Voice LLC, Sheldon Goldstein and Marty Miller to issue and deliver to the Purchaser an irrevocable proxy relating to its/his rights as a shareholder of the Company. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Purchaser as follows (which representations and warranties are supplemented by the Company's filings under the Securities Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which have been provided to the Purchaser): Organization, Good Standing and Qualification. Each of the Company and each of its Subsidiaries is a corporation, partnership or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each of the Company and each of its Subsidiaries has the corporate power and authority to own and operate its properties and assets, to execute and deliver (i) this Agreement, (ii) the Note to be issued in connection with this Agreement, (iii) the Registration Rights Agreement relating to the Securities dated as of the date hereof between the Company and the Purchaser, (iv) the Reaffirmation and Ratification Agreement dated as of the date hereof made by the Company and certain Subsidiaries of the Company (as amended, modified or supplemented from time to time, the "Reaffirmation Agreement"), (v) the Escrow Agreement dated as of the date hereof among the Company, the Purchaser and the escrow agent referred to therein, and (vi) all other documents, instruments and agreements related to this Agreement and the Note (the preceding clauses (ii) through (v), collectively, the "Related Agreements"), to issue and sell the Note and the shares of Common Stock issuable upon conversion of the Note (the "Note Shares") and to carry out the provisions of this Agreement and the Related Agreements and to carry on its business as presently conducted. Each of the Company and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation, partnership or limited liability company, as the case may be, in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so has not, or could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, assets, liabilities, condition (financial or otherwise), properties, operations or prospects of the Company and it Subsidiaries, taken individually and as a whole (a "Material Adverse Effect"). Subsidiaries. Each direct and indirect Subsidiary of the Company, the direct owner of such Subsidiary and its percentage ownership thereof, is set forth on Schedule 4.2. No Immaterial Subsidiary owns any assets (other than immaterial assets) or has any significant operations. For the purpose of this Agreement, (x) a "Subsidiary" of any person or entity means (i) a corporation or other entity whose shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the directors of such corporation, or other persons or entities performing similar functions for such person or entity, are owned, directly or indirectly, by such person or entity or (ii) a corporation or other entity in which such person or entity owns, directly or indirectly, more than 50% of the equity interests at such time and (y) the "Immaterial Subsidiaries" shall mean, collectively, Epixtar Communications Corp., a Florida corporation, Epixtar Prepaid Communications Corp., a Delaware corporation, Epixtar Solutions Corp., a Delaware corporation, IMS International, Inc., a Phillippines corporation, Epixtar International Contact Centers, Ltd., a Mauritius corporation, Epixtar Information Technology Private, Ltd., a Calcutta corporation, Epixtar International Contact Center Group, Ltd., a Bermuda corporation, and each Subsidiary of the Company that is not a Credit Party and does not own any assets (other than immaterial assets) or have any significant operations. Capitalization; Voting Rights. The authorized capital stock of the Company, as of the date hereof consists of 60,000,000 shares, of which 50,000,000 are shares of Common Stock, par value $0.001 per share, 12,150,356 shares of which are issued and outstanding, and 10,000,000 are shares of Series A Preferred STOCK, PAR VALUE $0.001 PER share of which 16,500 shares of preferred stock are issued and outstanding. The authorized capital stock of each Subsidiary of the Company is set forth on Schedule 4.3. 2 Except as disclosed on Schedule 4.3, other than: (i) the shares reserved for issuance under the Company's stock option plans; and (ii) shares which may be granted pursuant to this Agreement and the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or stockholder agreements, or arrangements or agreements of any kind for the purchase or acquisition from the Company of any of its securities. Except as disclosed on Schedule 4.3, neither the offer, issuance or sale of the Note, or the issuance of any of the Note Shares, nor the consummation of any transaction contemplated hereby will result in a change in the price or number of any securities of the Company outstanding, under anti-dilution or other similar provisions contained in or affecting any such securities. All issued and outstanding shares of the Company's Common Stock: (i) have been duly authorized and validly issued and are fully paid and nonassessable; and (ii) were issued in compliance with all applicable state and federal laws concerning the issuance of securities. The rights, preferences, privileges and restrictions of the shares of the Common Stock are as stated in the Company's Certificate of Incorporation (the "Charter"). The Note Shares have been duly and validly reserved for issuance. When issued in compliance with the provisions of this Agreement and the Company's Charter, the Securities will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Securities may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. Authorization; Binding Obligations. All corporate, partnership or limited liability company, as the case may be, action on the part of the Company and each of its Subsidiaries (including the respective officers and directors) necessary for the authorization of this Agreement and the Related Agreements, the performance of all obligations of the Company and its Subsidiaries hereunder and under the other Related Agreements at the Closing and, the authorization, sale, issuance and delivery of the Note has been taken or will be taken prior to the Closing. This Agreement and the Related Agreements, when executed and delivered and to the extent it is a party thereto, will be valid and binding obligations of each of the Company and each of its Subsidiaries, enforceable against each such entity in accordance with their terms, except: as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and general principles of equity that restrict the availability of equitable or legal remedies. The sale of the Note and the subsequent conversion of the Note into Note Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. Liabilities. Neither the Company nor any of its Subsidiaries has any contingent liabilities, except current liabilities incurred in the ordinary course of business and liabilities disclosed in any Exchange Act Filings. Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed in any Exchange Act Filings: there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any of its Subsidiaries is a party or by which it is bound which may involve: (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $50,000 (other than obligations of, or payments to, the Company arising from agreements entered into in the ordinary course of business); or (ii) the transfer or license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the purchase of "off the shelf" or other standard products); or (iii) provisions restricting the development, manufacture or distribution of the Company's products or services; or (iv) indemnification by the Company with respect to infringements of proprietary rights. 3 Since December 31, 2004, neither the Company nor any of its Subsidiaries has: (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred any indebtedness for money borrowed or any other liabilities (other than ordinary course obligations) individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate; (iii) made any loans or advances to any person not in excess, individually or in the aggregate, of $100,000, other than ordinary course advances for travel expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. For the purposes of subsections (a) and (b) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. Obligations to Related Parties. Except as set forth on Schedule 4.7, there are no obligations of the Company or any of its Subsidiaries to officers, directors, stockholders or employees of the Company or any of its Subsidiaries other than: for payment of salary for services rendered and for bonus payments; reimbursement for reasonable expenses incurred on behalf of the Company and its Subsidiaries; for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company); and obligations listed in the Company's financial statements or disclosed in any of its Exchange Act Filings. Except as described above or set forth on Schedule 4.7, none of the officers, directors or, to the best of the Company's knowledge, key employees or stockholders of the Company or any members of their immediate families, are indebted to the Company, individually or in the aggregate, in excess of $50,000 or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, other than passive investments in publicly traded companies (representing less than one percent (1%) of such company) which may compete with the Company. Except as described above, no officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company and no agreements, understandings or proposed transactions are contemplated between the Company and any such person. Except as set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. Changes. Since December 31, 2004, except as disclosed in any Exchange Act Filing or in any Schedule to this Agreement (including Schedule 4.8) or to any of the Related Agreements, there has not been: any change in the business, assets, liabilities, condition (financial or otherwise), properties, operations or prospects of the Company or any of its Subsidiaries, which individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; any resignation or termination of any officer, key employee or group of employees of the Company or any of its Subsidiaries; 4 any material change, except in the ordinary course of business, in the contingent obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise; any damage, destruction or loss, whether or not covered by insurance, has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; any waiver by the Company or any of its Subsidiaries of a valuable right or of a material debt owed to it; any direct or indirect loans made by the Company or any of its Subsidiaries to any stockholder, employee, officer or director of the Company or any of its Subsidiaries, other than advances made in the ordinary course of business; any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder of the Company or any of its Subsidiaries; any declaration or payment of any dividend or other distribution of the assets of the Company or any of its Subsidiaries; any labor organization activity related to the Company or any of its Subsidiaries; any debt, obligation or liability incurred, assumed or guaranteed by the Company or any of its Subsidiaries, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business; any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets owned by the Company or any of its Subsidiaries; any change in any material agreement to which the Company or any of its Subsidiaries is a party or by which either the Company or any of its Subsidiaries is bound which either individually or in the aggregate has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; any other event or condition of any character that, either individually or in the aggregate, has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or any arrangement or commitment by the Company or any of its Subsidiaries to do any of the acts described in subsection (a) through (m) above. Title to Properties and Assets; Liens, Etc. Except as set forth on Schedule 4.9, each of the Company and each of its Subsidiaries has good and marketable title to its properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than: those resulting from taxes which have not yet become delinquent; minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company or any of its Subsidiaries; and those that have otherwise arisen in the ordinary course of business. All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company and its Subsidiaries are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used. Except as set forth on Schedule 4.9, the Company and its Subsidiaries are in compliance with all material terms of each lease to which it is a party or is otherwise bound. 5 Intellectual Property. Each of the Company and each of its Subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and to the Company's knowledge, as presently proposed to be conducted (the "Intellectual Property"), without any known infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of "off the shelf" or standard products. Neither the Company nor any of its Subsidiaries has received any communications alleging that the Company or any of its Subsidiaries has violated any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, nor is the Company or any of its Subsidiaries aware of any basis therefor. The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Company or any of its Subsidiaries, except for inventions, trade secrets or proprietary information that have been rightfully assigned to the Company or any of its Subsidiaries. Compliance with Other Instruments. Neither the Company nor any of its Subsidiaries is in violation or default of (x) any term of its Certificate of Incorporation or Bylaws, (y) any term of the Sands Documents (as defined in the Intercreditor and Collateral Agency Agreement dated as of April 29, 2005 among the Purchaser and the Sands Creditors referred to therein, and acknowledged and agreed to by the Company and certain of its Subsidiaries, the "Intercreditor Agreement") or (z) of any provision of any indebtedness, mortgage, indenture, contract, agreement or instrument to which it is party or by which it is bound or of any judgment, decree, order or writ, which violation or default, in the case of this clause (z), has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. The execution, delivery and performance of and compliance with this Agreement and the Related Agreements to which it is a party, and the issuance and sale of the Note by the Company and the other Securities by the Company each pursuant hereto and thereto, will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term or provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any of its Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties. Litigation. Except as set forth on Schedule 4.12 hereto, there is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company or any of its Subsidiaries that prevents the Company or any of its Subsidiaries from entering into this Agreement or the other Related Agreements, or from consummating the transactions contemplated hereby or thereby, or which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or any change in the current equity ownership of the Company or any of its Subsidiaries, nor is the Company aware that there is any basis to assert any of the foregoing. Neither the Company nor any of its Subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company or any of its Subsidiaries currently pending or which the Company or any of its Subsidiaries intends to initiate. Tax Returns and Payments. Each of the Company and each of its Subsidiaries has timely filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and all other taxes due and payable by the Company or any of its Subsidiaries on or before the Closing, have been paid or will be paid prior to the time they become delinquent. Except as set forth on Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised: 6 that any of its returns, federal, state or other, have been or are being audited as of the date hereof; or of any deficiency in assessment or proposed judgment to its federal, state or other taxes. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for. Employees. Except as set forth on Schedule 4.14, neither the Company nor any of its Subsidiaries has any collective bargaining agreements with any of its employees. There is no labor union organizing activity pending or, to the Company's knowledge, threatened with respect to the Company or any of its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule 4.14, neither the Company nor any of its Subsidiaries is a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement. To the Company's knowledge, no employee of the Company or any of its Subsidiaries, nor any consultant with whom the Company or any of its Subsidiaries has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company or any of its Subsidiaries because of the nature of the business to be conducted by the Company or any of its Subsidiaries; and to the Company's knowledge the continued employment by the Company or any of its Subsidiaries of its present employees, and the performance of the Company's and its Subsidiaries' contracts with its independent contractors, will not result in any such violation. Neither the Company nor any of its Subsidiaries is aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has received any notice alleging that any such violation has occurred. Except for employees who have a current effective employment agreement with the Company or any of its Subsidiaries, and the Company's CEO, no employee of the Company or any of its Subsidiaries has been granted the right to continued employment by the Company or any of its Subsidiaries or to any material compensation following termination of employment with the Company or any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company or any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a present intention to terminate the employment of any officer, key employee or group of employees. Registration Rights and Voting Rights. Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the Company nor any of its Subsidiaries is presently under any obligation, and neither the Company nor any of its Subsidiaries has granted any rights, to register any of the Company's or its Subsidiaries' presently outstanding securities or any of its securities that may hereafter be issued. Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of the Company or any of its Subsidiaries has entered into any agreement with respect to the voting of equity securities of the Company or any of its Subsidiaries. Compliance with Laws; Permits. Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which has had, or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement or any other Related Agreement and the issuance of any of the Securities, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner. Each of the Company and its Subsidiaries has all material franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Environmental and Safety Laws. Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. Except as set forth on Schedule 4.17, no Hazardous Materials (as defined below) are used or have been used, stored, or disposed of by the Company or any of its Subsidiaries or, to the Company's knowledge, by any other person or entity on any property owned, leased or used by the Company or any of its Subsidiaries. For the purposes of the preceding sentence, "Hazardous Materials" shall mean: 7 materials which are listed or otherwise defined as "hazardous" or "toxic" under any applicable local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of hazardous wastes, or other activities involving hazardous substances, including building materials; or any petroleum products or nuclear materials. Valid Offering. Assuming the accuracy of the representations and warranties of the Purchaser contained in this Agreement, the offer, sale and issuance of the Securities will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Full Disclosure. Each of the Company and each of its Subsidiaries has provided the Purchaser with all information requested by the Purchaser in connection with its decision to purchase the Note, including all information the Company and its Subsidiaries believe is reasonably necessary to make such investment decision. Neither this Agreement, the Related Agreements, the exhibits and schedules hereto and thereto nor any other document delivered by the Company or any of its Subsidiaries to Purchaser or its attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby, contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. Any financial projections and other estimates provided to the Purchaser by the Company or any of its Subsidiaries were based on the Company's and its Subsidiaries' experience in the industry and on assumptions of fact and opinion as to future events which the Company or any of its Subsidiaries, at the date of the issuance of such projections or estimates, believed to be reasonable. Insurance. Each of the Company and each of its Subsidiaries has general commercial, product liability, fire and casualty insurance policies with coverages which the Company believes are customary for companies similarly situated to the Company and its Subsidiaries in the same or similar business. SEC Reports. Except as set forth on Schedule 4.21, the Company has filed all proxy statements, reports and other documents required to be filed by it under the Securities Exchange Act 1934, as amended (the "Exchange Act"). The Company has furnished the Purchaser with copies of: (i) its Annual Reports on Form 10-KSB for its fiscal year ended December 31, 2004, (ii) its Quarterly Report on Form 10-QSB for its fiscal quarter ended March 31, 2005 and (iii) the Form 8-K filings which it has made during the fiscal year 2005 to date (collectively, the "SEC Reports"). Except as set forth on Schedule 4.21, each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Listing. The Common Stock is listed for trading on the National Association of Securities Dealers Over the Counter Bulletin Board ("NASD OTCBB") and satisfies all requirements for the continuation of such trading. The Company has not received any notice that the Common Stock will not be eligible to be traded on the NASD OTCBB or that the Common Stock does not meet all requirements for such trading. No Integrated Offering. Neither the Company, nor any of its Subsidiaries or affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to this Agreement or any of the Related Agreements to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Securities pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or Subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings. 8 Stop Transfer. The Securities are restricted securities as of the date of this Agreement. Neither the Company nor any of its Subsidiaries will issue any stop transfer order or other order impeding the sale and delivery of any of the Securities at such time as the Securities are registered for public sale or an exemption from registration is available, except as required by state and federal securities laws. Dilution. The Company specifically acknowledges that its obligation to issue the shares of Common Stock upon conversion of the Note is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company. Patriot Act. The Company certifies that, to the best of Company's knowledge, neither the Company nor any of its Subsidiaries has been designated, and is not owned or controlled, by a "suspected terrorist" as defined in Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks to comply with all applicable laws concerning money laundering and related activities. In furtherance of those efforts, the Company hereby represents, warrants and agrees that: (i) none of the cash or property that the Company or any of its Subsidiaries will pay or will contribute to the Purchaser has been or shall be derived from, or related to, any activity that is deemed criminal under United States law; and (ii) no contribution or payment by the Company or any of its Subsidiaries to the Purchaser, to the extent that they are within the Company's and/or its Subsidiaries' control shall cause the Purchaser to be in violation of the United States Bank Secrecy Act, the United States International Money Laundering Control Act of 1986 or the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly notify the Purchaser if any of these representations ceases to be true and accurate regarding the Company or any of its Subsidiaries. The Company agrees to provide the Purchaser any additional information regarding the Company or any of its Subsidiaries that the Purchaser deems necessary or convenient to ensure compliance with all applicable laws concerning money laundering and similar activities. The Company understands and agrees that if at any time it is discovered that any of the foregoing representations are incorrect, or if otherwise required by applicable law or regulation related to money laundering similar activities, the Purchaser may undertake appropriate actions to ensure compliance with applicable law or regulation, including but not limited to segregation and/or redemption of the Purchaser's investment in the Company. The Company further understands that the Purchaser may release confidential information about the Company and its Subsidiaries and, if applicable, any underlying beneficial owners, to proper authorities if the Purchaser, in its sole discretion, determines that it is in the best interests of the Purchaser in light of relevant rules and regulations under the laws set forth in subsection (ii) above. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement): No Shorting. The Purchaser or any of its affiliates and investment partners has not, will not and will not cause any person or entity, directly or indirectly, to engage in "short sales" of the Company's Common Stock as long as the Note shall be outstanding. Requisite Power and Authority. The Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All corporate action on Purchaser's part required for the lawful execution and delivery of this Agreement and the Related Agreements have been or will be effectively taken prior to the Closing. Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of Purchaser, enforceable in accordance with their terms, except: as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and as limited by general principles of equity that restrict the availability of equitable and legal remedies. 9 Investment Representations. Purchaser understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in the Agreement, including, without limitation, that the Purchaser is an "accredited investor" within the meaning of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Note to be purchased by it under this Agreement and the Note Shares acquired by it upon the conversion of the Note. The Purchaser further confirms that it has had an opportunity to ask questions and receive answers from the Company regarding the Company's and its Subsidiaries' business, management and financial affairs and the terms and conditions of the Offering, the Note and the Securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Purchaser or to which the Purchaser had access. Purchaser Bears Economic Risk. The Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. The Purchaser must bear the economic risk of this investment until the Securities are sold pursuant to: (i) an effective registration statement under the Securities Act; or (ii) an exemption from registration is available with respect to such sale. Acquisition for Own Account. The Purchaser is acquiring the Note and the Note Shares for the Purchaser's own account for investment only, and not as a nominee or agent and not with a view towards or for resale in connection with their distribution. Purchaser Can Protect Its Interest. The Purchaser represents that by reason of its, or of its management's, business and financial experience, the Purchaser has the capacity to evaluate the merits and risks of its investment in the Note and the Securities and to protect its own interests in connection with the transactions contemplated in this Agreement and the Related Agreements. Further, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement or the Related Agreements. Accredited Investor. Purchaser represents that it is an accredited investor within the meaning of Section 501(a)(3) of Regulation D under the Securities Act. Legends. THE NOTE SHALL BEAR SUBSTANTIALLY THE FOLLOWING LEGEND: "THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EPIXTAR CORP. THAT SUCH REGISTRATION IS NOT REQUIRED." THE NOTE SHARES, IF NOT ISSUED BY DWAC SYSTEM (AS HEREINAFTER DEFINED), SHALL BEAR A LEGEND WHICH SHALL BE IN SUBSTANTIALLY THE FOLLOWING FORM UNTIL SUCH SHARES ARE COVERED BY AN EFFECTIVE REGISTRATION STATEMENT FILED WITH THE SEC: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EPIXTAR CORP. THAT SUCH REGISTRATION IS NOT REQUIRED." 10 COVENANTS OF THE COMPANY. THE COMPANY COVENANTS AND AGREES WITH THE PURCHASER AS FOLLOWS: Stop-Orders. The Company will advise the Purchaser, promptly after it receives notice of issuance by the Securities and Exchange Commission (the "SEC"), any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose. Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon conversion of the Note on the Principal Market (as defined below) (subject to official notice of issuance) and shall maintain such listing so long as any other shares of Common Stock shall be so listed. The Company will maintain the listing of Common Stock on the Principal Market, and will comply in all material respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers ("NASD") and such exchanges, as applicable. For purposes hereof, the term "Principal Market" means the NASD Over The Counter Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Markets System, American Stock Exchange or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock). Market Regulations. The Company shall notify the SEC, NASD and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Purchaser and promptly provide copies thereof to the Purchaser. Reporting Requirements. The Company shall timely file with the SEC all reports required to be filed pursuant to the Exchange Act and refrain from terminating its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit such termination. The Company will deliver, or cause to be delivered, to the Purchaser each of the following, which shall be in form and detail acceptable to the Purchaser: As soon as available, and in any event within ninety (90) days after the end of each fiscal year of the Company, each of the Company's and each of its Subsidiaries' audited financial statements with a report of independent certified public accountants of recognized standing selected by the Company and acceptable to the Purchaser (the "Accountants"), which annual financial statements shall be without qualification and shall include each of the Company's and each of its Subsidiaries' balance sheet as at the end of such fiscal year and the related statements of each of the Company's and each of its Subsidiaries' income, retained earnings and cash flows for the fiscal year then ended, prepared on a consolidating and consolidated basis to include the Company, each Subsidiary of the Company and each of their respective affiliates, all in reasonable detail and prepared in accordance with GAAP, together with (i) if and when available, copies of any management letters prepared by the Accountants; and (ii) a certificate of the Company's President, Chief Executive Officer or Chief Financial Officer stating that such financial statements have been prepared in accordance with GAAP and whether or not such officer has knowledge of the occurrence of any Event of Default (as defined in the Note) and, if so, stating in reasonable detail the facts with respect thereto; As soon as available and in any event within forty five (45) days after the end of each fiscal quarter of the Company, an unaudited/internal balance sheet and statements of income, retained earnings and cash flows of the Company and each of its Subsidiaries as at the end of and for such quarter and for the year to date period then ended, prepared on a consolidating and consolidated basis to include all the Company, each Subsidiary of the Company and each of their respective affiliates, in reasonable detail and stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with GAAP, subject to year-end adjustments and accompanied by a certificate of the Company's President, Chief Executive Officer or Chief Financial Officer, stating (i) that such financial statements have been prepared in accordance with GAAP, subject to year-end audit adjustments, and (ii) whether or not such officer has knowledge of the occurrence of any Event of Default (as defined in the Note) not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto; 11 As soon as available and in any event within fifteen (15) days after the end of each calendar month, an unaudited/internal balance sheet and statements of income, retained earnings and cash flows of each of the Company and its Subsidiaries as at the end of and for such month and for the year to date period then ended, prepared on a consolidating and consolidated basis to include the Company, each Subsidiary of the Company and each of their respective affiliates, in reasonable detail and stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with GAAP, subject to year-end adjustments and accompanied by a certificate of the Company's President, Chief Executive Officer or Chief Financial Officer, stating (i) that such financial statements have been prepared in accordance with GAAP, subject to year-end audit adjustments, and (ii) whether or not such officer has knowledge of the occurrence of any Event of Default (as defined in the Note) not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto; Promptly after (i) the filing thereof, copies of the Company's most recent registration statements and annual, quarterly, monthly or other regular reports which the Company files with the Securities and Exchange Commission (the "SEC"), and (ii) the issuance thereof, copies of such financial statements, reports and proxy statements as the Company shall send to its stockholders; and No later than Tuesday of each week, updated weekly cash flow projections of the Company and its Subsidiaries for the six month period commencing on Monday of such week which shall show projected cash receipts and cash disbursements on a weekly basis with such projections to be prepared on a reasonable basis and in good faith and to be based upon assumptions believed by the Company to be reasonable at the time furnished. The Company shall deliver, or cause the applicable Subsidiary of the Company to deliver, such other information as the Purchaser shall reasonably request. Use of Funds. The Company agrees that it will use the proceeds of the sale of the Note (x) for general working capital purposes and (y) for the development and acquisition of certain contact centers in the Philippines. Access to Facilities. Each of the Company and each of its Subsidiaries will permit any representatives designated by the Purchaser (or any successor of the Purchaser), at any and all times, at the Company's expense, to: visit and inspect any of the properties of the Company or any of its Subsidiaries; examine the corporate and financial records of the Company or any of its Subsidiaries and make copies thereof or extracts therefrom; and discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with the directors, officers, employees and independent accountants of the Company or any of its Subsidiaries. Taxes. Each of the Company and each of its Subsidiaries will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company and its Subsidiaries; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company and/or such Subsidiary shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company and its Subsidiaries will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor. 12 Insurance. Each of the Company and its Subsidiaries will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in similar business similarly situated as the Company and its Subsidiaries; and the Company and its Subsidiaries will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner which the Company reasonably believes is customary for companies in similar business similarly situated as the Company and its Subsidiaries and to the extent available on commercially reasonable terms. The Company, and each of its Subsidiaries will jointly and severally bear the full risk of loss from any loss of any nature whatsoever with respect to the assets pledged to the Purchaser as security for its obligations hereunder and under the Related Agreements. At the Company's and each of its Subsidiaries' joint and several cost and expense in amounts and with carriers reasonably acceptable to Purchaser, the Company and each of its Subsidiaries shall (i) keep all its insurable properties and properties in which it has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to the Company's or the respective Subsidiary's including business interruption insurance; (ii) maintain a bond in such amounts as is customary in the case of companies engaged in businesses similar to the Company's or the respective Subsidiary's insuring against larceny, embezzlement or other criminal misappropriation of insured's officers and employees who may either singly or jointly with others at any time have access to the assets or funds of the Company or any of its Subsidiaries either directly or through governmental authority to draw upon such funds or to direct generally the disposition of such assets; (iii) maintain public and product liability insurance against claims for personal injury, death or property damage suffered by others; (iv) maintain all such worker's compensation or similar insurance as may be required under the laws of any state or jurisdiction in which the Company or the respective Subsidiary is engaged in business; and (v) furnish Purchaser with (x) copies of all policies and evidence of the maintenance of such policies at least thirty (30) days before any expiration date, (y) excepting the Company's workers' compensation policy, endorsements to such policies naming Purchaser as "co-insured" or "additional insured" and appropriate loss payable endorsements in form and substance satisfactory to Purchaser, naming Purchaser as loss payee, and (z) evidence that as to Purchaser the insurance coverage shall not be impaired or invalidated by any act or neglect of the Company or any Subsidiary and the insurer will provide Purchaser with at least thirty (30) days notice prior to cancellation. The Company and each Subsidiary shall instruct the insurance carriers that in the event of any loss thereunder, the carriers shall make payment for such loss to the Company and/or the Subsidiary and Purchaser jointly. In the event that as of the date of receipt of each loss recovery upon any such insurance, the Purchaser has not declared an event of default with respect to this Agreement or any of the Related Agreements, then the Company and/or such Subsidiary shall be permitted to direct the application of such loss recovery proceeds toward investment in property, plant and equipment that would comprise "Collateral" secured by Purchaser's security interest pursuant to its security agreement, with any surplus funds to be applied toward payment of the obligations of the Company to Purchaser. In the event that Purchaser has properly declared an event of default with respect to this Agreement or any of the Related Agreements, then all loss recoveries received by Purchaser upon any such insurance thereafter may be applied to the obligations of the Company hereunder and under the Related Agreements, in such order as the Purchaser may determine. Any surplus (following satisfaction of all Company obligations to Purchaser) shall be paid by Purchaser to the Company or applied as may be otherwise required by law. Any deficiency thereon shall be paid by the Company or the Subsidiary, as applicable, to Purchaser, on demand. Intellectual Property. Each of the Company and each of its Subsidiaries shall maintain in full force and effect its existence, rights and franchises and all licenses and other rights to use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business. Properties. Each of the Company and each of its Subsidiaries will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and each of the Company and each of its Subsidiaries will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 13 Confidentiality. The Company agrees that it will not disclose, and will not include in any public announcement, the name of the Purchaser, unless expressly agreed to by the Purchaser or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's identity and the terms of this Agreement to its current and prospective debt and equity financing sources. Required Approvals. The Company, without the prior written consent of the Purchaser, shall not, and shall not permit any of its Subsidiaries to: (i) directly or indirectly declare or pay any dividends, (ii) issue any preferred stock (other than the issuance of preferred stock to the Purchaser) or (iii) redeem any of its preferred stock or other equity interests; liquidate, dissolve or effect a reorganization; become subject to (including, without limitation, by way of amendment to or modification of) any agreement or instrument which by its terms would (under any circumstances) restrict the Company's or any of its Subsidiaries' right to perform the provisions of this Agreement, any Related Agreement or any of the agreements contemplated hereby or thereby; alter or change the scope of the business of the Company and its Subsidiaries taken as a whole; (i) create, incur, assume or suffer to exist any indebtedness (exclusive of trade debt and debt incurred to finance the purchase of equipment (not in excess of five percent (5%) per annum of the fair market value of the Company's assets) whether secured or unsecured other than (w) lease obligations (capitalized or otherwise) incurred by the Company or any of its Subsidiaries in the ordinary course of business, (x) the Sands Obligations (as defined in the Intercreditor Agreement) and the Laurus Obligations (as defined in the Intercreditor Agreement), (y) indebtedness set forth on Schedule 6.12(e) attached hereto and made a part hereof and any refinancings or replacements thereof on terms no less favorable to the Purchaser than the indebtedness being refinanced or replaced, and (z) any debt incurred in connection with the purchase of assets in the ordinary course of business, or any refinancings or replacements thereof on terms no less favorable to the Purchaser than the indebtedness being refinanced or replaced; (ii) cancel any debt owing to it in excess of $50,000 in the aggregate during any 12 month period; (iii) assume, guarantee, endorse or otherwise become directly or contingently liable in connection with any obligations of any other Person, except the endorsement of negotiable instruments by the Company for deposit or collection or similar transactions in the ordinary course of business or guarantees of indebtedness otherwise permitted to be outstanding pursuant to this clause (e); create or acquire any Subsidiary after the date hereof; make, or permit any of its Subsidiaries to make, any investments in, or any loans or advances to, any Subsidiary of the Company; and enter into any contract or agreement that is material to its business or operations or involves an amount equal to or greater than $100,000. Reissuance of Securities. The Company agrees to reissue certificates representing the Securities without the legends set forth in Section 5.7 above at such time as: the holder thereof is permitted to dispose of such Securities pursuant to Rule 144(k) under the Securities Act; or 14 upon resale subject to an effective registration statement after such Securities are registered under the Securities Act. The Company agrees to cooperate with the Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales provided the Company and its counsel receive reasonably requested representations from the selling Purchaser and broker, if any. Opinion. On the Closing Date, the Company will deliver to the Purchaser an opinion acceptable to the Purchaser from the Company's external legal counsel. The Company will provide, at the Company's expense, such other legal opinions in the future as are deemed reasonably necessary by the Purchaser (and acceptable to the Purchaser) in connection with the conversion of the Note. Margin Stock. The Company will not permit any of the proceeds of the Note to be used directly or indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness incurred to "purchase" or "carry" "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. Covenants of the Purchaser. The Purchaser covenants and agrees with the Company as follows: Confidentiality. The Purchaser agrees that it will not disclose, and will not include in any public announcement, the name of the Company, unless expressly agreed to by the Company or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement. Non-Public Information. The Purchaser agrees not to effect any sales in the shares of the Company's Common Stock while in possession of material, non-public information regarding the Company if such sales would violate applicable securities law. Limitation on Acquisition of Common Stock of the Company. Notwithstanding anything to the contrary contained in this Agreement, any Ancillary Agreement or any document, instrument or agreement entered into in connection with any other transactions between the Purchaser and the Company, the Purchaser may not acquire stock in the Company (including, without limitation, pursuant to a contract to purchase, by exercising an option or warrant, by converting any other security or instrument, by acquiring or exercising any other right to acquire, shares of stock or other security convertible into shares of stock in the Company, or otherwise, and such contracts, options, warrants, conversion or other rights shall not be enforceable or exercisable) to the extent such stock acquisition would cause any interest (including any original issue discount) payable by the Company to Laurus not to qualify as "portfolio interest" within the meaning of Section 881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking into account the constructive ownership rules under Section 871(h)(3)(C) of the Code (the "Stock Acquisition Limitation"). The Stock Acquisition Limitation shall automatically become null and void without any notice to the Company upon the earlier to occur of either (a) the Company's delivery to the Purchaser of a Notice of Redemption (as defined in the Note) or (b) the existence of an Event of Default (as defined in the Note) at a time when the average closing price of the Company's common stock as reported by Bloomberg, L.P. on the Principal Market for the immediately preceding five trading days is greater than or equal to 150% of the Fixed Conversion Price (as defined in the Note). COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION. Company Indemnification. The Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser, each of the Purchaser's officers, directors, agents, affiliates, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser which results, arises out of or is based upon: (i) any misrepresentation by the Company or any of its Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries in this Agreement, any Related Agreement or in any exhibits or schedules attached hereto or thereto; or (ii) any breach or default in performance by Company or any of its Subsidiaries of any covenant or undertaking to be performed by Company or any of its Subsidiaries hereunder, under any other Related Agreement or any other agreement entered into by the Company and/or any of its Subsidiaries and Purchaser relating hereto or thereto. 15 Purchaser's Indemnification. Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company's officers, directors, agents, affiliates, control persons and principal shareholders, at all times against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company which results, arises out of or is based upon: (i) any misrepresentation by Purchaser or breach of any warranty by Purchaser in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any breach or default in performance by Purchaser of any covenant or undertaking to be performed by Purchaser hereunder, or any other agreement entered into by the Company and Purchaser relating hereto. CONVERSION OF CONVERTIBLE NOTE. Mechanics of Conversion. Provided the Purchaser has notified the Company of the Purchaser's intention to sell the Note Shares and the Note Shares are included in an effective registration statement or are otherwise exempt from registration when sold: (i) upon the conversion of the Note or part thereof, the Company shall, at its own cost and expense, take all necessary action (including the issuance of an opinion of counsel reasonably acceptable to the Purchaser following a request by the Purchaser) to assure that the Company's transfer agent shall issue shares of the Company's Common Stock in the name of the Purchaser (or its nominee) or such other persons as designated by the Purchaser in accordance with Section 9.1(b) hereof and in such denominations to be specified representing the number of Note Shares issuable upon such conversion; and (ii) the Company warrants that no instructions other than these instructions have been or will be given to the transfer agent of the Company's Common Stock and that after the Effectiveness Date (as defined in the respective Registration Rights Agreement) the Note Shares issued will be freely transferable subject to the prospectus delivery requirements of the Securities Act and the provisions of this Agreement, and will not contain a legend restricting the resale or transferability of the Note Shares. Purchaser will give notice of its decision to exercise its right to convert the Note or part thereof by telecopying or otherwise delivering an executed and completed notice of the number of shares to be converted to the Company (the "Notice of Conversion"). The Purchaser will not be required to surrender the Note until the Purchaser receives a credit to the account of the Purchaser's prime broker through the DWAC system (as defined below), representing the Note Shares or until the Note has been fully satisfied. Each date on which a Notice of Conversion is telecopied or delivered to the Company in accordance with the provisions hereof shall be deemed a "Conversion Date." Pursuant to the terms of the Notice of Conversion, the Company will issue instructions to the transfer agent accompanied by an opinion of counsel within one (1) business day of the date of the delivery to the Company of the Notice of Conversion and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Purchaser by crediting the account of the Purchaser's prime broker with the Depository Trust Company ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within three (3) business days after receipt by the Company of the Notice of Conversion (the "Delivery Date"). The Company understands that a delay in the delivery of the Note Shares in the form required pursuant to Section 9 hereof beyond the Delivery Date could result in economic loss to the Purchaser. In the event that the Company fails to direct its transfer agent to deliver the Note Shares to the Purchaser via the DWAC system within the time frame set forth in Section 9.1(b) above and the Note Shares are not delivered to the Purchaser by the Delivery Date, as compensation to the Purchaser for such loss, the Company agrees to pay late payments to the Purchaser for late issuance of the Note Shares in the form required pursuant to Section 9 hereof upon conversion of the Note in the amount equal to the greater of: (i) $500 per business day after the Delivery Date; or (ii) the Purchaser's actual damages from such delayed delivery. Notwithstanding the foregoing, the Company will not owe the Purchaser any late payments if the delay in the delivery of the Note Shares beyond the Delivery Date is solely out of the control of the Company and the Company is actively trying to cure the cause of the delay. The Company shall pay any payments incurred under this Section in immediately available funds upon demand and, in the case of actual damages, accompanied by reasonable documentation of the amount of such damages. Such documentation shall show the number of shares of Common Stock the Purchaser is forced to purchase (in an open market transaction) which the Purchaser anticipated receiving upon such conversion, and shall be calculated as the amount by which (A) the Purchaser's total purchase price (including customary brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Note, for which such Conversion Notice was not timely honored. 16 Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum amount permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to a Purchaser and thus refunded to the Company. REGISTRATION RIGHTS. Registration Rights Granted. The Company hereby grants registration rights to the Purchaser pursuant to a Registration Rights Agreement dated as of even date herewith between the Company and the Purchaser. Offering Restrictions. Except as previously disclosed in the SEC Reports or in the Exchange Act Filings, or stock or stock options granted to employees or directors of the Company (these exceptions hereinafter referred to as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries will issue any securities with a continuously variable/floating conversion feature which are or could be (by conversion or registration) free-trading securities (i.e. common stock subject to a registration statement) prior to the full repayment or conversion of the Note (together with all accrued and unpaid interest and fees related thereto) (the "Exclusion Period"), provided that a securities with a variable/floating rate conversion feature that is not less than the Fixed Conversion Price (as defined in the Note) shall be permitted. MISCELLANEOUS. Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. EXCEPT AS SET FORTH BELOW IN THIS SECTION 11.1, ANY AND ALL DISPUTES, CONTROVERSIES AND CLAIMS THAT THE COMPANY OR ANY OF ITS SUBSIDIARIES MAY ASSERT AGAINST THE PURCHASER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY RELATED AGREEMENT SHALL BE DETERMINED EXCLUSIVELY BY ARBITRATION (EACH SUCH ARBITRATION, AN "ARBITRATION") IN NEW YORK CITY BEFORE A PANEL OF THREE NEUTRAL ARBITRATORS AGREED TO BY THE PURCHASER AND THE COMPANY (COLLECTIVELY, THE "ARBITRATORS") IN ACCORDANCE WITH AND PURSUANT TO THE THEN EXISTING COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. THE COMPANY (ON ITS BEHALF AND ON BEHALF OF ITS SUBSIDIARIES) HEREBY IRREVOCABLY WAIVES ANY RIGHT TO ASSERT SUCH CLAIMS IN ANY OTHER FORUM. THE ARBITRATORS SHALL HAVE THE POWER IN THEIR DISCRETION TO AWARD SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF (BUT SHALL NOT HAVE THE POWER TO RENDER ANY INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES) AND REASONABLE ATTORNEYS' FEES AND EXPENSES TO ANY PARTY IN ANY ARBITRATION. THE ARBITRATORS MAY NOT CHANGE, MODIFY OR ALTER ANY EXPRESS CONDITION, TERM OR PROVISION OF THIS AGREEMENT OR OF ANY RELATED AGREEMENT NOR SHALL THEY HAVE THE POWER TO RENDER ANY AWARD AGAINST THE PURCHASER THAT WOULD HAVE SUCH EFFECT. EACH ARBITRATION AWARD SHALL BE FINAL AND BINDING UPON THE PARTIES SUBJECT THERETO AND JUDGMENT MAY BE ENTERED THEREON IN ANY COURT OF COMPETENT JURISDICTION. THE SERVICE OF ANY NOTICE, PROCESS, MOTION OR OTHER DOCUMENT IN CONNECTION WITH AN ARBITRATION OR FOR THE ENFORCEMENT OF ANY ARBITRATION AWARD MAY BE MADE IN THE SAME MANNER AS COMMUNICATIONS MAY BE GIVEN UNDER SECTION 11.8 HEREOF. NOTWITHSTANDING THE FOREGOING, THE PROVISIONS OF THIS SECTION 11.1 NOR ANY OTHER PROVISION CONTAINED IN THIS AGREEMENT OR IN ANY RELATED AGREEMENT SHALL LIMIT IN ANY MANNER WHATSOEVER THE PURCHASER'S RIGHT TO COMMENCE AN ACTION AGAINST OR IN CONNECTION WITH THE COMPANY, ANY OF ITS SUBSIDIARIES OR THEIR RESPECTIVE PROPERTIES IN ANY COURT OF COMPETENT JURISDICTION OR OTHERWISE UTILIZE JUDICIAL PROCESS IN CONNECTION WITH OR ARISING OUT OF THE PURCHASER'S RIGHTS AND REMEDIES UNDER THIS AGREEMENT AND/OR ANY RELATED AGREEMENT OR OTHERWISE (ANY SUCH ACTION, A "COURT ACTION"). COURT ACTIONS MAY BE BROUGHT BY THE PURCHASER IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION AND THE COMPANY (ON ITS BEHALF AND ON BEHALF OF ITS SUBSIDIARIES) IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH STATE AND FEDERAL COURTS AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE OF INCONVENIENT FORUM OR LACK OF PERSONAL JURISDICTION IN SUCH FORUM OR RIGHT OF REMOVAL OR RIGHT TO JURY TRIAL UNDER ANY APPLICABLE LAW OR DECISION OR OTHERWISE. SERVICE OF ANY NOTICE, PROCESS, MOTION OR OTHER DOCUMENT IN CONNECTION WITH A COURT ACTION MAY BE MADE IN THE SAME MANNER AS COMMUNICATIONS MAY BE GIVEN UNDER SECTION 11.8. IN ADDITION, THE PURCHASER MAY SERVE PROCESS IN ANY OTHER MANNER PERMITTED UNDER APPLICABLE LAW. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT. 17 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby to the extent provided therein. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. Successors. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Securities from time to time, other than the holders of Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective registration statement. Purchaser may not assign its rights hereunder to a competitor of the Company. Entire Agreement. This Agreement, the Related Agreements, the exhibits and schedules hereto and thereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Amendment and Waiver. This Agreement may be amended or modified only upon the written consent of the Company and the Purchaser. The obligations of the Company and the rights of the Purchaser under this Agreement may be waived only with the written consent of the Purchaser. The obligations of the Purchaser and the rights of the Company under this Agreement may be waived only with the written consent of the Company. Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Related Agreements, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. All remedies, either under this Agreement or the Related Agreements, by law or otherwise afforded to any party, shall be cumulative and not alternative. 18 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: upon personal delivery to the party to be notified; when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day; three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent as follows: If to the Company, to: Epixtar Corp. 11900 Biscayne Boulevard, Suite 700 Miami, Florida 33181 Attention: Corporate Secretary Facsimile: 305-503-8610 with a copy to: Michael DiGiovanna, Esq. 212 Carnegie Center Suite 206 Princeton, New Jersey 08540 Facsimile: 609-452-9473 If to the Purchaser, to: Laurus Master Fund, Ltd. c/o M&C Corporate Services Limited P.O. Box 309 GT Ugland House George Town South Church Street Grand Cayman, Cayman Islands Facsimile: 345-949-8080 with a copy to: John E. Tucker, Esq. 825 Third Avenue 14th Floor New York, NY 10022 Facsimile: 212-541-4434 and: 19 Loeb & Loeb LLP 345 Park Avenue New York, New York 10154 Scott J. Giordano, Esq. Facsimile: 212-407-4990 or at such other address as the Company or the Purchaser may designate by written notice to the other parties hereto given in accordance herewith. Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Facsimile Signatures; Counterparts. This Agreement may be executed by facsimile signatures and in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. Broker's Fees. Except as set forth on Schedule 11.12 hereof, each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 11.12 being untrue. Construction. Each party acknowledges that its legal counsel participated in the preparation of this Agreement and the Related Agreements and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Agreement to favor any party against the other. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 20 IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: PURCHASER: EPIXTAR CORP. LAURUS MASTER FUND, LTD. By: By: ---------------------------------------------------- --------------------------------------------------- Name: Name: -------------------------------------------------- -------------------------------------------------- Title: Title: -------------------------------------------------- --------------------------------------------------
21 EXHIBIT A FORM OF CONVERTIBLE NOTE 22 EX-4.14.2 3 b410993_ex4-142.txt EXHIBIT 4.14.2 EXHIBIT 4.14.2 THIS NOTE (THE "NOTE") AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EPIXTAR CORP. THAT SUCH REGISTRATION IS NOT REQUIRED. SECURED CONVERTIBLE TERM NOTE FOR VALUE RECEIVED, EPIXTAR CORP., a Florida corporation (the "Borrower"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the "Holder") or its registered assigns or successors in interest the sum of Six Million Two Hundred Thousand Dollars ($6,200,000) (the "Maximum Amount") or, if less, the aggregate outstanding amount of funds advanced to the Borrower hereunder, in each case, together with any accrued and unpaid interest hereon, on July 22, 2005 (the "Initial Maturity Date"), subject to extension pursuant to Section 6.10 hereof (the Initial Maturity Date as extended hereunder, the "Maturity Date"). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in that certain Securities Purchase Agreement dated as of the date hereof between the Borrower and the Holder (the "Purchase Agreement"). The following terms shall apply to this Note: ADVANCES & INTEREST 1 Advances. On the Closing Date, Holder shall make an advance to the Borrower in the amount of Six Hundred Thousand Dollars ($600,000). The Borrower may request and the Holder may, in its discretion, make additional advances to the Borrower up to the Maximum Amount. Each request for an additional advance (an "Advance Request") shall (a) be made by the Borrower to the Holder in writing, (b) specify to whom and where the Holder shall disburse such funds and (c) specify the amount of such requested advance. If the Holder elects to make an additional advance to the Borrower, the Holder, in its sole discretion, may either (a) disburse the funds in accordance with the Advance Request or (b) deposit the funds in the Borrower's operating account in which case the Borrower shall deliver to the Holder, within one (1) business day following the deposit of such funds, evidence that the funds were disbursed in accordance with the terms of the Advance Request. Interest Rate. Subject to Section 6.6 hereof, interest payable on this shall accrue at a rate per annum (the "Interest Rate") equal to ten percent (10%). Interest shall be calculated on the basis of a 360 day year and payable monthly, in arrears, commencing on August 1, 2005 and on the first business day of each consecutive calendar month thereafter through and including the Maturity Date, and on the Maturity Date, whether by acceleration or otherwise. Maturity Date. The principal amount due under this Note (the "Principal Amount"), all unpaid interest thereon and all other sums due, accrued or payable to the Holder arising under this Note, the Purchase Agreement or any Related Agreement shall be due and payable on the Maturity Date (subject to extension pursuant to Section 6.10 hereof). PREREPAYMENT Optional Redemption in Cash. The Borrower will have the option of prepaying this Note ("Optional Redemption") by paying to the Holder a sum of money equal to one hundred percent (100%) of the outstanding principal amount of this Note at the time of prepayment, together with accrued but unpaid interest thereon and any and all other sums due, accrued or payable to the Holder arising under this Note, the Purchase Agreement or any Related Agreement (the "Redemption Amount") outstanding on the day written notice of redemption (the "Notice of Redemption") is given to the Holder. The Notice of Redemption shall specify the date for such Optional Redemption (the "Redemption Payment Date") which date shall be seven (7) business days after the date of the Notice of Redemption (the "Redemption Period"). A Notice of Redemption shall not be effective with respect to any portion of this Note for which the Holder has a pending election to convert pursuant to Section 3.1, or for conversions initiated or made by the Holder pursuant to Section 3.1 during the Redemption Period. The Redemption Amount shall be determined as if such Holder's conversion elections had been completed immediately prior to the date of the Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must be paid in good funds to the Holder. In the event the Borrower fails to pay the Redemption Amount on the Redemption Payment Date as set forth herein, then such Redemption Notice will be null and void. Mandatory Prepayment. In the event the Borrower and/or any of its Subsidiaries commences any offering of its Common Stock or other equity securities and/or enters into any financing arrangements with a bank, a financial institution and/or any other party (other than the Holder), in each case, intended, in whole or in part, to raise capital for the benefit of the Borrower and/or any of its Subsidiaries, the proceeds of such offering and/or financing arrangement when received shall be remitted to the Holder to prepay the outstanding principal amount of this Note, all unpaid interest hereon and all other sums due, accrued or payable to the Holder arising under the transactions contemplated by this Note, up to an aggregate amount of $2,000,000. CONVERSION RIGHTS Holder's Conversion Rights. The Holder shall have the right, but not the obligation, to convert all or any portion of the then aggregate outstanding principal amount of this Note, together with interest and fees due hereon, into shares of Common Stock of the Borrower subject to the terms and conditions set forth in this Article III. The Holder may exercise such right by delivery to the Borrower of a written notice of conversion not less than one (1) day prior to the date upon which such conversion shall occur. 2 Conversion Limitation. Notwithstanding anything contained herein to the contrary, the Holder shall not be entitled to convert pursuant to the terms of this Note an amount that would be convertible into that number of Conversion Shares which would exceed the difference between the number of shares of Common Stock beneficially owned by such Holder or issuable upon exercise of warrants held by such Holder and 4.99% of the outstanding shares of Common Stock of the Borrower. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. The Holder may void the Conversion Share limitation described in this Section 3.2 upon 75 days prior notice to the Borrower or without any notice requirement upon an Event of Default. Notwithstanding the foregoing, neither this provision nor any similar provision contained in any other note issued to Holder by the Company or in any warrant issued by the Company to Holder or any agreement between the parties hereto ("Similar Provisions") shall have any effect on any irrevocable proxy granted to Holder or any voting rights contained in any instrument governing any shares of preferred stock granted to Holder, in each case in connection with the transactions contemplated hereby. Moreover, such proxies or voting provision shall not constitute a waiver of the first two sentences of this Section 3.2 or of any Similar Provision, all of such provisions remaining fully enforceable. Mechanics of Holder's Conversion. (12) In the event that the Holder elects to convert this Note into Common Stock, the Holder shall give notice of such election by delivering an executed and completed notice of conversion ("Notice of Conversion") to the Borrower and such Notice of Conversion shall provide a breakdown in reasonable detail of the Principal Amount, accrued interest and fees being converted. On each Conversion Date (as hereinafter defined) and in accordance with its Notice of Conversion, the Holder shall make the appropriate reduction to the Principal Amount, accrued interest and fees as entered in its records and shall provide written notice thereof to the Borrower within two (2) business days after the Conversion Date. Each date on which a Notice of Conversion is delivered or telecopied to the Borrower in accordance with the provisions hereof shall be deemed a Conversion Date (the "Conversion Date"). A form of Notice of Conversion to be employed by the Holder is annexed hereto as Exhibit A. Pursuant to the terms of the Notice of Conversion, the Borrower will issue instructions to the transfer agent accompanied by an opinion of counsel within two (2) business day of the date of the delivery to Borrower of the Notice of Conversion and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Holder by crediting the account of the Holder's designated broker with the Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within three (3) business days after receipt by the Borrower of the Notice of Conversion (the "Delivery Date"). In the case of the exercise of the conversion rights set forth herein the conversion privilege shall be deemed to have been exercised and the Conversion Shares issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Borrower of the Notice of Conversion. The Holder shall be treated for all purposes as the record holder of such Common Stock, unless the Holder provides the Borrower written instructions to the contrary. Conversion Mechanics. The number of shares of Common Stock of the Borrower to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal and interest and fees to be converted, if any, by the then applicable Fixed Conversion Price, which for purposes hereof shall initially be $1.00. The Fixed Conversion Price and number and kind of shares or other securities to be issued upon conversion is subject to adjustment from time to time upon the occurrence of certain events, as follows: Stock Splits, Combinations and Dividends. If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Fixed Conversion Price or the Conversion Price, as the case may be, shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event. During the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. The Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note. 3 Share Issuances. Subject to the provisions of this Section 3.4, if the Borrower shall (x) in the case of its Common Stock, at any time prior to the conversion or repayment in full of the Principal Amount issue any shares of Common Stock or securities convertible into its Common Stock to a person other than the Holder (except (i) pursuant to Subsections A or B above; (ii) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof as disclosed to Holder in writing; or (iii) pursuant to options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Borrower) for a consideration per share (the "Offer Price") less than the Fixed Conversion Price in effect at the time of such issuance (any such issuance, an "Offering"), then the Fixed Conversion Price shall be immediately reset to such lower Offer Price at the time of issuance of such securities pursuant to the formula below. For purposes hereof, the issuance of any security of the Borrower convertible into or exercisable or exchangeable for Common Stock shall result in an adjustment to the Fixed Conversion Price at the time of issuance of such securities. If the Borrower issues any additional shares pursuant to Section 3.4 above then, and thereafter successively upon each such issue, the Fixed Conversion Price shall be adjusted by multiplying the then applicable Fixed Conversion Price by the following fraction: A + B ---------------------------------------- (A + B) + [((C - D) x B) / C] A = Total amount of shares convertible pursuant to this Note, the Purchase Agreement and the Related Agreements. B = Actual shares sold in the Offering C = Fixed Conversion Price D = Offering price Reclassification, etc. If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note, as to the unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change. Issuance of New Note. Upon any partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. The Borrower will pay no costs, fees or any other consideration to the Holder for the production and issuance of a new Note. EVENTS OF DEFAULT (13) Upon the occurrence and continuance of an Event of Default beyond any applicable grace period, the Holder may make all sums of principal, interest and other fees then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable. In the event of such an acceleration, the amount due and owing to the Holder shall be 110% of the outstanding principal amount of the Note (plus accrued and unpaid interest and fees, if any) (the "Default Payment"). If, with respect to any Event of Default, the Borrower cures the Event of Default, the Event of Default will be deemed to no longer exist and any rights and remedies of Holder pertaining to such Event of Default will be of no further force or effect. The Default Payment shall be applied first to any fees due and payable to Holder pursuant to this Note, the Purchase Agreement or the other Related Agreements, then to accrued and unpaid interest due on this Note and then to outstanding principal balance of this Note. 4 The occurrence of any of the following events set forth in Sections 4.1 through 4.12, inclusive, is an "Event of Default": Failure to Pay Principal, Interest or other Fees. The Borrower fails to pay when due any installment of principal, interest or other fees hereon in accordance herewith, or the Borrower fails to pay when due any amount due under any other promissory note issued by Borrower. Breach of Covenant. The Borrower breaches any covenant or any other term or condition of this Note or the Purchase Agreement in any material respect, or the Borrower or any of its Subsidiaries breaches any covenant or any other term or condition of any Related Agreement in any respect. Breach of Representations and Warranties. Any representation or warranty made by the Borrower in this Note or the Purchase Agreement, or by the Borrower or any of its Subsidiaries in any Related Agreement, shall, in any such case, be false or misleading in any material respect on the date that such representation or warranty was made or deemed made. Receiver or Trustee. The Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. Judgments. Any money judgment, writ or similar final process shall be entered or filed against the Borrower or any of its Subsidiaries or any of their respective property or other assets for more than $150,000. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any of its Subsidiaries. Stop Trade. An SEC stop trade order or Principal Market trading suspension of the Common Stock shall be in effect for five (5) consecutive days or five (5) days during a period of ten (10) consecutive days, excluding in all cases a suspension of all trading on a Principal Market. The "Principal Market" for the Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock, or any securities exchange or other securities market on which the Common Stock is then being listed or traded. Failure to Deliver Common Stock or Replacement Note. The Borrower shall fail (i) to timely deliver Common Stock to the Holder pursuant to and in the form required by this Note, and Section 9 of the Purchase Agreement, if such failure to timely deliver Common Stock shall not be cured within two (2) business days or (ii) to deliver a replacement Note to Holder within seven (7) business days following the required date of such issuance pursuant to this Note, the Purchase Agreement or any Related Agreement (to the extent required under such agreements). Default Under Related Agreements or Other Agreements. The occurrence and continuance of any Event of Default (as defined in any Related Agreement) or any default or event of default (or similar term) under any other indebtedness. Change in Control. A Change of Control (as defined below) shall occur with respect to the Company, unless the Holder shall have expressly consented to such Change of Control in writing. A "Change of Control" shall mean any event or circumstance as a result of which (i) any "Person" or "group" (as such terms are defined in Sections 13(d) and 14(d) of the Exchange Act, as in effect on the date hereof), other than the Holder, is or becomes the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of 35% or more on a fully diluted basis of the then outstanding voting equity interest of the Borrower, (ii) the Board of Directors of the Borrower (without taking into account any directors on such Board appointed by the Holder) shall cease to consist of a majority of the Board of Directors of the Borrower on the date hereof (or directors appointed by a majority of the Board of Directors of the Borrower in effect immediately prior to such appointment), (iii) the Borrower sells all or any part of the equity interests of any Subsidiary (or any securities convertible or exercisable into equity interests of any Subsidiary), or agrees to issue any equity interests of any Subsidiary (or any securities convertible or exercisable into equity interests of any Subsidiary) or permits the sale of all or substantially all of the assets of any Subsidiary (other than (A) issuances to the Laurus Creditors (as defined in the Intercreditor Agreement) that are contemplated by the Laurus Documents (as defined in the Intercreditor Agreement) or (B) issuances to the Sands Creditors (as defined in the Intercreditor Agreement) that are contemplated by the Sands Documents (as defined in the Intercreditor Agreement)), or (iii) the Borrower or any of its Subsidiaries merges or consolidates with, or sells or transfers all or substantially all of its assets to, any other person or entity. 5 Federal Trade Commission Action. The Federal Trade Commission or any other governmental agency shall commence any action against the Borrower or any or its Subsidiaries, the effect of any such action, or any judgment, order or settlement resulting therefrom, on the Borrower or any such Subsidiary is to restrain or deprive the Borrower and its Subsidiaries from utilizing any substantial portion of their assets determined on a consolidated basis. Laurus Notes, Laurus Purchase Agreements, Laurus Related Agreements and Sands Agreements. An Event of Default under and as defined in any of (i) that certain Secured Convertible Term Note, dated May 14, 2004, issued by the Borrower to the Holder (as amended, modified or supplemented from time to time, the "May 2004 Note"), (ii) the Purchase Agreement referred to in the May 2004 Note (as amended, modified or supplemented from time to time, the "May 2004 Purchase Agreement"), (iii) the Related Agreements referred to in the May 2004 Purchase Agreement, (iv) that certain Secured Convertible Term Note, dated April 29, 2005, issued by the Borrower and Voxx Corporation ("Voxx") to the Holder (as amended, modified or supplemented from time to time, the "April 2005 Note" together with the May 2004 Note and this Note, collectively, the "Laurus Notes"), (iv) the Purchase Agreement referred to in the April 2005 Note (as amended, modified or supplemented from time to time, the "April 2005 Purchase Agreement" together with the May 2004 Purchase Agreement and the Purchase Agreement, collectively, the "Laurus Purchase Agreements"), (v) the Related Agreements referred to in the April 2005 Purchase Agreement (the April 2005 Related Agreements together with the May 2004 Related Agreements and the Related Agreements, collectively, the "Laurus Related Agreements"), (vi) the Sands Securities Purchase Agreement or (vii) the Related Agreements referred to in the Sands Securities Purchase Agreement shall have occurred and be continuing. Fraud Event. The occurrence of a Fraud Event or the Holder's reasonable belief that a Fraud Event has occurred. For purposes of this Section 4.13, the term "Fraud Event" shall mean the occurrence of any of the following events: (i) the Borrower or any of its Subsidiaries have misappropriated (or any Subsidiary or the Borrower has caused the other to misappropriate) any proceeds of any Collateral (as defined in the Laurus Related Agreements) or the proceeds of any advances made by the Holder to the Borrower under the Laurus Notes in each case in excess of $10,000, (ii) the Borrower or any Subsidiary has embezzled funds from the other, (iii) any Subsidiary and/or the Borrower has converted (or the Borrower or any Subsidiary has caused the other to convert) any material real or personal property of the Borrower or any Subsidiary, including but not limited to any Collateral, in each case in excess of $10,000 or (iv) any Subsidiary and/or the Borrower have committed (or the Borrower or any Subsidiary has caused the other to commit) fraud against the Holder, including any material and willful misrepresentation made (or caused to be made) by any Subsidiary and/or by the Borrower with respect to any of the representations and warranties contained in the Laurus Purchase Agreements or the accuracy of any information provided to the Holder concerning the Collateral, or in any other document delivered to the Holder in connection with the making of any advance under the Laurus Notes, the extension of any credit, the forbearance from taking action or in connection with any other transaction contemplated thereby. DEFAULT RELATED PROVISIONS Conversion Privileges. The conversion privileges set forth in Article III shall remain in full force and effect immediately from the date hereof and until this Note is paid in full. Cumulative Remedies. The remedies under this Note shall be cumulative. 6 MISCELLANEOUS Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. Notices. Any notice herein required or permitted to be given shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Borrower at the address provided in the Purchase Agreement executed in connection herewith, and to the Holder at the address provided in the Purchase Agreement for such Holder, with a copy to John E. Tucker, Esq., 825 Third Avenue, 14th Floor, New York, New York 10022, facsimile number (212) 541-4434, or at such other address as the Borrower or the Holder may designate by ten days advance written notice to the other parties hereto. A Notice of Conversion shall be deemed given when made to the Borrower pursuant to the Purchase Agreement. Amendment Provision. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented, and any successor instrument issued pursuant to Section 3.5 hereof, as it may be amended or supplemented. Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder in accordance with the requirements of the Purchase Agreement. This Note shall not be assigned by the Borrower without the consent of the Holder. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Except as set forth below in this Section 6.5, any and all disputes, controversies and claims that the Borrower or any of its Subsidiaries may assert against the Holder arising out of or relating to this Note, the Purchase Agreement or any other Related Agreement shall be determined exclusively by arbitration (each such arbitration, an "Arbitration") in New York City before a panel of three neutral arbitrators agreed to by the Holder and the Borrower (collectively, the "Arbitrators") in accordance with and pursuant to the then existing commercial arbitration rules of the American Arbitration Association. The Borrower (on its behalf and on behalf of its subsidiaries) hereby irrevocably waives any right to assert such claims in any other forum. The Arbitrators shall have the power in their discretion to award specific performance or injunctive relief (but shall not have the power to render any incidental, special or punitive damages) and reasonable attorneys' fees and expenses to any party in any arbitration. The Arbitrators may not change, modify or alter any express condition, term or provision of this Note, the Purchase Agreement or of any other Related Agreement nor shall they have the power to render any award against the Holder that would have such effect. Each Arbitration award shall be final and binding upon the parties subject thereto and judgment may be entered thereon in any court of competent jurisdiction. The service of any notice, process, motion or other document in connection with an Arbitration or for the enforcement of any Arbitration award may be made in the same manner as communications may be given under Section 6.2 hereof. Notwithstanding the foregoing, the provisions of this Section 6.5 nor any other provision contained in this Note, the Purchase Agreement or in any other Related Agreement shall limit in any manner whatsoever the Holder's right to commence an action against or in connection with the Borrower, any of its Subsidiaries or their respective properties in any court of competent jurisdiction or otherwise utilize judicial process in connection with or arising out of the Holder's rights and remedies under this Note, the Purchase Agreement and/or any Related Agreement or otherwise (any such action, a "Court Action"). Court Actions may be brought by the Holder in any state or federal court of competent jurisdiction and the Borrower (on its behalf and on behalf of its Subsidiaries) irrevocably submits to the jurisdiction of such state and federal courts and irrevocably waives any claim or defense of inconvenient forum or lack of personal jurisdiction in such forum or right of removal or right to jury trial under any applicable law or decision or otherwise. Service of any notice, process, motion or other document in connection with a Court Action may be made in the same manner as communications may be given under Section 6.2. In addition, the Holder may serve process in any other manner permitted under applicable law. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower's obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court in favor of the Holder. 7 Maximum Payments. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower. Security Interest and Guarantee. Pursuant to the terms of the Laurus Related Agreements and the Reaffirmation Agreement, the Holder has been granted a security interest in the assets of the Borrower and its Subsidiaries and the obligations of the Borrower under this Note are guaranteed by certain Subsidiaries of the Borrower. Construction. Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other. Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay to Holder reasonable costs of collection, including reasonable attorney's fees. Extension of Maturity Date. On the Initial Maturity Date, the Maturity Date shall be extended to October 15, 2005 (the "Extended Maturity Date") upon the determination by the Holder, in its sole discretion, that the following conditions have been satisfied: (i) no Event of Default has occurred and is continuing and (ii) each item set forth on Schedule A to the Post-Closing Letter dated as of the date hereof by and between the Holder and the Borrower is satisfied within the time periods and under the conditions set forth thereon, all in a manner (and when applicable, amended by agreements, instruments and documents) satisfactory in form and substance to the Holder. On the Extended Maturity Date, the Maturity Date shall be extended to November 15, 2005 upon the determination by the Holder, in its sole discretion, that the following conditions have been satisfied: (i) no Event of Default has occurred and is continuing and (ii) the Holder has received not less than $2,000,000 of proceeds during the period from the date hereof through and including November 15, 2005 from the offering of the Borrower's and/or any of its Subsidiaries' common stock or other equity securities or from the Borrower's and/or its Subsidiaries' financing arrangement with a bank, financial institution or any other party to repay amounts outstanding under this Note and all other sums due, accrued or payable to the Holder arising under the transactions contemplated by this Note. [Balance of page intentionally left blank; signature page follows.] 8 IN WITNESS WHEREOF, the Borrower has caused this Secured Convertible Term Note to be signed in its name effective as of this 15th day of July, 2005. EPIXTAR CORP. By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- WITNESS: - ------------------------------- AGREED AND ACKNOWLEDGED: LAURUS MASTER FUND, LTD. By: ---------------------------------------------- Name: -------------------------------------------- Title: ------------------------------------------- 9 EXHIBIT A NOTICE OF CONVERSION (To be executed by the Holder in order to convert all or part of the Note into Common Stock) [Name and Address of Holder] The Undersigned hereby converts $_________ of the principal due on [specify applicable Repayment Date] under the Secured Convertible Term Note issued by Epixtar Corp. dated as of July 15, 2005 by delivery of Shares of Common Stock of Epixtar Corp. on and subject to the conditions set forth in Article III of such Note. 1. Date of Conversion _______________________ 2. Shares To Be Delivered: _______________________ By:________________________________ Name:______________________________ Title:_____________________________ 10 EX-4.15.1 4 b410993_ex4-151.txt EXHIBIT 4.15.1 EXHIBIT 4.15.1 AMENDMENT AGREEMENT WITH LAURUS This Amendment Agreement (this "AGREEMENT"), dated as of August 15, 2005, is entered into by and among EPIXTAR CORP. ("EPXR"), the other entities set forth on the signature pages hereto (EPXR and such other entities, each a "Company" and collectively the "COMPANIES") and LAURUS MASTER FUND, LTD. ("LAURUS"). Reference is made to (a) the Securities Purchase Agreement, dated as of July 15, 2005 (as the same may be amended, supplemented, restated or modified from time to time, the "PURCHASE AGREEMENT"), by and between EPXR and Laurus, (b) the Secured Convertible Term Note in the original principal amount of $6,200,000, dated as of July 15, 2005 (the "JULY 2005 TERM NOTE"), made by EPXR in favor of Laurus and (c) all documents, instruments and agreements executed in connection with the Purchase Agreement and the July 2005 Term Note (together with the Purchase Agreement and the July 2005 Term Note, collectively, and as may be amended, supplemented, restated or modified from time to time, the "JULY 2005 DOCUMENTS"). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: The defined term "Maximum Amount" set forth in the introductory paragraph of the July 2005 Term Note is hereby amended by deleting the words "Six Million Two Hundred Thousand Dollars ($6,200,000)" and replacing the same with the words "Fourteen Million Two Hundred Thousand Dollars ($14,200,000)"; All references in the July 2005 Documents to the July 2005 Term Note shall mean and refer to the July 2005 Term Note as amended pursuant to the terms hereof and as the same may be further amended, supplemented, restated or modified from time to time. EXPR hereby notifies Laurus that EXPR has appointed Mr. Martin Miller to the position of chief executive officer of EPXR. Laurus hereby acknowledges that such appointment is reasonably acceptable to Laurus. The Companies hereby notify Laurus that the Companies have hired and retained Realization Services, Inc. as one of the Companies' financial advisors (the "Financial Advisor"). Laurus hereby acknowledges that such retention is reasonably acceptable to Laurus. Each Company acknowledges that it shall fully cooperate with the Financial Advisor and hereby authorizes the Financial Advisor to conduct all such examinations with respect to such Company's financial condition, business, assets, liabilities and prospects, including without limitation a complete and thorough examination of each Companies' books and records, in each case as the Financial Advisor may from time to time deem appropriate. All fees and expenses of the Financial Advisor shall be the sole responsibility of the Companies and in no event shall Laurus have any liability or responsibility for the payment of such fees or expenses nor shall Laurus have any obligation or liability to any Company or any other person or entity by reason of any acts or omissions of the Financial Advisor. Each Company hereby acknowledges that all proceeds of Collateral (as hereafter defined) received by Laurus shall be applied by Laurus to the obligations and liabilities of the Companies to Laurus in such order as Laurus shall elect. For purposes hereof, the term "Collateral" means those assets of any Company in which Laurus has been granted a security interest. 1 Except as expressly provided herein, all of the representations, warranties, terms, covenants and conditions of the July 2005 Documents shall remain unamended and shall continue to be and shall remain in full force and effect in accordance with their respective terms. Except as expressly provided herein, this Agreement shall not act as a wavier or excuse of performance of any obligations contained in any of the July 2005 Documents. The Companies hereby represent and warrant to Laurus that as of the date hereof all representations, warranties and covenants made by the Companies under the July 2005 Documents are true, correct and complete and the Companies' covenant requirements set forth in such documents have been met. The Companies hereby acknowledge that if any Company breaches any of the provisions of this Agreement applicable to it, such breach will constitute an "Event of Default" pursuant to the July 2005 Term Note, the other July 2005 Documents and all other documents, instruments and agreements by and between Laurus and any one or more of the Companies. The Companies acknowledge that (i) certain post-closing items required to be delivered to Laurus in accordance with the terms of the post-closing letter dated July 15, 2005 remain outstanding, (ii) Laurus has not waived delivery of such post-closing items and (iii) Laurus reserves all of its rights and remedies in connection therewith. This Agreement shall be binding upon the parties hereto and their respective successors and permitted assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and permitted assigns. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one agreement. * * * * IN WITNESS WHEREOF, each Company and Laurus have caused this Agreement to be effective and signed in its name effective as of the date set forth above. EPIXTAR CORP. By:________________________________ Name: Title: NOL GROUP, INC. By:________________________________ Name: Title: NATIONAL ONLINE SERVICES, INC. By:________________________________ Name: Title: LIBERTY ONLINE SERVICES, INC. 2 By:________________________________ Name: Title: AMERIPAGES, INC. By:________________________________ Name: Title: [SIGNATURE LINES CONTINUED ON FOLLOWING PAGE] B2B ADVANTAGE, INC. By:________________________________ Name: Title: EPIXTAR INTERNATIONAL CONTACT CENTER GROUP, INC. By:________________________________ Name: Title: VOXX CORPORATION By:________________________________ Name: Title: EPIXTAR MARKETING CORP. By:________________________________ Name: Title: LAURUS MASTER FUND, LTD. By:________________________________ Name: Title: 3 EX-4.15.2 5 b410993_ex4-152.txt EXHIBIT 4.15.2 EXHIBIT 4.15.2 REAFFIRMATION AND RATIFICATION AGREEMENT WITH LAURUS August 15, 2005 Laurus Master Fund, Ltd. c/o Laurus Capital Management LLC 825 Third Avenue New York, New York 10022 Ladies and Gentlemen: Reference is made to (a) the Subsidiary Guaranty, dated as of May 14, 2004 (the "2004 Guaranty"), made by NOL Group, Inc. ("NOL"), National Online Services, Inc. ("National Online"), Liberty Online Services, Inc. ("Liberty Online"), Ameripages, Inc. ("Ameripages"), Epixtar International Contact Center Group, Inc. (f/k/a Epixtar BPO Services Corp. ) ("International Contact"), B2B Advantage, Inc. ("B2B", and collectively with NOL, National Online, Liberty Online, Ameripages and International Contact, the "Original Guarantors"), Epixtar International Contact Center Group, Ltd. ("Epixtar International"), and Epixtar Philippines IT-Enabled Services Corporation ("Epixtar Philippines") in favor of Laurus Master Fund, Ltd. ("Laurus"), (b) the Guaranty, dated as of April 29, 2005 (the "2005 Guaranty"), made by the Original Guarantors, Epixtar Corp. ("EPXR"), Voxx Corporation ("Voxx"), and Epixtar Marketing Corp. ("Epixtar Marketing") in favor of Laurus, (c) the Master Security Agreement, dated as of May 14, 2004 (the "2004 Master Security Agreement"), among EPXR, the Original Guarantors and Laurus (d) the Master Security Agreement, dated as of April 29, 2005 (the "2005 Master Security Agreement"), among EPXR, the Original Guarantors, Voxx, Epixtar Marketing and Laurus, (e) the Stock Pledge Agreement, dated as of May 14, 2004 (the "2004 Stock Pledge"), among EPXR, the Original Guarantors and Laurus and (f) the Stock Pledge Agreement, dated as of April 29, 2005 (the "2005 Stock Pledge"), among EPXR, the Original Guarantors, Voxx, Epixtar Marketing and Laurus, as amended, modified and supplemented from time to time (collectively, the "Agreements"). To induce Laurus to enter into an Amendment Agreement dated as of the date hereof among EXPR, the Original Guarantors, Voxx, Epixtar Marketing and Laurus (the "Amendment Agreement") pursuant to which Laurus agreed to increase the maximum loan amount available to EXPR under (a) a Securities Purchase Agreement dated as of July 15, 2005 between EPXR and Laurus (as amended by the Amendment Agreement and as may be further amended, restated, modified or supplemented from time to time, the "Securities Purchase Agreement") and (b) a Secured Convertible Term Note dated as of July 15, 2005 by EPXR in favor of Laurus (as amended by the Amendment Agreement and as may be further amended, restated, modified or supplemented from time to time, the "Term Note"), each of the undersigned hereby: 1. represents and warrants to Laurus that it has reviewed and approved the terms and provisions of the Amendment Agreement and the documents, instruments and agreements entered into in connection therewith; 2. acknowledges, ratifies and confirms that all of the terms, conditions, representations and covenants contained in the Agreements are in full force and effect and shall remain in full force and effect after giving effect to the execution and effectiveness of the Amendment Agreement; 3. acknowledges, ratifies and confirms that all liabilities and obligations of each of the undersigned under the Agreements include, without limitation, all obligations and liabilities of EPXR under the Securities Purchase Agreement, the Term Note and the Related Agreements (as defined in the Securities Purchase Agreement), each as amended by the Amendment Agreement; 1 4. represents and warrants that no offsets, counterclaims or defenses exist as of the date hereof with respect to any of the undersigned's obligations under any Agreement; 5. acknowledges, ratifies and confirms the grant by each such undersigned to Laurus of a security interest and charge, to the extent applicable, in the assets of such undersigned as more specifically set forth in the Agreements; 6. acknowledges, ratifies and confirms that the term "Indebtedness" under the 2004 Stock Pledge and the 2005 Stock Pledge and the term "Obligations" under the 2004 Guaranty, the 2005 Guaranty, the 2004 Master Security Agreement and the 2005 Master Security Agreement include, without limitation, all obligations and liabilities of EPXR to Laurus under the Securities Purchase Agreement, the Term Note and the Related Agreements (as defined in the Securities Purchase Agreement), each as amended by the Amendment Agreement, and all other obligations and liabilities of the undersigned to Laurus (including interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed or allowable in such proceeding), whether now existing or hereafter arising, direct or indirect, liquidated or unliquidated, absolute or contingent; and 7. releases, remises, acquits and forever discharges Laurus and Laurus' employees, agents, representatives, consultants, attorneys, fiduciaries, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, and related corporate divisions (all of the foregoing hereinafter called the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Reaffirmation and Ratification Agreement, the Agreements, the Amendment Agreement, the Securities Purchase Agreement, the Term Note, the Related Agreements (as defined in the Securities Purchase Agreement), the Securities Purchase Agreement, dated as of May 14, 2004 (as amended, restated, modified or supplemented, the "May 2004 Securities Purchase Agreement"), between EPXR and Laurus, the Related Agreements (as defined in the May 2004 Securities Purchase Agreement), the Securities Purchase Agreement, dated as of April 29, 2005 (as amended, restated, modified or supplemented, the "April 2005 Securities Purchase Agreement"), among EPXR, Voxx and Laurus, the Related Agreements (as defined in the April 2005 Securities Purchase Agreement) or any other document, instrument or agreement made by the undersigned in favor of Laurus. This agreement shall be governed by and construed in accordance with the laws of the State of New York. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] 2 Very truly yours, EPIXTAR CORP. By: Name: Title: VOXX CORPORATION By: Name: Title: EPIXTAR MARKETING CORP. By: Name: Title: NOL GROUP, INC. By: Name: Title: NATIONAL ONLINE SERVICES, INC. By: Name: Title: 3 LIBERTY ONLINE SERVICES, INC. By: Name: Title: AMERIPAGES, INC. By: Name: Title: B2B ADVANTAGE, INC. By: Name: Title: EPIXTAR INTERNATIONAL CONTACT CENTER GROUP, INC. By: Name: Title: EPIXTAR INTERNATIONAL CONTACT CENTER GROUP, LTD. By: Name: Title: 4 EPIXTAR PHILIPPINES IT-ENABLED SERVICES CORPORATION By: Name: Title: ACCEPTED AND AGREED TO: LAURUS MASTER FUND, LTD. By: ____________________________________ Name: ____________________________________ Title: ____________________________________ 5 EX-10.18 6 b410993_ex10-18.txt EXHIBIT 10.18 EXHIBIT 10.18 SETTLEMENT AGREEMENT This Settlement Agreement ("Agreement"), effective as of the date executed by all parties below, is made between SER SOLUTIONS, INC., having a place of business at 21680 Ridgetop Circle, Dulles, VA 20166 ("SER"), and EPIXTAR CORPORATION ("EPIXTAR CORP."), VOXX CORPORATION ("VOXX"), INNOVATIVE STRATEGIES, INC. ("IMS") and EPIXTAR MARKETING CORPORATION ("EMC") (collectively "Epixtar"), each having a place of business at 11900 Biscayne Boulevard, Suite 700, Miami, Florida 33181. WHEREAS, SER and IMS are parties to a software license agreement dated November 3, 2003 (entitled "SER Solutions, Inc. Standard Terms and Conditions: Telephony" (Rev. 1.11.03); herein "Software License Agreement"); and WHEREAS, SER and IMS are parties to a Maintenance Agreement for the SER Software between SER and IMS dated November 3, 2003 (entitled "SER Solutions, Inc. Maintenance Terms and Conditions: Telephony," (Rev. 1.11.03) and "SER Solutions, Inc. Maintenance Service Addendum: Telephony" (Rev. 1.11.03) collectively "Maintenance Agreement"); and WHEREAS, on or about March 1, 2004, SER and IMS entered into a Confession of Judgment Promissory Note ("Promissory Note") in the amount of $698,641.81; and WHEREAS, Epixtar failed to pay multiple invoices for maintenance and support services due under the Maintenance Agreement in an amount of approximately $117,000; and WHEREAS, Epixtar failed to make certain installment payments under the Promissory Note and on March 25, 2005, under the terms of the Promissory Note, a Confession of Judgment in the amount of $539,756.00 was entered against IMS by the Fairfax County Circuit Court ("Judgment"); and WHEREAS, on June 3, 2005, SER terminated the Software License Agreement and Maintenance Agreement; and WHEREAS, SER filed a lawsuit against Epixtar in a case styled SER Solutions, Inc. v. Epixtar, et al., Civ. No. 1:05 CV 674 (E.D. Va.), alleging copyright infringement, breach of contract, misappropriation of trade secrets in violation of the Virginia Trade Secrets Act, conversion, and unjust enrichment (the "Litigation"); and WHEREAS, SER filed a Motion for a Temporary Restraining Order and Expedited Discovery in the Litigation, which was heard on June 17, 2005 (the "TRO"); and WHEREAS, during the hearing on the Injunction, the Court ruled that SER is entitled to the requested TRO and ordered that IMS and anyone acting in active concert or participation with IMS (collectively "Epixtar"): (i) shall, no later than June 24, 2005 at 5:00 p.m. EDT, make any and all versions or copies of SER's Software (as defined in the Litigation and TRO) available to SER by modem access so that any and all SER Software may be immediately disabled by SER; (ii) are ENJOINED from any use whatsoever of any SER Software after 5:00 p.m. on June 24, 2005 (and shall not reproduce, distribute or transfer any SER Software prior to June 24, 2005); and (iii) shall, no later than June 30, 2005, return to SER all versions and copies of the SER Software by returning to SER, at SER's expense, all hard drives (including those located in the Call Manager servers and Encore servers), and switches and cards containing any SER Software (including as applicable in the Call Processors or TSP500s) so that SER would promptly remove its Software and within seven (7) business days of receipt, return all such hard drives, switches and cards; and WHEREAS, SER alleges that Epixtar is indebted to SER in an amount of at least $706,000, which includes the Judgment, the past due amounts under the Maintenance Agreement and SER's costs and attorneys fees for filing the Litigation and the TRO ("Debt Due to SER"); and 1 WHEREAS, SER and Epixtar (collectively the "Parties") wish to enter into a business arrangement to resolve issues in the Litigation, Injunction, and Judgment, and to reinstate the Software License Agreement and Maintenance Agreement, pursuant to the terms herein; and WHEREAS, SER and IMS have conducted business together for many years and the relationship between the companies has been managed by IMS' former president Bradley Yeater; and WHEREAS, SER believes that for a business relationship to continue and thrive between SER and Epixtar, that Mr. Yeater must remain SER's contact at Epixtar and must continue to manage the relationship on behalf of Epixtar; and NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. Epixtar will execute a standard SER Purchase Order no later than June 23, 2005, in the amount of $3,070,000 ("PO"), pursuant to which Epixtar will purchase at least 2,000 seats of SER's dialers ("Dialer Seats") based on the schedule in Paragraph 1(c) below, which include software and hardware as set forth in Paragraphs 1(a) and 1(b): a. Software -- Epixtar may purchase either CPS or the CPS Enterprise Edition ("CPS E(2)"), each of which would include the latest version of the SER software. CPS does not include the Contact Studio product. b. Hardware -- If Epixtar elects to purchase CPS, the included hardware is comprised of the applicable number of Call Manager servers and TSP500 dialers configured at 288 seats at a 2:1 line to agent ratio. If Epixtar elects to purchase CPS E(2), the included hardware is comprised of the applicable number of Application Servers, Portfolio Manager Servers, and TSP500 dialers configured at 384 seats at a 2:1 line to agent ratio. c. Dialer Seat delivery schedule and price (each row represents a "Seat Bundle") Delivery By: Seats Price per Seat ------------ ----- -------------- June '05 200 2500 Sep '05 200 2200 Dec '05 200 1900 March '06 300 1600 June '06 300 1300 Sep '06 400 1000 Dec '06 400 700 2. In addition to spending at least $2,870,000 on purchasing 2,000 Dialer Seats as set forth in Paragraph 1(c), Epixtar will use the remaining $200,000 of the PO to purchase additional SER products and/or services, such as installation services, configuration services, spare part kits, and training. a. SER resells a recording product manufactured by Wygant. In the event Epixtar wishes to purchase the Wygant recording product for all Dialer Seats in any Seat Bundle purchased under the PO, SER will sell such Wygant product at a per-seat price of $650 for voice recording only and $950 per seat for voice recording plus Remote Client Monitoring, Quality Reviewing Module, and screen recording. 2 3. Within five (5) days of the execution of the PO, Epixtar shall issue a press release, announcing that it has entered into an agreement to purchase 2,000 Dialer Seats of SER's outbound dialers ("Press Release"). Epixtar shall provide a draft of such press release to SER for its review and approval prior to issuing the press release. 4. The Dialer Seats delivered under this Agreement shall be licensed under the terms of SER's standard Software License Agreement. 5. Epixtar shall pay for the Dialer Seats in each Seat Bundle as follows: (i) an initial deposit of 50% of the total amount due for the Dialer Seats in each Seat Bundle upon scheduling delivery of such Dialer Seats; and (ii) the remaining 50% within ninety (90) days of the delivery of such Dialer Seats. 6. No later than June 31, 2005, Epixtar shall pay to SER the sum of $250,000 ("Initial Deposit") by wire transfer, of which no less than $100,000 shall be paid by wire transfer no later than June 24, 2005. The Initial Deposit shall be applied toward the 50% deposit due for delivery of the first Seat Bundle. 7. Epixtar shall execute SER's standard Confession of Judgment Promissory Note in the amount of $3,423,000, which is comprised of $3,070,000 set forth in the PO and $353,000, which represents the 50% of the Debt Due to SER that is not being forgiven under this Settlement Agreement, as set forth in Paragraph 8 below ("New Note"). Epixtar may make prepayments under the New Note at any time without penalty and all such prepayments shall be applied toward the amounts due to SER under the PO and any amount of the Debt Due to SER that is not forgiven under this Settlement Agreement. 8. Upon SER's receipt of the Initial Deposit, the signed PO, the signed MOF, the fully executed New Note, and Epixtar's issuance of the Press Release (collectively "Conditions"), and subject to the terms of Paragraph 11 of this Settlement Agreement, and Epixtar's compliance with the other terms of this Settlement Agreement, SER will forgive $353,000 (50%) of the Debt Due to SER. 9. In the event Epixtar agrees to replace all of its current outbound dialer systems that are manufactured by any company other than SER, and agrees to use SER dialers exclusively for its outbound operations, SER will forgive the remaining $353,000 of the Debt Due to SER; provided Epixtar issues a press release no later than June 30, 2005, announcing that it has standardized on SER as its sole outbound dialer vendor and will replace the seats of its other vendor(s). Epixtar shall provide a draft of such press release to SER for its review and approval prior to issuing the press release. 10. No later than June 24, 2005, Epixtar will execute a Maintenance Order Form to expand the Maintenance Agreement to the new Dialer Seats being purchased under the PO. Epixtar may select either a three (3) year or five (5) year initial term under the following prices: (i) three (3) year term - $435.75 per seat; or (ii) five (5) year term - $379.00 per seat. 11. Upon completion of the Conditions, SER will withdraw its Complaint in the Litigation and will cease all attempts to collect any unpaid portion of the Judgment; provided, however, that, notwithstanding any other provision of this Settlement Agreement, in the event Epixtar breaches any term of this Settlement Agreement or defaults on any payment obligation to SER contemplated under this Settlement Agreement, SER may, at its election, declare the Settlement Agreement null and void ab initio, and may resume any and all efforts to collect the Judgment, reinstate the Litigation, seek the payment of all unpaid Maintenance Fees, seek payment for all money damages and attorneys fees (including the entire amount of the Debt Due to SER), and seek any and all additional remedies or rights that may be available to SER. The Parties agree that between the signing of this Settlement Agreement and June 30, 2005, each Party will stay all activities relating to the Judgment, including SER's attempts to collect the Judgment and Epixtar's attempts to set aside the Judgment. Additionally, Epixtar agrees that it on or before June 30, 2005, it will with withdraw papers filed in the Fairfax Circuit Court in an attempt to set aside the Judgment. 3 12. Upon completion of the Conditions, and subject to the terms of Paragraph 11 of this Settlement Agreement, SER will reinstate the Software License Agreement and the Maintenance Agreement for the 450 seats that were licensed thereunder, each effective retroactively to June 3, 2005. 13. Upon completion of the Conditions, and subject to the terms of Paragraph 11 of this Settlement Agreement, SER, on behalf of itself and its directors, officers, shareholders and employees (collectively the "SER Releasors") releases and discharges Epixtar and its directors, officers, shareholders and employees (the "Epixtar Released Parties") from any and all claims against any of the Epixtar Released Parties based on or arising out of claims alleged in the Litigation, Injunction, and Judgment. 14. Epixtar, on behalf of itself and its directors, officers, shareholders and employees (collectively the "Epixtar Releasors") hereby releases and forever discharges SER and its directors, officers, shareholders and employees (the "SER Released Parties") from any and all claims against any of the SER Released Parties based on or arising out of claims alleged in the Litigation, Injunction, and Judgment. 15. No later than June 30, 2005, SER and Epixtar shall submit to the United States District Court for the Eastern District of Virginia a joint Consent Order dismissing without prejudice the Litigation. The Parties agree that the Court shall retain jurisdiction to enforce the terms of this Settlement Agreement. 16. Epixtar shall ensure that Mr. Yeater shall remain SER's primary contact at Epixtar and have continued responsibility to manage the ongoing relationship between the companies during the term of this Settlement Agreement. 17. Except as specifically set forth in this Settlement Agreement, each Party shall bear its own costs and expenses, including attorneys' fees. 18. Each Party acknowledges that it has reviewed and read this Settlement Agreement, and it understands the terms of this Settlement Agreement and the consequences of signing and delivering this Settlement Agreement. 19. Each Party represents and warrants that it has the full power and is authorized to execute this Settlement Agreement, and each person whose signature appears on this Settlement Agreement on behalf of such Party has been duly authorized and has full power and authority to execute this Settlement Agreement on behalf of such Party. 20. Each Party has had the opportunity to select and confer with counsel of its choice to review and read this Settlement Agreement, and has inquired of and discussed with such counsel the consequences of the execution of this Settlement Agreement and its delivery to the other Parties. 21. Epixtar on behalf of itself and the Epixtar Releasors, warrants and represents that it has not assigned, transferred, sold or otherwise permitted any third party to use any of the SER Software. The Parties represent that they have not assigned, transferred, or otherwise alienated the potential claims or demands that relate to the Litigation. 22. This Settlement Agreement may be executed in any number of counterparts and any Party hereto may execute any such counterpart each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 23. This Agreement and any Exhibits hereto represent the complete and exclusive statement of the terms of their agreement with respect to the subject matter hereof and supersedes all prior communications, offers, agreements, understandings, or representations of any kind or character, whether written or oral, related to such subject matter. Any unwritten terms, covenants, conditions, or representations, if any, that may have been made are agreed to be immaterial, and none of them were relied upon by any Party in entering into this Agreement. 4 24. All notices, requests or other communications in connection with or relating to this Agreement must be in writing and sent by (a) certified mail, with return receipt requested, (b) Federal Express or other overnight service or (c) by facsimile and regular mail. A notice shall be deemed to have been delivered on the date that it was sent. Notices shall be sent to the following addresses: SER SOLUTIONS, INC. EPIXTAR CORPORATION, IMS, VOXX and EMC c/o Charles B. Molster, III Gary Meringer, Steven J. Silverman Winston & Strawn LLP General Counsel 1700 K Street, N.W. Epixtar Corporation Washington, D.C. 20006 11900 Biscayne Boulevard Phone: (202) 282-5988 Suite 700 Fax: (202) 282-5100 Miami, Florida 33181 Phone: (305) 503-8600 Fax: (305) 503-8610 With copy to With a copy to: SER Solutions, Inc. Bradley Yeater c/o General Counsel EPIXTAR MARKETING CORP. 21680 Ridgetop Circle 11900 Biscayne Boulevard Dulles, VA 20166 Suite 700 Miami, Florida 33181
The Parties may, by written notice, designate a different address for notices, requests or other communications or different or additional persons to be notified or to receive requests or other communications. 25. No modification, amendment or waiver of any of the terms or provisions of this Agreement shall bind the Parties unless such modification, amendment or waiver is in writing and has been executed by a duly authorized representative of the entity against whom such modification, amendment or waiver is sought to be enforced. No delay or omission by either Party in exercising any right or power occurring upon any noncompliance or default by the other with respect to any of the terms and provisions of this Agreement will impair any such right or power or be construed to be a waiver thereof. A waiver by any of the Parties of any of the covenants, conditions or agreements to be performed by the other will not be construed to be a waiver by that Party of any succeeding breach thereof or of any other covenant, condition or agreement contained in this Agreement. 26. This Settlement Agreement and any disputes regarding its interpretation or enforcement shall be governed by the law of the Commonwealth of Virginia, without regard to its choice of law provisions, and any litigation relating to or arising from this Agreement may only be brought in the state or federal courts of the Commonwealth of Virginia, and the Parties agree to be bound by the jurisdiction of such courts. 27. This Agreement is a negotiated document prepared by one party as a matter of convenience. In the event of any dispute between the parties, neither party shall assert that the provisions of this Agreement should be construed against or in favor of either party solely as a consequence of such party's preparation, or lack of preparation, of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Settlement Agreement intending to be fully bound by its terms, effective this __th day of June 2005. 5 EPIXTAR CORPORATION By: ______________________________________ DATE: June __, 2005 Title: ___________________________________ INNOVATIVE MARKETING STRATEGIES, INC. By: ______________________________________ DATE: June __, 2005 Title: ___________________________________ VOXX CORPORATION By: ______________________________________ DATE: June __, 2005 Title: ___________________________________ EPIXTAR MARKETING CORP. By: ______________________________________ DATE: June ___, 2005 Title: ___________________________________ SER SOLUTIONS, INC. By: ______________________________________ DATE: June ___, 2005 Title: ___________________________________
6 EX-10.19 7 b410993_ex10-19.txt EXHIBIT 10.19 EXHIBIT 10.19 CONSULTING AGREEMENT Consulting Agreement (this "Agreement"), dated as of July 20, 2005, by and between REALIZATION SERVICES, INC., a New York corporation (the "Consultant"); and Epixtar Corp., a Florida corporation ("Epixtar"), and each of the other companies shown on the signature pages hereto (i.e., pages 14, 15 and 16 hereto), each of which is a directly or indirectly owned subsidiary of Epixtar (collectively, the "Affiliates", and together with Epixtar, the "Client"). The Consultant and the Client are sometimes referred to herein individually as a "Party" and collectively as the "Parties." WHEREAS, the Client desires to retain the Consultant, and the Consultant desires to be retained by the Client, pursuant to the terms and conditions set forth in this Agreement (the engagement hereunder, the "Engagement"). NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties do hereby agree as follows: TERM The term of this Agreement shall commence as of the date set forth above (the "Effective Date") and continue through November 12, 2005 (the "Term"). The Client may terminate this Agreement at any time on not less than one (1) day's prior written notice to the Consultant; provided, however, that any such termination shall only be effective if the Client has paid to the Consultant all amounts due to be paid or reimbursed by it hereunder prior to any such termination. Any engagement of Consultant after the Term, or extension of the Term, is subject to the provisions of Section 11 hereof. ASSIGNMENT OF WORK PERFORMED; PRIMARY CONTACT The Consultant will supervise and coordinate the performance of the services to be performed by its personnel pursuant to this Agreement, as more particularly set forth in Section 3 hereof, and will be responsible for the overall Engagement and for the interaction of such personnel with the Client. The Consultant's personnel shall be physically present at the business premises of the Client at such times and frequency during the course of the Engagement as the Consultant may reasonably determine. The Consultant shall perform its services for, and shall report to, the Board of Directors of Epixtar (the "Board of Directors"). The Board of Directors has designated Martin Miller, shareholder, as the Consultant's primary contact at the Client for the purposes of the Engagement. 1 CONSULTING SERVICES The Client hereby engages the Consultant as consultant to the Board of Directors to perform the following crisis-management, turnaround and other consulting services during the Term: (i) developing a plan to attempt to bring the Client's activities in the United States and the Philippines to a cash break-even level, on an operating-alone basis by October 10, 2005, and on an overall operating and non-operating basis by November 12, 2005, (ii) in connection with such development of such plan, assisting the Client in identifying the customers of the Client that are profitable and those that are not profitable, the employees of the Client that it should retain and those that it should terminate, and the other expenses of the Client that should be reduced and the extent of such reductions, (iii) assisting the Client in implementing such plan and improving operating efficiencies, (iv) creating a computer-based model of the Client's business to enable the Client to: (A) perform forecasting and budgeting with respect to its operations, (B) monitor its expenditures over time, and (C) measure its performance over time against budget and other milestones, (v) assisting the Client in communicating and dealing with its senior lender, Laurus Master Fund, Ltd. (the "Senior Lender"), and (vi) preparing such reports and other information as the Senior Lender and the Client may from time to time require (collectively, the "Consulting Services"). Consultant's role shall be strictly limited to that of an advisor to Client and nothing contained herein to the contrary shall authorize Consultant to act in any other capacity. During the Term, the Client shall: (i) provide the Consultant's personnel with access to the Client's premises in order to facilitate the Consultant's performance of the Consulting Services, and (ii) furnish to the Consultant promptly such financial statements, business records and other documents and instruments as the Consultant may specify as necessary or desirable for its performance of the Consulting Services. For its performance of the Consulting Services during the Term, the Consultant shall be entitled to receive: (i) for each week during the Term, its Daily Fees (as defined in Section 4 below) for the Consulting Services performed during that week, in accordance with the procedures set forth in Section 7 below, (ii) a Bonus (as defined in Section 9 below), subject to and in accordance with the terms of Sections 9 and 10 below, and (iii) all costs, expenses, disbursements and other amounts, approved by Client in advance, that are reimbursable to the Consultant under this Agreement, subject to the applicable limitations set forth in Section 6 below. The Consultant acknowledges that the Client has budgeted the amount of $228,166 (the "Budgeted Amount") to pay the cost of the Consultant's Consulting Services during the Term, based on the Daily Rates (as defined in Section 4 below) which represents a substantial discount from Consultant's regular rates. The Consultant currently estimates that, based on the description of the Consulting Services set forth in Section 3(a) above, the aggregate amount of the Consultant's Daily Fees for the Consulting Services during the Term will be not less than 85% nor more than 115% of the Budgeted Amount. The Parties acknowledge that neither the Consulting Services nor the estimate of the aggregate Daily Fees set forth above includes any of the following: (i) any work in assisting the Client to expand its operations beyond its existing lines of business, (ii) any work in performing due diligence to assist the Client in determining whether to enter into or consummate any merger, consolidation or other business combination with any third party, (iii) any assistance in selling time-sharing, (iv) any forensic work, or (v) any work beyond the end of the Term. The Client acknowledges that in the event it desires to expand the Consulting Services beyond those specifically described above, such additional services shall be conditioned upon the Consultant's agreement to perform the same and the Client's payment to the Consultant of compensation at the Daily Rates set forth in Section 4 below, or such other compensation or remuneration as to which the Parties agree and for which they enter into a written agreement. CONSULTING RATES The following rates (the "Daily Rates") shall apply, in accordance with the terms of this Agreement, to all work performed in furtherance of the Consulting Services during the Term, whether such work is performed at the Client's places of business or at other locations (such as the Consultant's place of business): (i) one thousand seven hundred thirty-three dollars ($1,733) per day for work performed by Barry Kasoff, (ii) one thousand twenty-one dollars ($1,021) per day for work performed by Vincent McCann, (iii) nine hundred fifty-three dollars ($953) per day for work performed by William McOmie, (iv) nine hundred thirty-two dollars ($932) per day for work performed by Daniela Kovatsch, and (v) five hundred forty-one dollars ($541) per day for work performed by Michael Camanzo. The term "Daily Fees" as used in this Agreement shall mean the consulting fees paid or to be paid to the Consultant based upon the Daily Rates for services provided hereunder (exclusive of any costs, expenses, disbursements and other amounts that are reimbursable to the Consultant under this Agreement). Client acknowledges that the Daily Rates hereinabove set forth represent a substantial discount from Consultant's regular hourly rates and that the Bonus amounts referenced in Sections 9 and 10 hereof, and the equity compensation referred to in Section 11 hereof, represent a mechanism for Consultant, upon achieving identified results or milestones, to realize its full rates and additional incentive compensation for the successful performance of its Consulting Services. 2 The Consultant's personnel will work as many hours/days as is necessary in order to complete the Consulting Services. The Client agrees that: (i) eight hours of work by an individual consultant on a given day will result in billing for that individual consultant for an entire day, (ii) the Consultant will invoice at its Daily Rates in increments of one-twentieth of a (minimum) eight-hour day, and (iii) the Consultant will invoice for the time that its personnel (including staff consultants and any Qualified Contractors retained pursuant to Section 5 below) expend in traveling in the course of performing the Consulting Services, including time spent traveling to and from the Client's business locations from and to the Consultant's headquarters location and the respective home locations of such personnel. Consultant shall obtain Client's approval prior to incurring any such travel expenses. QUALIFIED CONTRACTORS The Consultant may, with the prior approval of Client, retain the services of qualified parties who are not employed by the Consultant ("Qualified Contractors") to render services in furtherance of the Engagement. The Consultant may pass through to the Client the actual costs of such outside services without any increase or mark-up, but only in an aggregate amount during the Term of not more than three percent (3%) of the aggregate amount of the Consultant's Daily Fees during the Term. Subject to such limitation, such costs shall be treated as a reimbursable expense hereunder. For this purpose, Qualified Contractors shall not include any counsel retained by the Consultant. EXPENSES AND DISBURSEMENTS The Client will reimburse the Consultant for: (a) subject to the prior approval of Client, all reasonable out-of-pocket disbursements and expenses that the Consultant's personnel (including staff consultants and any Qualified Contractors) incur for travel, transportation, hotel and related costs, meals, office supplies, and incidental expenses while performing work related to the Consulting Services, and (b) the services of any Qualified Contractors retained by the Consultant pursuant to Section 5 above. INVOICES; PAYMENTS; CERTAIN REMEDIES Invoices On Monday of each week throughout the Term, the Consultant shall render an invoice to the Client at the Daily Rates for the Consulting Services rendered during the previous week (each such invoice, an "Invoice", and collectively, the "Invoices"). For purposes of this Agreement, the Consultant's week shall commence on each Monday and run through the following Sunday. Within two (2) Business Days (as defined below) after its receipt of each Invoice (ordinarily, by the close of business on Wednesday of each week), the Client shall either: (i) approve such invoice and evidence its approval by causing an authorized representative of the Client to sign the bottom of such invoice and delivering a copy of such signed invoice to the Consultant, or (ii) deliver to the Consultant a written statement (a "Written Statement") signed by an authorized representative of the Client detailing the Client's specific objections to such invoice. If the Client does not deliver such signed Invoice or such a Written Statement within such two (2) Business Day period, such Invoice shall be deemed accepted by the Client. If such a Written Statement is delivered within such two (2) Business Day period, the Client and the Consultant shall discuss the Client's objections set forth therein in good faith, and use their reasonable efforts to resolve the same within ten (10) Business Days after the end of such two (2) Business Day period. The Consultant shall adjust and reissue its Invoices in order to take into account any such resolution(s) between the Parties. Payments Subject only to the procedures and requirements set forth in Section 7(a) above, the Client shall pay to the Consultant, in immediately available funds, not later than the third Business Day after the date of delivery of each Invoice (ordinarily, not later than Thursday of each week), the Daily Fees and the reimbursable disbursements and amounts set forth in such Invoice. Client must also obtain the consent of its Senior Lender to enter into this Agreement. In the event Client's Senior Lender does not consent to payments due Consultant, Client will not be deemed to be in default hereunder. 3 Certain Remedies If the Client fails to make timely payments as required under Section 7(b) above, or under any other provision of this Agreement, or if the Client fails to sign and deliver an Invoice within the two (2) Business Day period specified in Section 7(a) above, or to sign and deliver a Written Statement within such two (2) Business Day period and proceed in good faith to discuss and resolve the same, or if the Client and the Consultant do not resolve the Client's objections set forth in any Written Statement within the ten (10) Business Day resolution period, then: (i) the Consultant may suspend or discontinue the performance of the Consulting Services or terminate this Agreement without any further liability or obligation to the Client, without limitation as to the Consultant's rights and remedies to obtain full payment of all amounts and disbursements due in accordance with the terms and conditions of this Agreement, and/or (ii) either Party may seek a determination of any disputed or unpaid amount invoiced under this Section 7 in accordance with Section 23 below. In the event of any dispute, the Client shall pay to the Consultant all sums that are not the subject of a bona fide dispute. Definition For the purposes of this Section 7, "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are required or authorized to close. RETAINER The Client shall pay to the Consultant, at the commencement of the Term, a retainer of $25,000 against any and all sums due and owing to the Consultant under this Agreement. The Consultant may maintain such retainer balance until the conclusion of the Engagement and may, at such time or times as the Consultant deems appropriate, apply such balance in payment of outstanding Daily Fees, costs, expenses, disbursements and other amounts due to the Consultant under this Agreement. The Consultant shall, within fifteen (15) calendar days after the end of the Term, reimburse to the Client any amount that the Consultant holds in excess of sums due from the Client hereunder. The Parties acknowledge that such fifteen-day period is necessary to enable the Consultant to make a final determination as to any outstanding Daily Fees, costs, expenses, disbursements and other amounts that may be due to it. BONUS AND ESCROW ACCOUNT The Consultant will be entitled to receive from the Client, and the Client shall be obligated to pay to the Consultant, a bonus (the "Bonus") in an amount not to exceed two times 115% of the Budgeted Amount, or $524,782 (the "Bonus Cap"), on the terms and subject to the conditions set forth in this Section 9 and in Section 10 below. For each one (1) dollar of Daily Fees that the Client is to pay to the Consultant pursuant to Invoices rendered by the Consultant pursuant to Section 7 above, the Client will pay into a segregated escrow account two (2) dollars in cash towards the Bonus, subject, however, to the Bonus Cap. The Client shall make such cash payments into such an escrow account as and when the related Daily Fees are due and payable in accordance with Section 7 above (the amount of such funds that should be on deposit in such escrow account pursuant hereto from time to time, the "Bonus Funds"). The Client and Consultant will establish the escrow account for the benefit of "Realization Services, Inc., as Consultant", at or with a law firm or banking institution mutually acceptable to the Parties as soon as possible after the execution and delivery of this Agreement by both Parties. For purposes hereof, the Senior Lender is mutually acceptable to the Parties to serve as escrow agent. The Parties will cooperate in good faith to execute such documentation with respect to such account as shall be reasonably acceptable to them, consistent with the terms hereof, and shall enter into an escrow agreement with the designated escrow agent, consistent with the terms hereof. RELEASE OF BONUS FUNDS Within two (2) Business Days after any one of the following events, fifty percent (50%) of the Bonus Funds in escrow shall be released to the Consultant: (i) repayment of the bridge loan (the "Bridge Loan") that the Senior Lender extended to the Client on or about July 15, 2005, or (ii) Client's EBITDA is a positive amount for any thirty (30) day period that occurs during the Term, or for the thirty-day period that commences on the last day of the original Term (i.e., from November 12, 2005 through December 11, 2005). 4 Within two (2) Business Days after any one of the following events, one hundred percent (100%) of the Bonus Funds in escrow shall be released to the Consultant: (i) termination of this Agreement by the Client, for any reason or for no reason, at any time prior to November 12, 2005, or (ii) the Parties agree to continue this Agreement through a date that extends beyond November 12, 2005, or the Client otherwise retains the Consultant for additional services the performance of which is to occur at any time after November 12, 2005, or (iii) repayment of the Client's overall loan position with the Senior Lender (including without limitation the Bridge Loan), or (iv) the Client's operations in the United States and the Philippines generate a positive cash flow (break-even) for any thirty (30) day period that occurs during the Term, or for the thirty-day period that commences on the last day of the original Term (i.e., from November 12, 2005 through December 11, 2005), exclusive of any banking fees or charges, or any investment banking fees or other fees and costs incurred in connection with the procurement of capital, financing or a new loan. The Parties acknowledge that the rationale for releasing 100% of the Bonus Funds upon the events described in subsection (iii) above is that such an event of agreement or retention will be indicative of the Consultant's performance of the Consulting Services in a superior manner that the Client has found to be acceptable and to provide Consultant compensation approximate to its regular hourly rates, together with a reasonable amount of incentive compensation. For the purposes of this Section, the Client will give the Consultant access to the Client's books, records, internal and external financial statements and financial information, and internal and external audits to facilitate the Consultant's determination, in accordance with GAAP, as to whether the applicable break-even level has been achieved for the required thirty-day period. The Parties acknowledge that notwithstanding any release of 50% of the Bonus Funds pursuant to Section 10(a) above, the Client will continue to make payments into the escrow account in accordance with Section 9 above against the further possibility that release of the remaining Bonus Funds, including such new payments into such account, may occur pursuant to Section 10(b) above. To the extent that the Bonus Funds are not to be released pursuant to Sections 10(a) and/or 10(b) above on or before December 13, 2005, and are not otherwise released pursuant to the joint written instruction of the Parties, the remaining funds (if any) will be released directly by the escrow agent to the Senior Lender for the purpose of paying down the Client's outstanding loan position with the Senior Lender, and the Parties will take all necessary actions to facilitate such payment to the Senior Lender. Any interest that accrues on the Bonus Funds shall be paid to Consultant and the Senior Lender in proportion to the amounts of Bonus Funds disbursed to such parties. In the event Client fails to accept Consultant's reasonable suggestions with regard to savings then, in computing the bonus arrangement, Consultant shall get the benefit of a computation reflecting the savings as if they had been affected. RETENTION FOR SERVICES AFTER NOVEMBER 12, 2005; EQUITY ISSUANCE In the event that the Parties agree to continue this Agreement through a date that extends beyond November 12, 2005, or in the event the Client otherwise retains the Consultant for additional services to be performed at any time after November 12, 2005, such continuation or retention (as applicable) will not include any provision for any cash bonus that may be payable to the Consultant (i.e., any bonus similar to the Bonus provided for herein). Rather, in lieu of any such cash bonus the Client will pay Consultant's Daily Fees as set forth in Section 4 hereof and will issue to the Consultant, for each thirty (30) day period of services that the Consultant renders pursuant to such continuation agreement or other retention, that number of shares of the Client's registered, authorized and unissued common stock as is equal to one percent (1%) of the total number of the Client's issued and outstanding shares of common stock as of the end of that thirty (30) day period of services, up to the amount of, and not to exceed, a cumulative aggregate of 4.9% of the total number of the Client's issued and outstanding shares of common stock. For periods in which Consultant works less than thirty (30) days, the amount of common stock to be issued to Consultant shall be pro rated. In the event that Consultant is continuing to render services on behalf of or for the benefit of Client after the 4.9% threshold has been reached, and Client thereafter issues additional common stock, Consultant shall continue to be entitled to receive its equity bonus until it has received a cumulative number of shares equal to 4.9% of the Client's then total issued and outstanding shares of common stock. The Client shall issue such registered shares of common stock to the Consultant, in the Consultant's name or in such other name as the Consultant may from time to time direct, within fifteen (15) Business Days after the end of each such thirty (30) day period. 5 SERVICES RELATING TO FORENSIC EXAMINATION In the event that the Client intends at any time during the Term to retain an outside provider to perform a full forensic examination of its operations in the United States, the Consultant shall be entitled to submit a bid for the performance of such services for the same scope of services as to which Client requests other providers to submit bids. If the total cost to the Client of the Consultant's bid is at least 15% lower than the cost of the lowest bid submitted by another provider, the Client will be obligated to retain, and will retain, the Consultant to perform such forensic examination. If the total cost to the Client of the Consultant's bid is not at least 15% lower than the cost of the lowest bid submitted by another provider, the Client will be not be obligated to retain the Consultant to perform such forensic examination, but will give the Consultant's bid its good faith consideration. If the Client retains the Consultant pursuant to this Section, the Consultant will perform such forensic services and render invoices therefor on a weekly basis, and the Client shall pay such invoices weekly in accordance with the procedures set forth in Section 7 above. RETURN OF DOCUMENTS AND PROPERTY Upon the expiration or termination of the Engagement and provided that all amounts due to the Consultant hereunder have been paid and/or delivered to the Consultant, the Consultant shall, upon written request from the Client, deliver or cause to be delivered to the Client: (a) all documents and materials, including, without limitation, computer files, relating to the Client's business affairs, and (b) all documents, materials, equipment and other property, including, without limitation, computer files, computer programs, computer operating systems, computers, printers, scanners, pagers, telephones, credit cards and identification cards, belonging to the Client, which in either case are in the possession or under the control of the Consultant; provided, however, that (i) the Consultant shall not be responsible for any loss, damage, destruction or unauthorized third-party use of such documents or materials that result from any cause other than the Consultant's own gross negligence or misconduct, and (ii) the Consultant may retain copies of such materials that contain, comprise or relate to the Consultant's work product. The Consultant shall pay the cost of any delivery required under this Section, and the cost of any copies of materials that contain, comprise or relate to the Consultant's work product. CERTAIN REPRESENTATIONS The Consultant and the Client each represents and warrants that: (a) it has the full power and authority to be bound, and intends to be bound, by all of the terms and conditions set forth herein and to execute all documents and perform all acts and transactions required hereby, (b) it has not entered into any agreements, arrangements or understandings with any third party, whether orally or in writing, relating to the subject matter hereof, and (c) neither the delivery of this Agreement nor the performance of any obligations contemplated by this Agreement will result in any breach or default under any lease, license, commercial instrument, note, contract, agreement, arrangement or understanding to which it is a party or is subject. INDEMNIFICATION The Client is responsible for the accuracy, completeness and propriety of information that it provides to the Consultant concerning the Client's business, employees, services, finances, liabilities, obligations, organization, legal status, and business and accounting practices. The Client shall indemnify and hold the Consultant harmless from and against all losses, damages, liabilities, claims, demands, lawsuits and expenses, including reasonable attorneys' fees and disbursements, that the Consultant may incur or be liable for arising out of or in connection with any of the following: (i) any (alleged or actual) false, misleading, inaccurate or incomplete information provided to the Consultant, or any (alleged or actual) omission of any material fact, in connection with its performance of the Consulting Services; (ii) any matter arising from the Consultant's rendering of services to the Client pursuant to this Agreement other than claims resulting from the Consultant's gross negligence or material breach of its obligations hereunder; (iii) any matter or thing relating to, arising out of, or concerning the business, employees, services, finances, liabilities, obligations, organization, legal status, regulatory compliance, business practices, accounting practices, relationships, operations, activities, acts, omissions, records, history or other affairs of any kind or nature of the Client or of its suppliers, vendors, customers, clients, owners, directors, managers, employees, personnel, contractors, agents or representatives, or (iv) the collection by the Consultant of any sums due to be paid by the Client to the Consultant pursuant to the terms of this Agreement or otherwise relating to the Consultant's enforcement of the rights provided to the Consultant hereunder. 6 The Consultant will indemnify and hold the Client harmless from and against all losses, damages, liabilities, claims, demands, lawsuits and expenses, including reasonable attorneys' fees and disbursements, that the Client may incur or be liable for arising out of or in connection with any of the following: (i) claims resulting from the Consultant's gross negligence in its rendering of services to the Client pursuant to this Agreement or from its material breach of its obligations under this Agreement, (ii) claims from Consultant and its employees resulting from loss of life, bodily or personal injury arising from or out of any occurrence in, upon, at or from Client's premises or the occupancy or use by Consultant of said premises, or (iii) the Client's enforcement of the rights provided to the Client under this Agreement. The Parties' respective obligations under this Section include payment for all expenses (including reasonable attorneys' fees and disbursements) incurred by the other Party in connection with any subpoena, discovery demand or other directive having the force of law or governmental inquiry served upon or directed to the other Party or any of its affiliates that relate to the indemnifying Party, its business or its industry that arises out of any litigation, proceeding, investigation or inquiry involving the indemnifying Party. Each Party agrees to promptly notify the other (i.e., the indemnifying) Party upon its receipt of any such subpoena, demand or other directive, and to cooperate with the other (i.e., the indemnifying) Party, at the other (i.e., the indemnifying) Party's expense, in connection with its response thereto. CONFIDENTIALITY Each Party hereto shall hold in strict confidence from any third party the contents of this Agreement. The Consultant acknowledges that in the course of the Engagement it may be furnished with or may otherwise receive or have access to proprietary information or material that relates to past, present or future financial information, client lists, business processes, technical information and data, marketing plans, and/or business strategies relating to the business affairs and operations of the Client (collectively referred to as the "Confidential Information"). It is acknowledged by the Consultant that the Confidential Information to be furnished is in all respects confidential in nature, and that any disclosure or use of the same by the Consultant, except as provided in this Agreement or necessary for the Consultant to perform the services contemplated under this Agreement, may cause serious harm or damage to the Client. Therefore, the Consultant agrees that it will not use the Confidential Information furnished for any purpose except as contemplated by this Agreement, and agrees that it will not, either directly or indirectly, disclose this Confidential Information either in whole or in part, to any third party; provided, however, that: (i) the Confidential Information furnished may be disclosed to those officers and employees of the Consultant, and the Consultant's attorneys, who require such Confidential Information for the purpose of performing services related to the Engagement or in connection with the collection of amounts due to the Consultant, and to those advisors and/or representatives of the Consultant as to whom the Client shall have given its prior written consent, which consent shall not be unreasonably withheld (it being understood that those directors, officers, employees, advisors, attorneys, consultants and representatives will be informed by the Consultant of the confidential nature of such Confidential Information and will be directed by the Consultant to treat such Confidential Information confidentially); (ii) any Party hereto may make any disclosure required to be made by it under applicable law or order of a court of competent jurisdiction if counsel to such Party determines that it is necessary to do so and such Party gives prior written notice to the other Party hereto, using its reasonable efforts to hold discussions with such other Party prior to disclosure; (iii) any disclosure of the Confidential Information may be made as required by the SEC or the Senior Lender; and (iii) any disclosure of the Confidential Information may be made to which the Client consents in writing. In addition, the limitations on the disclosure of Confidential Information as provided herein shall not apply to any Confidential Information that: (A) is publicly known, (B) is given to a Party by someone else who is not obligated to maintain confidentiality, or (C) a Party had acquired prior to the execution date of this Agreement, as evidenced by documents. 7 Notwithstanding anything contained in this Section 16 or otherwise in this Agreement to the contrary, the Client authorizes the Consultant to disclose such Confidential Information and/or the Consultant's work product relating to the Client: (i) to the Client's independent auditors and/or outside accountants, (ii) to the Senior Lender, and to other lenders of the Client, and (iii) as otherwise may be required by law. The Client also authorizes the Consultant to conduct in-person and telephone conversations, and to meet, with the parties described in subsections (c)(i) and (ii) above for the purpose of making such disclosures. LIMITATION OF LIABILITY In no event shall the Consultant be liable, in damages or otherwise, to the Client for any error of judgment or other act or omission performed or omitted by the Consultant under or otherwise in respect of this Agreement, except for acts or omissions for which the Consultant is liable for indemnification pursuant to Section 15(b) above. Furthermore, in no event shall the Consultant be liable, as a direct or indirect result of the performance of its duties under this Agreement, for: (i) special, indirect, consequential or punitive damages or (ii) any amount that exceeds the aggregate Daily Fees (exclusive of costs, expenses and other amounts reimbursed to the Consultant under this Agreement) that the Consultant shall have actually received pursuant to this Agreement. SUCCESSORS AND ASSIGNS Neither the rights nor the obligations of any Party to this Agreement may be transferred or assigned without the prior written consent of the other Party; provided, however, that the Client may assign its rights and obligations under this Agreement to any entity that is an Affiliate (as defined below) of the Client (or of one of the entities that comprise the Client). Any purported transfer or assignment in violation of this Agreement shall be ab initio null, void and of no force or effect whatsoever. For the purposes hereof, "Affiliate" means parent entities and subsidiaries of the Client and entities under Common Ownership (as defined herein) with the Client, and "Common Ownership" means majority ownership or control of an entity by a majority of the beneficial owners of the Client. NOTICES Any notice required or permitted under this Agreement shall be deemed to have been effectively made or given if in writing and either: (a) personally delivered, (b) mailed properly addressed in a sealed envelope, postage prepaid, by certified or registered mail, (c) delivered by a reputable overnight delivery service, or (d) sent by facsimile. Unless otherwise changed by notice delivered in accordance with the provisions hereof, notice shall be properly addressed to the Consultant if addressed to: Realization Services, Inc., Attention: Barry L. Kasoff, President, P.O. Box 189, 124 David's Hill Road, Bedford Hills, New York 10507, fax number (914) 234-6424, with a copy to: Michael D. Friedman, Esq., c/o Troutman Sanders LLP, The Chrysler Building, 405 Lexington Avenue, New York, New York 10174, fax number (212) 704-6288; and properly addressed to the Client if addressed to: Epixtar Corp., Attention: Irving Greenman, Biscayne Center, Seventh Floor, 11900 Biscayne Boulevard, Miami, FL 33181, fax number (305) 503-8610. INDEPENDENT CONTRACTOR STATUS The Consultant shall serve under this Agreement as an independent contractor of the Client. As between the Consultant and the Client, the Consultant will be responsible for all taxes arising from the consulting fees paid to the Consultant hereunder. The Parties acknowledge that the Consultant is not a fiduciary of, nor in a fiduciary relationship with, the Client and that nothing contained herein is intended to establish a partnership, joint venture or any other similar relationship between the Parties. LIMITATIONS ON CONSULTANT'S ROLE AND AUTHORITY The work to be performed by the Consultant as contemplated by this Agreement shall be in a consulting capacity, and will, subject to the terms hereof, be at the direction of the Client. The Consultant will not have any authority to make commitments on behalf of the Client, unless it has obtained prior written authorization from the Client and the Consultant has accepted such authorization in a writing signed by its President, Barry L. Kasoff. Absent express authorization from the Client, the Consultant is without authority to implement any recommendations made to the Client and, for all purposes, the Client is solely responsible for all decisions to be made relating to the business and finances of the Client. 8 GOVERNING LAW This Agreement shall be construed in accordance with, governed by and enforced under the laws of the State of New York without regard to principles of conflicts or choice of laws. DISPUTE RESOLUTION In the event that the Parties are unable to resolve any dispute under or relating to this Agreement, either Party may commence an arbitration proceeding to resolve such dispute. Any such arbitration shall be conducted in New York, New York by the American Arbitration Association (the "AAA") in accordance with the expedited arbitration procedures under the Commercial Arbitration Rules, and the arbitrator's determination with respect to any dispute shall be final and binding on the Parties and not subject to appeal or review (judicial or otherwise) on any ground. Judgment on the arbitration award may be entered and enforced in any court having jurisdiction. From and after the commencement of any such arbitration and until the final award therein, each Party shall be liable for one-half of: (a) the out-of-pocket filing fees charged in connection with the commencement of such arbitration, and (b) the costs and expenses of the arbitrator; provided, however, that the arbitrator shall be entitled, as part of the final award in such arbitration, to award to the prevailing Party therein such of its attorneys' fees and disbursements and other fees, costs and expenses as the arbitrator may deem necessary or appropriate. ACCURATE INFORMATION In connection with the Engagement, the Client will furnish the Consultant with all information concerning the Client that the Consultant reasonably deems appropriate, including all information concerning the Client's business, assets, operations and financial condition, and the Client will provide the Consultant with access to its officers, directors, accountants and counsel for discussions and consultations at such time as the Consultant may reasonably request. The Consultant shall be entitled to rely upon any and all information supplied by the Client and its officers and agents. The Client represents, warrants and covenants that all such information and documentation supplied to the Consultant shall be true, correct and complete. All non-public information concerning the Client that is given to the Consultant will be used solely in the course of the performance of the Consultant's services hereunder and will be treated confidentially in accordance with the confidentiality provisions of this Agreement. MISCELLANEOUS The Client is comprised of more than one entity, and each of such entities shall be jointly and severally liable for the payment of all fees, bonuses, amounts, reimbursements, and other sums due to be paid to the Consultant hereunder, notwithstanding that all or part of the services rendered by the Consultant are performed for or inure to the benefit of any one or more of such companies or an affiliate, subsidiary or other party related to the Client or to such other person or entity as may be directed by the Client. This Agreement has been approved by Client's board of directors. This Agreement creates no relationship of joint venturers, partners, associates or of principal and agent between the Parties. Except as may otherwise be expressly provided herein, each Party intends that this Agreement shall not benefit or create any right or cause of action in any person or entity other than the Parties hereto, it being the express intention of the Parties not to create any third-party beneficiaries to this Agreement. Any forbearance or failure on the part of either Party to enforce or obtain any of its rights hereunder shall not constitute or be deemed a waiver and shall be applicable only to the specific event or matter then at hand and shall not constitute or be deemed a waiver or abandonment of any other rights hereunder, and this Agreement shall continue in full force and effect as though such forbearance or failure had not occurred. 9 If any provision of this Agreement is found to be illegal, invalid or unenforceable, such finding shall not affect the legality, validity or enforceability of the other provisions of this Agreement, which shall remain in effect unless the Consultant deems such provision(s) to be essential to this Agreement, in which case the Consultant may terminate this Agreement immediately upon written notice to the Client. This Agreement and any attachments hereto shall constitute the entire agreement between the Parties with respect to the subject matter hereof, and supersedes all other agreements and understandings between the Parties with respect to the specific subject matter hereof. In executing this Agreement, the Parties have not relied and do not rely on any statements, inducements, promises, or representations made by each other (except as expressly provided herein) or any other party or their agents, representatives, or attorneys with regard to the subject matter, basis, or effect of this Agreement. This Agreement may not be changed, altered or modified except by a writing signed by an authorized representative of each of the Parties. Notwithstanding any termination or expiration of this Agreement, the following Sections shall survive and remain in full force and effect for the periods set forth below: (i) Sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 until the final resolution of the rights and obligations of the Parties therein, (ii) Section 15, until all possible claims for indemnification thereunder have either been adjudicated to a final, non-appealable conclusion, or extinguished under applicable statutes of limitation, and (iii) Sections 16, 17, 18, 19, 20, 21, 22, 23, 24 and this Section 25, until the foregoing Sections mentioned in this subsection (h) are no longer in effect. The Parties agree that the terms and provisions of this Agreement are the result of negotiations between the Parties and/or their counsel, and that this Agreement shall not be construed in favor of or against any Party by reason of the extent to which any Party or its counsel participated in the drafting of this Agreement. Each of the Parties represents and warrants to the other that it has had full opportunity to obtain, and has in fact obtained, the advice of its own legal counsel with respect to this Agreement and the transactions contemplated. This Agreement may be signed in counterparts and shall become effective as if executed in a single, complete document upon its execution by all Parties. Facsimile signatures of the Parties will have the same force and effect as original signatures. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above written. CLIENT (INCLUDING AFFILIATES): CONSULTANT: EPIXTAR CORP._____ REALIZATION SERVICES, INC. BY:_____________________________ BY:________________________________ _____________________________ BARRY L. KASOFF, ITS PRESIDENT VOXX CORPORATION, A FLORIDA CORPORATION BY:_____________________________ --------------, ------------- 10 EPIXTAR MARKETING CORP., A FLORIDA CORPORATION BY:_____________________________ --------------, ------------- EPIXTAR INTERNATIONAL CONTACT CENTER GROUP, INC. A DELAWARE CORPORATION BY:_____________________________ --------------, ------------- EPIXTAR PHILIPPINES IT-ENABLED SERVICES CORP., A PHILIPPINES CORPORATION BY:_____________________________ --------------, ------------- [SIGNATURES CONTINUED ON NEXT PAGE] [SIGNATURES FOR CONSULTING AGREEMENT, CONTINUED] EPIXTAR INTERNATIONAL CONTACT CENTER GROUP, LTD., A BERMUDA CORPORATION BY:_____________________________ --------------, ------------- EPIXTAR COMMUNICATIONS CORP., A FLORIDA CORPORATION BY:_____________________________ --------------, ------------- NOL GROUP, INC., A DELAWARE CORPORATION BY:_____________________________ --------------, ------------- IMS INTERNATIONAL, INC., A PHILIPPINES CORPORATION BY:_____________________________ --------------, ------------- 11 NATIONAL ONLINE SERVICES, INC., A DELAWARE CORPORATION BY:_____________________________ --------------, ------------- LIBERTY ONLINE SERVICES, INC., A DELAWARE CORPORATION BY:_____________________________ --------------, ------------- [SIGNATURES CONTINUED ON NEXT PAGE] [SIGNATURES FOR CONSULTING AGREEMENT, CONTINUED] AMERIPAGES, INC., A DELAWARE CORPORATION BY:_____________________________ --------------, ------------- B2B ADVANTAGE, INC., A DELAWARE CORPORATION BY:_____________________________ --------------, ------------- [END OF DOCUMENT] 12 EX-10.20.1 8 b410993_ex10-201.txt EXHIBIT 10.20.1 EXHIBIT 10.20.1 PAYMENT AGREEMENT THIS AGREEMENT ("Agreement") is effective this 4th day of August, 2005, and is made by and between Epixtar Corp. ("Epixtar") and Steve Rasmussen, David Mullaney and Brad Yeater (collectively referred to as the "former shareholders"). WHEREAS, the former shareholders entered into an Acquisition Agreement with Epixtar dated November 29, 2004, for the sale of all issued and outstanding shares of the common stock of Epixtar Marketing Corp. ("EMC"), then Innovative Marketing Strategies, Inc. ("IMS") to Epixtar; WHEREAS, Epixtar tendered a payment to the former shareholders on the closing date of the acquisition and executed a non-interest bearing Promissory Note (the "Note"), dated January 7, 2005, for the remaining balance due to the former shareholders; WHEREAS, Epixtar acquired IMS and officially changed the name of its newly acquired subsidiary to EMC; WHEREAS, as of the effective date of this Agreement, the outstanding balance due on the Note is Four Million Five Hundred Ninety-Three Thousand Eight Hundred Twenty-Eight Dollars and Six Cents ($4,593,828.06) (the "outstanding balance"); WHEREAS, the parties have mutually agreed to set forth new terms for the outstanding balance and payment of that balance pursuant to the Note. NOW THEREFORE, in consideration of the premises, and for other good and valuable consideration, their receipt and sufficiency being hereby acknowledged, the parties hereto do mutually agree as follows: 1. The former shareholders have agreed to reduce the current outstanding balance by fifty percent (50%) to Two Million Two Hundred Ninety-Six Thousand Nine Hundred Fourteen Dollars and Three Cents ($2,296,914.03) (the "New Debt"), which New Debt shall be repayable in full as set forth below. 2. On or before August 5, 2005, Epixtar shall pay to the former shareholders a payment in the amount of One Hundred Twelve Thousand Six Hundred Ninety-One Dollars and Forty-One Cents ($112,691.41). 3. On or before August 12, 2005, Epixtar shall pay to the former shareholders a payment in the amount of One Hundred Twelve Thousand Six Hundred Ninety-One Dollars and Forty-One Cents ($112,691.41). 4. On or before September 5, 2005 and on each successive week thereafter until January 22, 2007, Epixtar shall pay to the former shareholders installments in the amount of Twenty-Eight Thousand One Hundred Seventy-Two Dollars and Eighty-Five Cents ($28,172.85) each week. 5. On or before January 29, 2007, Epixtar shall make one final payment in the amount of the remaining balance of the New Debt amounting to Fourteen Thousand Nine Hundred Twelve Dollars and Ninety-Eight Cents ($14,913.16) in complete satisfaction of the outstanding balance. 6. The Parties agree that this Agreement sets forth the entire understanding of the parties hereto and supersedes all prior oral and written agreements, including the Note, between the parties relative to the subject matter hereof and merges all prior and contemporaneous discussions between them. Neither party shall be bound by any condition, representation, warranty, covenant or provision other than as expressly stated in or contemplated by this Agreement, unless hereafter set forth in a written instrument executed by such party. This Agreement may only be amended, modified or supplemented if done so in writing and signed by an authorized representative of each party hereto. 7. Each of the following, if uncured within the applicable time period set forth below, shall constitute an "Event of Default" under this Agreement: 1 (i) failure of the Epixtar to make any payment under this Agreement when due; or (ii) any assignment for the benefit of Epixtar's creditors or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Epixtar, any of which are not dismissed within sixty (60) days. 8. Epixtar shall have ten (10) business days after receipt of written notice from the former shareholders of an Event of Default in which to cure the stated Event of Default. If Epixtar cures the stated Event of Default within the allotted ten (10) day cure period, the cured Event of Default will be deemed to have not occurred. Interest shall not be applicable in the event a late payment is made. 9. Notwithstanding Section 6 of this Agreement, or anything else herein to the contrary, upon the occurrence of an Event of Default by Epixtar hereunder that remains uncured for any applicable cure period, this Agreement shall immediately become null and void and the terms of the Note and all related documents shall be reinstated in full force and effect without the need for any further action by the parties. Such an event shall also be deemed an event of default under the Note, and all related documents, and shall, at the option of the former shareholders, result in the acceleration of any amount due under the Note and related documents with full credit shall be given to Epixtar for any and all payments made up until that time pursuant to this Agreement. 10. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict of law principles. The parties agree that any and all disputes arising out of or related to this Agreement shall be litigated and heard exclusively in the United States District Court for the Southern District of Florida located in Miami-Dade County, Florida. The parties agree that all discovery in such litigation shall occur only in Miami-Dade County, Florida. If a party institutes any action or proceeding against the other party relating to the provisions of this Agreement or any default hereunder, the unsuccessful party in such action or proceeding will reimburse the successful party therein for the reasonable expenses of attorneys' fees and disbursements incurred by the successful party. 11. This Agreement shall be binding on the parties hereto and their respective successors and assigns. 12. The rule of construction that a written Agreement be construed against the party preparing or drafting such Agreement shall specifically not be applicable in the interpretation of this Agreement and any documents executed and delivered pursuant to or in connection with this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. EPIXTAR CORP. STEVE RASMUSSEN By _________________________ ________________________ DAVID MULLANEY ________________________ BRAD YEATER ________________________ 2 EX-10.20.2 9 b410993_ex10-202.txt EXHIBIT 10.20.2 EXHIBIT 10.20.2 PAYMENT AGREEMENT THIS AGREEMENT ("Agreement") is effective this 4th day of August, 2005, and is made by and between Epixtar Corp. ("Epixtar") and DDM Consulting, Inc. ("DDM"). WHEREAS, Epixtar and the former shareholders of Epixtar Marketing Corp. ("EMC") entered into an agreement for the purchase and sale (the "Acquisition Agreement") of EMC, then Innovative Marketing Strategies, Inc. ("IMS"), on November 29, 2004; WHEREAS, pursuant to said Acquisition Agreement, Epixtar agreed to guarantee the payment of a debt owed to DDM by IMS (the "Cash Debt"), payable pursuant to the terms of a Guarantee Agreement executed between the parties hereto on January 7, 2005; WHEREAS, as of the effective date of this Agreement, the outstanding balance of the Cash Debt is One Hundred Ninety-Two Thousand Six Hundred One Dollars and Fifty-Seven Cents ($192,601.57) (the "outstanding balance"); WHEREAS, the parties have mutually agreed to set forth new terms for the payment of the Cash Debt. NOW THEREFORE, in consideration of the premises, and for other good and valuable consideration, their receipt and sufficiency being hereby acknowledged, the parties hereto do mutually agree as follows: 1. DDM has agreed to reduce the current outstanding balance of the Cash Debt by fifty percent (50%) to Ninety-Six Thousand Three Hundred Dollars and Seventy-Eight Cents ($96,300.78) (the "New Debt"), which New Debt shall be repayable in full as set forth below. 2. On or before August 5, 2005, Epixtar shall pay to DDM a payment in the amount of Sixteen Thousand Fifty Dollars and Thirteen Cents ($16,050.13). 3. On or before August 12, 2005, Epixtar shall pay to DDM a payment in the amount of Sixteen Thousand Fifty Dollars and Thirteen Cents ($16,050.13). 4. On or before September 5, 2005, and on or before the 5th day of each successive month thereafter with the last payment occurring on December 5, 2005, Epixtar shall pay to DDM a payment in the amount of Sixteen Thousand Fifty Dollars and Thirteen Cents ($16,050.13) in full satisfaction of the amount of the debt. 5. The Parties agree that this Agreement sets forth the entire understanding of the parties hereto and supersedes all prior oral and written agreements between the parties relative to the subject matter hereof, including the Guarantee Agreement, and merges all prior and contemporaneous discussions between them. Neither party shall be bound by any condition, representation, warranty, covenant or provision other than as expressly stated in or contemplated by this Agreement, unless hereafter set forth in a written instrument executed by such party. This Agreement may only be amended, modified or supplemented if done so in writing and signed by an authorized representative of each party hereto. 6. Each of the following, if uncured within the applicable time period set forth below, shall constitute an "Event of Default" under this Agreement: (iii) failure of Epixtar to make any payment under this Agreement when due; or (iv) any assignment for the benefit of Epixtar's creditors or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Epixtar, any of which are not dismissed within sixty (60) days. 7. Epixtar shall have ten (10) business days after receipt of written notice from DDM of an Event of Default in which to cure the stated Event of Default. If Epixtar cures the stated Event of Default within the allotted ten (10) day cure period, the cured Event of Default will be deemed to have not occurred. Interest shall not be applicable in the event a late payment is made. 1 8. Notwithstanding Section 6 of this Agreement, or anything else herein to the contrary, upon the occurrence of an Event of Default by Epixtar hereunder that remains uncured for any applicable cure period, this Agreement shall immediately become null and void and the terms of the Note and all related documents shall be reinstated in full force and effect without the need for any further action by the parties. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict of law principles. The parties agree that any and all disputes arising out of or related to this Agreement shall be litigated and heard exclusively in the United States District Court for the Southern District of Florida located in Miami-Dade County, Florida. The parties agree that all discovery in such litigation shall occur only in Miami-Dade County, Florida. If a party institutes any action or proceeding against the other party relating to the provisions of this Agreement or any default hereunder, the unsuccessful party in such action or proceeding will reimburse the successful party therein for the reasonable expenses of attorneys' fees and disbursements incurred by the successful party. 10. This Agreement shall be binding on the parties hereto and their respective successors and assigns. 11. The rule of construction that a written Agreement be construed against the party preparing or drafting such Agreement shall specifically not be applicable in the interpretation of this Agreement and any documents executed and delivered pursuant to or in connection with this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. EPIXTAR CORP. DDM CONSULTING, INC. By _________________________ By ________________________ 2 EX-10.20.3 10 b410993_ex10-203.txt EXHIBIT 10.20.3 EXHIBIT 10.20.3 PAYMENT AGREEMENT THIS AGREEMENT ("Agreement") is effective this 4th day of August, 2005, and is made by and between Epixtar International Contact Center Group, Inc. ("Epixtar") and DDM Consulting, Inc. ("DDM"). WHEREAS, Epixtar and DDM entered into a Consultant Services Agreement dated November 29, 2004, pursuant to which Epixtar is to pay DDM a commission on certain clients introduced to Epixtar by DDM and accepted by Epixtar as its client; WHEREAS, as of the effective date of this Agreement, the outstanding balance of commissions owed to DDM by Epixtar is Six Hundred Twenty-Nine Thousand One Hundred Seventy Five Dollars ($629,175.00) (the "outstanding balance"); WHEREAS, the parties have mutually agreed to set forth new terms for the payment of the outstanding balance. NOW THEREFORE, in consideration of the premises, and for other good and valuable consideration, their receipt and sufficiency being hereby acknowledged, the parties hereto do mutually agree as follows: 1. DDM has agreed to reduce the current outstanding balance by fifty percent (50%) to Three Hundred Fourteen Thousand Five Hundred Eighty-Seven Dollars and Fifty Cents ($314,587.50) (the "New Debt"), which New Debt shall be repayable in full as set forth below. 2. On or before August 5, 2005, and each week thereafter until the outstanding balance is fully paid, Epixtar shall pay to DDM a payment in the amount of Fifty Thousand Dollars ($50,000.00); provided, however, that the final payment shall be in the amount of Fourteen Thousand Five Hundred Eighty-Seven Dollars and Fifty Cents ($14,587.50). 3. In the event Voxx Corporation and its subsidiaries is cash flow positive, exclusive of debt or equity financing, during any thirty (30) day period through December 12, 2005 and for the month of December 2005, an additional lump sum in the amount of Three Hundred Fourteen Thousand Five Hundred Eighty-Seven and Fifty Cents ($314,587.50) shall be paid to DDM. Such payment will be made on or before January 15, 2006. 4. DDM and Epixtar have mutually agreed to execute a Broker Agreement, effective August 1, 2005 and incorporated by reference into this Agreement, which shall supersede all prior understandings and agreements, whether written or oral, between the parties hereto relating to the transactions provided for therein. 5. The Parties agree that this Agreement sets forth the entire understanding of the parties hereto and supersedes all prior oral and written agreements between the parties relative to the subject matter hereof and merges all prior and contemporaneous discussions between them. Neither party shall be bound by any condition, representation, warranty, covenant or provision other than as expressly stated in or contemplated by this Agreement, unless hereafter set forth in a written instrument executed by such party. This Agreement may only be amended, modified or supplemented if done so in writing and signed by an authorized representative of each party hereto. 6. Each of the following, if uncured within the applicable time period set forth below, shall constitute an "Event of Default" under this Agreement: (v) failure of the Epixtar to make any payment under this Agreement when due; or (vi) any assignment for the benefit of Epixtar's creditors or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Epixtar, any of which are not dismissed within sixty (60) days. 7. Epixtar shall have ten (10) business days after receipt of written notice from DDM of an Event of Default in which to cure the stated Event of Default. If Epixtar cures the stated Event of Default within the allotted ten (10) day cure period, the cured Event of Default will be deemed to have not occurred. Interest shall not be applicable in the event a late payment is made. 1 8. Notwithstanding Section 5 of this Agreement, or anything else herein to the contrary, upon the occurrence of an Event of Default by Epixtar hereunder that remains uncured for any applicable cure period, this Agreement shall immediately become null and void and the terms of the Note and all related documents shall be reinstated in full force and effect without the need for any further action by the parties. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict of law principles. The parties agree that any and all disputes arising out of or related to this Agreement shall be litigated and heard exclusively in the United States District Court for the Southern District of Florida located in Miami-Dade County, Florida. The parties agree that all discovery in such litigation shall occur only in Miami-Dade County, Florida. If a party institutes any action or proceeding against the other party relating to the provisions of this Agreement or any default hereunder, the unsuccessful party in such action or proceeding will reimburse the successful party therein for the reasonable expenses of attorneys' fees and disbursements incurred by the successful party. 10. This Agreement shall be binding on the parties hereto and their respective successors and assigns. 11. The rule of construction that a written Agreement be construed against the party preparing or drafting such Agreement shall specifically not be applicable in the interpretation of this Agreement and any documents executed and delivered pursuant to or in connection with this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. EPIXTAR INTERNATIONAL CONTACT DDM CONSULTING, INC. CENTER GROUP, INC. By _________________________ By ________________________ 2 EX-10.20.4 11 b410993_ex10-204.txt EXHIBIT 10.20.4 EXHIBIT 10.20.4 BROKER AGREEMENT THIS AGREEMENT is effective as of the 1st day of August, 2005 by and between EPIXTAR INTERNATIONAL CONTACT CENTER GROUP, INC. ("EPIXTAR") a corporation duly organized and existing under the laws of the State of Delaware with offices located at 11900 Biscayne Blvd., Suite 700, Miami, FL 33181, and DDM CONSULTING, INC., a corporation organized and existing under the laws of the State of Virginia with offices located at 3612 Oval Drive, Alexandria, VA 22305 (hereinafter referred to as "Broker"). WHEREAS, EPIXTAR is providing data and trade secrets on a confidential basis to Broker for the purpose of development and/or sale of contact center and/or BPO services ("Services") to its customers; WHEREAS, Broker is engaged in the referral of various Services programs for businesses which are users (hereafter "Customers") of said services and, WHEREAS, Customer(s) is/are defined to be and is/are limited to only those business relationships/divisions initially introduced to EPIXTAR by the Broker. This definition does not include any other business relationship/division within the customer's company that has had or will have a relationship with either EPIXTAR or another Broker. WHEREAS, there is a potential that Broker will act as a Broker to the Business for EPIXTAR and, pursuant thereto, will enjoy a position of trust wherein Broker is made privy to special knowledge concerning the Business; and WHEREAS, EPIXTAR and Broker agree that it is in their mutual best interests, since Broker will be occupying a position of trust with EPIXTAR, for Broker to execute an agreement wherein Broker covenants not to utilize or otherwise disclose any trade secrets, product sources, or other confidential information related to the Business and wish to protect their rights with respect to any such information disclosed. THEREFORE, in consideration of the mutual covenants herein, the Parties agree as follows: Fee Service 1. Broker has the obligation to assist in submitting various Services proposals from prospective Customers to EPIXTAR and also has the obligation to assist in submitting EPIXTAR marketing materials and proposals to prospective Customers. Broker's obligation is to extend EPIXTAR a right of first refusal on any new business it obtains, or any new business from existing clients. EPIXTAR has the right, but not the obligation, to accept or reject any such assisted proposals, which are submitted to it by Broker. For the purposes of this Agreement, the term "Customer" excludes independent business entities of a prospective client's organization. Nothing in this Agreement shall prohibit EPIXTAR from marketing its Services to other Customer entities which have not been introduced by Broker. 2. On award of business to EPIXTAR by a Customer introduced to EPIXTAR by Broker and accepted by EPIXTAR, Broker and EPIXTAR will execute an "award of business" form detailing the Customer name, program and EPIXTAR's acceptance of such program subject to the terms and conditions stated herein. Broker will assist in implementation, using information provided by Customers, various BPO services and/or teleservices programs to achieve Customers' and EPIXTAR's objectives. Broker will act as a sales representative and will use its best efforts to expand Customers' account usage of EPIXTAR services once business is established, and will be paid fees as stated hereafter. 3. Prior to entering into any formal contract or agreement with a Customer, all aspects of EPIXTAR's contract approval policy must have been adhered to. The Broker is not authorized to sign any document which contractually commits EPIXTAR to performance criteria or other Service Level Agreements (SLA's). Contract pricing and SLA's submitted to Customers by Broker without appropriate approvals are a violation of EPIXTAR policy. This may cause the contract to be terminated and/or the immediate termination of any right to payment under this Agreement. 1 4. Where a services contract is terminated or varied for any reason, EPIXTAR may be required to issue a credit against that contract. In those circumstances where a credit is issued, Broker will be debited the pro rata portion of his commission that is due back to the Customer, up to the entire contract if necessary. 5. It is expressly understood that Broker represents that it has relationships with other companies in similar business as EPIXTAR, and that EPIXTAR may, at its option, now and hereafter retain the services of individuals or companies providing services similar to Broker, and that this Agreement between EPIXTAR and Broker is mutually non-exclusive. Compensation 6. Both EPIXTAR and Broker will individually agree upon each business opportunity. For each submission of a business proposal, the Parties agree to notify the other party in writing of any conflict or prior relationship with, or knowledge of, or claim to, that particular proposed Customer. On award of business from Customers presented by BROKER and accepted by EPIXTAR, EPIXTAR shall pay the following commission fees on collected revenue: o Philippine & Offshore*
- ------------------------------------------------------- ----------------------------------------------------- AVERAGE MONTHLY REVENUE PER HOUR COMMISSION PERCENTAGE - ------------------------------------------------------- ----------------------------------------------------- < $7.99 0.00% - ------------------------------------------------------- ----------------------------------------------------- $8.00 - $8.99 1.00% - ------------------------------------------------------- ----------------------------------------------------- $9.00 - $9.99 2.00% - ------------------------------------------------------- ----------------------------------------------------- $10.00 - $10.99 3.00% - ------------------------------------------------------- ----------------------------------------------------- $11.00 - $11.99 4.00% - ------------------------------------------------------- ----------------------------------------------------- $12.00 - $12.99 4.00% - ------------------------------------------------------- ----------------------------------------------------- $13.00 - $13.99 5.00% - ------------------------------------------------------- ----------------------------------------------------- $14.00 - $14.99 5.00% - ------------------------------------------------------- ----------------------------------------------------- > $15.00 5.00% - ------------------------------------------------------- -----------------------------------------------------
o US*
- ------------------------------------------------------- ----------------------------------------------------- AVERAGE MONTHLY REVENUE PER HOUR COMMISSION PERCENTAGE - ------------------------------------------------------- ----------------------------------------------------- < $18.99 0.00% - ------------------------------------------------------- ----------------------------------------------------- $19.00 - $19.00 1.00% - ------------------------------------------------------- ----------------------------------------------------- $20.00 - $20.99 2.00% - ------------------------------------------------------- ----------------------------------------------------- $21.00 - $21.99 2.50% - ------------------------------------------------------- ----------------------------------------------------- $22.00 - $22.99 3.00% - ------------------------------------------------------- ----------------------------------------------------- $23.00 - $24.99 3.00% - ------------------------------------------------------- ----------------------------------------------------- > $25.00 3.00% - ------------------------------------------------------- -----------------------------------------------------
*Tables above do not apply to non-voice BOP, for which commissions shall be negotiated under separate agreement. 2 Broker shall receive a fee in the amount of One Hundred Percent (100%) of the commission percentage above on all collected revenues generated by BPO and/or telemarketing production for the first twenty-four (24) months of the program; for the months twenty-five (25) through thirty-six (36), BROKER will receive a fee in the amount of Fifty Percent (50%) of the commission percentage above on all collected revenues generated the Services. The term "collected revenues" specifically excludes all expenses billed to a customer on a pass-through basis (including without limitation telecommunications charges and subcontracted technology) and commissions payable to third parties. In order for BROKER to qualify for and receive any compensation on collected revenues, an agreement between EPIXTAR and Customer must be executed during the term of this Agreement. No commissions will be paid to Broker on any program that fails to generate a minimum of Nineteen Dollars ($19.00) of revenue per hour for US based programs, or Eight Dollars ($8.00) for Philippine and offshore based programs, for the monthly average revenue per hour for that program. For purposes of this Agreement, "average monthly revenue per hour" shall mean total collected revenue divided by total production hours for that particular month. Payment Terms 7. EPIXTAR will directly pay to Broker all fees due Broker within thirty (30) days of receipt by EPIXTAR of a Customer's paid invoice statement*. EPIXTAR will provide Broker, on a monthly basis, with a copy of all Customer invoices for each program that Broker is entitled to receive payment upon. *Broker will be paid commissions on production beginning on the effective date of this Agreement (i.e. production occurring from August 1-August 31 will be billed to a Customer and Broker will receive fees within 30 days of EPIXTAR's receipt of payment for such invoice; Broker will be paid commissions for the month of July 2005 within 30 days of receipt by EPIXTAR of Customer's paid invoice statement). Term and Renewal 8. The term of this Agreement shall be for a three (3) year period. The parties may agree to extend this Agreement by mutual, written agreement. Any and all commissions due and payable prior to the termination of this Agreement shall remain due and payable in accordance with the terms of this Agreement after said termination until such fees have been paid, i.e., until such time as services for those Customer(s) referred by Broker and accepted by EPIXTAR have been terminated. Confidential Information 9. The term "Confidential Information" shall mean all information, data, know-how, customer lists, trade secrets, plans, strategies, models, processes, methods, procedures, inventions or ideas which are related to either party's Business. Disclosure of Confidential Information 10. Company recognizes and acknowledges that the list of Consultant's contacts, as it may exist from time to time, is a valuable, special and unique asset of Consultant. Except as contemplated by this Agreement, Company will not, during or after the term of this Agreement, use, disclose, divulge or in any other manner make available the list of Consultant's contacts, or any part thereof, to any person, firm, corporation, association or other entity for any reason or purpose whatsoever which directly or indirectly benefits Company or injures Consultant's relationships with such contacts. Neither party shall, without the express written consent of the other party, disclose or divulge the existence or terms of this Agreement with any other party (with the exception of each party's legal counsel and financial advisors). 3 11. Without Consultant's involvement or express written consent, Company shall not, either directly or indirectly, as an individual, proprietor, partner, stockholder, creditor, consultant, employee, officer, agent, representative, investor or in any other capacity or manner whatsoever, contact, solicit, attempt to solicit, accept a commission for, or otherwise be involved in any transaction(s) with any person, firm, corporation, or other entity that Consultant at any time introduces to Company until such time as an agreement is reached between Company and said person, firm, corporation or other entity. At such time that an agreement is reached between Company and said person, firm, corporation or other entity, that person, firm, corporation or other entity shall cease to be a valuable, special and unique asset of Consultant and shall thereafter be a valuable, special and unique asset of Company. The foregoing shall not apply to any transaction that Company has entered into prior to the date of this Agreement. 12. Both parties covenant not to utilize or otherwise disclose any Confidential Information to anyone else without the prior written consent of the other party. Broker will submit to any and all potential Customers any mutual confidentiality or similar agreements, which EPIXTAR may require such Customers to execute. This non-disclosure requirement shall survive the termination or expiration of this Agreement. 13. Each party's Confidential Information will remain its property notwithstanding disclosure hereunder. Disclosure of Confidential Information hereunder shall not be deemed to constitute a grant by one party to the other, by implication or otherwise, nor shall either party have a right or license to the Confidential Information. Return or Destruction of Confidential Information 14. Upon written demand of one party to the other or upon termination of this Agreement, each party shall return or destroy (and certify such destruction to the other party in writing) all writings, materials, photographs, drawings, samples or models (including all copies or reproductions thereof) containing, disclosing or constituting the Confidential Information. Non-Solicitation 15. Broker agrees not to solicit, divert, appropriate or attempt to solicit, divert or appropriate, on his own account or for the account of others, directly or indirectly, the business relationship with any other Broker, producer, manufacturer or any other person or entity providing goods or services to EPIXTAR. EPIXTAR agrees not to solicit, divert, appropriate or attempt to solicit, divert or appropriate, on his own account or for the account of others, directly or indirectly, the business relationship with any other person or entity providing goods or services to Broker. 16. Broker agrees not to solicit, divert, appropriate, hire away or attempt to solicit, divert, appropriate or hire away, on his own account or for the account of others, directly or indirectly, any person or entity employed by or acting as a consultant to EPIXTAR, or any past or current customers of EPIXTAR for a period of five (5) years from the date hereof. EPIXTAR agrees not to solicit, divert, appropriate, hire away or attempt to solicit, divert, appropriate or hire away, on its own account or for the account of others, directly or indirectly, any person or entity employed by or acting as a consultant to Broker, or any past or current customers of Broker for a period of five (5) years from the date hereof. Equitable Remedies 17. Each Party acknowledges that the unauthorized disclosure or use of Confidential Information will cause irreparable injury to a party for which money damages would be an inadequate remedy, and agrees, therefore, that equitable remedies are appropriate and should be granted to prohibit and prevent conduct which would constitute a violation of obligations to this Agreement. The Parties acknowledge that it would be very difficult or impossible to measure the damages resulting from a breach of this Agreement. They further acknowledge that the restrictions herein are reasonable and necessary for the protection of the Business and good will of each party and, by virtue of the circumstances of their Businesses, a violation of any such covenants will cause irreparable damage. Therefore, each party agrees that if one party violates any of the provisions of this Agreement, the aggrieved party shall be entitled to pursue both an ex parte preliminary injunction and a permanent injunction to be issued by any court of competent jurisdiction, restraining any violation of any or all of said covenants by the wrongdoing party or it's agents, employees, associates, affiliates or partners, either directly or indirectly, and such right to injunction shall be cumulative to and in addition to whatever other remedies the aggrieved party may have. The Parties agree that the aggrieved party shall be entitled to pursue injunctive relief without the posting of a bond and specific performance as remedies for any such breach. In the event the aggrieved party retains the services of any attorney to represent it in any action to enforce this Agreement, the wrongdoing party agrees to pay the aggrieved party's attorney's fees and court costs. 4 Indemnification 18. While EPIXTAR is acting within the scope and intent of this Contract, Broker agrees to indemnify, hold harmless and defend EPIXTAR, its affiliates and each of their officers, directors, employees, shareholders, successors and assigns (hereafter referred to in this clause as EPIXTAR) from any claim, action, liability, loss, damage, and/or suit. This indemnity shall cover all attorneys' and paralegals' fees and costs incurred by EPIXTAR before and at trial and at all tribunal levels including any appeals, whether or not suit is instituted, and those incurred in seeking and establishing the right to be indemnified hereunder. Waiver 19. The failure of either party at any time to enforce any rights or remedy available to it under this Contract or otherwise with respect to any breach or failure by the other party shall not be construed to be a waiver of such right or remedy with respect to any other breach or failure by the other Party. Severability 20. In the event that provisions of or restrictions contained in this Contract are held by a court of competent jurisdiction to be invalid or unenforceable, and are not reformed by such court, the remaining provisions and restrictions contained in this Contract shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provisions or restrictions of this Contract had not been included. Notices 21. Any notices or demands given pursuant to this Contract or under any statute shall be given in writing by telegram, confirmed facsimile, or similar communication, or by certified mail, return receipt requested at the following addresses: To EPIXTAR at: Epixtar International Contact Center Group, Inc. Attention: Legal Department 11900 Biscayne Blvd. Suite 700 Miami, FL 33181 Tel #: (305) 503-8600 Fax # (305) 503-8610 To Broker at: DDM Consulting, Inc. Attention: David Mullaney 3612 Oval Drive Alexandria, VA 22305 Tel #: (703) 519-0113 Fax #: (703) 519-6227 Construction 22. Each and every term and provision of this Contract has been mutually agreed to and negotiated by the parties hereto and should be construed simply according to its fair meaning and not strictly for or against any party. 5 Arbitration 23. Any dispute arising out of or relating to this Agreement will be settled by arbitration to be conducted in accordance with the Judicial Arbitration and Mediation Services ("JAMS") Comprehensive Arbitration Rules. The Federal Arbitration Act, 9 U.S.C. Sections 1-16, not state law, will govern the arbitrability of disputes. This Agreement will otherwise be governed by the laws of the State of Florida without regard to its choice of law principles. The costs of the arbitration, including the arbitrator's fees, will be shared equally by the parties; provided, however, that each party will bear the cost of preparing and presenting its own claims and/or defenses (including its own attorney's fees). The venue for arbitration will be Miami-Dade County, Florida. A single arbitrator engaged in the practice of law, who is knowledgeable about the subject matter of this Agreement, will conduct the arbitration. The arbitrator is bound to apply and enforce the terms of this Agreement. The arbitrator's decision will be final, binding and enforceable in a court of competent jurisdiction. If a party is required to enforce compliance with this Section (including non-payment of an award), the non-complying party must reimburse all of the costs and expenses incurred by the party seeking such enforcement (including reasonable expenses incurred by the party seeking such enforcement (including reasonable attorney's fees). The parties agree that any and all disputes arising out of or related to this Agreement that shall be litigated to the extent permitted shall be heard exclusively in the United States District Court located in Miami, Florida and in no other state or federal court. The parties agree that all discovery in any litigation or arbitration of this Agreement shall occur only in Miami-Dade County, Florida. Miscellaneous 24. Broker serves as an independent contractor to EPIXTAR and to all Customers of EPIXTAR and shall not be deemed to have incurred or undertaken any general agency or fiduciary relationships to either even if, for some purposes, Broker's conduct might conceivably be deemed or interpreted as an agent or fiduciary of either or of both. 25. This Agreement is non-assignable by Broker except with the prior written consent of EPIXTAR, which consent may be given or withheld in the sole and absolute discretion of EPIXTAR. 26. Any affiliate or subsidiary of EPIXTAR desiring to use Broker's services shall be entitled to the benefits and bound by the terms of this Agreement. Such affiliate or subsidiary may make payment directly to Broker for commissions due hereunder. 27. This Contract shall inure to the benefit of and be binding upon the parties hereto and there respective successors, affiliates, agents and assigns. 28. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. 29. This Contract may not be modified or altered in any respect, except by a writing signed by the parties hereto. No oral waivers shall be binding. 30. The headings and titles herein have been inserted for reference only and shall not to ant extent have the effect of modifying the express terms and provisions of this Contract. 31. This Agreement supersedes all prior understandings and agreements, whether written or oral, between the parties hereto relating to the transactions provided for herein. 32. The Agreement may be executed in any number of counterparts, and each counterpart shall constitute an original instrument, but all such separate counterparts shall constitute one and the same agreement. Delivery of an executed signature page of this agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof or thereof, as the case may be. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. 6 EPIXTAR INTERNATIONAL CONTACT CENTER DDM CONSULTING, INC. GROUP, INC. By:___________________________ By:________________________ Name: Irving Greenman Name: David Mullaney Title: President Title: President DDM CONSULTING, INC. CUSTOMER LIST Discover Financial Services, Inc. CompuCredit Corp. Tranzact APEX CoVantage Omniquest1 Link Consulting Asian Call Centers Advanced Debt Solutions 19 Communications FIZZ Telecom Dish Uplink, LLC Link-IDT Link-3G Asian-Energy Telecom Asian-CHM Life 7 EX-31.1 12 b410993_ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION I, Martin Miller, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A of Epixtar Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 23, 2005 /s/ Martin Miller ----------------------- Martin Miller Chief Executive Officer EX-31.2 13 b410993_ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION I, Irving Greenman, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A of Epixtar Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 23, 2005 /s/ Irving Greenman ------------------------------ Irving Greenman Chief Financial Officer EX-32.1 14 b410993_ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Epixtar Corp. ("Company") Quarterly Report on Form 10-Q/A for the period ended June 30, 2005 ("Report"), the undersigned certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 23, 2005 /s/ Martin Miller ------------------------------ Martin Miller Chief Executive Officer EX-32.2 15 b410993_ex32-2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Epixtar Corp. ("Company") Quarterly Report on Form 10-Q/A for the period ended June 30, 2005 ("Report"), the undersigned certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 23, 2005 /s/ Irving Greenman ----------------------------- Irving Greenman Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----