-----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, T9uRUnRKzPjGGP2C3qJiLhAuiTcRXlhCKqXaKgfrbpt70737zxkumx+3SaI4I6of id8i5WrvuWjXoM23CVxMmQ== /in/edgar/work/20000811/0000912057-00-036561/0000912057-00-036561.txt : 20000921 0000912057-00-036561.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-036561 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: I LINK INC CENTRAL INDEX KEY: 0000849145 STANDARD INDUSTRIAL CLASSIFICATION: [4822 ] IRS NUMBER: 592291344 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17973 FILM NUMBER: 693794 BUSINESS ADDRESS: STREET 1: 13751 S WADSWORTH PK DR SUITE 200 STREET 2: STE 200 CITY: DRAPER STATE: UT ZIP: 84020 BUSINESS PHONE: 8015765000 MAIL ADDRESS: STREET 1: 13751 S WADSWORTH PK DR STREET 2: STE 200 CITY: DRAPER STATE: UT ZIP: 84020 FORMER COMPANY: FORMER CONFORMED NAME: MEDCROSS INC DATE OF NAME CHANGE: 19920703 10-Q 1 a10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number: 0-17973 I-LINK INCORPORATED (Exact name of registrant as specified in its charter) FLORIDA 59-2291344 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 13751 S. WADSWORTH PARK DRIVE, SUITE 200, DRAPER, UTAH 84020 (Address of principal executive offices) (801) 576-5000 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter time 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 --- --- -------------- As of August 10, 2000, the registrant had outstanding 27,922,032 shares of $0.007 par value common stock. PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 2000 December 31, (Unaudited) 1999 ------------- ------------- Current assets: Cash and cash equivalents $ 7,190,520 $ 2,950,730 Accounts receivable, less allowance for doubtful accounts of $44,000 and $1,789,000 as of June 30, 2000 and December 31, 1999, respectively 14,785,764 4,344,406 Other current assets 278,373 362,191 ------------- ------------- Total current assets 22,254,657 7,657,327 Furniture, fixtures, equipment and software, net 8,378,230 7,019,361 Other assets: Intangible assets, net 5,113,313 6,551,453 Other assets 589,949 430,058 ------------- ------------- $ 36,336,149 $ 21,658,199 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 3,255,815 $ 4,131,675 Accrued liabilities 3,588,942 2,629,046 Unearned revenue 15,000,000 -- Accrued interest on notes payable 1,924,298 Current portion of long-term debt 746,625 751,660 Current portion of notes payable to a related party 7,768,000 Current portion of obligations under capital leases 1,457,701 1,380,957 Net liabilities of discontinued operations 82,629 82,629 ------------- ------------- Total current liabilities 33,824,010 8,975,967 Notes payable to a related party -- 7,768,000 Accrued interest on long-term notes payable -- 1,345,801 Obligations under capital leases 401,436 544,724 Unearned revenue 4,166,667 -- ------------- ------------- 38,392,113 18,634,492 ------------- ------------- Commitments and contingencies (note 7) Redeemable preferred stock - Class M 11,734,820 11,734,820 Redeemable preferred stock - Class F -- 2,338,784 ------------- ------------- 11,734,820 14,073,604 ------------- ------------- Stockholders' deficit: Preferred stock, $10 par value, authorized 10,000,000 shares, issued and outstanding 31,721 and 49,992 at June 30, 2000 and December 31, 1999, respectively, liquidation preference of $16,200,445 at June 30, 2000 317,210 499,920 Common stock, $.007 par value, authorized 150,000,000 shares, issued and outstanding 27,645,838 and 24,150,829 at June 30, 2000 and December 31, 1999, respectively 193,522 169,056 Additional paid-in capital 105,756,046 98,734,475 Deferred compensation (172,862) (499,377) Accumulated deficit (119,884,700) (109,953,971) ------------- ------------- Total stockholders' deficit (13,790,784) (11,049,897) ------------- ------------- $ 36,336,149 $ 21,658,199 ============= =============
The accompanying notes are an integral part of these consolidated financial statements 1 I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, --------------------------------- --------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenues: Telecommunication services $ 4,589,112 $ 6,225,552 $ 9,876,319 $ 12,408,250 Marketing services -- 1,476,090 464,354 2,235,962 Technology licensing and development 1,739,906 754,557 6,246,406 1,048,973 Other 1,008,563 -- 1,709,667 -- ------------ ------------ ------------ ------------ Total revenues 7,337,581 8,456,199 18,296,746 15,693,185 ------------ ------------ ------------ ------------ Operating costs and expenses: Telecommunication network expense 5,537,946 4,740,624 11,651,008 9,064,054 Marketing services -- 1,763,447 349,034 2,979,756 Selling, general and administrative 5,724,953 3,087,696 9,644,041 5,924,819 Provision for doubtful accounts 54,187 1,038,309 379,903 1,944,015 Depreciation and amortization 1,560,816 1,437,403 3,049,705 2,780,823 Write-down of capitalized software costs -- -- -- 1,847,288 Research and development 841,446 501,070 1,674,358 1,074,105 ------------ ------------ ------------ ------------ Total operating costs and expenses 13,719,348 12,568,549 26,748,049 25,614,860 ------------ ------------ ------------ ------------ Operating loss (6,381,767) (4,112,350) (8,451,303) (9,921,675) ------------ ------------ ------------ ------------ Other income (expense): Interest expense (350,481) (1,742,543) (794,323) (2,868,432) Interest and other income 112,969 33,172 150,796 56,751 Settlement expense (Note 6) 720,385 -- (639,565) -- ------------ ------------ ------------ ------------ Total other income (expense) 482,873 (1,709,371) (1,283,092) (2,811,681) ------------ ------------ ------------ ------------ Loss from continuing operations (5,898,894) (5,821,721) (9,734,395) (12,733,356) Loss from discontinued operations (less applicable income tax provision of $0 for the six and three month periods ended June 30, 2000 and 1999) -- -- -- (350,000) ------------ ------------ ------------ ------------ Net loss $ (5,898,894) $ (5,821,721) $ (9,734,395) $(13,083,356) ============ ============ ============ ============ CALCULATION OF NET LOSS PER COMMON SHARE: Loss from continuing operations $ (5,898,894) $ (5,821,721) $ (9,734,395) $(12,733,356) Cumulative preferred stock dividends (393,095) (380,448) (800,488) (873,359) Dividends paid on Class F preferred stock -- -- (18,214) -- ------------ ------------ ------------ ------------ Loss from continuing operations applicable to common stock $ (6,291,989) $ (6,202,169) $(10,553,097) $(13,606,715) ============ ============ ============ ============ Basic and diluted weighted average shares outstanding 24,901,536 20,799,250 26,026,948 20,037,109 ============ ============ ============ ============ Net loss per common share - basic and diluted: Loss from continuing operations $ (0.25) $ (0.30) $ (0.41) $ (0.68) Loss from discontinued operations -- -- -- (0.02) ------------ ------------ ------------ ------------ Net loss per common share $ (0.25) $ (0.30) $ (0.41) $ (0.70) ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements 2 I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (UNAUDITED)
Preferred Stock Common Stock -------------------- --------------------- Additional Paid-in Deferred Accumulated Shares Amount Shares Amount Capital Compensation Deficit -------- --------- ---------- -------- ------------ ------------ -------------- BALANCE AT DECEMBER 31, 1999 49,992 $ 499,920 24,150,829 $169,056 $ 98,734,475 $(499,377) $(109,953,971) Conversion of preferred stock into common stock (18,519) (185,190) 1,970,590 13,794 171,396 -- -- Reclassification of Class F redeemable preferred stock from mezzanine due to conversion to common stock 248 2,480 -- -- 2,336,305 -- -- Common stock dividend paid to holders of Class F redeemable preferred stock -- -- 87,477 612 195,721 -- (196,334) Exercise of stock options and warrants -- -- 1,286,965 9,009 3,523,710 -- -- Common stock issued as payment of accrued liabilities -- -- 149,977 1,051 739,537 -- -- Stock options issued for services -- -- -- -- 54,902 (54,902) -- Amortization of deferred compensation on stock options issued for services -- -- -- -- -- 381,417 -- Net loss -- -- -- -- -- -- (9,734,395) ------- --------- ---------- -------- ------------ --------- ------------- BALANCE AT JUNE 30, 2000 31,721 $ 317,210 27,645,838 $193,522 $105,756,046 $(172,862) $(119,884,700) ======= ========= ========== ======== ============ ========= =============
The accompanying notes are an integral part of these consolidated financial statements 3 I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, ---------------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net loss $ (9,734,395) $(13,083,356) Adjustments to reconcile net loss to net cash used in (provided by) operating activities: Depreciation and amortization 3,049,705 2,780,823 Provision for doubtful accounts 379,903 1,944,015 Common stock issued as payment of accrued liabilities 740,588 -- Amortization of discount on notes payable -- 1,766,938 Write-down of capitalized software costs -- 1,847,288 Loss on disposal of assets -- 7,495 Amortization of deferred compensation on stock options issued for services 381,417 609,056 Increase (decrease) from changes in operating assets and liabilities: Accounts receivable (10,821,262) (2,641,508) Other assets (76,073) (331,361) Accounts payable, accrued liabilities and unearned revenue 19,824,180 735,845 Discontinued operations - noncash charges and working capital changes (26,141) 320,652 ------------ ------------ Net cash provided by (used in) operating activities 3,717,922 (6,044,113) ------------ ------------ Cash flows from investing activities: Purchases of furniture, fixtures and equipment (2,970,434) (615,810) Maturity of restricted certificates of deposit -- 359,666 Investing activities of discontinued operations 19,674 30,000 ------------ ------------ Net cash used in investing activities (2,950,760) (226,144) ------------ ------------ Cash flows from financing activities: Proceeds from issuance of notes payable to related party 2,600,000 7,600,000 Proceeds from advance under strategic marketing agreement 1,751,183 -- Payment of related party debt (2,600,000) (500,000) Payment of advance under strategic marketing agreement (1,751,183) -- Payment of long-term debt -- (268,984) Payment of capital lease obligations (66,544) (337,667) Proceeds from exercise of common stock warrants and options 3,532,719 5,000 Financing activities of discontinued operations (24,719) -- ------------ ------------ Net cash provided by financing activities 3,441,456 6,498,349 ------------ ------------ Increase in cash and cash equivalents 4,208,618 228,092 Cash and cash equivalents at beginning of period 2,996,004 1,368,927 ------------ ------------ Cash and cash equivalents at end of period $ 7,204,622 $ 1,597,019 ============ ============ Cash and cash equivalents at end of period: Continuing operations $ 7,190,520 $ 1,538,443 Discontinued operations 14,102 58,576 ------------ ------------ Total cash and cash equivalents at end of period $ 7,204,622 $ 1,597,019 ============ ============ SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Reclassification of Class F redeemable preferred stock from mezzanine $ 2,338,784 $ 5,167,959 Warrants issued in connection with a standby letter of credit -- $ 735,720 Stock options issued for services $ 54,902 Equipment acquired under capital lease obligations -- $ 1,822,193 Accrued interest exchanged for Series N preferred stock -- $ 575,675
The accompanying notes are an integral part of these consolidated financial statements 4 I-LINK INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- NOTE 1 - DESCRIPTION OF BUSINESS, PRINCIPLES OF CONSOLIDATION AND LIQUIDITY The consolidated financial statements include the accounts of I-Link Incorporated and its subsidiaries (the "Company"). The Company is an integrated voice and data communications company focused on simplifying the delivery of "Unified Communication." Unified Communication is the integration of traditional telecommunications with new data IP (Internet Protocol) communications systems with the effect of simplifying communications, increasing communication capabilities and lowering overall communication costs. Unified Communication platforms integrate telecommunication, mobile communication, paging, voice-over-IP (VoIP), fax and Internet technologies. Through its wholly owned subsidiaries I-Link Communications, Inc., and I-Link Systems, Inc., the Company provides enhanced telecommunications services on a wholesale and retail basis. Through its wholly-owned subsidiaries MiBridge, Inc., and ViaNet Technologies Ltd., the Company undertakes the research and development of new telecommunications services, products, and technologies, and the licensing of certain of these products and technologies to other telecommunications companies. All significant intercompany accounts and transactions have been eliminated in consolidation. On March 23, 1998, the Company's Board of Directors approved a plan to dispose of the Company's medical services businesses in order to focus its efforts on the sale of telecommunication services and technology licensing. The Company has sold or intends to sell all of the assets of the medical services subsidiaries, with the proceeds being used to satisfy outstanding obligations of the medical services subsidiaries. In April 2000, the Company completed the sale of certain non-operating assets located in China, which had experienced unexpected delays in disposal. The Company sold the net assets for $150,000 of which $50,000 was used to pay down an outstanding note payable and accrued interest with the purchaser. As of June 30, 2000, there were no revenue generating activities remaining from the medical services operations. On-going administrative costs primarily consist of fees associated with collecting outstanding accounts receivable. These anticipated costs have been accrued for as part of management's best estimate of the expected ultimate loss on disposal. The results of the medical services operations have been classified as discontinued operations for all periods presented in the Consolidated Statements of Operations. The assets and liabilities of the discontinued operations have been classified in the Consolidated Balance Sheets as "Net liabilities of discontinued operations". Discontinued operations have also been segregated for all periods presented in the Consolidated Statements of Cash Flows. The interim financial data are unaudited; however, in the opinion of the management of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of (a) the results of operations for the three-month and six-month periods ended June 30, 2000 and 1999, (b) the financial position at June 30, 2000, and (c) cash flows for the six-months ended June 30, 2000 and 1999. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1999 and quarterly report on Form 10-Q for the three-months ended March 31, 2000. The results of operations for the three-month and six-month periods ended June 30, 2000 are not necessarily indicative of those to be expected for the entire year. The Company incurred a net loss from continuing operations of $9,734,395 for the six-month period ended June 30, 2000, and as of June 30, 2000 had an accumulated deficit of $119,884,700 and negative working capital of $11,569,353. The Company anticipates that revenues generated from its continuing operations will not be sufficient during the remainder of 2000 to fund ongoing operations, the continued expansion of its private telecommunications network facilities, development and manufacturing of its Indavo product and anticipated growth in subscriber base. 5 I-LINK INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- NOTE 1 - DESCRIPTION OF BUSINESS, PRINCIPLES OF CONSOLIDATION AND LIQUIDITY, CONTINUED In order to provide for capital needs, the Company entered into two agreements during the second quarter of 2000, namely a line of credit agreement with Winter Harbor and a strategic alliance with Red Cube International AG ("Red Cube"). In addition, the due date of the Company's prior obligation to Winter Harbor in the amount of $7,768,000, which was due on demand, was extended to April 15, 2001. While the Company believes that the aforementioned sources of funds combined with ongoing revenues and other available sources of financing will be sufficient to fund its operations in 2000, the Company anticipates that additional funds will be necessary after such time to fund its operations and finance the planned expansion of the Company's business communications services, product development and manufacturing, and to discharge the financial obligations of the Company. The availability of such funds will depend on prevailing market conditions, interest rates, and financial position and results of operations of the Company. There can be no assurance that such funds will be available, or if available that they will be on terms and conditions favorable to the Company. Furthermore, the Company may need to raise funds prior to 2001 if, for example, the Company accelerates the expansion of its network, pursues acquisitions or experiences operating losses that exceed our current expectation. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET LOSS PER SHARE Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. Options, warrants, convertible preferred stock and convertible debt are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive. As the Company had a net loss from continuing operations for the three-month and six-month periods ending June 30, 2000 and 1999, basic and diluted loss per share are the same. During the six-month period ended June 30, 2000, holders of the Series F Redeemable preferred stock converted 248 of those shares (none were converted in the three months ended June 30, 2000). Accordingly, they were paid stock dividends of 87,477 shares of common stock on the converted shares during first six-months of 2000. During the three-month and six-month periods ending June 30, 1999, holders of the Series F Redeemable preferred stock converted 409 and 548 of those shares respectively. Accordingly they were paid stock dividends of 81,343 and 100,003 shares of common stock, respectively, on the converted shares. As of June 30, 2000 all Series F preferred stock has been converted to common stock and therefore there will be no further stock dividends paid on the Series F preferred stock. REVENUE RECOGNITION The agreement with Red Cube Group consisted of a $7,500,000 licensing fee and $2,500,000 for consulting services. The $10,000,000 is nonrefundable and will be recorded as revenue ratably over a two-year period in accordance with the provisions of Statement of Position #97-2. Accordingly, $833,333 was recorded as technology licensing revenue in the second quarter of 2000 while the balance of $9,166,667 has been recorded as unearned revenue as of June 30, 2000. The agreement also includes a nonrefundable payment of a $10,000,000 (received in July 2000) service prepayment which is to be credited against the cost of services performed and/or provided by I-Link to Red Cube. To the extent the service prepayment credit has not been fully utilized by Red Cube by June 30, 2001 (the "Utilization Date"), any unused service prepayment shall be deemed fully earned by I-Link and utilized as of that date if the I-Link Network has met certain requirements during the service period. The service prepayment of $10,000,000 has been recorded as unearned revenue as of June 30, 2000 and will be recognized as revenue when the related services are performed or provided. 6 I-LINK INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- NOTE 3 - DISCONTINUED OPERATIONS Net assets of the Company's discontinued operations (excluding intercompany balances which have been eliminated against the net equity of the discontinued operations) are as follows (unaudited):
June 30, December 31, 2000 1999 --------- ----------- Assets: Current assets: Cash and cash equivalents $ 14,102 $ 45,274 Accounts receivable 206,419 391,590 Inventory -- 555,291 Other 31,936 33,233 --------- ----------- Total current assets 252,457 1,025,388 Furniture, fixtures and equipment, net 18,176 37,850 Other non-current assets 253 854 --------- ----------- Total assets 270,886 1,064,092 --------- ----------- Liabilities: Current liabilities: Accounts payable and accrued liabilities 136,572 905,060 Note payable 216,943 141,661 --------- ----------- Total current liabilities 353,515 1,046,721 --------- ----------- Note Payable 100,000 --------- ----------- Net liabilities - discontinued operations $ (82,629) $ (82,629) ========= ===========
The net assets of the discontinued operations as of June 30, 2000 and December 31, 1999 are shown as a current liabilities in the consolidated balance sheet as it is anticipated that the disposal of the medical services businesses will be completed by the third quarter of 2000. Revenues of the discontinued operations were $0 and $104,498 and $0 and $235,121 for the three-month and six-month periods ending June 30, 2000 and 1999, respectively. NOTE 4 - CAPITAL FINANCING In March 2000, the Company entered into a new lease facility providing for equipment purchases of up to $5,000,000. The equipment will be used in expanding the Company's real-time IP ("RTIP network") network. The lease agreement requires monthly payments over the three-year term. As of June 30, 2000, the Company had purchased $875,000 of equipment under the lease facility. NOTE 5 - INCOME TAXES The Company recognized no income tax benefit from the losses generated in 2000 and 1999 because of the uncertainty of the realization of the related deferred tax asset. 7 I-LINK INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- NOTE 6 - STOCKHOLDER'S EQUITY, REDEEMABLE PREFERRED STOCK- SERIES F AND REDEEMABLE COMMON STOCK TO BE ISSUED On March 10, 2000, the Company and JNC Opportunity Fund, Ltd. ("JNC") entered into a settlement and release agreement relating to certain litigation with respect to shares of Series F Preferred stock then held by JNC. The shares of Series F Preferred stock then held by JNC were convertible into 1,104,972 shares of common stock under the original agreement with JNC prior to the commencement of the litigation. On March 10, 2000, the Company issued 531,968 shares of common stock to JNC pursuant to the settlement agreement in cancellation of the Series F shares then held by JNC. The balance of the shares required to be issued pursuant to the settlement agreement required approval at a special meeting of the shareholders held on May 23, 2000, at which time approval of the shareholders was received. Due to delay in issuance of the shares required to be issued pursuant to the settlement agreement until shareholder approval was received and the related common shares were registered, the Company issued 20,458 "Additional Shares" of common stock in accordance with the agreement. The issuance of 87,477 shares representing dividends associated with the Series F stock has been recorded in the Company's financial statements as dividends paid, and 129,519 shares have been recorded as settlement expense. As of June 30, 2000, the Company has also recorded interest expense of $111,021 representing the common stock issued as Additional Shares, Late Shares and Additional Late Shares (20,458) on May 24, 2000. The settlement and interest payables and expense as of the end of the first quarter were determined by the respective shares issuable as of March 31, 2000, multiplied by the market price of the Company's common stock on March 31, 2000. The ultimate amount of settlement and interest expense was determined by reference to the market value of the Company's common stock on the date of issuance (May 24, 2000) times the common shares issued. Accordingly, the total settlement and interest expense was $639,565 and $111,021, respectively. NOTE 7 - PURCHASE COMMITMENTS I-Link has an agreement with a national carrier to lease local access spans. The agreement includes minimum usage commitments of $2,160,000 per year for the two years beginning July 2000. If I-Link were to terminate the agreement early, it would be required to pay 25 percent of any remaining minimum monthly usage requirements. In December 1999, I-Link entered into an agreement with a national carrier to provide long-distance capacity in order to provide long-distance telecommunications services to I-Link's customers who reside in areas not yet serviced by I-Link's dedicated telecommunications network. The eighteen-month agreement includes minimum monthly usage commitments of $250,000 beginning in the sixth month of the agreement. Either party may terminate the agreement with 90 days notice. NOTE 8 - SEGMENT OF BUSINESS REPORTING The Company's three reportable segments are as follows: - - Telecommunications services - includes long-distance toll services and enhanced calling features such as V-Link. The telecommunications services products are marketed primarily to residential and small business customers. - - Marketing services - includes training and promotional materials to independent sales representatives (IRs) in the network marketing sales channel. Additionally, revenues are generated from registration fees paid by IRs to attend regional and national sales conferences. This segment ceased operations in February 2000. - - Technology licensing and development - provides research and development to enhance the Company's product and technology offerings. Products developed by this segment include V-Link, Indavo, and other proprietary technology. The Company licenses certain developed technology to third party users, such as Lucent, Brooktrout and others. 8 I-LINK INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- NOTE 8 - SEGMENT OF BUSINESS REPORTING, CONTINUED There are no intersegment revenues. The Company's business is conducted principally in the U.S.; foreign operations are not material. The table below presents information about revenues from external customers and net loss for the three-month and six-month periods ended June 30, 2000 and 1999. There has been no material change in segment assets from the amounts reported in the Company's annual report on Form 10-K for the year ended December 31, 1999.
For the Three-Month For the Six-Month Period Ended Period Ended ------------------------------ -------------------------------- June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 ------------- ------------- ------------- ------------- REVENUES FROM EXTERNAL CUSTOMERS: Telecommunications services $ 5,598,000 $ 6,225,000 $ 11,187,000 $ 12,408,000 Marketing services -- 1,476,000 464,000 2,236,000 Technology licensing and development 1,740,000 755,000 6,646,000 1,049,000 ----------- ----------- ------------ ------------ Total revenues from external customers for reportable segments $ 7,338,000 $ 8,456,000 $ 18,297,000 $ 15,693,000 =========== =========== ============ ============ SEGMENT INCOME (LOSS): Telecommunications services $(1,558,000) $ (249,000) $ (3,787,000) $ 67,000 Marketing services (58,000) (301,000) (154,000) (770,000) Technology licensing and development 309,000 77,000 3,971,000 (345,000) ----------- ----------- ------------ ------------ Total segment loss for reportable segments (1,307,000) (473,000) 30,000 (1,048,000) Unallocated non-cash amounts in consolidated net loss: Settlement expense 720,000 (640,000) Amortization of discount on notes payable -- (1,108,000) -- (1,767,000) Write-down of capitalized software costs -- -- -- (1,847,000) Amortization of deferred compensation on stock options issued for services (189,000) (295,000) (381,000) (609,000) Amortization of intangible assets (719,000) (724,000) (1,438,000) (1,447,000) Other corporate expenses (4,404,000) (3,222,000) (7,305,000) (6,015,000) Loss from discontinued operations -- -- -- (350,000) ----------- ----------- ------------ ------------ $(5,899,000) $(5,822,000) $ (9,734,000) $(13,083,000) =========== =========== ============ ============
9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis set forth in the Company's Form 10-K for the year ended December 31, 1999 and Form 10-Q for the quarter ended March 31, 2000. FORWARD LOOKING INFORMATION THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE DEEMED TO INCLUDE FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO THE COMPANY THAT ARE BASED ON THE BELIEFS OF MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "MAY," "WILL," "COULD " "SHOULD", "BELIEVE," "ESTIMATE," "EXPECT," "PLAN," AND "INTENDED" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS AND AS SUCH ARE NOT HISTORICAL FACTS. SUCH STATEMENTS REFLECT THE CURRENT VIEW OF THE COMPANY RESPECTING FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES AS NOTED BELOW. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR INTENDED. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Among many factors that could cause actual results to differ materially from the forward-looking statements herein include, without limitation, the following: - - the Company's ability to finance and manage expected rapid growth; - - the impact of competitive services and pricing; - - the Company's ongoing relationship with its long distance carriers and vendors; - - the impact of vigorous competition in the markets in which the Company operates; - - the impact of technological change on the Company's business including new entrants and alternative technologies; - - risks associated with debt service requirements and interest rate fluctuations; - - dependence upon key personnel; - - subscriber attrition including the concentration of services rendered through one vendor; - - the adoption of new, or changes in, accounting policies, litigation, federal and state governmental regulation of the long distance telecommunications and internet industries; - - the Company's ability to maintain, operate and upgrade its information systems network; - - the Company's success in further expanding it's real-time IP ("RTIP network") network; - - the existence of demand for and acceptance of the Company's technology, products and services; - - other risks referenced from time to time in the Company's filings with the SEC. The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. OPERATIONS In January 1997, I-Link Incorporated (the "Company") acquired I-Link Communications ("ILC"); in August 1997, the Company acquired MiBridge, Inc.; and in the first quarter of 1998 the Company formed ViaNet Technologies, Ltd. ("ViaNet"). In March 1998, the Company made the decision to dispose of the operations of the subsidiaries of the Company operating in the medical services industry in order to concentrate on its telecommunications and technology sectors. Accordingly, medical services operations during the six-month periods ending June 30, 2000 and 1999 have been reported as discontinued operations. The Company is an integrated voice and data communications company focused on simplifying the delivery of "Unified Communication." Unified Communication is the integration of traditional telecommunications with new data IP (Internet Protocol) communications systems with the effect of simplifying communications, increasing communication capabilities and lowering overall communication costs. Unified Communication platforms integrate telecommunication, mobile communication, 10 paging, voice-over-IP (VoIP) and Internet technologies. Through its wholly owned subsidiaries I-Link Communications, Inc., and I-Link Systems, Inc., the Company provides enhanced telecommunications services on a wholesale and retail basis. Through its wholly-owned subsidiaries MiBridge, Inc., and ViaNet Technologies Ltd., the Company undertakes the research and development of new telecommunications services, products, and technologies, and the licensing of certain of these products and technologies to other telecommunications companies. I-Link is a leader in the delivery of Unified Communications as a result of six core technology offerings: I-Link's Intranet, Softswitch Plus-TM-, GateLink-TM-, V-Link-TM-, Indavo-TM-, and I-Link TalkFree. Prior to February 15, 2000 and as of December 31, 1999, the Company's telecommunication and marketing service revenues were primarily dependent upon the sales efforts of independent representatives (IRs) functioning within a Network Marketing channel of distribution which targets residential and small businesses in the United States. These revenue sources depended directly upon the efforts of IRs. IRs personally solicited potential individual and business customers via one to one sales presentations wherein customers sign order forms for I-Link telecommunication products and services (telecommunication service revenues). Growth in revenue for both telecommunications and marketing services required an increase in the productivity of IRs and/or growth in the total number of IRs. On February 15, 2000, the Company signed a strategic marketing and channel agreement with Big Planet, a wholly owned subsidiary of Nu Skin Enterprises, Inc. Under terms of the agreement, I-Link's independent network marketing sales force (the IR's) transitioned to Big Planet, and Big Planet was granted the exclusive worldwide rights to market and sell I-Link's products and services through the Network Marketing (sometimes referred to as "Multi-Level") sales channel to residential and small business users. Other I-Link sales channels into the residential, small business, and other markets are unaffected by the agreement with Big Planet. The result of the agreement with Big Planet is that the Network Marketing channel became the single largest customer in I-Link's wholesale distribution channel. On May 9, 2000, the Company and Red Cube International AG ("Red Cube"), a leading international provider of Internet Protocol (IP) Telephony and enhanced Web-based communications services, announced an alliance to offer global, enhanced IP communications to the customers of each of the two companies. Under the terms of the agreement, Red Cube Group licensed I-Link's IP Telephony technology, is standardizing on I-Link's software-based Softswitch Plus-TM- network platform and preparing to deploy it throughout its existing networks in Europe and other parts of the world. In addition, the two companies interconnected their IP Telephony networks, creating a single, unified network, in order to provide customers from both companies global access to enhanced IP services. (See more detailed discussion of this agreement in the "Current Position/Future Requirements" section below). During the first two quarters of 2000, the Company began commercial deployment of its Indavo (Integrated Data and Voice) communications services gateway product. The initial device called Indavo V6 provides small office, home office and small business, including branch office and remote office customers, the capacity of up to six simultaneous voice and fax lines using any data service over network facilities that are already available to their homes or offices today. Indavo also provides access to I-Link's other enhanced services, including voice mail, fax, paging, e-mail, conference calling and follow-me-anywhere One-Number service. Indavo installations include both stand-alone and customer phone system integrated service configurations. Indavo devices and services are being marketed and deployed through both wholesale and retail channels using both general Internet access and fully managed access facilities. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents as of June 30, 2000 were $7,190,520 and the working capital deficit was $11,569,353. Cash provided by operating activities during the six-month period ended June 30, 2000 was $3,717,922 as compared to cash used by operations of $6,044,113 during the same period ended June 30, 1999. The increase in cash provided by operating activities in 2000 was primarily due to $10,000,000 received as of June 30, 2000 from Red Cube (See more detailed discussion of this agreement in the "Current Position/Future Requirements" section below.) 11 Net cash used by investing activities in the six-month period ended June 30, 2000 was $2,950,760 as compared to net cash used of $226,144 in the same period ended June 30, 1999. Cash used by investing activities in 2000 was primarily attributable to the purchase of network equipment of $2,970,434 which was offset by $19,674 received from the sale of certain assets from discontinued operations. In the first six-months of 1999 cash used by investing activities was primarily due to purchase of furniture, fixtures and equipment of $615,810 which was offset by $30,000 received from the sale of certain assets from discontinued operations and $359,666 from matured restricted certificates of deposit. Financing activities provided net cash of $3,441,456 in the first six-months of 2000 as compared to cash provided of $6,498,349 in the same period of 1999. Cash provided in 2000 included proceeds of $2,600,000 from a note payable to a related party, $3,532,719 in net proceeds from exercises of common stock warrants and options and a $1,751,183 advance received under the strategic marketing and channel agreement with a customer. The $2,600,000 note and $1,751,183 advance were both repaid during the second quarter of 2000. Repayments of capital lease obligations of $66,544 and repayments of $24,719 on certain notes in discontinued operations offset these proceeds. During the same six months in 1999, cash provided by financing activities included $7,600,000 from short-term debt and common stock warrants and $5,000 in net proceeds from the exercise of common stock warrants and options. Repayments of $1,106,651 on long-term debt, notes payable and capital lease obligations offset these proceeds. The Company incurred a net loss from continuing operations of $9,734,395 for the first six-months of 2000, and as of June 30, 2000 had an accumulated deficit of $119,884,700. The Company anticipates that revenue generated from continuing operations will not be sufficient during the remainder of 2000 to fund the Company's operations or continued expansion of its private telecommunications network facilities and anticipated growth in subscriber base. The Company has entered into additional financing arrangements as described below in order to obtain the additional funds required for its continuing operations in 2000. CURRENT POSITION/FUTURE REQUIREMENTS During the second quarter of 2000, revenue from continuing operations decreased $3,621,584 (33.0%) from the first quarter of 2000 as shown below:
Three Months Ended ------------------------------- Increase % Increase 3/31/00 6/30/00 (Decrease) (Decrease) ----------- ----------- ----------- ----------- Telecommunications services $ 5,287,208 $ 4,589,112 $ (698,096) (13.2)% Marketing services 464,354 (464,354) (100.0)% Technology licensing and development 4,506,500 1,739,906 (2,766,594) (61.4)% Other 701,103 1,008,563 307,460 43.9 % ----------- ----------- ----------- Net operating revenue $10,959,165 $ 7,337,581 $(3,621,584) (33.0)% =========== =========== ===========
The decrease in telecommunications services was a direct result of an agreement with Big Planet effective February 15, 2000. Prior to February 15, 2000, the Company's telecommunication services revenues were primarily dependent upon the sales efforts of independent representatives (IRs) functioning within a Network Marketing channel of distribution which targeted residential users and small businesses in the United States. These revenue sources were recorded at retail. Under terms of the agreement, I-Link's independent network marketing sales force (the IR's) transitioned to Big Planet. A substantial decrease in telecommunication services revenues for the quarter ended June 30, 2000 was the financial impact as the Company's revenues from its single largest wholesale customer's subscribers migrated from retail sales to the sell of its services to the same subscribers through this customer at wholesale prices. While a significant portion of the revenues has converted to wholesale, a portion of the customer's subscriber base remains on a retail billing basis with I-Link, for which the wholesale customer is paid a commission. Should this customer convert this portion of their business to a wholesale relationship, I-Link would have further declines in reported revenue with a corresponding related decrease in commissions paid on this retail business. The first quarter of 2000 included 1 1/2 months of conversion from retail to wholesale of a portion of the revenues. The second quarter included all three months of the conversion to wholesale on this same portion of its revenues. The reduction in telecommunications services revenues when going from retail to wholesale is partially offset by a 12 reduction in commissions paid to IRs related to telecommunication services revenues. In addition to the transition from retail to wholesale rates with these subscribers, the number of minutes decreased 18% primarily due to a decrease in the number of subscribers associated with the Company's single largest wholesale customer, who accounted for approximately 85% of the Company's telecommunications services revenue in the second quarter. The Company's single largest wholesale customer anticipates that minutes, subscribers and related revenue will increase in future periods, however, the Company no longer controls this channel and therefore cannot control future results related to this channel. The Company transitioned its network marketing channel to Big Planet in February 2000. Accordingly, marketing service revenues ceased in February 2000. Technology licensing and development revenue decreased in the second quarter of 2000. During the first quarter, the Company's revenues were primarily related to two licensing agreements that resulted in revenues of nearly $4,000,000. The Company did not have agreements of this magnitude prior to the first quarter. On May 9, 2000, the Company and Red Cube Group, a leading international provider of Internet Protocol (IP) Telephony and enhanced Web-based communications services, announced an alliance to offer global, enhanced IP communications to the customers of each of the two companies. Red Cube Group, upon signing of the agreement, paid the Company $10,000,000 that consisted of a $7,500,000 licensing fee and $2,500,000 for consulting services. The $10,000,000 is nonrefundable and will be recorded as income ratably over a two-year period. Accordingly, $833,333 was recorded as technology licensing revenue in the second quarter of 2000 while the balance of $9,166,667 has been recorded as unearned revenue as of June 30, 2000. Revenue from this source (excluding Red Cube) will vary from quarter to quarter based on timing of future technology licensing and development projects and royalties from products previous sold. Other revenues in the second quarter of 2000 of $1,008,563 represent revenues relating to services performed for Big Planet as part of the transitioning of the network-marketing channel, which occurred in the first quarter of 2000. Revenues from these services to Big Planet are expected to decrease at least 50% during the third and fourth quarters of 2000, as services rendered during the transition are no longer needed. However, revenues from these types of services from new customers may occur in the future. During the first quarter of 2000 other revenues included $301,103 from similar services to Big Planet and royalties of $400,000 from the sale of Indavo units through a distributor of the Company to a company which will not utilize the Indavo units over the I-Link Network. As sales of the Indavo unit to customers who will not utilize the I-Link Network are not expected to recur, there were no such revenues in the second quarter nor is there expected to be significant revenues of this type in the future. The Company anticipates improved cash flow from operations in the remainder of 2000 primarily from the following sources: - - Additional $10,000,000 in prepaid services associated with the agreement between Red Cube Group and the Company in May 2000 (see discussion below). This amount was received in July 2000. - - Anticipated increase in monthly recurring subscription revenues from marketing of Indavo product. While the Company has decided to sell its Indavo devices at cost, primarily through an independent distributor, the Company anticipates increased recurring revenues form the sale of other enhanced services to Indavo users. - - Anticipated revenues from its GateLink product offering which commenced in the second quarter of 2000. During the second quarter, the Company agreed to host applications for five GateLink partners including Nortel (internet call waiting service), BigZoo.com (pre-paid cards), Me.Net (unified messaging), Cumulus (call center technology) and OgilvyInteractive (voice enabled web page). The Company anticipates that efforts in the second and third quarters should lead to growth of our GateLink business and related revenues in the fourth quarter of 2000 with significant revenues anticipated in the first quarter of 2001. - - The affiliation with Big Planet effective February 15, 2000 is anticipated to have a positive overall financial impact in the long-term to the Company by increasing revenues, reducing expenses and increasing profit margins through customer growth. However, the Company no longer controls this channel and therefore cannot control future results related to this channel. The Company anticipates that in preparation for continued market penetration and deployment of I-Link products, cash requirements for operations, continued development of the Company's network and marketing of I-Link services will be at increasingly higher levels than experienced in the first six months of 2000. 13 Since December 31, 1999, the Company entered into three agreements as follows: - - On May 9, 2000, the Company and Red Cube announced an alliance to offer global, enhanced IP communications to the customers of each of the two companies. Red Cube, upon signing the agreement, paid the Company $10,000,000 that consisted of a $7,500,000 licensing fee and $2,500,000 for consulting services. I-Link and Red Cube Group were obligated to use their best commercially reasonable effort to complete certain milestones defined in the agreement and to negotiate in good faith to enter into a revenue sharing agreement by June 23, 2000, which date was extended to July 7, 2000. On June 30, 2000 the Company completed Milestone #1 as required under the agreement and signed a revenue sharing agreement. Completion of Milestone #1 and the signing of the revenue sharing agreement, both as prescribed under the agreement, obligated Red Cube to pay to I-Link an additional $10,000,000 for future services and removes any potential obligations that I-Link might have had to repay any of the $20,000,000 received or to be received from Red Cube. The $10,000,000 for future services was paid to I-Link in July 2000. - - On February 25, 2000, the Company obtained a leasing arrangement for certain network equipment up to $5,000,000 dollars. As of June 30, 2000 the Company had approximately $4,100,000 of this lease available for additional equipment acquisitions. - - The due date of the Company's existing obligation to Winter Harbor in the amount of $7,768,000 and accrued interest of $1,345,801 as of December 31, 1999, which was due April 15, 2000, was extended to April 15, 2001. While the Company believes that the aforementioned sources of funds will be sufficient to fund its operations in 2000, the Company anticipates that additional funds will be necessary after such time to fund its operations and finance the planned expansion of the Company's business communications services, product development and manufacturing, and to discharge the financial obligations of the Company. The availability of such funds will depend on prevailing market conditions, interest rates, and the financial position and results of operations of the Company. There can be no assurance that such funds will be available or if available that they will be on terms and conditions favorable to the Company. Furthermore, the Company may need to raise funds prior to 2001 if, for example, the Company accelerates the expansion of its network and services, pursue acquisitions or experiences operating losses that exceed our current expectations. THREE-MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THREE-MONTH PERIOD ENDED JUNE 30, 1999 In March 1998, the Company made the decision to dispose of the operations of the subsidiaries of the Company operating in the medical services industry in order to concentrate on its telecommunications and technology sectors. Accordingly, medical services operations during the three-month periods ending June 30, 2000 and 1999 have been reported as discontinued operations. REVENUES Telecommunication services revenue decreased $1,636,440 to $4,589,112 in the second quarter of 2000 as compared to $6,225,552 in the second quarter of 1999. The decrease is a direct result of the agreement with Big Planet effective February 15, 2000. Prior to February 15, 2000, the Company's telecommunication services revenues were primarily dependent upon the sales efforts of independent representatives (IRs) functioning within a Network Marketing channel of distribution. These revenue sources were recorded at retail. Under terms of the agreement, I-Link's independent network marketing sales force (the IR's) transitioned to Big Planet. A substantial decrease in telecommunication services revenues for the quarter ended June 30, 2000 was the financial impact as the Company's revenues from its single largest wholesale customer's subscribers migrated from retail sales to the sell of its services to the same subscribers through this customer at wholesale prices. While a significant portion of the revenues has converted to wholesale, a portion of the customer's subscriber base remains on a retail billing basis with I-Link, for which the customer is paid a commission. Should this customer convert this portion of their business to a wholesale relationship, I-Link would have further declines in reported revenue with a corresponding related decrease in commission paid on this retail business. In addition to the transition from retail to wholesale rates with these subscribers, the number of minutes increased 16% primarily due to an increase in the number of subscribers as compared to the similar period of 1999. The increase in minutes was offset by a decrease in the average rate per minute of approximately 36%. This decrease in rate per minute was a result of two events: (1) transition from retail to wholesale pricing with the Company's single largest wholesale customer who accounted for approximately 56% of the Company's telecommunications 14 services revenue in the first six months of 2000 and (2) competitive pricing pressures. The Company's single largest wholesale customer anticipates that minutes, subscribers and related revenue will increase in future periods, however, the Company no longer controls this channel and therefore cannot control future results related to this channel. The Company transitioned its network marketing channel to Big Planet in February 2000. Accordingly, marketing service revenues ceased in February 2000. Technology licensing and development revenue increased $985,349 to $1,739,906 in the second quarter of 2000 as compared to $754,557 in the same quarter of 1999. On May 9, 2000, the Company and Red Cube Group entered into an agreement under which Red Cube paid the Company $10,000,000 that consisted of a $7,500,000 licensing fee and $2,500,000 for consulting services. The $10,000,000 is nonrefundable and is being recorded as income ratably over a two-year period. Accordingly, $833,333 was recorded as technology licensing revenue in the second quarter of 2000 while the balance of $9,166,667 has been recorded as unearned revenue as of June 30, 2000. Revenue from this source (excluding Red Cube) will vary from quarter to quarter based on timing of future technology licensing and development projects and royalties from products previously sold. Other revenues in the second quarter of 2000 relate to services performed for Big Planet as part of the transitioning of the network-marketing channel. Revenues from these services to Big Planet are expected to decrease at least 50% during the third and fourth quarters of 2000, as services rendered during the transition are no longer needed. However, revenues from these types of services from new customers may occur in the future. There were no comparable revenues in the same period of 1999. OPERATING COSTS AND EXPENSES Telecommunication network expense increased $797,322 in the second quarter of 2000 to $5,537,946 as compared to $4,740,624 for the same quarter of 1999. These expenses include the costs related to the continuing development and deployment of the Company's communication network and expenses related to the generation of telecommunication service revenue. While telecommunication network expense is directly related to telecommunication services revenues, the relationship is not comparable with the same quarter in 1999 due to the transition to wholesale rather than retail revenues as a result of the agreement with Big Planet discussed in Telecommunication services revenue above. Marketing service costs ceased in the first quarter of 2000. The expenses related directly to the Company's marketing services revenue, which revenues ceased in the first quarter of 2000. Accordingly there were no such expenses in the second quarter of 2000. Selling, general and administrative expense increased $2,637,257 to $5,724,953 in the second quarter of 2000 as compared to $3,087,696 in the second quarter of 1999. The increase was primarily due to increased overhead, outside services used in connection with complex business transactions and increasing personnel costs associated with hiring highly skilled employees to expand and administer the Company's network and provisioning of telecommunications services. The provision for doubtful accounts decreased $984,122 to $54,187 in the second quarter of 2000 as compared to $1,038,309 in the same quarter of 1999. The decrease is directly related to the transitioning of the network channel subscribers to Big Planet in February 2000. With the transition, Big Planet assumed the risk of collections from individual subscribers. Accordingly, the Company continues to assess its risks of collections of accounts receivable, the effect of which resulted in reduced provision for the three months ended June 30, 2000 as compared to the same period of 1999. Depreciation and amortization increased $123,413 to $1,560,816 in the second quarter of 2000 as compared to $1,437,403 in the second quarter of 1999. The increase is primarily due to increased depreciation related to continuing acquisitions of equipment, primarily telecommunication equipment. Research and development increased $340,376 to $841,446 in the second quarter of 2000 as compared to $501,070 in the same period of 1999. The Company anticipates that research and development expense will continue at a comparable amount during the remainder of 2000. Interest expense decreased $1,392,062 to $350,481 in the second quarter of 2000 as compared to $1,742,543 in the same quarter 15 of 1999. Interest in the second quarter of 2000 was primarily related to interest on outstanding debt of the Company and capitalized leases. Interest in the second quarter of 1999 included $1,129,620 (non-cash) in amortization of debt discount related to certain warrants granted in connection with $8,000,000 in loans and a $3,000,000 letter of credit to the Company from Winter Harbor L.L.C. and interest on outstanding debt of the Company of $612,923. Interest and other income increased $79,797 to $112,969 in the second quarter of 2000 as compared to $33,172 in the same quarter of 1999. The increase was primarily due to an increase in the average balance of cash on hand in the second quarter of 2000 as compared to the same quarter of 1999. A settlement expense of $1,359,950 was recorded in the first quarter of 2000. This expense is the result of an obligation to issue 129,519 shares of common stock in exchange for certain trading restrictions imposed on JNC Opportunity Fund Ltd. ("JNC") in relation to the common stock to be issued to JNC pursuant to a settlement and release agreement entered into in February 2000. The settlement and release agreement settled certain litigation between the Company and JNC over un-converted Series F preferred stock held by JNC. The amount of this expense was subject to change in the future in relation to the changes in the market price of the Company's common stock until May 24, 2000 when the common stock was issued. The market price of the Company's common stock decreased from March 31 to May 24, 2000, accordingly the Company recognized a reduction in settlement expense of $720,385 from $1,359,950 recorded as of March 31, 2000 to $639,565 as of May 24, 2000. There was no comparable expense in 1999. SIX-MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THE SIX-MONTH PERIOD ENDED JUNE 30, 1999 In March 1998, the Company made the decision to dispose of the operations of the subsidiaries of the Company operating in the medical services industry in order to concentrate on its telecommunications and technology sectors. Accordingly, medical services operations during the six-month periods ending June 30, 2000 and 1999 have been reported as discontinued operations. REVENUES Telecommunications service revenue decreased $2,531,931 to $9,876,319 in the first six months of 2000 as compared to $12,408,250 in the first six months of 1999. The decrease is a direct result of the agreement with Big Planet effective February 15, 2000. Prior to February 15, 2000, the Company's telecommunication services revenues were primarily dependent upon the sales efforts of independent representatives (IRs) functioning within a Network Marketing channel of distribution. These revenue sources were recorded at retail. Under terms of the agreement, I-Link's independent network marketing sales force (the IR's) transitioned to Big Planet. A substantial decrease in telecommunication services revenues for the six months ended June 30, 2000 was the financial impact as the Company's revenues from its single largest wholesale customer's subscribers migrated from retail sales to the sell of its services to the same subscribers through this customer at wholesale prices. While a significant portion of the revenues has converted to wholesale, a portion of the customer's subscriber base remains on a retail billing basis with I-Link, for which the customer is paid a commission. Should this customer convert this portion of their business to a wholesale relationship, I-Link would have further declines in reported revenue with a corresponding related decrease in commission paid on this retail business. In addition to the transition from retail to wholesale rates with these subscribers, the number of minutes increased 32% primarily due to an increase in the number of subscribers as compared to the similar period of 1999. The increase in minutes was offset by a decrease in the average rate per minute of approximately 35%. This decrease in rate per minute was a result of two events: (1) transition from retail to wholesale pricing with the Company's single largest wholesale customer who accounted for approximately 56% of the Company's telecommunications services revenue in the first six months of 2000 and (2) competitive pricing pressures. The Company's single largest wholesale customer anticipates that minutes, subscribers and related revenue will increase in future periods, however, the Company no longer controls this channel and therefore cannot control future results related to this channel. Marketing services revenue, which included revenue from independent representatives for promotional and presentation materials, WebCentre, and ongoing administrative support decreased $1,771,608 to $464,354 in the first six-months of 2000 16 as compared to $2,235,962 in the same period of 1999. The decrease was primarily a result of transition of this network-marketing channel to Big Planet in February 2000, which with such transition, marketing service revenues ceased. Technology licensing and development revenue increased $5,197,433 to $6,246,406 in the first six months of 2000 as compared to $1,048,973 in the first six months of 2000. During the first six months of 2000, the Company's increase in these revenues was primarily from two sources. First, the Company entered into two licensing agreements that resulted in revenues of nearly $4,000,000. Second, on May 9, 2000, the Company and Red Cube Group entered into an agreement under which Red Cube paid the Company $10,000,000 that consisted of a $7,500,000 licensing fee and $2,500,000 for consulting services. The $10,000,000 is being recorded as income ratably over a two-year period. Accordingly, $833,333 was recorded as technology licensing revenue in the second quarter of 2000 while the balance of $9,166,667 has been recorded as unearned revenue as of June 30, 2000. Revenue from this source will vary from quarter to quarter based on timing of technology licensing and development projects and royalties from products previous sold. Other revenues in the first six months of 2000 include $1,309,667 which represent revenues relating to services performed for Big Planet as part of the transitioning of the network marketing channel which occurred in the first quarter of 2000. Revenues from these services to Big Planet are expected to decrease significantly during the third and fourth quarters of 2000, as services rendered during the transition are no longer needed. However, revenues from these types of services from new customers may occur in the future. During the six months of 2000 other revenues also included royalties of $400,000 from the sale of Indavo units to through a distributor of the Company to a company which will not use the Indavo units over the I-Link Network. As sales of the Indavo unit to customers who will not use the I-Link Network are not expected to recur, there were no such revenues in the second quarter nor is there expected to be significant revenues of this type in the future. OPERATING COSTS AND EXPENSES Telecommunication network expense increased $2,586,954 in the six months ended June 30 2000 to $11,651,008 as compared to $9,064,054 for the same period in 1999. These expenses include the costs related to the continuing development and deployment of the Company's communication network and expenses related to the generation of telecommunication service revenue. While telecommunication network expense is directly related to telecommunication services revenues, the relationship is not comparable with the same period in 1999 due to the transition to wholesale rather than retail revenues as a result of the agreement with Big Planet discussed above in Telecommunication services revenue. Marketing service costs decreased $2,630,722 to $349,034 in the first six months of 2000 as compared to $2,979,756 for the same period in 1999. The decrease is a direct result of the decreased marketing service revenues during the same period. These expenses related directly to the Company's marketing service revenue. Marketing service expenses included commissions and the costs of providing promotional and presentation materials, national and regional conventions and ongoing administrative support. The decrease in expense is directly related to the transition of this network marketing channel to Big Planet in February 2000, which resulted in the cessation of marketing service revenues and accordingly the related expenses. Selling, general and administrative expense increased $3,719,222 to $9,644,041 in the first six months of 2000 as compared to $5,924,819 in the first six months in 1999. The increase was primarily due to increased overhead, outside services used in connection with complex business transactions and increasing personnel costs associated with hiring highly skilled employees to expand and administer the Company's network and provisioning of telecommunications services. The provision for doubtful accounts decreased $1,564,112 to $379,903 in the six months of 2000 as compared to $1,944,015 in the same period in 1999. The decrease is directly related to the transitioning of the network channel subscribers to Big Planet in February 2000. With the transition, Big Planet assumed the risk of collections from individual subscribers. Accordingly, the Company continues to assess its risks of collections of accounts receivable, the effect of which resulted in reduced provision for the six months ended June 30, 2000 as compared to the same period of 1999. Depreciation and amortization increased $268,882 to $3,049,705 in the first quarter of 2000 as compared to $2,780,823 in the first six months of 1999. The increase is primarily due to increased depreciation related to continuing acquisitions of equipment, primarily telecommunication equipment. 17 In the first quarter of 1999, the Company recorded a write-down of capitalized software costs of $1,847,288. IIn May 1999, the Company's management and its Board of Directors concluded that certain systems would not significantly enhance the Company's existing billing and information systems or meet its ultimate needs and accordingly the Company recorded a write-down on the in-process system development of $1,847,288. Research and development increased $600,253 to $1,674,358 in the first six months of 2000 as compared to $1,074,105 in the same period in 1999. The Company anticipates that research and development expense will continue at a comparable amount during the remainder of 2000. Interest expense decreased $2,074,109 to $794,323 in the first six months of 2000 as compared to $2,868,432 in the same period in 1999. Interest expense in the first six months of 2000 was primarily due to interest on outstanding debt and capitalized leases of the Company other than $111,000 of interest related to issuance of 20,458 shares of common stock as interest expense included in the JNC Opportunity Fund Ltd. settlement described below. Interest expense in the first six months of 1999 was primarily due to $1,766,938 (non-cash) in amortization of debt discount related to certain warrants granted in connection with $8,000,000 in loans and a $3,000,000 letter of credit to the Company from Winter Harbor L.L.C. (which did not recur in 2000) and interest on outstanding debt of the Company of $1,101,494. Interest and other income increased $94,045 to $150,796 in the first six months of 2000 as compared to $56,751 in the same period of 1999. The increase was primarily due to an increase in the average balance of cash on hand in the first six months of 2000. A settlement expense of $639,565 was recorded in the first six months of 2000. This expense is the result of an obligation to issue 129,519 shares of common stock in exchange for certain trading restrictions imposed on JNC Opportunity Fund Ltd. ("JNC") in relation to the common stock to be issued to JNC pursuant to a settlement and release agreement entered into in February 2000. The settlement and release agreement settled certain litigation between the Company and JNC over un-converted Series F preferred stock held by JNC. The amount of this expense was based upon the market price of the Company's common stock on May 24, 2000 when the common stock was issued. There was no comparable expense in 1999. The Company recorded an additional loss from discontinued operations in the first six months of 1999 in the amount of $350,000. There was no such loss recorded in the same period of 2000. 18 PART II - OTHER INFORMATION ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held a special meeting of stockholders on May 23, 2000, at which one proposal was considered and passed by the stockholders: Proposal 1 was "To approve the issuance to JNC Opportunity Fund Ltd. of a number of shares or our common stock equal to the additional share amount and, if required, the late share amount and additional late share amount as such terms were used in the pertinent agreements, all pursuant to the terms set forth in the settlement and release agreement, dated March 10, 2000, by and between JNC Opportunity Fund and the Company." The vote on Proposal 1 was 19,020,320 votes for, 292,507 votes against, with 1,479,572 votes abstaining. ITEM 6(a) - EXHIBITS
Exhibit Number Item - ------ ---- 10.6 Form of Cooperation and Framework Agreement between I-Link Incorporated and Cyber Office International AG. dated May 8, 2000. 10.7 Form of Revenue Sharing Agreement between I-Link Incorporated and Red Cube International AG (Formerly known as Cyber Office International AG. dated June 30, 2000. 10.8 Form of Letter dated June 30, 2000, clarifying a Cooperation and Framework Agreement issue. 27 Financial data schedule.
ITEM 6(b) - REPORTS ON FORM 8-K None 19 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 thereunder duly authorized. I-Link Incorporated (Registrant) Date: August 11, 2000 By: /s/ John W. Edwards ---------------------------------- John W. Edwards Chief Executive Officer By: /s/ John M. Ames ---------------------------------- John M. Ames Acting Chief Financial Officer and Chief Operating Officer 20 EX-10.6 2 ex-10_6.txt EXHIBIT 10.6 EXHIBIT 10.6 COOPERATION AND FRAMEWORK AGREEMENT This Cooperation and Framework Agreement (this "Framework Agreement"), is made as of this 8th day of May, 2000, by and between I-Link Incorporated, a Florida corporation having its principal office at 13751 S. Wadsworth Park Drive, Suite 200, Draper, Utah 84020 ("I-Link"), and Cyber Office International AG, a Swiss corporation having its principal office at Foerrlibuckstrasse 178, 8005 Zurich, Switzerland ("Cyber Office"). RECITALS WHEREAS, Cyber Office and I-Link are each in the business of providing enhanced communication services through an advanced IP network and application architecture; WHEREAS, the parties desire to enter into a strategic relationship to create a [***]. WHEREAS, the parties intend to interconnect their IP networks in order to be able to offer seamless and transparent services to their respective customers in the United States and Europe; WHEREAS, this Framework Agreement is intended to set forth the principal terms of the parties' cooperation; NOW, THEREFORE, in consideration of the above recitals and mutual agreements set forth in this agreement, the parties intending to be legally bound, agree as follows: 1. Definitions. In this Framework Agreement, including the Recitals, unless the context requires another meaning: 1.1 "AFFILIATE" means with respect to a specified Person (i) any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified; (ii) each Person that serves as a director, officer, employee, partner, member, manager, executor, or trustee of such specified Person (or in a similar capacity); and (iii) any Affiliate of any individual described in clause (ii). For purposes of this definition, "control" of a Person will mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. 1.2 "CHANGE OF CONTROL TRANSACTION" means (1) I-Link enters into a transaction (other than a transaction with Cyber Office or Winter Harbor or any of their respective Affiliates) the result of which would be a merger, reorganization, combination, share exchange, consolidation or similar transaction involving the purchase of more than 50% of the assets or more than 50% of the shares of common stock of I-Link (the "I-Link Common Stock") on a fully diluted basis, or (2) in any event if a third party (other than Cyber Office or Winter Harbor or any of their respective Affiliates) acquires more than 50% of the assets or more than 50% of the I-Link Common Stock on a fully diluted bases. 1.3 "COMBINED NETWORK" is the I-Link Network and the Cyber Office Network and any hardware used to connect the I-Link Network and Cyber Office Network. 1.4 "DIRECT COMPETITOR" means any direct competitor of Cyber Office listed in Schedule D hereto, which schedule may be periodically updated by mutual agreement of Cyber Office and I-Link to reflect the then current market conditions. The parties hereto acknowledge that a Person will cease to be a Direct Competitor to the extent such Person merges with or into I-Link or any subsidiary of I-Link or I-Link directly or indirectly acquires all or substantially all of the assets or a majority of the capital stock of such Person. 1.5 "ONE YEAR EXCLUSIVE ACTIVITIES" are: (i) the licensing of the Licensed Technology to any Direct Competitor for the provision of services to end users located in the countries listed in Schedule E; (ii) allowing the sale of I-Link services to any Direct Competitor for the provision of services to end users located in the countries listed in Schedule E; or (iii) allowing any Direct Competitor to use the I-Link Network, I-Link Platform and Licensed Technology to offer services to end users located in the countries listed in Schedule E, which services are similar to or in competition with those offered by Cyber Office. 1.6 "TWO YEAR EXCLUSIVE ACTIVITIES" are: (i) the licensing of the Licensed Technology to any Direct Competitor for the provision of services to end users located in the countries listed in Schedule F; (ii) allowing the sale of I-Link services to any Direct Competitor for the provision of services to end users located in the countries listed in Schedule F; or (iii) allowing any Direct Competitor to use the I-Link Network, I-Link Platform and Licensed Technology to offer services to end users located in the countries listed in Schedule F, which services are similar to or in competition with those offered by Cyber Office. 2 1.7 "CYBER OFFICE NETWORK" is the network used by Cyber Office to provide enhanced communications services to its current end users. 1.8 "CYBER OFFICE PLATFORM" is the software used by Cyber Office on the Cyber Office Network to provide enhanced communications services. 1.9 "INTELLECTUAL PROPERTY RIGHTS" means all patents and patent applications (including all divisions, continuations, continuations-in-part, reissues, renewals, extensions, supplementary protection certificates, utility models and the like), copyrights (whether registered or unregistered), trade dress, trade marks (whether registered or unregistered) discoveries, inventions, designs (whether registered or unregistered), circuit layout rights, moral rights and other intellectual property rights (including Know-How) and any applications for, or rights to obtain or acquire such rights, whether currently existing or hereafter acquired. 1.10 "I-LINK NETWORK" is the network used by I-Link to provide enhanced communications to provide services to its current end users. 1.11 "I-LINK PLATFORM" is the software used by I-Link on the I-Link Network to provide enhanced communications services. 1.12 "JOINT NETWORK OPERATING AGREEMENT" means the agreement contemplated in Section 4.1. 1.13 "KNOW-HOW" means all unpatented proprietary and/or confidential know- how, trade secrets, information, data and materials, in whatever form, including, but not limited to, the following: specifications, calculations, formulae engineering and technical data, blueprints, diagrams, charts, results, computer programs, designs, skills, methods, techniques, procedures, manufacturing data and marketing or sales information. 1.14 "LICENSED TECHNOLOGY" means the Intellectual Property Rights of I-Link (together with all updates thereto) which relate to the I-Link Platform, all as more fully described in Schedule A. 1.15 "PERFORMANCE MILESTONES" means the milestones set forth in Schedule B hereto. 1.16 "PERSON" means any individual, sole proprietorship, firm, corporation, general or limited partnership, limited liability partnership, joint venture, limited liability company, estate, trust, association, organization, or other entity. 1.17 "RESOURCE COMMITMENTS" has the meaning set forth in Section 3.1. 1.18 "SOURCE CODE" means insofar as I-Link uses any or all of the following for the functioning and maintenance of the I-Link Platform, the computer software and any 3 associated documentation in human-readable form, including programmers' comments, and the following items to the extent they are confidential: data files and structures, APIs, header and include files, macros, programming tools not commercially available, technical specifications, flowcharts and logic diagrams. 1.19 "WINTER HARBOR" means Winter Harbor LLC, a Delaware limited liability company. 2. ACCESS TO RIGHTS AND TECHNOLOGY. 2.1 TECHNOLOGY GRANT. I-Link hereby grants to Cyber Office a perpetual (subject to Section 12.3(b)) non-transferable license to use the Licensed Technology for the purpose of implementing the Combined Network and providing enhanced telecommunications services, provided however that such license shall not extend to or permit the use of the Licensed Technology in connection with, any multilevel or network marketing distribution channels like, for example, the current arrangements between I-Link and Big Planet (the "Purpose"). Cyber Office shall not use the Licensed Technology in connection with any of its products and services other than the Purpose and shall otherwise use it solely in accordance with this Framework Agreement. The parties acknowledge and agree that as consideration for the foregoing license and other rights described herein, I-Link and Cyber Office will enter into the Revenue Sharing Agreement described below, which Revenue Sharing Agreement will provide for certain payments between the parties. 2.2 ACCESS GRANT. Cyber Office hereby grants to I-Link a nontransferable license to access the Cyber Office Network for the purpose of implementing the Combined Network. I-Link hereby grants to Cyber Office a nontransferable license to access the I-Link Network for the purpose of implementing the Combined Network. 2.3 EXCLUSIVITY. (a) For a period of two years commencing from the date hereof, I-Link shall not, except pursuant to any agreement in existence on the date hereof, engage in any of the Two Year Exclusive Activities without the prior written consent of Cyber Office; provided, however, if Cyber Office has not made the payment specified in Section 5.2(a) within 75 days from the date of the execution of this Framework Agreement (whether or not pursuant to such Section 5.2(a) Cyber Office is required to make such payment), then the provisions of this Section 2.3 shall be of no effect. (b) For a period of one year commencing from the date hereof, I-Link shall not, except pursuant to any agreement in existence on the date hereof, engage in any of the One Year Exclusive Activities, without the prior written consent of Cyber Office; provided, however, if Cyber Office has not made the payment specified in Section 5.2(a) within 75 days from the date of the execution of this Framework Agreement (whether or 4 not pursuant to such Section 5.2(a) Cyber Office is required to make such payment), then the provisions of this Section 2.3 shall be of no effect. (c) During the term of this Framework Agreement, Cyber Office agrees that it will not provide any IP-based enhanced communications services to end users in North America (the "Cyber Office North American Services") other than on the I-Link Network. In providing the Cyber Office North American Services on the I-Link Network, I-Link agrees that all access to the I-Link Network, revenue sharing and pricing arrangements shall be [***]. Notwithstanding the forgoing, in the event that I-Link is not able to provide Cyber Office with sufficient capacity for the provision of Cyber Office's North American Services [***], Cyber Office shall not be subject to the restrictions in this Section 2.3(c). 2.4 TECHNOLOGY UPDATES. (a) Cyber Office and I-Link agree that all modifications, enhancement updates and new additions to and advances in the Combined Network and any associated technology (including any Intellectual Property Rights) when individually developed by I-Link (the "I-Link Technology Updates") shall be exclusively owned by I-Link, when individually developed by Cyber Office (the "Cyber Office Technology Updates") shall be exclusively owned by Cyber Office, and when jointly developed by both parties (the "Joint Technology Updates") shall be jointly owned. (b) All I-Link Technology Updates shall be exclusively controlled by I-Link; however, I-Link's implementation of any I-Link Technology Update shall not impair Cyber Office's ability to access and utilize the Combined Network. For the purpose of this Section, Cyber Office's ability to access and utilize the Combined Network would be considered impaired if Cyber Office is not able to provide services to its customers at least as effectively as before the I-Link Technology Update is implemented (the "I-Link Impairment"). If the implementation of such I-Link Technology Update requires the modification of the then existing Cyber Office Network in order to avoid the I-Link Impairment, Cyber Office's consent to such modifications shall not be unreasonably withheld. (c) All Cyber Office Technology Updates shall be exclusively controlled by Cyber Office; however, Cyber Office's implementation of any Cyber Office Technology Update shall not impair I-Link's ability to access and utilize the Combined Network. For the purpose of this Section, I-Link's ability to access and utilize the Combined Network would be considered impaired if I-Link is not able to provide services to its customers at least as effectively as before the Cyber Office Technology Update is implemented (the "Cyber Office Impairment"). If the implementation of such Cyber Office Technology Update requires the modification of the then existing I-Link Network in order to avoid the 5 Cyber Office Impairment, I-Link's consent to such modifications shall not be unreasonably withheld. (d) The Joint Technology Updates shall be jointly controlled by both parties and shall not be implemented such as to cause an I-Link Impairment or Cyber Office Impairment without the consent of both parties, which consent shall not be unreasonably withheld. 2.5 CAPACITY COMMITMENT. Cyber Office agrees to provide I-Link every 30 days (and upon such intervals as I-Link reasonably requests) information with respect to Cyber Office expected use of the Combined Network for the 90 days following the delivery of such information. I-Link agrees to increase the capacity of and to upgrade the I-Link Network on a timely basis in order to accommodate any increased use of the I-Link Network experienced as a result of the operation of the Combined Network due to the normal and customary growth of the Cyber Office's subscriber base (consistent with Cyber Office's currently forecasted growth) or as a result of arrangements entered into by I-Link. In the event that the I-Link Network is operating at or above normal capacity, I-Link shall ensure that Cyber Office's access to the I-Link Network is in amounts and on terms no less favorable than the access to the I-Link Network granted by I-Link to third parties (only to the extent such third parties purchase comparable services from I-Link in quantities comparable to those purchased from I-Link by Cyber Office). 2.6 PERFORMANCE MILESTONES AND RESOURCE COMMITMENTS COVENANT (a) I-Link agrees that as a fundamental and material component of this Framework Agreement that it will use its best commercially reasonable efforts to help complete the Performance Milestones as set forth on Schedule B and the Resource Commitments for which it is responsible. (b) Cyber Office agrees that as a fundamental and material component of this Framework Agreement that it will use its best commercially reasonable efforts to help complete the Performance Milestones as set forth on Schedule B and the Resource Commitments for which it is responsible. 3. CONSULTING. 3.1 UPGRADE OF CYBER OFFICE'S PLATFORM. In order to permit the seamless provision of the use of the Licensed Technology for the Purpose, I-Link shall provide all necessary assistance to Cyber Office in order to (i) upgrade the Cyber Office Platform to facilitate implementation of the Combined Network; and (ii) achieve the Performance Milestones set forth in Schedule B hereto in accordance with the terms thereof. As a material and fundamental component of this Framework Agreement, I-Link shall provide for the substantial commitment of personal time of [***] in addition to the commitment of time 6 from any other personnel and resources required to meet its obligations under the Performance Milestones set forth on Schedule B and generally under this Framework Agreement (the "Resource Commitments"). Notwithstanding the foregoing, to the extent any of the foregoing persons is no longer employed by I-Link, in lieu of providing the personal time of any such person, I-Link shall be required to provide the personal time of the person or persons who assumed such foregoing person's duties and responsibilities. The parties agree to more fully describe, if necessary, the Performance Milestones and Resource Commitments as part of the consulting agreement described in Section 3.2. 3.2. CONSULTING AGREEMENT. As soon as reasonably practicable after the date hereof, the parties hereto agree to enter into a consulting agreement (the "Consulting Agreement") which shall set forth the timetable and content of upgrades to be made to the Cyber Office Platform by I-Link and the resources required of I-Link to perform such upgrades in order to meet its obligations set forth in Section 3.1. 4. OPERATION OF THE JOINT NETWORK. 4.1 JOINT NETWORK OPERATING AGREEMENT. In order to more fully implement the terms of their cooperation, Cyber Office and I-Link agree to reasonably negotiate and enter into a joint network operating agreement (the "Joint Network Operating Agreement") as soon as reasonably practicable following the execution of this Framework Agreement. The Joint Network Operating Agreement shall provide for: (a) Cyber Office's right to use the Combined Network to provide Cyber Office's and I-Link's proprietary services and applications under Cyber Office's and/or I-Link's brands; (b) ongoing mutual design, planning, implementation, testing, integration, training, technical and operational consulting, maintenance and support of the Combined Network; (c) I-Link's right to use the Combined Network to provide I-Link's and its partners' and its customers' proprietary services and applications; and (d) associated pricing and joint billing for the use of the Combined Network; and (e) joint development and marketing of new applications and services for the Combined Network. 7 4.2 REVENUE SHARING AGREEMENT. As soon as reasonably practicable after the date hereof and consistent with the terms of Section 5.2, the parties hereto agree to negotiate in good faith and enter into a Revenue Sharing Agreement (the "Revenue Sharing Agreement"). 5. PAYMENT. 5.1 [INTENTIONALLY LEFT BLANK] 5.2 PREPAYMENT FOR SERVICES. (a) By the date that is 75 days after the execution of this Framework Agreement, provided that on or before such date I-Link has substantially completed Milestone Number 1 as set forth in Schedule B, Cyber Office shall pay to I-Link $10 million in cash (the "Service Prepayment"). Such Service Prepayment shall be payment for the use of the I-Link Network and Licensed Technology and shall be credited against amounts owed by Cyber Office to I-Link under the Revenue Sharing Agreement. (b) As fundamental components of the Revenue Sharing Agreement (i) in consideration for the substantial advance payment represented by the Service Prepayment, I-Link shall offer to Cyber Office a significant discount on the fees charged by or revenues to be shared with I-Link as compared to the fees charged by or revenues to be shared with I-Link under I-Link's normal pricing and revenue sharing arrangements; and (ii) in any event, all revenue sharing and pricing arrangements shall be [***]. 5.3. LICENSE AND CONSULTING FEES. In consideration for the license and access rights granted under this Framework Agreement, Cyber Office shall pay to I-Link $7.5 million in cash upon the execution of this Framework Agreement. In consideration for any services performed by I-Link under the Consulting Agreement and Section 3.1, Cyber Office shall pay I-Link $2.5 million in cash upon the execution of this Framework Agreement. 6. REPRESENTATIONS AND WARRANTIES. 6.1 REPRESENTATIONS AND WARRANTIES OF I-LINK. I-Link represents and warrants to Cyber Office as follows: (a) I-Link is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under this Framework Agreement. I-Link is duly licensed or qualified to do business under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it requires such licensing or qualification, except to the extent that the failure to be so licensed or 8 qualified would not have a material adverse effect on I-Link. I-Link has delivered to Cyber Office copies of the certificate of incorporation and articles of incorporation and by-laws of I-Link. (b) I-Link has full power and authority to execute and deliver this Framework Agreement, and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by I-Link of this Framework Agreement have been duly and validly authorized and no additional corporate authorization or consent is required in connection with the execution, delivery and performance by I-Link of this Framework Agreement. This Agreement constitutes the valid and legally binding obligation of I-Link, enforceable against I-Link in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles whether or not considered in a court of law or equity. (c) During the term of this Framework Agreement, I-Link will not enter into any agreement, arrangement or affiliation with any Person or engage in any conduct that would be in conflict with Cyber Office's rights under Section 2 of this Framework Agreement. (d) I-Link has not licensed or granted to any third party any rights in the I-Link Network or entered into any reselling or other agreements that are in conflict with the license rights granted by I-Link to Cyber Office hereunder. (e) Except as set forth on Annex A hereto, I-Link has not received any written notice or claim, and is not otherwise aware that the Licensed Technology infringes or misappropriates the valid proprietary rights of any other Person. (f) To the extent that the Licensed Technology comprises Confidential Information (as defined below), it has been kept confidential by I-Link. (g) Entering into this contract by I-Link does not result in any material breach of any agreement to which I-Link is a party. (h) There is no unsatisfied judgment or, arbitral award or decision of any court or tribunal against I-Link and there is no claim, demand, litigation, arbitration or prosecution to which I-Link is a party, or to I-Link's knowledge, pending or threatened, in respect of the Licensed Technology, the I-Link Platform or I-Link Network. (i) No action or proceeding is pending or, in so far as I-Link knows, is threatened against I-Link before any court, administrative agency or other tribunal which would be reasonably likely to impact I-Link's right, power and authority to enter into this Framework Agreement or to otherwise carry out its obligations hereunder. 9 6.2 REPRESENTATIONS AND WARRANTIES OF CYBER OFFICE. CYBER OFFICE REPRESENTS AND WARRANTS TO I-LINK AS FOLLOWS: (a) Cyber Office is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under this Framework Agreement. Cyber Office is duly licensed or qualified to do business under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it requires such licensing or qualification except to the extent that the failure to be so licensed or qualified would not have a material adverse effect on Cyber Office. (b) Cyber Office has full power and authority to execute and deliver this Framework Agreement, and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by Cyber Office of this Framework Agreement have been duly and validly authorized and no additional corporate authorization or consent its required in connection with the execution, delivery and performance by Cyber Office of this Framework Agreement. This Agreement constitutes the valid and legally binding obligation of Cyber Office, enforceable against Cyber Office in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles whether or not considered in a court of law or equity. (c) During the term of this Framework Agreement, Cyber Office will not enter into any agreement, arrangement or affiliation with any Person or engage in any conduct that would be in conflict with I-Link's rights under Section 2 of this Framework Agreement. (d) Entering into this contract by Cyber Office does not result in any material breach of any agreement to which Cyber Office is a party. (e) No action or proceeding is pending or, in so far as Cyber Office knows, threatened against Cyber Office before any court, administrative agency or other tribunal which would be reasonably likely to impact upon Cyber Office's right, power and authority to enter into this Framework Agreement or to otherwise carry out its obligations hereunder. 7. [INTENTIONALLY LEFT BLANK]. 10 8. INTELLECTUAL PROPERTY INDEMNITY. 8.1 INTELLECTUAL PROPERTY RIGHT INFRINGEMENT INDEMNITY. I-Link will indemnify Cyber Office from and against all actions, proceedings, claims, damages, costs, expenses, and demands (collectively "Damages") by third parties in respect to the infringement or alleged infringement of any Intellectual Property Rights or Know-How belonging to such third parties arising from the exploitation by Cyber Office or I-Link of the Licensed Technology under and in accordance with this Framework Agreement; provided however, such indemnification shall not apply to any action taken or action not taken by Cyber Office after I-Link has provided Cyber Office notice stating that such action taken or action not taken would infringe upon the Intellectual Property Rights or Know-How of third parties or would otherwise give rise to Damages. (b) Without limiting any other rights that Cyber Office may have, if it is determined by an independent tribunal of fact or law or if it is agreed between the parties that through Cyber Office's exercise of its rights contemplated in this Framework Agreement an infringement of the intellectual property rights of a third party has occurred, I-Link will make all reasonable efforts to procure for Cyber Office the right to continue to exercise the rights granted to Cyber Office under this Framework Agreement. 9. FURTHER INDEMNITIES. 9.1. Each party agrees to indemnify the other party and its officers, employees and agents ("Those Indemnified") against all expenses, losses, damages and costs (including legal fees) incurred by Those Indemnified in the performance of this agreement as a result of: (a) any injury to or death of any person caused by an act or omission of the indemnifying party or its officers, employees, agents or subcontractors; or (b) any damage to real or tangible property caused by any act or omission of the indemnifying party or its officers, employees, agents or subcontractors; or (c) the gross negligence or willful misconduct of the indemnifying party or its officers, employees, agents or subcontractors; or (d) a breach of any of the terms or warranties of this Framework Agreement by the indemnifying party or its officers, employees, agents or subcontractors. 10. INDEMNITY PROCEDURE. 11 Any Person entitled to make a claim for indemnification under Sections 8 or 9 (the "Indemnified Party") not involving a claim or demand by a third party, may make a claim for indemnification by giving written notice of the assertion of such claim covered by this indemnity to the Person from whom it is seeking indemnification (the "Indemnifying Party"). With respect to third party claims, all claims for indemnification by any Indemnified Party hereunder shall be asserted and resolved as set forth below in this Section 10. In the event that any written claim or demand for which the Indemnifying Party would be liable to any Indemnified Party hereunder is asserted against or sought to be collected from any Indemnified Party by a third party, such Indemnified Party shall promptly, but in no event more than thirty (30) days following such Indemnified Party's receipt of such claim or demand, notify the Indemnifying Party of such claim or demand (the "Claim Note"); provided, however, that the Indemnified Party's failure to provide such notice in not more than thirty (30) days shall not preclude the Indemnified Party from being indemnified for such claim or demand, except to the extent that the failure to give timely notice results in material prejudice to the Indemnifying Party. The Indemnifying Party shall have ten (10) days from the personal delivery or mailing of the Claim Notice (the "Notice Period") to notify the Indemnified Party whether or not it desires to defend the Indemnified Party against such claim or demand. All costs and expenses incurred by the Indemnifying Party in defending such claim or demand shall be a liability of, and shall be paid by, the Indemnifying Party. Except as hereinafter provided, in the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such claim or demand the Indemnifying Party shall have the right to defend the Indemnified Party by appropriate proceedings and shall have the sole power to direct and control such defense. If any Indemnified Party desires to participate in any such defense, it may do so at its sole cost and expense, except that if the Indemnified Party advises the Indemnifying Party that there are issues which raise conflicts of interests between the Indemnifying Party and the Indemnified Party, the Indemnified Party may retain counsel satisfactory to it, and the Indemnifying Party shall pay all reasonable fees and expenses of such counsel. The Indemnifying Party shall not without the prior written consent of the Indemnified Party, settle, compromise or offer to settle or compromise any claim or demand if such settlement or compromise provides for anything other than the payment of monetary damages. The Indemnified Party shall not settle a claim or demand and the Indemnifying Party shall not be liable for any claim or demand settled without the prior written consent of the Indemnifying Party. To the extent the Indemnifying Party shall direct, control or participate in the defense or settlement of any third party claim or demand, the Indemnified Party will give the Indemnifying Party and its counsel access to, during normal business hours, the relevant business records and other documents, and shall during such hours permit them to consult with the employees and counsel of the Indemnified Party. The Indemnified Party shall use its commercially reasonable efforts in the defense of all such claims or demands. Except in the case of common law fraud, Sections 8 and 9 shall be the exclusive remedy of the Indemnified Parties for any 12 Damages arising out of or relating to the breach of any representation or warrant made in this Framework Agreement. 11. CONFIDENTIALITY. 11.1 CONFIDENTIAL INFORMATION. (a) In connection with this Framework Agreement, each of I-Link and Cyber Office (in such capacity, the "Recipient") has received, developed or been given access to, and shall in the future receive, develop or be given access to, certain information and materials deemed confidential by and/or proprietary to the other party hereto (in such capacity, the "Disclosing Party"), including, without limitation, Intellectual Property Rights trade secrets, Know-How, technical data and/or other information and materials pertaining to (i) this Framework Agreement and its terms and conditions; (ii) the Licensed Technology and Combined Network; and (iii) the Disclosing Party's products, services, customers, potential customers, employees, operating methods, sources of supply, potential sources of supply, distribution methods, sales, sales plans, sales methods, profits, markets, financing or plans for future development (collectively, "Confidential Information"). Notwithstanding the foregoing sentence, "Confidential Information" shall not include any information or materials which: (i) prior to disclosure, are or were known or generally available to the public; (ii) after disclosure, become known to the public through no act or omission of the Recipient or any of its Representatives (as defined below) or any other Person with an obligation of confidentiality to the Disclosing Party; (iii) are independently developed by or for the Recipient, as evidenced by written records of the Recipient; (iv) are required to be disclosed (x) pursuant to an applicable law, rule, regulation, government requirement or court order, or the rules of any stock exchange or automated quotation system or (y) in connection with such party's (i) public offering of its securities, (ii) listing of its securities on an exchange or automated quotation system, or (iii) on-going national, federal, state, local, or other governmental reporting requirements related to such party's securities and in the case of this clause (y) such party's counsel has provided written advice that such disclosure is required by applicable law or regulation (provided, however, that in all of the foregoing notices the Recipient shall advise the Disclosing Party of such required disclosure promptly upon learning thereof in order to afford the Disclosing Party a reasonable opportunity to contest, limit and/or assist the Recipient in crafting such disclosure); or (v) as agreed to in writing by the parties hereto. 13 11.2 PROTECTION OF CONFIDENTIAL INFORMATION. A Recipient shall take reasonable steps to prevent the Disclosing Party's Confidential Information from being disclosed to any other Person. Notwithstanding the foregoing, a Recipient may disclose such Confidential Information to those directors, officers, employees, agents and sublicensees of the Recipient (each, a "Representative," and collectively, "Representatives") who have a need to know such information in connection with performance under this Framework Agreement; provided that each Representative, prior to such disclosure, is informed by the Recipient of the confidential nature of such information and of the confidentiality obligations imposed on the Recipient under this Framework Agreement, and, in the case of sublicensees provided further that each such sublicensee agrees in advance and in writing to abide by provisions of confidentiality and restrictive use no less stringent than those set forth herein. The Recipient shall be responsible for any and all breaches of the provisions of this Section 11 by its Representatives. As used herein, "reasonable steps" means the steps that the Recipient takes to protect its own, similarly confidential and/or proprietary information, which steps shall not be less than a reasonable standard of care. 11.3 RESTRICTED USE OF CONFIDENTIAL INFORMATION. A Recipient and its Representatives shall use the Disclosing Party's Confidential Information solely in connection with performance under this Framework Agreement and for no other purpose and upon termination hereof, shall return to such Disclosing Party all such Confidential Information (including any copies, extracts, summaries, or syntheses thereof) of such Disclosing Party in possession of such Recipient and its Representatives. 11.4 OBLIGATION TO INFORM. Upon learning of any unauthorized disclosure or use of the other party's Confidential Information, the party learning of such disclosure promptly shall provide the other party with notice thereof. 11.5 EQUITABLE RELIEF. I-Link and Cyber Office hereby acknowledge and agree that (i) the provisions and restrictions contained in this Section 11 are reasonable and necessary for protection of the legitimate interests of the parties hereto, (ii) neither I-Link nor Cyber Office would have entered into this Framework Agreement in the absence of such provisions and restrictions, and (iii) any violation of any provision of this Section 11 by a party hereto or such party's Representatives may result in irreparable injury to the other party hereto, which injury may be inadequately compensable in monetary damages. Accordingly, I-Link and Cyber Office acknowledge and agree that each of them shall be entitled to seek preliminary and/or permanent injunctive relief from any violation or threatened violation of this Section 11 by the other party hereto or by such other party's Representatives, without the necessity of proving actual damages or posting any bond or other security. The rights and remedies of each party under this Section 11 shall be cumulative and in addition to any other rights or remedies to which the such party may be entitled under this Framework Agreement, at law, or in equity. 14 12. TERM AND TERMINATION. 12.1 TERM. Unless otherwise terminated as provided for in Section 12.2, this Framework Agreement shall be effective until two years from the date hereof (the "Initial Term"). This Framework Agreement shall be automatically renewed for an additional two years under the terms and conditions hereof at the expiration of the Initial Term or at the expiration of any subsequent renewal term (each a "Renewal Term") unless a notice is given by one party to the other at least sixty (60) days prior to the expiration of such Initial Term or Renewal Term. Such notice shall state that such party no longer desires a renewal of this Framework Agreement. If this Framework Agreement is not extended at the end of the Initial Term or any Renewal Term solely because I-Link states that it no longer desires a renewal of this Framework Agreement (a "I-Link Expiration"), then I-Link shall be obligated to provide Cyber Office, at Cyber Office's sole cost and expense, I-Link's obligations under Sections 12.3(a)(x) and (y) and Cyber Office shall provide to I-Link, Cyber Office's obligations under Sections 12.3(a)(x) and (y). This Section 12.1 and Sections 8, 9, 10, 11 and 14 shall survive any I-Link Expiration. Except to the extent specifically provided above in this Section 12.1, upon any expiration of this Framework Agreement in accordance with this Section 12.1, all rights and obligations and provisions hereof shall immediately terminate (other than Section 11 hereof) and I-Link shall keep all moneys previously paid to it by Cyber Office. 12.2 TERMINATION. (a) This Framework Agreement may be terminated: (i) [Intentionally Omitted] (ii) by either party in the event of a breach of any material representation, warranty, obligation or agreement under this Framework Agreement by the other party, provided that the terminating party has given the breaching party written notice of such breach that identifies the nature of the breach and within 30 days after such notice such breaching party has failed to cure the breach; (iii) by Cyber Office in the event that I-Link has entered into a Change of Control Transaction and (x) to the extent such Change of Control Transaction is with a person other than a Direct Competitor, Cyber Office, in its sole and reasonable judgment, determines that, as a result of such Change of Control Transaction, Cyber Office ability to obtain full and satisfactory performance under this Framework Agreement from I-Link or its successor in interest would be materially and adversely affected or (y) to the extent such change of Control Transaction is with a Direct Competitor, Cyber Office, in its sole and reasonable judgment, determines that, as a result of such Change of Control Transaction, the continuation of this Framework Agreement would be detrimental to the best interest of Cyber Office; and 15 (iv) by Cyber Office, in the event that Milestone Number 1 is not completed according to the Performance Milestones set forth on Schedule B and provided that Cyber Office has not breached its obligations under Section 2.6. (v) by either party in the event that the parties have not entered into the Revenue Sharing Agreement, in form and substance reasonably satisfactory to each of the parties, within 45 days of the execution of this Framework Agreement. 12.3 EFFECT OF TERMINATION. (a) Upon termination of this Framework Agreement by Cyber Office solely (x) pursuant to Section 12.2(a)(ii) (but only if Cyber Office, in its sole and reasonable judgment, determines that as a result of such termination, Cyber Office ability to obtain full and satisfactory performance under this Framework Agreement from I-Link or its successor in interest would be materially and adversely affected) or (y) pursuant to Section 12.2(a)(iii), then, provided that (A) Cyber Office shall have previously made the payment specified in Section 5.2(a) (whether or not pursuant to such Section 5.2(a) Cyber Office is required to make such payment) and (B) the parties hereto shall have entered into a Revenue Sharing Agreement, in form and substance reasonably satisfactory to each of the parties, I-Link shall be obligated to provide Cyber Office at Cyber Office's sole cost and expense: (x) a non-transferable, non-exclusive, perpetual (subject to Section 12.3(b)) world-wide license for the use (including the modification by Cyber Office for the subsequent use by Cyber Office) of the Source Code. If such Source Code is used by Cyber Office for provision of its services to end users located in any countries located outside of North America, then Cyber Office shall not be required to make any further payments to I-Link under this or any other agreement for such license. If such Source Code is used by Cyber Office for provision of its services to end users located in any countries located in North America, then to the extent that Cyber Office utilizes the Source Code for the provision of its services to end users in any countries located in North America, Cyber Office shall continue to pay I-Link for such license pursuant to the Revenue Sharing Agreement, which agreement shall survive for as long as and to the extent that Cyber Office utilizes the Source Code for provision of its services to end users in any countries located in North America; and (y) for a period of six months following such a termination, reasonable access to, and the sufficient commitment of, the key personnel and other resources necessary for (i) the maintenance and operation of the Cyber Office Network and Cyber Office Platform and future modifications thereto and (ii) to insure that the Cyber Office Network and Cyber Office Platform remains compatible to and integrated with the I-Link Platform and I-Link Network; provided however, in the event that Cyber Office elects to disconnect the Cyber Office Network and Cyber 16 Office Platform from the Combined Network, then I-Link shall no longer have any obligations under this Section 12.3(a)(y)(ii). (b) Sections 2.3, 4.2, 5.2, 8, 9, 10, 11, 12, 13 and 14 shall survive any termination of this Agreement by Cyber Office pursuant to Section 12.2(a) (ii) or (iii) provided that I-Link shall continue to be entitled to receive payments under the Revenue Sharing Agreement in accordance with Section 12.3(a)(x). Upon termination of this Framework Agreement pursuant to Section 12.2(a)(iv) or 12.2(a)(v): (i) I-Link shall immediately return all money paid by Cyber Office to I-Link pursuant to Section 5; (ii) all future obligations of Cyber Office to pay money to I-Link shall be null and void; (iii) all rights and obligations of both parties under Section 2 shall be null and void; and (iv) all other rights and obligations under this Framework Agreement and all other agreements contemplated hereunder shall terminate and be null and void (including without limitation Section 2 hereof), except for Sections 8, 9, 10, 11, 12.3(b) and 14. Except to the extent specifically provided above in this Section 12.3(b), upon any termination of this Framework Agreement pursuant to Section 12.2(a) all rights and obligations hereunder and provisions hereof shall immediately terminate (other than Section 11 hereof) and I-Link shall keep all moneys previously paid to it by Cyber Office. 12.4 [INTENTIONALLY OMITTED] 13. ESCROW. As soon as reasonably practicable following the execution of this Framework Agreement, Cyber Office and I-Link shall negotiate in good faith and enter into an escrow agreement (the "Escrow Agreement"). The Escrow Agreement shall provide that I-Link shall deposit in escrow (i) upon execution of this Framework Agreement, and (ii) at least every four (4) weeks thereafter until this Framework Agreement is terminated, the most recent copy of the Source Code necessary for the maintenance and operation of the Cyber Office Network and Cyber Office Platform and future modifications thereto. The Source Code shall be immediately released to Cyber Office by the escrow agent (the "Escrow Agent") appointed under the Escrow Agreement to the extent Cyber Office is entitled to such Source Code pursuant to 12.1 and Section 12.3(a). In the event of a dispute concerning Cyber Office's right to terminate this Framework Agreement and receive the Source Code from the Escrow Agent pursuant to this Section 13 or the Escrow Agreement (the "Escrow Dispute"), the parties agree that the Escrow Agent shall not delay the release of the Source Code due to such Escrow Dispute and that such Escrow Dispute shall be resolved pursuant to the arbitration provisions set forth in Section 14.4. If the final judgment or determination of such arbitration finds that Cyber Office was not entitled to terminate this Framework Agreement and receive the Source 17 Code, then Cyber Office shall, within 10 days of such decision, discontinue use of the Source Code and return all copies of the Source Code to the Escrow Agent. In the event that the parties are unable to enter into an Escrow Agreement, the terms of this Section 13 shall become binding obligations on the parties and I-Link shall be considered the Escrow Agent for the purposes of this Section 13. 14. GENERAL PROVISIONS 14.1 TRANSACTION EXPENSES. Except as otherwise provided herein, each party will pay its own costs and expenses incurred in connection with the transactions contemplated hereby, including the fees of any legal counsel, economist, accountant or consultant or other similar fees. 14.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity with respect to this Framework Agreement and the transactions contemplated hereby shall be issued, if at all, at such time and in such manner as Cyber Office and I-Link mutually shall determine, unless otherwise required by law, in which case the party required to make such disclosure may do so upon notice and consultation with the other party. Unless consented to by Cyber Office or I-Link, as the case may be, in advance or required by law, Cyber Office and I-Link shall keep this Framework Agreement strictly confidential and may not make any disclosure of this Framework Agreement to any person. 14.3 NOTICES. All notices, consents, waivers, and other communications under this Framework Agreement shall be in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered or certified mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): I-Link: David Hardy, Esq. I-Link Incorporated 13751 S. Wadsworth Park Drive, Suite 200 Draper, Utah 84020 Facsimile No.: 18 with a copy to: Dennis J. Friedman, Esq. Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY 10112 Facsimile No.: 212-541-5369 Cyber Office: Cyber Office International AG, Inc. Uta Ulrich Foerrlibuckstrasse 178 8005 Zurich Switzerland with a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: David Rockwell Facsimile No.: 212-558-3588 14.4 ARBITRATION. Each of the parties agrees to submit to binding arbitration any and all differences and disputes related to this Framework Agreement which may arise between them in accordance with the Commercial Rules of the American Arbitration Association and agree that pending resolution of such differences and disputes, subject to any termination or expiration thereafter pursuant to Sections 12.1 or 12.2, each party shall continue to honor all of its obligations under this Framework Agreement, including all of such obligations which are the subject of such differences and disputes. Such arbitration shall be initiated in the New York office of the American Arbitration Association. Any award entered in any such arbitration shall be final and binding, and may be entered and enforced in any court of competent jurisdiction Each party to the dispute will share equally the fees and expenses of the arbitrator and such arbitration. 14.5 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to compel arbitration or enforce a judgment under an arbitration based on any right arising out of, this Framework Agreement may be brought against any of the parties in the courts of the State of New York, and each of the parties 19 consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 14.6 ARTICLE AND SECTION HEADINGS; CONSTRUCTION. The headings of sections in this Framework Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to "Article", "Articles", "Section" or "Sections" refer to the corresponding Article, Articles, Section or Sections of this Framework Agreement unless otherwise indicated. All words used in this Framework Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 14.7 WAIVER. The rights and remedies of the parties to this Framework Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Framework Agreement or the documents referred to in this Framework Agreement shall operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege shall preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law (a) no claim or right arising out of this Framework Agreement or the documents referred to in this Framework Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party shall be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party shall be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Framework Agreement or the documents referred to in this Framework Agreement. 14.8 ENTIRE AGREEMENT; MODIFICATION. This Framework Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with such other agreements contemplated hereby) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Framework Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. 14.9 ASSIGNMENTS; SUCCESSORS; NO THIRD-PARTY RIGHTS. (a) Neither party may assign any of its rights and/or obligations under this Framework Agreement to any other party, and any such attempted assignment or transfer shall be void; provided, however, that Cyber Office may assign or transfer any of its rights and/or obligations under this 20 Framework Agreement to any Affiliate of Cyber Office with the prior consent of I-Link, which consent shall not be unreasonably withheld or delayed. (b) This Framework Agreement shall apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Framework Agreement shall be construed to give any Person other than the parties to this Framework Agreement any legal or equitable right, remedy, or claim under or with respect to this Framework Agreement or any provision of this Framework Agreement. This Framework Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Framework Agreement and their successors and permitted assigns. 14.10 SEVERABILITY. If any provision of this Framework Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Framework Agreement shall remain in full force and effect. If any provision of this Framework Agreement, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision; and (ii) the remainder of this Framework Agreement and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 14.11 GOVERNING LAWS. This Framework Agreement shall be governed by the laws of the State of New York without regard to conflicts of laws principles. 14.12 COUNTERPARTS. This Framework Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Framework Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. 21 IN WITNESS WHEREOF, the parties hereto have executed this Framework Agreement as of the date first above written. I-LINK INCORPORATED By: Name: Title: CYBER OFFICE INTERNATIONAL AG By: Name: Title: 22 SCHEDULE A LICENSED TECHNOLOGY [***] SCHEDULE B MILESTONES [***] SCHEDULE C [INTENTIONALLY OMITTED] SCHEDULE D DIRECT COMPETITORS [***] SCHEDULE E [***] SCHEDULE F [***] ANNEX A [***] EX-10.7 3 ex-10_7.txt EXHIBIT 10.7 EXHIBIT 10.7 REVENUE SHARING AGREEMENT This Revenue Sharing Agreement (this "Agreement") is made as of this June 30, 2000, by and between I-Link Incorporated, a Florida corporation having its principal office at 13751 S. Wadsworth Park Drive, Suite 200, Draper, Utah 84020 ("I-Link"), and Red Cube International AG (formerly known as Cyber Office International AG), a Swiss corporation having its principal office at Foerrlbuckstrasse 178, 8005 Zurich, Switzerland ("Red Cube"). RECITALS WHEREAS, Red Cube and I-Link are each in the business of providing enhanced communication services through an advanced IP network and application architecture; WHEREAS, the Parties (as defined below) entered into that certain Cooperation and Framework Agreement dated as of May 8, 2000 (as amended, the "FRAMEWORK AGREEMENT") pursuant to which the Parties agreed to interconnect their IP networks to be able to offer seamless and transparent services to their respective customers in the United States and Europe. To achieve such objective, (i) I-Link has granted to Red Cube a nontransferable license to use the Licensed Technology (as defined in the Framework Agreement) and to access the I-Link Network (as defined in the Framework Agreement) and (ii) Red Cube has granted to I-Link a nontransferable license to access the Red Cube Network (as defined in the Framework Agreement), in each case subject to the terms and conditions set forth in the Framework Agreement; and WHEREAS, the Parties have agreed in the Framework Agreement to enter into this Agreement to set forth the terms and conditions of the payment and revenue sharing arrangements between the Parties relating to the licensing of Licensed Technology, the I-Link Network and the Red Cube Network; NOW, THEREFORE, in consideration of the above recitals and mutual agreements set forth in this Agreement, the Parties intending to be legally bound, agree as follows: 1. DEFINITIONS. Defined terms used in this Agreement but not expressly defined herein shall have the meanings set forth in the Framework Agreement. As used in this Agreement, each of I-Link and Red Cube shall be referred to as a "Party"and together as "Parties". 2. FEES. With respect to any and all network usage, services, products and/or applications provided by one Party to the other, the Parties agree to pay the respective costs and fees (the "Fees") mutually agreed upon between the Parties from time to time. 3. INSPECTION RIGHTS. Each Party shall have the right to examine the other Party's books and records and to meet with, and ask questions of, the other Party's auditors and employees, to the extent reasonably necessary to verify and confirm the calculation of the Fees payable pursuant to this Agreement and that all fees payable by the other Party have been promptly paid; PROVIDED, that the requesting Party gives the other Party a reasonable prior notice and the examination and meetings are conducted during regular business hours. 4. PAYMENT TERMS. 4.1 PRICING. (a) [***} (b) [***] 4.2 BILLING. (a) Each Party shall invoice the other Party on or before the forty fifth (45) day following the last day of each month for all Fees due and payable for all products and services provided to the other Party during such month. The invoice shall be prepared in accordance with the terms and conditions set forth herein. All invoices shall be due and payable in full by wire transfer within thirty (30) days during the first six months of the term of this Agreement and ten (10) days thereafter, subject to Sections 4.2(b) and 4.3, any discount or credit of any kind. Any requests for credit, deduction or adjustment shall be processed in the form of a separate adjustment request as set forth in Section 4.2(b) below. In the event a Party fails to pay a monthly invoice in full within thirty (30) or ten (10) days of the date of the invoice, as the case may be, the other Party shall provide a written notice to such party that if the monthly invoice is not paid within five (5) days of the notice, the further provision of services and products maybe suspended until such invoice shall have been paid in full. In any event, services and products may not be suspended pursuant to this Section 4.2(a) unless and until such written notice has been provided to the non-paying Party. (b) In the event a Party disagrees with the other Party's calculation of the Fees set forth in the invoice, it shall provide a written notice to the other Party of such disagreement and request an adjustment to such invoice (the "ADJUSTMENT REQUEST") within thirty days (30), during the first six months of the term of this Agreement, and thereafter, ten (10) days of receipt of such invoice. Failure to provide an Adjustment Request within thirty (30) or ten (10) days after receipt of an invoice, as the case may be, shall constitute an acceptance of all Fees set forth in such invoice. The Adjustment Notice shall describe in reasonable detail the disputing Party's reasons for disagreement, the requested amount of adjustment and how such amount was calculated. If the Party receiving the Adjustment Notice agrees with the adjustment requested in the Adjustment Request, it shall provide an acknowledgment of such agreement to the requesting Party within fifteen (15) days of receiving the Adjustment Request and reflect the adjustment by way of credit or otherwise to the Fees payable by such Party in the immediately following billable month's invoice. If the Party receiving the Adjustment Request disagrees with the request, the Parties shall attempt to resolve the dispute. In the event the Parties cannot resolve the dispute within thirty (30) days from the date of the invoice, the Parties shall jointly select an independent third party nationally recognized accounting firm with established expertise in telecommunications companies to resolve the dispute. The determinations made by such independent third party shall be final and binding on the Parties and the proper adjustment shall be reflected in the immediately following invoice. The independent third party shall make the determination within ten (10) days of engagement to resolve the dispute. All fees and expenses of the independent third party shall be borne by the Party to whom the terms of the resolution of the dispute were less favorable. 4.3 PREPAYMENT FOR SERVICES. The Parties have agreed in Section 5.2 of the Framework Agreement that upon I-Link's substantial completion of Milestone No. 1 as set forth in Schedule B of the Framework Agreement, Red Cube shall pay I-Link the Service Prepayment as prepayment for the use of the I-Link Network and Licensed Technology. Subject to the terms of that certain Side Letter Agreement dated as of the date hereof between the parties, the Parties hereby agree that upon Red Cube's payment of the Service Prepayment to I-Link, any and all Fees payable by Red Cube to I-Link under this Agreement shall be credited against the amount of the Service Prepayment until the earlier of (x) the total amount of the Fees payable by Red Cube to I-Link (net of any Per User Fees owed by I-Link to Red Cube (as designated in the pricing list)) on a cumulative basis under this Agreement equal the Service Prepayment or (y) June 30, 2001. Until such time, Red Cube shall not owe I-Link any amount under this Agreement. 4.4 CURRENCY. All payments due hereunder shall be denominated and payable in U.S. Dollars. 5. REPRESENTATIONS AND WARRANTIES. 5.1 REPRESENTATIONS AND WARRANTIES OF I-LINK. I-Link represents and warrants to Red Cube as follows: (a) I-Link has full power and authority to execute and deliver this Agreement, and to perform its obligations hereunder. The execution, delivery and performance by I-Link of this Agreement have been duly and validly authorized and no additional corporate authorization or consent is required in connection with the execution, delivery and performance by I-Link of this Agreement. This Agreement constitutes the valid and legally binding obligation of I-Link, enforceable against I-Link in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles whether or not considered in a court of law or equity. (b) Entering into this Agreement by I-Link does not result in any material breach of any agreement to which I-Link is a party. (c) No action or proceeding is pending or, in so far as I-Link knows, is threatened against I-Link before any court, administrative agency or other tribunal which would be reasonably likely to impact I-Link's right, power and authority to enter into this Agreement or to otherwise carry out its obligations hereunder. 5.2 REPRESENTATIONS AND WARRANTIES OF RED CUBE. Red Cube represents and warrants to I-Link as follows: (a) Red Cube has full power and authority to execute and deliver this Agreement, and to perform its obligations hereunder. The execution, delivery and performance by Red Cube of this Agreement have been duly and validly authorized and no additional corporate authorization or consent is required in connection with the execution, delivery and performance by Red Cube of this Agreement. This Agreement constitutes the valid and legally binding obligation of Red Cube, enforceable against Red Cube in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles whether or not considered in a court of law or equity. (b) Entering into this Agreement by Red Cube does not result in any material breach of any agreement to which Red Cube is a party. (c) No action or proceeding is pending or, in so far as Red Cube knows, is threatened against Red Cube before any court, administrative agency or other tribunal which would be reasonably likely to impact Red Cube's right, power and authority to enter into this Agreement or to otherwise carry out its obligations hereunder. 6. TERM AND TERMINATION. 6.1 TERM. This Agreement shall be effective during the term of the Framework Agreement and after expiration or termination of the Framework Agreement to the extent I-Link has obligations to Red Cube pursuant to Section 12.1 and/or 12.3 (a)(x). In the event Red Cube obtains the Source Code and the license for its use pursuant to Section 12.3(a)(x) and uses the Source Code for provision of its services to end users located in any countries located outside of North America, then Red Cube shall not be required to make any further payments to I-Link under this Agreement. If the Source Code is used by Red Cube for provision of its services to end users located in any countries located in North America, then to the extent that Red Cube utilizes the Source Code for the provision of its services to end users in any countries located in North America, Red Cube shall continue to pay I-Link for such license solely for the per minute US network costs, per user product fees and such other fees associated with end users located in North America pursuant to this Agreement, which Agreement shall survive for as long as and to the extent that Red Cube utilizes the Source Code for provision of its services to end users in any countries located in North America. 7. GENERAL PROVISIONS 7.1 NOTICES. All notices, consents, waivers, and other communications under this Agreement shall be in writing and shall be given in accordance with Section 14.3 of the Framework Agreement. 7.2 ARBITRATION. Except to the extent provided in Section 4.2(b), each of the Parties agrees to submit to binding arbitration any and all differences and disputes related to this Agreement which may arise between them in accordance Section 14.4 of the Framework Agreement. 7.3 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to compel arbitration or enforce a judgment under an arbitration based on any right arising out of this Agreement may be brought against any of the Parties in the courts of the State of New York, and each of the Parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any Party anywhere in the world. 7.4 ARTICLE AND SECTION HEADINGS; CONSTRUCTION. The headings of sections in this Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to "Article", "Articles", "Section" or "Sections" refer to the corresponding Article, Articles, Section or Sections of this Agreement unless otherwise indicated. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 7.5 ENTIRE AGREEMENT; MODIFICATION. This Agreement supersedes all prior agreements between the Parties with respect to its subject matter and constitutes (along with the Framework Agreement and such other agreements contemplated thereby) a complete statement of the terms of the agreement between the Parties with respect to its subject matter; provided that if there is a conflict between the terms set forth in this Agreement and in the Framework Agreement, the terms of this Agreement shall govern. This Agreement may not be amended except by a written agreement executed by the Party to be charged with the amendment. 7.6 ASSIGNMENTS; SUCCESSORS; NO THIRD-PARTY RIGHTS. (a) Neither Party may assign any of its rights and/or obligations under this Agreement to any other Party, and any such attempted assignment or transfer shall be void; provided, however, that Red Cube may assign or transfer any of its rights and/or obligations under this Agreement to any Affiliate of Red Cube with the prior consent of I-Link, which consent shall not be unreasonably withheld or delayed. (b) This Agreement shall apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the Parties. Nothing expressed or referred to in this Agreement shall be construed to give any Person other than the Parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the Parties to this Agreement and their successors and permitted assigns. 7.7 SEVERABILITY. If any provision of this Framework Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision; and (ii) the remainder of this Agreement and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 7.8 GOVERNING LAWS. This Agreement shall be governed by the laws of the State of New York without regard to conflicts of laws principles. 7.9 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. 7.10 CONFIDENTIALITY. Each Party hereto shall keep the terms of this Agreement and all ancillary agreements entered into in connection with this Agreement confidential, and neither Party shall disclose any such terms to third parties without obtaining a prior written consent of the other Party, except for disclosures to employees, affiliates and representatives as may be necessary to carry out the terms of this Agreement or as required by law. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. I-LINK INCORPORATED By: ---------------------------- Name: Title: RED CUBE INTERNATIONAL AG By: ---------------------------- Name: Title: EX-10.8 4 ex-10_8.txt EXHIBIT 10.8 EXHIBIT 10.8 June 30, 2000 Red Cube International AG Foerrlbuckstrasse 178, 8005 Zurich, Switzerland Gentlemen: In order to clarify certain provisions of the Cooperation and Framework Agreement entered into by and between Red Cube International AG, a Swiss corporation ("Redcube") (formerly know as Cyber Office International AG, a Swiss corporation), and I-Link Incorporated, a Florida corporation ("I-Link"), dated as of May 8, 2000, as amended (the "Framework Agreement"), and the Revenue Sharing Agreement entered into by and between Redcube and I-Link, dated as of June 30, 2000 (the "Revenue Sharing Agreement"), we understand that the $10 million Service Prepayment (as defined in the Framework Agreement) to be paid by Redcube in consideration for services to be performed and/or provided by I-Link after the completion of Milestone No. 1 (as defined in the Framework Agreement") is to be credited against the cost of such services performed and/or provided by I-Link pursuant to the Revenue Sharing Agreement. To the extent the Service Prepayment credit has not been fully utilized by Redcube by June 30, 2001 (the "Utilization Date"), any unused Service Prepayment shall be deemed fully earned by I-Link and utilized as of that date only if the I-Link Network (as defined in the Framework Agreement) is sufficient to accommodate: (i) [***] minutes of usage on the I-Link Network (the "Usage") delivered by Redcube to the I-Link Network during July, 2000; (ii) [***] minutes of Usage delivered by Redcube to the I-Link Network during August, 2000;(iii) [***] minutes of Usage delivered by Redcube to the I-Link Network during September, 2000; and (iv) the number of minutes of Usage which Redcube forecasts that it expects to deliver to the I-Link Network for each month thereafter (the "Redcube Forecast") until the Utilization Date (the number of minutes of Usage delivered by Redcube to the I-Link Network during the months specified in (i), (ii), (iii) and (iv) shall each be referred to as a "Monthly Capacity Requirement"). Redcube shall provide the Redcube Forecasts to I-Link on a basis consistent with section 2.5 of the Framework Agreement. If the I-Link Network is not sufficient to accommodate the Monthly Capacity Requirements specified in each of (i), (ii), (iii) and (iv) above, then the Utilization Date shall be postponed by one whole calendar month for each month that the I-Link Network is delayed in being sufficient to accommodate the relevant Monthly Capacity Requirement. Such delay shall be measured accounting for any previous delays so as to avoid the double counting of delays. If this letter agreement correctly reflects our mutual understanding and agreement, please sign and date this letter in the space provided below, and return a signed copy to the undersigned. Very truly yours, I-Link Incorporated By: ---------------------------- Name: -------------------------- Title: ------------------------- ACCEPTED AND AGREED as of the ___ day of June, 2000. Red Cube International AG By: ---------------------------- Name: -------------------------- Title: ------------------------- EX-27 5 ex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS DATED 6/30/00 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 7,190,520 0 14,829,809 44,045 0 22,254,657 14,783,901 6,405,671 36,336,149 33,824,010 0 0 317,210 193,522 (14,301,516) 36,336,148 0 18,296,746 0 26,748,050 0 0 794,323 (9,734,395) 0 (9,734,395) 0 0 0 (9,734,395) 0 0
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