-----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, ELb14U8+unV1XQbZPH4GttXUjqL9lSgjMgTpejXI2saA6YqpIPzKwB7jjZeSuIzw geidt5cVgoMlLrG8g4FXUg== 0000912057-01-529597.txt : 20010821 0000912057-01-529597.hdr.sgml : 20010821 ACCESSION NUMBER: 0000912057-01-529597 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: I LINK INC CENTRAL INDEX KEY: 0000849145 STANDARD INDUSTRIAL CLASSIFICATION: TELEGRAPH & OTHER MESSAGE COMMUNICATIONS [4822] IRS NUMBER: 592291344 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17973 FILM NUMBER: 1719191 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 a2057554z10-q.txt 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, 2001 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, 2001, the registrant had outstanding 112,600,636 shares of $0.007 par value common stock. The disclosures set forth in Forms 8-K filed on March 16, 2001, May 2, 2001 and June 19, 2001 are incorporated in Part II Item 2 herein. =============================================================================== PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 2001 December 31, (Unaudited) 2000 --------------- --------------- Current assets: Cash and cash equivalents $ 1,744,556 $ 2,155,628 Accounts receivable, less allowance for doubtful accounts of $1,667,000 and $100,665 as of June 30, 2001 and December 31, 2000, respectively 17,702,136 3,357,856 Other current assets 2,382,903 385,891 --------------- --------------- Total current assets 21,829,595 5,899,375 Furniture, fixtures, equipment and software, net 24,432,098 10,983,273 Other assets: Intangible assets, net 11,340,628 3,939,226 Other assets 1,620,622 835,618 --------------- --------------- $ 59,222,943 $ 21,657,492 =============== =============== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 7,623,522 $ 5,370,490 Accrued liabilities 8,234,740 3,327,900 Unearned revenue 4,708,058 14,885,592 Current portion of long-term debt 2,139,019 785,971 Notes payable to a related party 25,360,964 7,768,000 Accrued interest on notes payable to a related party 349,137 2,376,498 Current portion of obligations under capital leases 4,778,860 1,445,690 --------------- --------------- Total current liabilities 53,194,300 35,960,141 Notes payable 1,587,895 796,662 Unearned revenue - 1,666,667 Obligations under capital leases 7,234,004 338,263 --------------- --------------- 62,016,199 38,761,733 --------------- --------------- Commitments and contingencies Redeemable preferred stock - Class M - 11,734,820 --------------- --------------- Stockholders' deficit: Preferred stock, $10 par value, authorized 10,000,000 shares, issued and outstanding 10,018 and 24,435 at June 30, 2001 and December 31, 2000, respectively, liquidation preference of $1,848,478 at June 30, 2001 100,180 244,350 Common stock, $.007 par value, authorized 150,000,000 shares, issued and outstanding 112,569,743 and 28,136,506 at June 30, 2001 and December 31, 2000, respectively 787,991 196,957 Additional paid-in capital 127,494,197 106,622,114 Notes receivable from stockholders (30,000) - Accumulated deficit (131,145,624) (135,902,482) --------------- --------------- Total stockholders' deficit (2,793,256) (28,839,061) --------------- --------------- $ 59,222,943 $ 21,657,492 =============== ===============
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, ---------------------------------- ---------------------------------- 2001 2000 2001 2000 --------------- --------------- --------------- --------------- Revenues Telecommunication services $ 19,408,441 $ 4,589,112 $ 23,829,424 $ 9,876,319 Marketing services - - - 464,354 Technology licensing and development 1,419,998 1,739,906 2,856,897 6,246,406 Other 518,459 1,008,563 1,185,042 1,709,667 --------------- --------------- --------------- --------------- Total revenues 21,346,898 7,337,581 27,871,363 18,296,746 --------------- --------------- --------------- --------------- Operating costs and expenses: Telecommunication network expense 13,715,806 5,537,946 20,025,512 11,651,008 Marketing services - - - 349,034 Selling, general and administrative 5,703,360 5,724,953 9,441,741 9,644,041 Provision for doubtful accounts 1,269,397 54,187 1,377,756 379,903 Depreciation and amortization 2,330,806 1,560,816 3,981,791 3,049,705 Research and development 523,614 841,446 1,590,372 1,674,358 --------------- --------------- --------------- --------------- Total operating costs and expenses 23,542,983 13,719,348 36,417,172 26,748,049 --------------- --------------- --------------- --------------- Operating loss (2,196,085) (6,381,767) (8,545,809) (8,451,303) --------------- --------------- --------------- --------------- Other income (expense): Interest expense (666,792) (350,481) (1,014,633) (794,323) Interest and other income 23,590 112,969 51,661 150,796 Settlement expense - 720,385 - (639,565) --------------- --------------- --------------- --------------- Total other income (expense) (643,202) 482,873 (962,972) (1,283,092) --------------- --------------- --------------- --------------- Net loss $ (2,839,287) $ (5,898,894) $ (9,508,781) $ (9,734,395) =============== =============== =============== =============== CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE: Net Loss $ (2,839,287) $ (5,898,894) $ (9,508,781) $ (9,734,395) Cumulative preferred stock dividends (11,068) (393,095) (22,015) (800,488) Dividends accrued and paid on Class M redeemable preferred stock - - (269,027) - Net effect on retained earnings of redemption and reissuance of Class M and N preferred stock, including beneficial conversion features - - 15,512,473 - Dividends paid on Class F preferred stock - - - (18,214) --------------- --------------- --------------- --------------- Net income (loss) applicable to common stock $ (2,850,355) $ (6,291,989) $ 5,712,650 $ (10,553,097) =============== =============== =============== =============== Basic and diluted weighted average shares outstanding 112,569,657 24,901,536 82,995,083 26,026,948 =============== =============== =============== =============== Net income (loss) per common share - basic and diluted $ (.03) $ (0.25) $ .07 $ (0.41) =============== =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements 2 I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFECIT (UNAUDITED)
Preferred Stock Common Stock -------------------------- -------------------------- Additional Paid-in Shares Amount Shares Amount Capital ------------ ------------ ------------ ------------ -------------- BALANCE AT DECEMBER 31, 2000 24,435 $ 244,350 28,136,506 $196,957 $ 106,622,114 Conversion of convertible debt and accrued interest into Class M mezzanine preferred stock and common warrants - - - - 6,377,673 Common stock issued and accumulated deficit acquired as a result of WebToTel acquisition and conversion of notes payable - - 17,454,333 122,182 11,822,812 Stock issued - employee stock purchase plan - - 3,745 26 2,075 Repurchase of Class M mezzanine preferred stock - - - - - Repurchase of Class N preferred stock (14,404) (144,040) - - (14,164,060) Net contribution from repurchase/settlement with stockholders of Class M and N preferred stock - - - - (5,000,000) Contingent beneficial conversion feature on Class N preferred stock - - - - 9,779,846 Issuance of common shares to related party to repurchase warrants outstanding - - 5,000,000 35,000 (35,000) Reissuance and conversion of Class M redeemable preferred stock into common stock - - 50,442,857 353,100 3,696,900 Reissuance and conversion of Class N preferred stock into common stock - - 11,523,159 80,662 869,338 Beneficial conversion feature on the reissuance of Class M and N preferred stock - - - - 5,000,000 Other conversions of Class N preferred stock into common stock (13) (130) 9,143 64 66 Warrants issued in connection with certain notes payable to related party - - - - 1,430,290 Beneficial conversion feature on certain convertible note payable to related party - - - - 1,092,143 Net loss - - - - - ------------ ------------ ------------ ------------ -------------- BALANCE AT JUNE 30, 2001 10,018 $ 100,180 112,569,743 $ 787,991 $ 127,494,197 ============ ============ ============ ============ ============== Stockholder Notes Accumulated Receivable Deficit -------------- --------------- BALANCE AT DECEMBER 31, 2000 - $ (135,902,482) Conversion of convertible debt and accrued interest into Class M mezzanine preferred stock and common warrants - - Common stock issued and accumulated deficit acquired as a result of WebToTel acquisition and conversion of notes payable $(30,000) (1,246,834) Stock issued - employee stock purchase plan - - Repurchase of Class M mezzanine preferred stock - - Repurchase of Class N preferred stock - - Net contribution from repurchase/settlement with stockholders of Class M and N preferred stock - 30,292,319 Contingent beneficial conversion feature on Class N preferred stock - (9,779,846) Issuance of common shares to related party to repurchase warrants outstanding - - Reissuance and conversion of Class M redeemable preferred stock into common stock - - Reissuance and conversion of Class N preferred stock into common stock - - Beneficial conversion feature on the reissuance of Class M and N preferred stock - (5,000,000) Other conversions of Class N preferred stock into common stock - - Warrants issued in connection with certain notes payable to related party - - Beneficial conversion feature on certain convertible note payable to related party - - Net loss - (9,508,781) -------------- --------------- BALANCE AT JUNE 30, 2001 $(30,000) $ (131,145,624) ============== ===============
The accompanying notes are an integral part of these consolidated financial statements 3 I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (UNAUDITED)
For the Six Months Ended June 30, ----------------------------------------- 2001 2000 ------------------- ------------------ Cash flows from operating activities: Net loss $ (9,508,781) $ (9,734,395) Adjustments to reconcile net loss to net cash used in (provided by) operating activities: Depreciation and amortization 3,981,791 3,049,705 Provision for doubtful accounts 1,377,756 379,903 Common stock issued as payment of accrued liabilities - 740,588 Amortization of discount on notes payable to a related party 103,919 - Amortization of deferred compensation on stock options issued for services - 381,417 Increase (decrease) from changes in operating assets and liabilities (net of effects of acquisition of businesses): Accounts receivable (3,629,463) (10,821,262) Other assets (1,475,736) (76,073) Unearned revenue (10,177,534) 19,166,667 Accounts payable, accrued liabilities and interest 4,304,467 657,513 Discontinued operations - noncash charges and working capital changes - (26,141) ------------------- ------------------ Net cash provided by (used in) operating activities (15,023,581) 3,717,922 ------------------- ------------------ Cash flows from investing activities: Purchases of furniture, fixtures, equipment and software (716,953) (2,970,434) Acquisition of WorldxChange assets (13,000,000) - Cash received from purchase of WebToTel 233,787 - Investing activities of discontinued operations - 19,674 ------------------- ------------------ Net cash used in investing activities (13,483,166) (2,950,760) ------------------- ------------------ Cash flows from financing activities: Proceeds from issuance of notes payable to related party 28,325,700 2,600,000 Proceeds from advance under strategic marketing agreement - 1,751,183 Payment of related party debt - (2,600,000) Payment of advance under strategic marketing agreement - (1,751,183) Payment of long-term debt (9,136) - Payment of capital lease obligations (222,989) (66,544) Proceeds from exercise of common stock warrants and options and issuances under stock purchase plan 2,100 3,532,719 Financing activities of discontinued operations - (24,719) ------------------- ------------------ Net cash provided by financing activities 28,095,675 3,441,456 ------------------- ------------------ Increase (decrease) in cash and cash equivalents (411,072) 4,208,618 Cash and cash equivalents at beginning of period 2,155,628 2,996,004 ------------------- ------------------ Cash and cash equivalents at end of period $1,744,556 $ 7,204,622 =================== ================== Cash and cash equivalents at end of period: Continuing operations $ 1,744,556 $ 7,190,520 Discontinued operations - 14,102 ------------------- ------------------ Total cash and cash equivalents at end of period $ 1,744,556 $ 7,204,622 =================== ==================
The accompanying notes are an integral part of these consolidated financial statements 4 I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (UNAUDITED)
For the Six Months Ended June 30, ----------------------------------------- 2001 2000 ------------------- ------------------ SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Reclassification of Class F redeemable preferred stock from mezzanine - $2,338,784 Warrants issued in connection with a note payable to related party $1,430,290 - Stock options issued for services - $54,902 Equipment acquired under capital lease obligations $9,000,000 - Conversion of notes payable to a related party and associated accrued interest to Class M redeemable preferred stock $10,305,072 - Reclassification of Class M redeemable preferred stock from mezzanine $22,039,892 - Conversion of notes payable to a related party and associated accrued interest to common stock $10,326,938 -
The accompanying notes are an integral part of these consolidated financial statements 5 NOTE 1 - DESCRIPTION OF BUSINESS, PRINCIPLES OF CONSOLIDATION AND LIQUIDITY The consolidated financial statements include the accounts of I-Link Incorporated and its subsidiaries ("I-Link" or the "Company"). The Company's principal operation is the development, sale and delivery of enhanced communications products and services utilizing its own private intranet and both owned and leased network switching and transmission facilities. The Company provides unique communications solutions through its use of proprietary technologies. Telecommunications services are marketed primarily through master agent and wholesale distributor arrangements with I-Link Communications, a wholly owned subsidiary of the Company that is a FCC licensed long-distance carrier. The Company develops and licenses communications applications products and software that support multimedia communications (voice, fax and audio) over the public switched network, local area networks and the Internet. On March 1, 2001, I-Link became a majority owned subsidiary of Counsel Communications LLC which was a wholly-owned subsidiary of Counsel Corporation, (collectively, "Counsel"). On April 17, 2001, I-Link merged with WebToTel, Inc. ("WebToTel"), a subsidiary of Counsel, and it's subsidiary Nexbell Communications Inc. ("Nexbell") as more fully described in Note 9. As the entities were under common control as of March 1, 2001, the financial statements for the three and six months ended June 30, 2001 include the financial results of WebToTel and Nexbell as if I-Link's merger with these two entities had occurred on March 1, 2001. As the entities were under common control of Counsel at the time of the merger, the acquisition of WebToTel has been accounted for similar to a pooling-of-interests using Counsel's book values of the WebToTel assets and liabilities. The impact of the consolidation of the WebToTel results of operations and retained deficit for the period from March 31, 2001 are as shown below:
I-Link results of operations for the first WebToTel I-Link results I-Link results quarter of 2001 as results of of operations of operations reported in 3/31/01 operations for for the second for the six months Form 10-Q March 2001 quarter of 2001 ended June 30, 2001 ------------------------------------------------------------------------------ Revenues $ 6,231,338 $ 293,127 $ 21,346,898 $ 27,871,363 Net Loss $ 5,916,658 $ 752,836 $ 2,839,287 $ 9,508,781
I-Link balance at WebToTel I-Link results Balance as March 31, 2001 WebToTel accumulated of operations reported in as reported in net loss for deficit acquired for the second the June 30, 3/31/01 Form 10-Q March 2001 as of 3-1-01 quarter of 2001 2001 Form 10-Q ------------------------------------------------------------------------------------ Accumulated deficit $126,306,667 $752,836 $1,246,834 $2,839,287 $131,145,624
On June 4, 2001, I-Link Incorporated through it's wholly-owned subsidiary WorldxChange Corp. ("WorldxChange"), purchased certain assets and assumed certain liabilities of WorldxChange Communications, Inc. from a bankruptcy proceeding as more fully described in Note 9. WorldxChange is a facilities-based telecommunications carrier that provides international and domestic long-distance service to retail customers. Telecommunication services provided by WorldxChange consist primarily of a dial-around product that allows a customer to make a call from any phone by dialing a 10-10-XXX prefix. The phone call will then be billed directly to the customer. Billings to these customers are primarily done through the customers' local exchange carrier ("LEC"). Marketing of the dial around product is primarily done through independent marketing agents that receive a commission. WorldxChange's retail base is comprised of residential and commercial customers. 6 All significant intercompany accounts and transactions have been eliminated in consolidation. 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, 2001 and 2000, (b) the financial position at June 30, 2001, and (c) cash flows for the six-months ended June 30, 2001 and 2000. 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, 2000 and quarterly report on Form 10-Q for the three-months ended March 31, 2001. The results of operations for the three and six-month periods ended June 30, 2001 are not necessarily indicative of those to be expected for the entire year. 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. The weighted average number of shares outstanding includes 17,454,333 shares issued by I-Link in April 2001 to acquire WebToTel as if the merger and related stock issuance had occurred on March 1, 2001 (see Notes 1 and 9). 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 applicable to common stock for the three-month periods ending June 30, 2001 and 2000 and the six-month period ending June 30, 2000, basic and diluted loss per share are the same. As of June 30, 2001, all potential common stock was anti-dilutive and therefore excluded from weighted average shares outstanding. The net income per common share basic and diluted for the six-months ending June 30, 2001 includes a net gain to retained earnings for $30,292,319 attributed to the redemption on March 1, 2001 of the Class M redeemable preferred stock and all Class N preferred stock owned by Winter Harbor, including redemption of the beneficial conversion feature related to such preferred stock. In addition, there was a charge to retained earnings of $9,779,846 representing a contingent beneficial conversion feature on the Class N preferred stock resulting from the reset of the conversion price. The net income per common share basic and diluted also reflects a $5,000,000 charge to retained earnings for the beneficial conversion feature related to the reissuance on March 1, 2001of the Class M and Class N preferred stock to Counsel Communications, LLC. During the six-month period ended June 30, 2000, holders of the Series F Redeemable preferred stock converted 248 shares. Accordingly, they were paid stock dividends of 87,477 shares of common stock on the converted shares during the first six-months of 2000. All Series F preferred stock had been converted to common stock as of June 2000. AMORTIZATION OF INTANGIBLES WebToTel acquired Nexbell on February 22, 2001 and accounted for that acquisition using the purchase method of accounting. As part of that acquisition, WebToTel recorded $9,136,427 of goodwill. This goodwill is being amortized over a five-year period. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company believes that the adoption of SFAS 141 will not have a significant impact on its financial statements. 7 In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective for fiscal years beginning after March 15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. The Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position and results of operations. NOTE 3 - SHORT TERM BORROWINGS On June 6, 2001, I-Link and Counsel agreed to enter into a Loan and Security Agreement ("Loan Agreement"). Any monies advanced to I-Link between June 6, 2001 and April 15, 2002, (in the amount not to exceed $10,000,000) will be governed by the Loan Agreement. In connection with the Loan Agreement, I-Link will execute a note payable to Counsel, due June 6, 2002. The loan is secured by all of the assets of I-Link. Outstanding balances (including any accrued and unpaid interest) under the loan bear interest at 10% per annum and which interest is payable quarterly in arrears following the last business day of each quarter. As of June 30, 2001, advances under this loan agreement totaled $1,475,700. To fund the acquisition of the assets purchased and liabilities assumed by WorldxChange (as more fully described in Note 9), Counsel provided a loan to I-Link in the aggregate amount of $15,000,000. The loan is collateralized against all assets of I-Link Incorporated and WorldxChange and guaranteed by I-Link Incorporated. Outstanding balances (including any accrued and unpaid interest) under the loan bear interest of 10% per annum and are payable quarterly in arrears and in cash on the last business day of each quarter. The payment of cash interest by WorldxChange or I-Link may be waived by Counsel. The loan will mature on June 4, 2002 but may be extended upon mutual agreement of both Counsel and I-Link. The loan may be prepaid at any time prior to the maturity, without penalty. In connection with the $15,000,000 loan, I-Link issued to Counsel a warrant to purchase 15,000,000 shares of common stock of I-Link at an exercise price of $0.60 per share. The shares are exercisable as follows; 5,000,000 on the date of the agreement, 5,000,000 on September 4, 2001 and December 4, 2001, respectively, in the event the loan is still outstanding on those dates. The Company has recorded $1,430,290 as a discount against the $15,000,000 loan from Counsel representing the relative fair value attributed to the 5,000,000 shares exercisable immediately. The value of the warrant was calculated using the Black Scholes Model and is being amortized over the term of the loan. In the event the Company issues the second and third tranche of warrants as described above, the Company will record additional interest expense related to the fair value of the warrants when issued. NOTE 4 - LONG-TERM DEBT Included in the liabilities assumed with the WorldxChange acquisition, the Company agreed to a non-interest-bearing note of $1,350,000 payable in installments of $37,500 per month for 36 months to a carrier. The Company has recorded this debt at its fair market value with an imputed interest rate of 10% resulting in a liability in the amount of $1,162,171. The note is subject to reduced payments based upon future usage with the carrier. NOTE - 5 FURNITURE, FIXTURES, EQUIPMENT AND SOFTWARE In connection with the purchase of certain assets from WorldxChange Communications Inc (see Note 9), the Company recorded $5,247,709 in equipment and cables including Indefeasible Rights of Use ("IRU") in telecommunication cable systems. 8 On June 27, 2001, WorldxChange entered into a capital lease agreement to lease certain telecommunications equipment with a value of $9,000,000. Lease payment terms for the first six months of the lease term will be $150,000 per month. The remaining forty-two payments will be $231,361 per month. NOTE 6 - INCOME TAXES The Company recognized no income tax benefit from the losses generated in 2001 and 2000 because of the uncertainty of the realization of the related deferred tax asset. NOTE 7 - STOCK-BASED COMPENSATION PLANS During the six months ended June 30, 2001, approximately 3,080,000 options to purchase the Company's common stock previously issued to employees expired or were forfeited. During the same six months, there were approximately 1,791,000 options to purchase common stock issued to employees. There were no exercises of options during the six-month period ended June 30, 2001. NOTE 8 - PURCHASE COMMITMENTS The Company 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. NOTE 9 - ACQUISITION OF SUBSIDIARIES ACQUISITION OF WEBTOTEL On April 17, 2001, I-Link completed its merger with WebToTel and it's subsidiary Nexbell, for 17,454,333 shares of I-Link common stock. WebToTel was an entity established to acquire telecommunication companies. Nexbell is a wholesale network telecommunications provider which operates a private, managed IP telephony network that delivers packet voice services to over 400 key metropolitan areas in the United States. Nexbell's first product offering, Multi-Exchange Transport Service (METS), provides customers with VoIP based local access origination and termination services through 32 (subsequently consolidated to 13) domestic points of presence. The merger of I-Link and WebToTel has been accounted for using the book values of WebToTel, effective March 1, 2001, the earliest dated that all three entities were under common control of Counsel. PURCHASE OF CERTAIN WORLDXCHANGE COMMUNICATIONS, INC. ASSETS AND LIABILITIES On June 4, 2001, I-Link Incorporated, through it's wholly-owned subsidiary WorldxChange, purchased certain assets and assumed certain liabilities of WorldxChange Communications, Inc. ("Debtor") from a bankruptcy proceeding. The purchased assets included all of the assets employed in the Debtor's operations in the United States and consisted of the Debtor's equipment, inventory, retail long distance business, accounts receivable, licenses, permits, authorizations, software programs and related technology. On June 4, 2001, the Debtor transferred the purchased assets to WorldxChange in exchange for $13,000,000. To fund the acquisition of the assets and provide working capital, Counsel agreed to provide a collateralized loan to I-Link in the aggregate amount of $15,000,000 (of which $13,000,000 was used for the purchase) as more fully described in Note 4. 9 The preliminary estimate of the fair values of assets acquired and liabilities assumed as of June 4, 2001 are as follows: Accounts receivable and other current assets $12,096,000 Furniture, fixtures, and equipment 5,247,000 Accounts payable and accrued liabilities (2,187,000) Notes payable (1,162,000) Obligations under capital leases (994,000) -------------- Net cash paid $13,000,000 ==============
Unaudited pro forma results of operations for the six months ended June 30, 2001 and 2000 as if the acquisitions had been completed as of the beginning of the period are shown below. The pro forma results include the historical result of operations of I-Link and WebToTel for the six-months ended June 30, 2001. The pro forma results include the historical result of operations of WorldxChange for the six-months ended March 31, 2001. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of the operations, and are not necessarily indicative of the results which would have occurred if the business combinations had occurred on the dates indicated, or which may result in the future.
For the Six-Months Ended ----------------------------- June 30, 2001 June 30, 2000 -------------- ------------ Revenues $ 65,385,000 $ 48,471,000 Net Loss $(48,584,000) $(46,366,000) Loss Per Share $ (.38) $(1.09)
NOTE 10 - LEGAL PROCEEDINGS On January 18, 2001, I-Link Incorporated ("I-Link") filed action against Red Cube, International AG and Red Cube, Inc. ("Red Cube") in federal court in Utah seeking damages against Red Cube, for an alleged default on an agreement to provide approximately $60,000,000 in equity funding to I-Link, and instituting a scheme to drive I-Link out of business and obtain control of I-Link's proprietary technology, telecommunications network, key employees and customers. I-Link obtained a temporary restraining order against Red Cube preventing Red Cube from interfering with I-Link's employees, vendors and customers. Red Cube commenced an arbitration proceeding in New York (see next paragraph) and then filed a motion to dismiss the federal court action and compel arbitration based upon a mandatory arbitration provision in the May 2000 Cooperation and Framework Agreement by and between Red Cube and I-Link. The court found that I-Link's claims were "related to" the Cooperation and Framework Agreement and granted Red Cube's motion to dismiss for lack of subject matter jurisdiction. The dismissal resulted in this issue being submitted for AAA arbitration pursuant to the Cooperation and Framework Agreement. On January 24, 2001, Red Cube, after the federal court action described above had been commenced against it by I-Link, delivered a written demand for arbitration and commenced an arbitration proceeding in New York alleging that I-Link breached the Cooperation and Framework Agreement by (i) threatening a shut-down of I-Link's IP telecommunications network, (ii) the resignation of Dror Nahumi as an employee of I-Link (which Red Cube claims will cause I-Link to breach its undertaking to provide certain consulting services in the event I-Link is unable to perform under the Agreement and Red Cube is required to assume primary operation and maintenance of it's own IP telecommunications network based upon I-Link's technology), and (iii) I-Link's alleged failure to update the escrowed copy of its source code to the current version of the source code employed to maintain the IP telecommunications network. When the federal court action was dismissed in favor of the arbitration proceeding, I-Link filed a response in the arbitration proceeding denying all of Red Cube's claims. I-Link also filed a counterclaim against Red Cube virtually identical to the claims it initially brought against Red Cube in the 10 federal court action seeking compensatory and/or punitive damages for Red Cube's default under a subsequent agreement to provide approximately $60,000,000 in equity funding to I-Link, and engaging in a scheme to drive I-Link out of business and obtain control of I-Link's proprietary technology, telecommunications network, key employees and customers. In May 2001 Red Cube amended its claim to include additional allegations that I-Link undertook certain unspecified "significant transactions" in violation of its agreements with I-Link's then majority shareholder, Winter Harbor, LLC (with which Red Cube is also currently engaged in arbitration) which resulted in damage to Red Cube. I-Link has denied these additional allegations. The arbitration proceeding is in the discovery stage. In June 2001, I-Link gave notice to Red Cube that it intended to cease providing international carrier services to Red Cube (representing the vast majority of all services performed for Red Cube) as a result of Red Cube's failure to provide I-Link adequate assurance of ongoing payment for such services. Red Cube sought emergency relief in the arbitration attempting to prohibit I-Link from terminating these services. A hearing was held before the arbitration panel in July 2001 and Red Cube's request for relief was denied. I-Link ceased providing international carrier services to Red Cube immediately thereafter. On February 8, 2001, The Nasdaq Stock Market, Nasdaq Listing Qualifications Department (the "Staff"), notified the Company that its securities would be de-listed from the Nasdaq SmallCap Market (the "SmallCap Market") for the Company's inability to meet a SmallCap Market continued inclusion requirement for $35,000,000 in market capitalization. Subsequently, the Staff, in its March 8, 2001 correspondence, notified I-Link that the Company no longer complied with the minimum bid price requirement of $1.00 per share as set forth in National Association of Securities Dealers, Inc. ("NASD") Rule 4310(c)(4). Subsequently, on June 11, 2001, the Staff raised additional concern regarding the Company's issuances of stock and debt to Counsel Corporation in connection with the Loan and NexBell transactions (as defined below) (it was alleged that said stock issuances by I-Link should have been approved by I-Link's stockholders). On May 17, 2001, an oral hearing was held before a panel of the Nasdaq Listing Qualifications Panel (the "Panel"), relating to the various concerns raised by the Staff. On July 17, 2001, the Panel issued a decision to continue the listing of I-Link's securities on the SmallCap Market in accordance with the exception from certain continued listing criteria. Under the terms and conditions of the exception, I-Link is required, on or before August 3, 2001, to file a proxy statement with the Securities and Exchange Commission (the "SEC") and Nasdaq evidencing I-Link's intent (1) to seek shareholder approval for a reverse stock sufficient to evidence a closing bid price of at least $1.00 per share, and (2) to seek shareholder ratification for the issuance of shares of its common stock to Counsel Corporation in connection with (i) March 1, 2001 Senior Convertible Loan and Security Agreement with Counsel Communications LLC, a wholly-owned subsidiary of Counsel Corporation (the "Loan transaction") and (ii) April 17, 2001 Agreement and Plan of Merger by and among I-Link and I-Link Acquisition Corp., a Delaware corporation and I-Link's wholly owned subsidiary, on the one hand, and WebToTel, Inc., a Delaware corporation, Counsel Corporation, and certain other shareholders, on the other hand (the "NexBell transaction"). On July 30, 2001, the Company filed a revised preliminary proxy statement with the SEC and Nasdaq. I-Link's compliance with the first requirement necessary for continued listing on the SmallCap was acknowledged in the Staff correspondence dated August 9, 2001. As a result of its compliance with the foregoing requirement, the Panel determined to continue the continued listing exception through September 5, 2001. On August 16, 2001, the Nasdaq Staff satisfied I-Link's request for an extension to effect the proposed reverse stock split and extended the compliance deadline from September 5, 2001 to September 13, 2001. Pursuant to the terms of the August 16, 2001 reiteration of the Panel's determination, on or before September 13, 2001, I-Link is required to submit to Nasdaq documentation evidencing receipt of shareholder ratification for stock issuances to Counsel Corporation in connection with the Loan and NexBell transactions. In addition, the Company, on or before September 13, 2001, must demonstrate closing bid price of at least $1.00 per share and, immediately thereafter, a closing bid price of at least $1.00 per share for a minimum of 10 consecutive trading days. Further, the Company, on or before September 13, 2001, must demonstrate a market capitalization of at least $35,000,000 and, immediately after, a market capitalization of at least $35,000,000 for a minimum of 10 consecutive trading days. As of the date of this filing, I-Link is not in compliance with the SmallCap Market capitalization continued listing criterion. There is no assurance that I-Link will comply with this requirement even if the proposed reverse stock split is effected as described in this proxy statement. Under the terms of the Panel's July 17, 2001 decision (as well as its August 16, 2001 reiteration), I-Link's non- 11 compliance with the market capitalization criterion, on or before September 13, 2001, will result in the de-listing of its securities from the SmallCap Market. I-Link must comply with all of the foregoing continued listing requirements in order to for its securities to remain listed on the SmallCap Market. In the event the Company fails to meet any one of the requirements as set forth in the July 17, 2001 Panel decision (as well as the August 16, 2001 reiteration of the same), the Company's common stock will be de-listed from the SmallCap Market. Should I-Link's securities cease to be listed on the SmallCap Market, its securities may continue to be listed on the OTC-Bulletin Board. NOTE 11 - SEGMENT OF BUSINESS REPORTING The Company's four reportable segments are as follows: o Telecommunications services - includes long-distance toll services (I-Link and Nexbell) and enhanced calling features such as V-Link. The telecommunications services products are marketed primarily to residential and small business customers. o Dial-around telecommunication services - includes operations of WorldxChange that offers a dial around telecommunications product through independent marketing agents. This business was entered into effective June 4, 2001 with the Company's purchase of certain assets and liabilities of WorldxChange Communications, Inc. o 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. o 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 Red Cube, Lucent, Brooktrout and others. 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, 2001 and 2000. 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, 2000 except that segment assets for telecommunication services has increased by approximately $10,000,000 due to the acquisition of WebToTel and segment assets for dial-around telecommunication services has increased by approximately $33,000,000 due to the acquisition of WorldxChange.
FOR THE THREE-MONTH FOR THE SIX-MONTH PERIOD ENDED PERIOD ENDED -------------------------------------- --------------------------------------- JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000 ---------------- ------------------ ----------------- ----------------- REVENUES FROM EXTERNAL CUSTOMERS: Telecommunications services $13,995,000 $5,598,000 $19,082,000 $11,187,000 Dial-around telecommunication services 5,932,000 - 5,932,000 - Marketing services - - - 464,000 Technology licensing and development 1,420,000 1,740,000 2,857,000 6,646,000 ---------------- ------------------ ----------------- ----------------- Total revenues from external customers for reportable segments $ 21,347,000 $ 7,338,000 $27,871,000 $18,297,000 ================ ================== ================= ================= 12 SEGMENT INCOME (LOSS): Telecommunications services $ 714,000 $ (1,558,000) $(2,142,000) $(3,787,000) Dial-around telecommunication services (1,242,000) - (1,242,000) - Marketing services - (58,000) - (154,000) Technology licensing and development 406,000 309,000 378,000 3,971,000 ---------------- ------------------ ----------------- ----------------- Total segment income (loss) for reportable segments (122,000) (1,307,000) (3,006,000) 30,000 Unallocated non-cash amounts in consolidated net loss: Settlement expense - 720,000 - (640,000) Amortization of discount on notes payable (74,000) - (104,000) - Amortization of deferred compensation on stock options issued for services - (189,000) - (381,000) Amortization of intangible assets (548,000) (719,000) (1,096,000) (1,438,000) Other corporate expenses (2,095,000) (4,404,000) (5,303,000) (7,305,000) ---------------- ------------------ ----------------- ----------------- $(2,839,000) $(5,899,000) $(9,509,000) $(9,734,000) ================ ================== ================= =================
13 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 our Form 10-K for the year ended December 31, 2000 and Form 10-Q for the quarter ended March 31, 2001. FORWARD LOOKING INFORMATION THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27-A OF THE SECURITIES ACT OF `1933, AS AMENDED, SECTION 21-E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND INFORMATION RELATING TO I-LINK THAT ARE BASED ON MANAGEMENT'S EXERCISE OF BUSINESS JUDGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND "INTEND" AND WORDS OF SIMILAR IMPORT, ARE INTENDED TO IDENTIFY ANY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT OUR CURRENT VIEW OF 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, OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. . Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward-looking statements. Several of these factors include, without limitation: our ability to efficiently integrate our recent acquisitions; our ability to finance and manage expected rapid growth; the impact of competitive services and pricing; our ongoing relationship with our long distance carriers and vendors; dependence upon key personnel; subscriber attrition; the adoption of new, or changes in, accounting principles; legal proceedings; federal and state governmental regulation of the long distance telecommunications and internet industries; our ability to maintain, operate and upgrade our information systems network; our success in deploying our Communication Engine network in internet telephony; the existence of demand for and acceptance of our products and services (including but not limited to METS, dial-around service, V-Link(TM) and Indavo(TM)); the migrating of subscribers from a retail billing basis to a wholesale billing basis; the continued increasing revenues from GateLink(TM) and other wholesale clients as well as other risks referenced from time to time in our filings with the SEC. We undertake no obligation and do 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 any unanticipated events. OPERATIONS We are 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) and Internet technologies. We provide enhanced telecommunications services on a wholesale and retail basis. We also undertake research and development of new telecommunications services, products and technologies, and the licensing of certain of these products and technologies to other telecommunications companies. We are a leader in the delivery of unified communications as a result of our core technology offerings: I-Link's Intranet, Softswitch Plus(TM), GateLink(TM) and Indavo(TM). We merged with WebToTel Inc. ("WebToTel") and its subsidiary Nexbell Communications Inc. ("Nexbell") on April 17, 2001. However as I-Link, WebToTel and Nexbell were under common control of Counsel Communications LLC, a wholly owned subsidiary of Counsel Corporation (collectively "Counsel") as of March 1, 2001, we have reflected the merger as if it had occurred on March 1, 2001. As a result of the merger, we purchased a private, managed IP telephony network that delivers packet voice services to over 400 key metropolitan areas in the United States. Nexbell's first product offering, Multi-Exchange 14 Transport Service ("METS"), provides customers with VoIP based local access origination and termination services through 13 domestic points of presence. On June 4, 2001, I-Link Incorporated, through it's wholly owned subsidiary WorldxChange Corp. ("WorldxChange"), purchased certain assets and assumed certain liabilities of WorldxChange Communications, Inc. out a bankruptcy. WorldxChange is a facilities-based telecommunications carrier that provides international and domestic long-distance service to retail customers. Telecommunication services provided by WorldxChange consist primarily of a dial-around product. A dial-around product allows a customer to make a call from any phone by dialing a 10-10-XXX prefix. The phone call will then be billed directly to the customer. Billings to these customers are primarily done through the customers' local exchange carrier ("LEC"). Marketing of the dial-around product is primarily done through independent marketing agents that receive a commission. WorldxChange's retail base is comprised of residential and commercial customers. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents as of June 30, 2001 were $1,744,556 and the working capital deficit was $31,364,705. Cash used by operating activities during the six-month period ended June 30, 2001 was $15,023,581 as compared to cash provided by operations of $3,717,922 during the same period ended June 30, 2000. The primary reason for the change from 2000 was that cash provided by operating activities in 2000 included $10,000,000 received as of June 30, 2000 from a customer, Red Cube, International AG and Red Cube, Inc. ("Red Cube"), which did not recur in 2001. Net cash used by investing activities in the six-month period ended June 30, 2001 was $13,483,166 as compared to net cash used of $2,950,760 in the same period ended June 30, 2000. Cash used by investing activities in 2001 was attributed to $13,000,000 used to purchase the net assets of WorldxChange and $716,953 used to purchase equipment. These uses of cash were offset by cash of $233,787 received as part of the WebToTel acquisition. 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. Financing activities provided net cash of $28,095,675 in the first six-months of 2001 as compared to cash provided of $3,441,456 in the same period of 2000. Cash provided in the first six-months of 2001 included loans from Counsel of $28,325,700 and $2,100 from issuances of common stock which were offset by repayment of notes payable and capital lease obligations of $232,125. 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. We incurred a net loss from continuing operations of $9,508,781 for the first six-months of 2001, and as of June 30, 2001 had an accumulated deficit of $131,145,624. We anticipate that revenue generated from continuing operations will not be sufficient during the remainder of 2001 to fund our operations or continued expansion of our private telecommunications network facilities and anticipated growth in subscriber base. We continue to be dependent upon funding from Counsel to fund our operational cash needs. CURRENT POSITION/FUTURE REQUIREMENTS While revenues from operations have increased significantly, operational expenses have also increase thus continuing our need for sources of operational funds other than from operations. Our operational cash needs continue to be funded through our agreement with Counsel wherein Counsel committed to fund, through long-term inter-company advances or equity contribution, all capital investment, working capital or other operational cash requirements through April 15, 2002. We anticipate that additional funds will be necessary after such time to fund our operations and finance the planned expansion of our business communications services, product development and manufacturing, and to discharge our financial obligations. The availability of such funds will depend on prevailing market conditions, interest rates, and the financial position and 15 results of our operations. There can be no assurance that such funds will be available or if available that they will be on terms and conditions favorable to I-Link. RESULTS OF OPERATIONS In order to more fully understand the comparison of the three and six months ended June 30, 2001 as compared to the same three and six months in 2000, you must understand two significant business transactions that are reflected in our 2001 financial results, for which there are not comparable transactions in 2000. Specifically: 1. We acquired WebToTel Incorporated and its subsidiary Nexbell Communications in a stock for stock transaction on April 17, 2001. However, as WebToTel and I-Link were under common control of Counsel as of March 1, 2001 (the date Counsel obtained its ownership in I-Link), we have accounted for the acquisition on an accounting method consistent with the pooling-of-interests method of accounting as of March 1, 2001. Accordingly, we have included the financial results of WebToTel subsequent to March1, 2001. 2. On June 4, 2001 we completed the purchase of certain assets and liabilities of WorldxChange Communication, Inc. We continue to offer the dial-around telecommunications product, which this company had previously offered. We did not offer a comparable product prior to June 4, 2001. THREE-MONTH PERIOD ENDED JUNE 30, 2001 COMPARED TO THREE-MONTH PERIOD ENDED JUNE 30, 2000 REVENUES Telecommunications service revenue increased $14,819,329 to $19,408,441 in the three months ended June 30, 2001 as compared to $4,589,112 in the three months ended June 30, 2000. The increase is primarily the result of the recognition of previously reported unearned revenue related to a prepayment from Red Cube and two acquisitions during 2001. According to the terms of the agreement, Red Cube was to use services related to the prepayment prior to June 30, 2001. Unused services as of June 30, 2001were approximately $9,543,000. As the Company has no further obligation under the prepayment arrangement, the $9,543,000 was recognized as revenue as of June 30, 2001. We do not expect any significant revenues from Red Cube in the future. Revenues also increased due to the acquisition of two companies. Revenue in the second quarter increased $5,932,000 related to the dial-around business of WorldxChange and $868,000 related to telecommunications services offered by Nexbell. Excluding the above revenues, recurring revenues decreased as a direct result of a shift in focus from retail to wholesale sales resulting in a decrease in revenues of $1,524,000 which was due to a combination of a 44% drop in the rate per minute and a 52% increase in minutes billed. We anticipate that reported revenues for the third quarter from WorldxChange will be approximately three times those for the second quarter (due to inclusion of three months of revenue in the third quarter versus one month in the second quarter). We anticipate revenues from other recurring sources will increase slightly in the third quarter. Technology licensing and development revenue decreased $319,908 to $1,419,998 in the second quarter of 2001 as compared to $1,739,906 in the same quarter of 2000. During the three months ended June 30, 2001, licensing revenues were primarily from a $10,000,000 licensing agreement in May 2000, between Red Cube and I-Link that is being recorded over a two-year period. Accordingly, $1,250,000 was recorded in the second quarter of 2001 as compared to $833,333 in the same quarter of 2000. As of June 30, 2001, the unearned balance of $4,166,667 has been recorded as unearned revenue. Other than Red Cube as discussed above, technology licensing and development revenues decreased $737,000 due to the contracts occurring in the second quarter of 2000 which did not recur in the same period of 2001. Revenue from this source will vary from quarter to quarter based on timing of future technology licensing and development projects. Other revenues in the second quarter of 2001 decreased $490,104 to $518,459 as compared to $1,008,563 in the same period of 2000. The revenues relate primarily to customer care, billing and accounts receivable services performed primarily for our single largest customer. The decrease from the second quarter of 2000 to the second quarter of 2001 was anticipated as many of the services previously rendered to this customer were transitioned to the customer. Revenues from these services are expected 16 to remain constant in the third quarter of 2001. However, revenues from these types of services vary from period to period based upon services requested. OPERATING COSTS AND EXPENSES Telecommunication network expense increased $8,177,860 in the second quarter of 2001 to $13,715,806 as compared to $5,537,946 for the same quarter of 2000. The primary increase was related to inclusion of network expense related to the dial-around business that we began to offer June 4, 2001 when we acquired certain assets and liabilities of WorldxChange Communications, Inc. These expenses include the costs related to the continuing development and deployment of our communication network and expenses related to the generation of telecommunication service revenue. The inclusion of WebToTel as of March 1, 2001, increased telecommunication expenses $1,750,000. The inclusion of WorldxChange for the month of June 2001 increased telecommunication expenses $5,315,000. Telecommunications network expense will increase dramatically in the third quarter as a direct result of additional revenues and the corresponding network expense from WorldxChange in the same period. Selling, general and administrative expense decreased $21,593 to $5,703,360 in the second quarter of 2001 as compared to $5,724,953 in the second quarter of 2000. The primary components of the net decrease consisted of an approximate $1,100,000 due to decreases in salaries and benefits as a result of the work force reductions in January and May of 2001 and a $573,000 reduction in other corporate expenses related to the work force reduction (facilities, materials etc.) and other cost cutting measures instituted by management. These reductions were offset by additional selling, general and administrative cost of approximately $1,144,000 related to the WorldxChange dial-around business that began June 4, 2001and $553,000 relating to WebToTel. The provision for doubtful accounts increased $1,215,210 to $1,269,397 in the second quarter of 2001 as compared to $54,187 in the same quarter of 2000. The increase was directly due to necessary provisions for doubtful accounts associated with two sources of revenues. During the second quarter of 2001 we recorded an allowance for accounts receivable from a major customer in the amount of $975,000 due to the termination of their agreement and pending arbitration. Additional reserves of $280,000 were recorded related to WorldxChange dial-around business, which began June 4, 2001, and WebToTel accounts receivable. Depreciation and amortization increased $769,990 to $2,330,806 in the second quarter of 2001 as compared to $1,560,816 in the second quarter of 2000. The increase is primarily due to depreciation and amortization relating to assets (primarily goodwill amortization of $457,000) acquired in the WebToTel and WorldxChange acquisitions. Additionally, WorldxChange entered into a $9,000,000 capital lease in June of 2001 that resulted in approximately $188,000 of the increase. Depreciation will continue to increase in the third quarter primarily as a result of three months of depreciation, rather than one month in the second quarter, related to WorldxChange assets. Research and development decreased $317,832 to $523,614 in the second quarter of 2001 as compared to $841,446 in the same period of 2000. The decrease was primarily a result of our decision to consolidate our research operations at our headquarters in Draper, Utah. We anticipate that research and development expense will continue at a comparable amount during the remainder of 2001. OTHER INCOME (EXPENSE) Interest expense increased $316,311 to $666,792 in the second quarter of 2001 as compared to $350,481 in the same quarter of 2000. Interest in the second quarter of 2001 was primarily due to interest on related party debt which was $58,000 higher in the second quarter of 2001 compared to the same period of 2000 due to higher average balances outstanding during the six months ended June 30, 2001. We also recorded non-cash interest expense of $172,000 in the second quarter of 2001 related to the amortization of a beneficial conversion feature on convertible debt with Counsel and non-cash interest related to the value of warrants issued to Counsel in connection with a loan. Interest on other debt increased $86,000 as a result of increased average balances of debt outstanding. Interest expense in the third quarter will increase significantly as the Company continues to accrue 17 interest on borrowings from Counsel and non-cash interest related to the value of warrants issued to Counsel in connection with a loan. Interest expense in the third quarter will also increase due to inclusion of interest on WorldxChange's debt related to its capital leases. Interest and other income decreased $89,379 to $23,590 in the second quarter of 2001 as compared to $112,969 in the same quarter of 2000. The decrease was primarily due to a decrease in the average balance of cash on hand in the second quarter of 2001 as compared to the same quarter of 2000. SIX-MONTH PERIOD ENDED JUNE 30, 2001 COMPARED TO THE SIX-MONTH PERIOD ENDED JUNE 30, 2000 REVENUES Telecommunications service revenue increased $13,953,105 to $23,829,424 in the first six months of 2001 as compared to $9,876,319 in the first six months of 2000. The increase is primarily the result of the recognition of previously reported unearned revenue related to a prepayment from Red Cube and two acquisitions during 2001. According to the terms of the agreement, Red Cube was to use services related to the prepayment prior to June 30, 2001. Unused services as of June 30, 2001were approximately $9,543,000. As the Company has no further obligation under the prepayment arrangement, the $9,543,000 was recognized as revenue as of June 30, 2001. We do not expect any significant revenues from Red Cube in the future. Revenues also increased due to the acquisition of two companies. Revenue in the first six months of 2001 increased $5,932,000 related to the dial-around business of WorldxChange and $1,161,000 (representing revenues from March to June of 2001) related to Nexbell's METS product. Excluding the above revenues, recurring revenues decreased as a direct result of a shift in focus from retail to wholesale sales resulting in a decrease in revenues of $2,683,000 which was due to a combination of a 52% drop in the rate per minute and a 68% increase in minutes billed. Marketing services revenue, which included revenue from independent representatives for promotional and presentation materials, WebCentre, and ongoing administrative support decreased $464,354 to $0 in the first six-months of 2001 as compared to $464,354 in the same period of 2000. The decrease was 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 decreased $3,389,509 to $2,856,897 in the first six months of 2001 as compared to $6,246,406 in the first six months of 2000. During the first six months of 2001, the revenues were primarily from a $10,000,000 licensing agreement in May 2000, between Red Cube and I-Link that is being recorded over a two-year period. Accordingly, $2,500,000 was recorded in the first six months of 2001 as compared to $833,333 in the first six months of 2000. As of June 30, 2001, the unearned balance of $4,166,667 has been recorded as unearned revenue. During the first six months of 2000, revenues of $4,000,000 were recorded related to two licensing agreements that did not recur in 2001. Revenue from this source will vary from quarter to quarter based on timing of technology licensing and development projects. Other revenues in the first six months of 2001 decreased $524,625 to $1,185,042 as compared to $1,709,667 in the first six months of 2000. The first six months of 2001 includes $999,000 as compared to $1,310,000 in the same period of 2000, which represent revenues relating to customer care, billing and accounts receivable services performed for our single largest customer. The decrease from the first six months of 2000 to the first six months of 2001 was an anticipated decrease as many of the services rendered in 2000 to this customer were transitioned to the customer. However, revenues from these types of services vary from period to period based upon services requested. During the first six months of 2000 other revenues also included royalties of $400,000 from the sale of Indavo units to a company which will not use the Indavo units over the I-Link Network. There were no comparable sales of Indavo in 2001. OPERATING COSTS AND EXPENSES Telecommunication network expense increased $8,374,504 in the six months ended June 30, 2001 to $20,025,512 as compared to $11,651,008 for the same period in 2000. These expenses include the costs related to the continuing 18 development and deployment of our 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 2000 due to the transition to wholesale rather than retail revenues as a result of the agreement with Big Planet. The inclusion of Nexbell for the period from March to June 2001 increased telecommunication expenses $2,325,000. The inclusion of WorldxChange for the month of June 2001 increased telecommunication expenses $5,315,000. Telecommunications network expense will increase dramatically in the third quarter as a direct result of additional revenues from WorldxChange in the same period. Marketing service costs decreased $349,034 to $0 in the first six months of 2001 as compared to $349,034 for the same period in 2000. The decrease in expense is directly related to the transition of the 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 decreased $202,300 to $9,441,741 in the first six months of 2001 as compared to $9,644,041 in the first six months in 2000. The primary components of the net decrease consisted of approximately $1,654,000 due to decreases in salaries and benefits as a result of the work force reductions in January and May of 2001 and a $573,000 reduction in other corporate expenses related to the work force reduction (facilities, materials etc.) and other cost cutting measures instituted by management. These reductions were primarily offset by additional selling, general and administrative cost of approximately $1,143,000 related to WorldxChange dial-around business that began June 4, 2001and $721,000 relating to WebToTel. The provision for doubtful accounts increased $997,853 to $1,377,756 in the six months of 2001 as compared to $379,903 in the same period in 2000. The increase was directly due to necessary provisions for doubtful accounts associated with two sources of revenues. During the second quarter of 2001 we recorded an allowance for accounts receivable from a major customer in the amount of $975,000 due to the termination of their agreement and pending arbitration. Additional reserves of $350,000 were recorded related to the WorldxChange dial-around business, which began June 4, 2001, and revenues related to the WebToTel acquisition included in our financial statements after March 1, 2001. Excluding the impact of Red Cube, WorldxChange and WebToTel, our provision for doubtful accounts for the first six months of 2001 decreased from 2000 due to the transition of most of our retail business to wholesale effective February 2000 which reduced our bad debt expense. Depreciation and amortization increased $932,086 to $3,981,791 in the first six months of 2001 as compared to $3,049,705 in the first six months of 2000. The increase is primarily due to depreciation and amortization relating to assets (primarily goodwill amortization of $610,000) acquired in the WebToTel and WorldxChange acquisitions. Additionally, WorldxChange entered into a $9,000,000 capital lease in June of 2001 that resulted in approximately $188,000 of the increase. Depreciation will continue to increase in the third quarter primarily as a result of three months of depreciation, rather than one month in the second quarter, related to WorldxChange assets. Research and development decreased $83,986 to $1,590,372 in the first six months of 2001 as compared to $1,674,358 in the same period in 2000. The decrease was primarily a result of our decision to consolidate our research operations at our headquarters in Draper, Utah. We anticipate that research and development expense will approximate $500,000 in the third quarter of 2001. OTHER INCOME (EXPENSE) Interest expense increased $220,310 to $1,014,633 in the first six months of 2001 as compared to $794,323 in the same period of 2000. We recorded non-cash interest expense of $201,500 in the first six months of 2001 related to the amortization of a beneficial conversion feature on convertible debt with Counsel and interest related to the value of warrants issued to Counsel in connection with a loan. Interest on other debt, including related party debt, in the first six months of 2001 was comparable to the same period of 2000. Interest expense in the third quarter will increase significantly as we continue to accrue interest on borrowings from Counsel and record non-cash interest related to the beneficial conversion feature on convertible debt and the value of warrants issued to Counsel in connection with a loan. Interest expense in the third quarter will also increase due to inclusion of three months interest on WorldxChange debt related to its capital leases, as compared to one month in the second quarter. 19 Interest and other income decreased $99,135 to $51,661 in the first six months of 2001 as compared to $150,796 in the same period of 2000. The decrease was primarily due to a decrease in the average balance of cash on hand in the first six months of 2001. 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. There was no comparable expense in the first six months of 2001. ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk is limited to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Our cash equivalents are invested with high quality issuers and limit the amount of credit exposure to any one issuer. Due to the short-term nature of the cash equivalents, we believe that we are not subject to any material interest rate risk. We did not have any foreign currency hedges or other derivative financial instruments as of March 31, 2001. We do not enter into financial instruments for trading or speculative purposes and do not currently utilize derivative financial instruments. Our operations are conducted primarily in the United States and as such are not subject to material foreign currency exchange rate risk. 20 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS We have previously reported the lawsuit and arbitration proceeding that were brought against I-Link and I-Link Worldwide LLC by Steven J. Little, a former independent representative of I-Link Worldwide, L.L.C. From April 23, 2001 through April 27, 2001 and on May 14, 2001 an evidentiary arbitration hearing, which is the functional equivalent of trial, was conducted by the arbitrator. During the six day arbitration hearing Mr. Little fully presented his claims against I-Link and I-Link Worldwide, LLC and I-Link and I-Link Worldwide, LLC presented their defenses. On June 1, 2001 the arbitrator issued a written decision concluding that neither I-Link nor I-Link Worldwide, LLC owe Mr. Little any monetary reward. On June 25, 2001, Mr. Little filed a motion to modify the arbitration award in the arbitration proceeding which the arbitrator denied. Also, on June 25, 2001, Mr. Little filed a motion to vacate or modify the arbitration award in the litigation preceding in State Court of Utah. The court denied Mr. Little's motion and confirmed the arbitrator's decision. On January 18, 2001, I-Link Incorporated ("I-Link") filed action against Red Cube, International AG and Red Cube, Inc. ("Red Cube") in federal court in Utah seeking damages against Red Cube, for an alleged default on an agreement to provide approximately $60,000,000 in equity funding to I-Link, and instituting a scheme to drive I-Link out of business and obtain control of I-Link's proprietary technology, telecommunications network, key employees and customers. I-Link obtained a temporary restraining order against Red Cube preventing Red Cube from interfering with I-Link's employees, vendors and customers. Red Cube commenced an arbitration proceeding in New York (see next paragraph) and then filed a motion to dismiss the federal court action and compel arbitration based upon a mandatory arbitration provision in the May 2000 Cooperation and Framework Agreement by and between Red Cube and I-Link. The court found that I-Link's claims were "related to" the Cooperation and Framework Agreement and granted Red Cube's motion to dismiss for lack of subject matter jurisdiction. The dismissal resulted in this issue being submitted for AAA arbitration pursuant to the Cooperation and Framework Agreement. On January 24, 2001, Red Cube, after the federal court action described above had been commenced against it by I-Link, delivered a written demand for arbitration and commenced an arbitration proceeding in New York alleging that I-Link breached the Cooperation and Framework Agreement by (i) threatening a shut-down of I-Link's IP telecommunications network, (ii) the resignation of Dror Nahumi as an employee of I-Link (which Red Cube claims will cause I-Link to breach its undertaking to provide certain consulting services in the event I-Link is unable to perform under the Agreement and Red Cube is required to assume primary operation and maintenance of it's own IP telecommunications network based upon I-Link's technology), and (iii) I-Link's alleged failure to update the escrowed copy of its source code to the current version of the source code employed to maintain the IP telecommunications network. When the federal court action was dismissed in favor of the arbitration proceeding, I-Link filed a response in the arbitration proceeding denying all of Red Cube's claims. I-Link also filed a counterclaim against Red Cube virtually identical to the claims it initially brought against Red Cube in the federal court action seeking compensatory and/or punitive damages for Red Cube's default under a subsequent agreement to provide approximately $60,000,000 in equity funding to I-Link, and engaging in a scheme to drive I-Link out of business and obtain control of I-Link's proprietary technology, telecommunications network, key employees and customers. In May 2001 Red Cube amended its claim to include additional allegations that I-Link undertook certain unspecified "significant transactions" in violation of its agreements with I-Link's then majority shareholder, Winter Harbor, LLC (with which Red Cube is also currently engaged in arbitration) which resulted in damage to Red Cube. I-Link has denied these additional allegations. The arbitration proceeding is in the discovery stage. In June 2001, I-Link gave notice to Red Cube that it intended to cease providing international carrier services to Red Cube (representing the vast majority of all services performed for Red Cube) as a result of Red Cube's failure to provide I-Link adequate assurance of ongoing payment for such services. Red Cube sought emergency relief in the arbitration attempting to prohibit I-Link from terminating these services. A hearing was held before the arbitration panel in July 2001 and Red Cube's request for relief was denied. I-Link ceased providing international carrier services to Red Cube immediately thereafter. On February 8, 2001, The Nasdaq Stock Market, Nasdaq Listing Qualifications Department (the "Staff"), notified the Company that its securities would be de-listed from the Nasdaq SmallCap Market (the "SmallCap Market") for the Company's inability to meet a SmallCap Market continued inclusion requirement for $35,000,000 in market capitalization. Subsequently, the Staff, in its March 8, 2001 correspondence, notified I-Link that the Company no longer complied with the minimum bid price requirement of $1.00 per share as set forth in National Association of Securities Dealers, Inc. ("NASD") Rule 4310(c)(4). Subsequently, on June 11, 2001, the Staff raised additional 21 concern regarding the Company's issuances of stock and debt to Counsel Corporation in connection with the Loan and NexBell transactions (as defined below) (it was alleged that said stock issuances by I-Link should have been approved by I-Link's stockholders). On May 17, 2001, an oral hearing was held before a panel of the Nasdaq Listing Qualifications Panel (the "Panel"), relating to the various concerns raised by the Staff. On July 17, 2001, the Panel issued a decision to continue the listing of I-Link's securities on the SmallCap Market in accordance with the exception from certain continued listing criteria. Under the terms and conditions of the exception, I-Link is required, on or before August 3, 2001, to file a proxy statement with the Securities and Exchange Commission (the "SEC") and Nasdaq evidencing I-Link's intent (1) to seek shareholder approval for a reverse stock sufficient to evidence a closing bid price of at least $1.00 per share, and (2) to seek shareholder ratification for the issuance of shares of its common stock to Counsel Corporation in connection with (i) March 1, 2001 Senior Convertible Loan and Security Agreement with Counsel Communications LLC, a wholly-owned subsidiary of Counsel Corporation (the "Loan transaction") and (ii) April 17, 2001 Agreement and Plan of Merger by and among I-Link and I-Link Acquisition Corp., a Delaware corporation and I-Link's wholly owned subsidiary, on the one hand, and WebToTel, Inc., a Delaware corporation, Counsel Corporation, and certain other shareholders, on the other hand (the "NexBell transaction"). On July 30, 2001, the Company filed a revised preliminary proxy statement with the SEC and Nasdaq. I-Link's compliance with the first requirement necessary for continued listing on the SmallCap was acknowledged in the Staff correspondence dated August 9, 2001. As a result of its compliance with the foregoing requirement, the Panel determined to continue the continued listing exception through September 5, 2001. On August 16, 2001, the Nasdaq Staff satisfied I-Link's request for an extension to effect the proposed reverse stock split and extended the compliance deadline from September 5, 2001 to September 13, 2001. Pursuant to the terms of the August 16, 2001 reiteration of the Panel's determination, on or before September 13, 2001, I-Link is required to submit to Nasdaq documentation evidencing receipt of shareholder ratification for stock issuances to Counsel Corporation in connection with the Loan and NexBell transactions. In addition, the Company, on or before September 13, 2001, must demonstrate closing bid price of at least $1.00 per share and, immediately thereafter, a closing bid price of at least $1.00 per share for a minimum of 10 consecutive trading days. Further, the Company, on or before September 13, 2001, must demonstrate a market capitalization of at least $35,000,000 and, immediately after, a market capitalization of at least $35,000,000 for a minimum of 10 consecutive trading days. As of the date of this filing, I-Link is not in compliance with the SmallCap Market capitalization continued listing criterion. There is no assurance that I-Link will comply with this requirement even if the proposed reverse stock split is effected as described in this proxy statement. Under the terms of the Panel's July 17, 2001 decision (as well as its August 16, 2001 reiteration), I-Link's non-compliance with the market capitalization criterion, on or before September 13, 2001, will result in the de-listing of its securities from the SmallCap Market. I-Link must comply with all of the foregoing continued listing requirements in order to for its securities to remain listed on the SmallCap Market. In the event the Company fails to meet any one of the requirements as set forth in the July 17, 2001 Panel decision (as well as the August 16, 2001 reiteration of the same), the Company's common stock will be de-listed from the SmallCap Market. Should I-Link's securities cease to be listed on the SmallCap Market, its securities may continue to be listed on the OTC-Bulletin Board. ITEM 2 - CHANGES IN SECURITIES The disclosure set forth in Items 2 and 5 of Form 8-K filed on March 16, 2001 is incorporated herein by reference. The disclosure set forth in Item 2 of Form 8-K filed on May 2, 2001 is incorporated herein by reference. The disclosure set forth in Item 2 of Form 8-K filed on June 19, 2001 is incorporated herein by reference. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6(a) - EXHIBITS Exhibit Number Item - ------ ----- 10.1 Loan and security agreement as of June 6, 2001 by and between I-Link Incorporated and Counsel Corporation 10.2 Loan and security agreement as of June 4, 2001 by and between WorldxChange Corp., I-Link Incorporated and Counsel Corporation (US). 10.3 Warrant agreement by and between Counsel Corporation (US) and I-Link Incorporated 10.4 Form of Lease Agreement effective on June 2, 2001 between Telecommunications Finance Group of Siemens Carrier Networks LLC. and WorldxChange Corp. 10.5 Agreement and plan of merger dated April 17, 2001 by and among WebToTel, Inc., Counsel Communications LLC, I-Link Incorporated and other shareholders of WebToTel. 22 ITEM 6(b) - REPORTS ON FORM 8-K An 8-K was filed on May 2, 2001 to announce I-Link's entering into an Agreement and Plan of Merger to acquire WebToTel, Inc. An 8-K was filed on May 4, 2001 to announce the resignation of John M. Ames as Chief Financial Officer. An 8-K was filed on June 19, 2001 to announce that I-Link Incorporated, through it wholly-owned subsidiary WorldxChange Corp., had acquired certain assets and liabilities out of the bankruptcy proceedings of WorldxChange Communications, Inc. The 8-K also disclosed the financing arrangements of such purchase. An 8-K/A#2 was filed on June 29, 2001 as an amendment to an 8-K filed on May 2, 2001 in order to include financial statements and pro forma financial information relative to I-Link's purchase of WebToTel. 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 20, 2001 By: /s/ Gary S. Wasserson --------------------------------- Gary S. Wasserson Chief Executive Officer By: /s/ James A. Giauque III --------------------------------- James A. Giauque III Chief Accounting Officer 23 EX-10.1 3 a2057554zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT ("AGREEMENT") is made and entered into as of June 6, 2001, by and between I-LINK INCORPORATED, a Florida corporation (the "BORROWER") and COUNSEL CORPORATION (US), a Delaware corporation (the "LENDER"). WHEREAS, Lender owns approximately sixty seven percent (67%) of the common stock of Borrower and will derive substantial benefits from the making of loans hereunder; and WHEREAS, the Lender desires to provide financing and both the Lender and the Borrower believe that it is in their mutual interest to enter into this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged it is agreed as follows: Section 1. PERIODIC LOANS. From and after the date hereof through and until the termination of the Term (defined below), Lender may make periodic loans to the Borrower in an aggregate principal amount at any one time outstanding, not to exceed ten million dollars ($10,000,000) (the "MAXIMUM AMOUNT"). Borrower shall execute a promissory note substantially in the form attached as EXHIBIT A evidencing its obligations hereunder (the "NOTE"). During the Term, from time to time, Borrower may notify the Lender of its need to borrow funds pursuant to this Agreement for capital investments, working capital or other operational cash requirements of Borrower. Any funds advanced by Lender for capital investments, working capital or other operational cash requirements of Borrower during the Term up to the Maximum Amount shall be governed by this Agreement. Borrower and Lender acknowledge and agree that on June 6, 2001 Lender disbursed to Borrower six hundred seventeen thousand dollars ($617,000) and of that amount seventy five thousand seven hundred dollars ($75,700) was lent to Borrower under this Agreement. Section 2. PERIODIC FINANCE CHARGES. All principal and interest then outstanding shall bear interest at a rate of ten percent (10%) per annum, compounded quarterly. Interest shall be calculated on the basis of a year of 360 days and the actual number of days elapsed during the period for which such interest is payable. Section 3. PAYMENTS OF PRINCIPAL AND INTEREST. All principal under the Note shall be due and payable by the Borrower no later than June 6, 2002 ("MATURITY DATE"). All interest outstanding shall be due and payable by the Borrower on the first day of each quarter, provided that Lender may, in its sole discretion, elect to allow interest to accrue and become payable at the end of the Term. The Borrower may, from time to time, in its discretion, make one or more periodic payments of principal or interest to the Lender. Such payments shall be credited to the Borrower's account on the date that such payment is actually received by the Lender. Section 4. TERM. The term of this Agreement (the "TERM") shall commence on the date hereof and shall terminate upon the earlier of (i) the issuance of debt by the Borrower to a third-party in an amount greater than or equal to ten million dollars ($10,000,000) ("FUTURE DEBT ISSUANCE"), provided, however, that the proceeds of such Future Debt Issuance are not used to repay indebtedness to the Lender, or (ii) April 15, 2002, unless terminated earlier pursuant to the default provisions of this Agreement. Section 5. CREATION OF SECURITY INTEREST. In order to secure the payment of all obligations of Borrower to Lender under this Agreement, the Note, and any and all amendments, modifications, renewals or restatements thereof, and all further extensions of credit made to Borrower from time to time by Lender whether pursuant to this Agreement or otherwise (the "SECURED OBLIGATIONS"), the Borrower hereby grants to the Lender (or its designee) (the "SECURED PARTIES") a security interest in all of Borrower's assets, now owned or hereinafter acquired, now in existence or hereafter arising, wherever located (the "COLLATERAL"), including, without limitation the property described below on the terms and conditions set forth in this Agreement: (a) presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods or the rendition of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing (collectively, "ACCOUNTS"); (b) present and future general intangibles and other personal property (including choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, monies due under any royalty or licensing agreements, infringement claims, computer programs, computer discs, computer tapes, literature, reports, catalogs deposit accounts, insurance premium rebates, tax refunds, and tax refund claims) other than goods and Accounts, and Borrower's Books relating to any of the foregoing (collectively, "GENERAL INTANGIBLES"); (c) present and future letters of credit, notes, drafts, instruments, certificated and uncertificated securities, documents, leases, and chattel paper, and Borrower's Books relating to any of the foregoing (collectively, "NEGOTIABLE COLLATERAL"); (d) present and future inventory in which Borrower has any interest, including goods held for sale or lease or to be furnished under a contract of service and all of Borrower's present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located, and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing (collectively, "INVENTORY"); (e) present and hereafter acquired computers, communications equipment, software code, network servers, switches and other related equipment, and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located (collectively, "EQUIPMENT"); (f) books and records including: ledgers; records indicating, summarizing, or evidencing Borrower's assets or liabilities, or the collateral; all information relating to Borrower's business operations or financial condition; and all computer programs, disc or tape files, printouts, funds or other computer prepared information, and the equipment containing such information (collectively, "BORROWER'S BOOKS"); and (g) substitutions, replacements, additions, accessions, proceeds, products to or of any of the foregoing, including, but not limited to, proceeds of insurance covering any of the foregoing, or any portion thereof, and any and all accounts, general intangibles, negotiable, collateral, inventory, equipment, money, deposits, accounts, or other tangible or intangible property resulting from the sale or other disposition of the Accounts, General Intangibles, Negotiable Collateral, Inventory, Equipment, or any portion thereof or interest therein and the proceeds thereof. To the extent that Borrower's creation of the foregoing security interest in any portion of the Collateral requires the pre-approval of a state regulatory agency, the creation of the foregoing security interest with respect to such state is subject to and contingent upon Borrower obtaining such state regulatory agency's pre-approval. Section 6. COVENANTS, REPRESENTATIONS AND WARRANTIES. The Borrower represents, warrants, covenants and agrees as follows: (a) PAYMENT OF PRINCIPAL AND INTEREST. The Borrower shall promptly pay when due the principal of and interest on the Note. (b) CORPORATE EXISTENCE. The Borrower is a corporation duly organized and existing under the laws of the state of Florida and is duly qualified in every other state in which it is doing business. (c) CORPORATE AUTHORITY. The execution, delivery, and performance of this Agreement, and the execution and payment of the Note issued pursuant to the terms hereof are within Borrower's corporate powers, have been duly authorized, and are not in contravention of law or the terms of the Borrower's articles of incorporation and bylaws, or of any indenture, agreement, or undertaking to which the Borrower is a party or by which it is bound. (d) OWNERSHIP OF COLLATERAL. The Borrower is the sole owner of the Collateral and will defend the Collateral against the claims and demands of all other persons at any time claiming the same or any interest therein. (e) INFORMATION RIGHTS. Upon Lender's written request, Borrower shall promptly furnish Lender with any information that Lender may reasonably request, including but not limited to: (i) monthly financial statements, including a comparison of actual results to budget, in the form customarily prepared; (ii) notification of material defaults under material agreements; (iii) notification of and status reports regarding material litigation; and (iv) copies of all filings made with the Securities and Exchange Commission. (f) CONDUCT OF BUSINESS. Borrower will continue to engage in a business of the same general type and manner as conducted by it on the date of this Agreement. (g) COMPLIANCE WITH LAW AND OTHER AGREEMENTS. Except where the failure to do so would not materially adversely affect Borrower's operations or its ability to fulfill its obligations under this Agreement and the Note, Borrower shall maintain its business operations and property owned or used in connection therewith in compliance with (i) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (ii) all agreements, licenses, franchises, indentures and mortgages to which Borrower is a party or by which Borrower or any of its properties is bound. Without limiting the foregoing, Borrower shall pay all of its indebtedness promptly in accordance with the terms thereof. (h) TAXES AND ASSESSMENTS. Borrower shall (i) file all tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (ii) pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (iii) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that Borrower in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (ii) and (iii) so long as appropriate reserves are maintained with respect thereto. (i) STATEMENTS NOT FALSE OR MISLEADING. No representation or warranty given as of the date hereof by Borrower contained in this Agreement or any materials furnished by Borrower to Lender in connection with its due diligence relating to this Agreement, taken as a whole, contains or will (as of the time so furnished) contain any untrue statement of a material fact, or omits or will (as of the time so furnished) omit to state any material fact which is necessary in order to make the statements contained therein not misleading. (j) REQUIRED APPROVALS. Borrower shall immediately apply for and diligently pursue all required governmental or regulatory approvals necessitated by this Agreement. Section 7. SALE OR REMOVAL OF COLLATERAL PROHIBITED. Except for the sale of inventory in the ordinary course of Borrower's business, the Borrower shall not sell, lease, encumber, pledge, mortgage, assign, grant a security interest in, or otherwise transfer the Collateral without the Lender's prior written consent, which consent shall not be unreasonably withheld or delayed. Section 8. PERFECTION OF SECURITY INTEREST. From the date hereof, Borrower agrees to execute and file financing statements, and do whatever may be reasonably necessary under the applicable Uniform Commercial Code in the state where the Collateral is located, to perfect and continue the Lender's interest in the Collateral, all at the Borrower's expense. Section 9. TAXES AND ASSESSMENTS. The Borrower will pay or cause to be paid promptly when due all taxes and assessments on the Collateral, this Agreement and the Note. The Borrower may, however, withhold payment of any tax assessment or claim if a good faith dispute exists as to the obligation to pay. Section 10. INSURANCE. The Borrower shall have and maintain, or cause to be maintained, insurance at all times with respect to all Collateral except accounts receivable, against such risks as the Lender may reasonably require, in such form, for such periods, and written by such companies as may be satisfactory to the Lender. All policies of insurance shall have endorsed a loss payable clause acceptable to the Lender and/or such other endorsements as the Lender may from time to time request, and the Borrower will promptly, on request, provide the Lender with the original policies or certificates of such insurance. The Borrower shall promptly notify the Lender of any loss or damage that may occur to the Collateral. The Lender is hereby authorized to make proof of loss if it is not made promptly by the Borrower. All proceeds of any insurance on the Collateral shall be held by the Lender as a part of the Collateral and at Lender's option be applied to repay the indebtedness hereunder or to repair or restore property damage. If Lender agrees to use the funds to repair or restore the property, such proceeds shall be paid out from time to time upon order of the Borrower for the purpose of paying the reasonable cost of repairing or restoring the property damaged. In the event of failure to provide insurance as herein provided, the Lender may, at the Lender's option, provide such insurance at the Borrower's expense. Section 11. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise, all payments received by the Lender from the Borrower under the Note and this Agreement shall be applied by the Lender in the following order of priority: (i) interest payable on the Note in the manner provided therein; (ii) principal of the Note in the manner provided therein; and (iii) any other sums secured by this Agreement in such order as the Lender, at the Lender's option, may determine. Section 12. PROTECTION OF LENDER'S SECURITY. If the Borrower fails to perform the covenants and agreements contained in this Agreement, or if any action or proceeding is commenced which affects the Collateral or title thereto or the interest of the Lender therein, including, but not limited to, insolvency, or arrangements or proceedings involving a bankrupt or decedent, then the Lender, at the Lender's option, may make such appearance, disburse such sums, and take such action as the Lender deems necessary, in its reasonable discretion, to protect the Lender's interest, including but not limited to (i) disbursement of attorneys' fees, (ii) entry upon the Borrower's property to make repairs to the Collateral, and (iii) procurement of satisfactory insurance. Any amounts disbursed by Lender pursuant to this Section, with interest thereon, shall become additional indebtedness of the Borrower secured by this Agreement. Unless the Borrower and the Lender agree to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement at the rate stated in the Note. Nothing contained in this Section shall require the Lender to incur any expense or take any action. Section 13. INSPECTION. The Lender may make or cause to be made reasonable entries upon and inspections of the Borrower's premises to inspect the Collateral. Section 14. BORROWER AND LIEN NOT RELEASED. From time to time, the Lender may, at the Lender's option, without giving notice to or obtaining the consent of the Borrower, the Borrower's successors or assigns or of any lienholder or guarantors, without liability on the Lender's part, and notwithstanding the Borrower's breach of any covenant or agreement of the Borrower in this Agreement, extend the time for payment of said indebtedness or any part thereof, reduce the payments thereon, release anyone liable on any of said indebtedness, accept a renewal a note or notes therefor, modify the terms and the time of payment of said indebtedness and agree in writing with the Borrower to modify the rate of interest or period of amortization of the Note or change the amount of any installments payable thereunder. Any actions taken by the Lender pursuant to the terms of this Section shall not affect the obligation of the Borrower or the Borrower's successors or assigns to pay the sums advanced under this Agreement and to observe the covenants of the Borrower contained herein, and shall not affect the guaranty of any person, corporation, partnership, or other entity for payment of the indebtedness secured hereby. The Borrower shall pay the Lender a reasonable service charge, together with attorneys' fees as may be incurred at the Lender's option for any such action if taken at the Borrower's request. Section 15. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by the Lender in exercising any right or remedy hereunder, or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of any right or remedy. The acceptance by the Lender of payment of any sum loaned under this Agreement after the due date of such payment shall not be a waiver of the Lender's right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. Section 16. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Agreement is intended to be a security agreement pursuant to the Uniform Commercial Code for any of the items specified above as part of the Collateral which, under applicable law, may be subject to a security interest pursuant to the Uniform Commercial Code, and the Borrower hereby grants the Lender a security interest in said items. The Borrower agrees that the Lender may file any appropriate document in the appropriate index as a financing statement for any of the items specified above as part of the Collateral. In addition, the Borrower agrees to execute and deliver to the Lender, upon the Lender's request, any financing statements, as well as extensions, renewals and amendments thereof, and reproductions of this Agreement in such form as the Lender may reasonably require to perfect a security interest with respect to said items. The Borrower shall pay all costs of filing such financing statements and any extensions, renewals, amendments, and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements the Lender may reasonably require. Upon the occurrence of an event of default, each Secured Party shall have the remedies of a Lender under the Uniform Commercial Code and, at the Secured Party's option, may also invoke the other remedies provided in this Agreement as to such items. In exercising any of said remedies, the Secured Parties may proceed against the items of real property and any items of personal property specified above as part of the Collateral separately or together and in any order whatsoever, without in any way affecting the availability of the Secured Party's remedies under the Uniform Commercial Code or of the other remedies provided in this Agreement. Section 17. ORDER OF PAYMENTS. Any and all amounts actually received by the Lender in connection with the enforcement of this Agreement, including the proceeds of any collection, sale or other disposition of all or any part of the Collateral (collectively, the "PROCEEDS"), shall, promptly upon receipt by the Lender, be applied: (a) first, to the payment in full of the Secured Obligations, or in the event that such Proceeds are insufficient to pay in full the Secured Obligations, to the Secured Obligations of the Secured Parties in the following order of priority: (i) to all interest (including default interest) owing to the Secured Parties on Secured Obligations, such amounts to be allocated to each Secured Party in accordance with its pro rata share of loans outstanding to Borrower at such time; then (ii) to principal amounts owing to the Secured Parties on Secured Obligations, such amounts to be allocated to each Secured Party in accordance with its pro rata share of loans outstanding to Borrower at such time; (iii ) any other fees or expenses incurred hereunder; and (b) second, to the Borrower or in the manner that a court of competent jurisdiction shall direct. Section 18. EVENTS OF DEFAULT. The Borrower shall be in default under this Agreement when any of the following events or conditions occurs (each an "EVENT OF DEFAULT"): (a) The Borrower shall fail to pay all principal due under the Note on or before the Maturity Date; (b) The Borrower shall fail to pay any of the Secured Obligations (other than payment of principal due under the Note on or before the Maturity Date) pursuant to the terms of this Agreement and such failure to pay is not remedied within five (5) Business Days of Lender's written notice to Borrower; (c) The Borrower fails to comply with any term, obligation, covenant, or condition contained in this Agreement and such failure to comply is not remedied within ten (10) Business Days of Lender's written notice to Borrower; (d) Any warranty or representation made to the Lender by the Borrower under this Agreement proves to have been materially false when made or furnished; (e) If the Borrower voluntarily files a petition under the federal Bankruptcy Act, as such Act may from time to time be amended, or under any similar or successor federal statute relating to bankruptcy, insolvency, arrangements or reorganizations, or under any state bankruptcy or insolvency act, or files an answer in an involuntary proceeding admitting insolvency or inability to pay debts, or if the Borrower is adjudged a bankrupt, or if a trustee or receiver is appointed for the Borrower's property, or if the Collateral becomes subject to the jurisdiction of a federal bankruptcy court or similar state court, or if the Borrower makes an assignment for the benefit of its creditors, or if there is an attachment, receivership, execution or other judicial seizure, then the Lender may, at the Lender's option, declare all of the sums secured by this Agreement to be immediately due and payable without prior notice to the Borrower, and the Lender may invoke any remedies permitted by this Agreement. Any attorneys' fees and other expenses incurred by the Lender in connection with the Borrower's bankruptcy or any of the other events described in this Section shall be additional indebtedness of the Borrower secured by this Agreement; or (f) Any levy, seizure, attachment, lien, or encumbrance of or on the Collateral which is not discharged by the Borrower within thirty (30) Business Days or, any sale, transfer, or disposition of any interest in the Collateral, other than in the ordinary course of business, without the written consent of the Lender; (g) Borrower defaults under any other written agreement between Borrower and Lender. AS USED IN THIS AGREEMENT THE TERM "BUSINESS DAYS" MEANS DAYS OTHER THAN SATURDAYS, SUNDAYS OR LEGAL HOLIDAYS UNDER THE LAWS OF THE STATE OF NEW YORK. Section 19. ACCELERATION. At the option of the Lender, upon an Event of Default, after any applicable notice period, all principal and any unpaid interest due hereunder shall become immediately due and payable. Section 20. RIGHTS OF SECURED PARTIES. (a) Upon an Event of Default, the Secured Parties may require the Borrower to assemble the Collateral and make it available to the Secured Parties at the place to be designated by the Secured Parties which is reasonably convenient to the parties. The Secured Parties may sell all or any part of the Collateral as a whole or in parcels either by public auction, private sale, or other method of disposition. The Secured Parties may bid at any public sale on all or any portion of the Collateral. Unless the Collateral is perishable or threatens to decline speedily in value or is of the type customarily sold on a recognized market, the Secured Parties shall give the Borrower reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of the Collateral is to be made, and notice given at least ten (10) days before the time of the sale or other disposition shall be conclusively presumed to be reasonable. A public sale in the following fashion shall be conclusively presumed to be reasonable: (b) Notice shall be given at least ten (10) Business Days before the date of sale by publication once in a newspaper of general circulation published in the county in which the sale is to be held; (c) The sale shall be held in a county in which the Collateral or any part is located or in a county in which the Borrower has a place of business; (d) Payment shall be in cash or by certified check immediately following the close of the sale; (e) The sale shall be by auction, but it need not be by a professional auctioneer; (f) The Collateral may be sold as is and without any preparation for sale. (g) Notwithstanding any provision of this Agreement, the Secured Parties shall be under no obligation to offer to sell the Collateral. In the event the Secured Parties offer to sell the Collateral, the Secured Parties will be under no obligation to consummate a sale of the Collateral if, in their reasonable business judgment, none of the offers received by them reasonably approximates the fair value of the Collateral. (h) In the event the Secured Parties elect not to sell the Collateral, the Secured Parties may elect to follow the procedures set forth in the Uniform Commercial Code for retaining the Collateral in satisfaction of the Borrower's obligation, subject to the Borrower's rights under such procedures. (i) In addition to the rights under this Agreement, in the event of a default by the Borrower, the Secured Parties shall be entitled to the appointment of a receiver for the Collateral as a matter of right whether or not the apparent value of the Collateral exceeds the outstanding principal amount of the Note and any receiver appointed may serve without bond. Employment by the Secured Parties shall not disqualify a person from serving as receiver. Section 21. EXPENSES. Borrowers agree to pay all reasonable out of pocket costs and expenses incurred by Lender in connection with this Agreement, including but not limited to filing fees, recording taxes and reasonable attorneys' fees actually incurred in enforcing this Agreement or collecting on the Note, promptly upon demand of Lender. Section 22. REMEDIES CUMULATIVE. Each remedy provided in this Agreement is distinct and cumulative to all other rights or remedies under this Agreement or afforded by law or equity, and may be exercised concurrently, independently, or successively, in any order whatsoever. Section 23. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, sent by overnight courier or telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Borrower , to: I-LINK INCORPORATED 13751 South Wadsworth Park Drive Suite 200 Draper, Utah 84020 Attention: Gary Wasserson, Chief Executive Officer Facsimile: (801) 576-4295 With copy to: I-LINK INCORPORATED 13751 South Wadsworth Park Drive Suite 200 Draper, Utah 84020 Attention: General Counsel Facsimile: (801) 576-4295 (b) If to Lender, to: Counsel Corporation (US) 280 Park Avenue West Building, 28th floor New York, New York 10017 Attention: Allan Silber Facsimile: (212) 286-5000
Section 24. INTERPRETATION. When a reference is made in this Agreement of a Section, such reference shall be to a Section of this Agreement unless otherwise indicated, and the words "hereof," "herein" and "hereunder" and similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement, unless the context otherwise requires. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Section 25. COUNTERPARTS. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Facsimile signatures shall be deemed to be authentic pending receipt of original signatures. Section 26. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, and the Note, (i) constitute the entire agreement between the parties hereto and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (ii) are not intended to confer upon any person other than the parties any rights or remedies hereunder; and (iii) may only be modified by a writing signed by Borrower and Lender. Section 27. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 28. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by operation of law or otherwise by the Borrower without the prior written consent of the Lender in its sole and absolute discretion, and any such purported assignment without the express prior written consent of the Lender party shall be void ab initio; and the Lender may assign any or all of the rights, interests or obligations hereunder to any party. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. Section 29. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect he original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions be consummated as originally contemplated to the fullest extent possible. Section 30. CONSENT TO JURISDICTION. In the event that any legal proceedings are commenced in any court with respect to any matter arising under this Agreement, the parties hereto specifically consent and agree that the courts of the State of Utah and/or the Federal Courts located in the State of Utah shall have jurisdiction over each of the parties hereto and over the subject matter of any such proceedings. IN WITNESS WHEREOF, BORROWER AND LENDER HAVE EXECUTED THIS AGREEMENT AS OF THE DATE FIRST WRITTEN ABOVE. I-LINK INCORPORATED By: ________________________________ Name: Title: COUNSEL CORPORATION (US) By: ______________________________ Name: Title: EXHIBIT "A" LOAN NOTE $10,000,000 New York, New York June 1, 2001 FOR VALUE RECEIVED, I-LINK, INCORPORATED ("BORROWER") hereby promises to pay to the order of COUNSEL CORPORATION (US), a Delaware corporation ("LENDER"), in immediately available funds, on the Maturity Date, the principal sum of up to TEN MILLION Dollars ($10,000,000), or, if less, the unpaid principal amount of all loans then outstanding made pursuant to the Loan and Security Agreement, dated June 1, 2001 (the "LOAN AGREEMENT"). Payments made hereunder shall be made to Lender's New York office located at 280 Park Avenue, West Building, 28th floor, New York, New York 10017. The Borrower also promises to pay interest on the unpaid principal amount hereof in like money from the date hereof until the principal amount is paid at the rates and at the times provided in the Loan Agreement. Capitalized terms used but not otherwise defined herein shall have the meaning specified therefor in the Loan Agreement. This Loan Note is the "Note" referred to in the Loan Agreement, is subject to the terms and provisions of the Loan Agreement, and is entitled to the benefits thereof. This Loan Note is secured pursuant to the terms of the Loan Agreement. In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Loan Note may be declared due and payable in the manner and with the effect provided in the Loan Agreement. The Borrower hereby waives presentment, dishonor, notice of dishonor, and protest. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. I-LINK, INCORPORATED By: _________________________ Name: Title: EX-10.2 4 a2057554zex-10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 LOAN AND SECURITY AGREEMENT THIS LOAN AGREEMENT ("AGREEMENT") is made and entered into as of June 4, 2001, by and between WORLDXCHANGE CORP., a.k.a., PT-1 Counsel, Inc., a.k.a. PT-I Long Distance, Inc. a Delaware corporation (the "BORROWER") and I-LINK INCORPORATED, a Florida corporation (the "GUARANTOR"), and COUNSEL CORPORATION (US), a Delaware corporation (the "LENDER"). RECITALS: Borrower desires to borrow from Lender $15,000,000, the proceeds of which will be used to (i) purchase and operate certain of WorldxChange Communications, Inc.'s business assets purchased by Borrower; (ii) pay fees and expenses related to such asset acquisition and operation; and (iii) pay certain assumed liabilities related to such asset acquisition. AGREEMENTS: IN CONSIDERATION of the mutual promises and agreements herein contained, Lender, Borrower and Guarantor agree as follows: ARTICLE ONE AMOUNT AND TERMS OF THE LOAN Section 1.1 THE LOAN. Lender agrees, upon the terms and conditions hereinafter set forth, to make a loan to Borrower in an aggregate principal amount of Fifteen Million Dollars ($15,000,000) (the "LOAN"). Section 1.2 THE NOTE. The Loan shall be evidenced by and subject to the terms of a promissory note, dated June 4, 2001, substantially in the form set forth as EXHIBIT 1.2 hereto (as amended, renewed, restated, increased, consolidated or substituted from time to time, the "NOTE"), payable to the order of Lender. Section 1.3 INTEREST. The Loan shall bear interest on the unpaid principal amount thereof at a rate PER ANNUM at all times equal to ten percent (10%). Interest shall be calculated on the basis of a year of 360 days and the actual number of days elapsed during the period for which such interest is payable. Interest shall begin to accrue on the outstanding principal amount of the Loan on the date of disbursement of all or a portion of the Loan. Accrued interest shall be paid quarterly in arrears and in cash on last business day of each quarter until all principal and interest hereunder is paid in full at the repayment or maturity of the Loan. Upon the occurrence of any Event of Default (as defined herein), the entire outstanding principal amount of the Loan and (to the extent permitted by law) unpaid interest thereon and all other amounts due hereunder shall bear interest, from the date of occurrence of such Event of Default until the earlier of the date the Loan is paid in full and the date on which such Event of Default is cured or waived in writing, at an interest rate equal of twelve percent (12%) per annum, which shall be payable upon demand. Lender may waive in writing Borrower's obligation to make one or more cash interest payments in which case interest shall continue to accrue. Lender hereby waives Borrower's obligation to make the cash interest payment due June 30, 2001. Section 1.4 PRINCIPAL REPAYMENT. The outstanding principal balance of the Loan plus any accrued and unpaid interest thereon shall be due and payable on June 4, 2002 (the "MATURITY DATE"). Section 1.5 PREPAYMENTS. Section 1.5.1 VOLUNTARY PREPAYMENTS. By written notice to Lender no later than 12:00 noon, New York time on the business day prior to such prepayment, Borrower may, at its option, prepay the Loan in whole at any time or in part from time to time without penalty or premium. Section 1.5.2 MANDATORY PREPAYMENTS. RECEIVABLE LENDING OR DEBT ISSUANCE. Borrower shall make a mandatory prepayment of the Loan in an amount equal to one hundred percent (100%) of the cash proceeds, net of any directly related reasonable fees and expenses incurred, from: (a) the initial purchase of Borrower's accounts receivable pursuant to a third-party financing arrangement ("A/R FINANCING"); or (b) future debt issuance of Borrower. Such prepayment(s) shall be made concurrently with the funding of such transaction(s). PROCEEDS OF ASSET SALES. Borrower shall make a mandatory prepayment of the Loan in an amount equal to one hundred percent (100%) of the cash proceeds in excess of one million dollars ($1,000,000) of any sale(s) by Borrower of any of Borrower's material assets, net of any reasonable costs directly incurred in connection with such sale(s) and any taxes payable in connection with such sale(s). Together with any prepayment required by this Section, Borrower shall deliver to Lender a certificate executed by Borrower's chief financial officer setting forth the calculation of the net cash proceeds of such sale(s), including a calculation of the taxes payable in respect of such sale(s). Such prepayment(s) shall be made concurrently with the funding of such sales(s). If Guarantor issues or sells any shares of its capital stock or other equity interests or securities convertible into or exercisable for any shares of its capital stock or other equity interests, it shall, within five (5) days of such sale or issuance, make a mandatory prepayment of the Loan in an amount equal to fifty percent (50%) of the cash proceeds thereof, net of: (a) any reasonable costs directly incurred in connection with such sale or issuance; and (b) proceeds used by Guarantor to acquire businesses or business assets; and (c) proceeds used to fund any Lender approved expanded business plan, PROVIDED, HOWEVER, that no such prepayment shall be required in connection with any such issuance or sale: (a) in connection with any acquisition (including by way of merger or consolidation or share exchange) by Borrower of the stock or assets of another person or entity in a transaction pursuant to which the purchase price is paid in whole or in part by the delivery of capital stock of Borrower to the seller; or (b) to officers, directors or employees of Guarantor or any of its subsidiaries pursuant to stock option or other benefit plans. Section 1.6 APPLICATION OF PREPAYMENTS. All voluntary and mandatory prepayments of the Loan shall be applied first to accrued interest and then to the principal outstanding under the Loan. Section 1.7 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made hereunder or under the Note shall be due on a Saturday, Sunday or public holiday, such payment may be made on the next succeeding business day, and such extension of time in such case shall be included in the computation of interest hereunder and under the Note. Section 1.8 TAXES. All sums payable by Borrower hereunder or under the Note, whether of principal, interest, fees, expenses or otherwise, shall be paid in full, free of any deductions or withholdings for any and all present and future taxes, levies, imposts, stamps, duties, fees, assessments, deductions, withholdings, and other governmental charges and all liabilities with respect thereto. If Borrower is prohibited by law from making payments hereunder or under the Note free of such deductions or withholdings, then Borrower shall pay such additional amount as may be necessary in order that the actual amount received by Lender after such deduction or withholding shall equal the full amount stated to be payable hereunder or under the Note. ARTICLE TWO WARRANTS Section 2.1 WARRANTS. As further consideration for Lender's commitment to make available the Loan to Borrower, Guarantor shall grant to Lender a warrant (the "Initial Warrant") to purchase five million (5,000,000) shares of common stock of Guarantor at an exercise price of sixty cents ($0.60) per share. In the event Borrower does not repay the Note in full on or before the three month anniversary of the Closing Date, Guarantor shall grant to Lender a warrant (the "Second Warrant") to purchase an additional five million (5,000,000) shares of common stock of Guarantor at an exercise price of sixty cents ($0.60) per share. In the event Borrower does not repay the Note in full on or before the six month anniversary of the Closing Date, Guarantor shall grant to Lender a warrant (the "Third Warrant") to purchase an additional five million (5,000,000) shares of common stock of Guarantor at an exercise price of sixty cents ($0.60) per share. The Initial Warrant, Second Warrant and Third Warrant shall be issued at Closing pursuant to the terms of a Warrant Agreement (the "Warrant Agreement"). All warrants issued pursuant to the Warrant Agreement shall terminate on June 4, 2003. ARTICLE THREE CLOSING Section 3.1 CLOSING AND CLOSING DATE. The full disbursement of the Loan and the other transactions contemplated hereby shall take place on June 4, 2001 or at such other date and at such place as to which the parties may agree in writing (the "CLOSING" and the "CLOSING DATE"). Subject to the terms and conditions hereof, upon the fulfillment or waiver in writing of all the conditions precedent set out in Article IV below, Lender shall disburse the full amount of the Loan to Borrower. ARTICLE FOUR SECURITY Section 4.1 GUARANTY. As partial security for the Loan, Guarantor shall execute and deliver to Lender, on or before the Closing Date, a guaranty (the "GUARANTY"), in form and substance satisfactory to Lender, pursuant to which the Guarantor shall guarantee the obligations of Borrower to Lender hereunder and under the Note. Section 4.2 BORROWER'S CREATION OF SECURITY INTEREST. In order to secure the payment of all obligations of Borrower to Lender whether now or hereafter arising, including all obligations under this Agreement, the Note entered into by and between Lender and Borrower of even date herewith, and any and all amendments, modifications, renewals or restatements hereof (the "SECURED OBLIGATIONS"), the Borrower hereby grants to the Lender (or its designee) (the "SECURED PARTIES") a security interest in all of Borrower's assets, now owned or hereinafter acquired, now in existence or hereafter arising, wherever located, other than equipment leased by Borrower and any leases which by their terms prohibit the grant of security interests in, or assignments of, Borrower's leasehold interest therein (collectively "BORROWER'S COLLATERAL"), including, without limitation the property described below on the terms and conditions set forth in this Agreement: (a) presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods or the rendition of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing (collectively, "BORROWER'S ACCOUNTS"); (b) present and future general intangibles and other personal property (including choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, monies due under any royalty or licensing agreements, infringement claims, computer programs, computer discs, computer tapes, literature, reports, catalogs deposit accounts, insurance premium rebates, tax refunds, and tax refund claims) other than goods and Borrower's Accounts and Borrower's Books relating to any of the foregoing (collectively, "BORROWER'S GENERAL INTANGIBLES"); (c) present and future letters of credit, notes, drafts, instruments, certificated and uncertificated securities, documents, leases, and chattel paper, and Borrower's Books relating to any of the foregoing (collectively, "BORROWER'S NEGOTIABLE COLLATERAL"); (d) present and future inventory in which Borrower has any interest, including goods held for sale or lease or to be furnished under a contract of service and all of Borrower's present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located, and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing (collectively, "BORROWER'S INVENTORY"); (e) present and hereafter acquired computers, communications equipment, software code, network servers, switches and other related equipment, and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located (collectively, "BORROWER'S EQUIPMENT"); (f) books and records including: ledgers; records indicating, summarizing, or evidencing Borrower's assets or liabilities, or the collateral; all information relating to Borrower's business operations or financial condition; and all computer programs, disc or tape files, printouts, funds or other computer prepared information, and the equipment containing such information (collectively, "BORROWER'S BOOKS"); and (g) substitutions, replacements, additions, accessions, proceeds, products to or of any of the foregoing, including, but not limited to, proceeds of insurance covering any of the foregoing, or any portion thereof, and any and all of Borrower's Accounts, Borrower's General Intangibles, Borrower's Negotiable Collateral, Borrower's Inventory, Borrower's Equipment, money, deposits, accounts, or other tangible or intangible property resulting from the sale or other disposition of Borrower's Accounts, Borrower's General Intangibles, Borrower's Negotiable Collateral, Borrower's Inventory, Borrower's Equipment, or any portion thereof or interest therein and the proceeds thereof. To the extent that Borrower's creation of the foregoing security interest in any portion of the Borrower's Collateral requires the pre-approval of a state regulatory agency, the creation of the foregoing security interest with respect to such state is subject to and contingent upon Borrower obtaining such state regulatory agency's pre-approval. Section 4.3 SUBORDINATION OF SECURITY INTEREST. Notwithstanding anything to the contrary contained in this Agreement, Lender hereby agrees to subordinate its security interest in the Borrower's Collateral to the extent necessary to complete the A/R Financing. Section 4.4 GUARANTOR'S CREATION OF SECURITY INTEREST. In order to secure the payment of all obligations of Borrower to Lender under the Secured Obligations, the Guarantor hereby grants to the Secured Parties a security interest in all of Guarantor's assets, now owned or hereinafter acquired, now in existence or hereafter arising, wherever located, other than equipment leased by Guarantor and any leases which by their terms prohibit the grant of security interests in, or assignments of, Guarantor's leasehold interest therein (collectively "GUARANTOR'S COLLATERAL"), including, without limitation the property described below on the terms and conditions set forth in this Agreement: (a) presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Guarantor arising out of the sale or lease of goods or the rendition of services by Guarantor, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Guarantor and Guarantor's Books relating to any of the foregoing (collectively, "GUARANTOR'S ACCOUNTS"); (b) present and future general intangibles and other personal property (including choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, monies due under any royalty or licensing agreements, infringement claims, computer programs, computer discs, computer tapes, literature, reports, catalogs deposit accounts, insurance premium rebates, tax refunds, and tax refund claims) other than goods and Guarantor's Accounts and Guarantor's Books relating to any of the foregoing (collectively, "GUARANTOR'S GENERAL INTANGIBLES"); (c) present and future letters of credit, notes, drafts, instruments, certificated and uncertificated securities, documents, leases, and chattel paper, and Guarantor's Books relating to any of the foregoing (collectively, "GUARANTOR'S NEGOTIABLE COLLATERAL"); (d) present and future inventory in which Guarantor has any interest, including goods held for sale or lease or to be furnished under a contract of service and all of Guarantor's present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located, and any documents of title representing any of the above, and Guarantor's Books relating to any of the foregoing (collectively, "GUARANTOR'S INVENTORY"); (e) present and hereafter acquired computers, communications equipment, software code, network servers, switches and other related equipment, and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located (collectively, "GUARANTOR'S EQUIPMENT"); (f) books and records including: ledgers; records indicating, summarizing, or evidencing Guarantor's assets or liabilities, or the collateral; all information relating to Guarantor's business operations or financial condition; and all computer programs, disc or tape files, printouts, funds or other computer prepared information, and the equipment containing such information (collectively, "GUARANTOR'S BOOKS"); and (g) substitutions, replacements, additions, accessions, proceeds, products to or of any of the foregoing, including, but not limited to, proceeds of insurance covering any of the foregoing, or any portion thereof, and any and all of Guarantor's Accounts, Guarantor's General Intangibles, Guarantor's Negotiable Collateral, Guarantor's Inventory, Guarantor's Equipment, money, deposits, accounts, or other tangible or intangible property resulting from the sale or other disposition of Guarantor's Accounts, Guarantor's General Intangibles, Guarantor's Negotiable Collateral, Guarantor's Inventory, Guarantor's Equipment, or any portion thereof or interest therein and the proceeds thereof. To the extent that Guarantor's creation of the foregoing security interest in any portion of the Guarantor's Collateral requires the pre-approval of a state regulatory agency, the creation of the foregoing security interest with respect to such state is subject to and contingent upon Guarantor obtaining such state regulatory agency's pre-approval. Section 4.5 SALE OR REMOVAL OF COLLATERAL PROHIBITED. Except for the sale of inventory in the ordinary course of Borrower's and Guarantor's business, neither the Borrower nor the Guarantor shall sell, lease, encumber, pledge, mortgage, assign, grant a security interest in, or otherwise transfer Borrower's Collateral or Guarantor's Collateral. Section 4.6 PERFECTION OF SECURITY INTEREST. From the date hereof, Borrower and Guarantor agree to execute and file financing statements, and do whatever may be necessary under the applicable Uniform Commercial Code in the state where Borrower's Collateral and Guarantor's Collateral is located, to perfect and continue the Lender's interest in the Borrower's Collateral and Guarantor's Collateral, all at the Borrower's expense. Section 4.7 TAXES AND ASSESSMENTS. The Borrower and Guarantor will pay or cause to be paid promptly when due all taxes and assessments on the Borrower's Collateral and Guarantor's Collateral, this Agreement and the Notes. The Borrower or Guarantor may, however, withhold payment of any tax assessment or claim if a good faith dispute exists as to the obligation to pay. Section 4.8 INSURANCE. The Borrower and Guarantor shall have and maintain, or cause to be maintained, insurance at all times with respect to all Borrower's Collateral and Guarantor's Collateral except accounts receivable, against such risks as the Lender may reasonably require, in such form, for such periods, and written by such companies as may be satisfactory to the Lender. All policies of insurance shall have endorsed a loss payable clause acceptable to the Lender and/or such other endorsements as the Lender may from time to time request, and the Borrower and Guarantor will promptly provide the Lender with the original policies or certificates of such insurance. The Borrower and Guarantor shall promptly notify the Lender of any loss or damage that may occur to the Borrower's Collateral and Guarantor's Collateral. The Lender is hereby authorized to make proof of loss if it is not made promptly by the Borrower or the Guarantor. All proceeds of any insurance on the Borrower's Collateral and Guarantor's Collateral shall be held by the Lender as a part of the Borrower's Collateral and Guarantor's Collateral and at Lender's option be applied to repay the indebtedness hereunder or to repair or restore property damage. If Lender agrees to use the funds to repair or restore the property, such proceeds shall be paid out from time to time upon order of the Borrower or the Guarantor for the purpose of paying the reasonable cost of repairing or restoring the property damaged. In the event of failure to provide insurance as herein provided, the Lender may, at the Lender's option, provide such insurance at the Borrower's or Guarantor's expense. Section 4.9 PROTECTION OF LENDER'S SECURITY. If the Borrower or Guarantor fail to perform any of their respective covenants and agreements contained or incorporated in this Agreement, or if any action or proceeding is commenced which affects the Borrower's Collateral or Guarantor's Collateral or title thereto or the interest of the Lender therein, including, but not limited to insolvency, or arrangements or proceedings involving a bankrupt or decedent, then the Lender, at the Lender's option, may make such appearance, disburse such sums, and take such action as the Lender deems necessary, in its sole discretion, to protect the Lender's interest, including but not limited to (i) disbursement of attorneys' fees, (ii) entry upon the Borrower's or Guarantor's property to make repairs to the Borrower's Collateral or Guarantor's Collateral, and (iii) procurement of satisfactory insurance. Any amounts disbursed by Lender pursuant to this Section, with interest thereon, shall become additional indebtedness of the Borrower secured by this Agreement. Unless the Borrower, the Guarantor and the Lender agree to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement at the rate stated in the Note. Nothing contained in this Section shall require the Lender to incur any expense or take any action. Section 4.10 INSPECTION. The Lender may make or cause to be made reasonable entries upon and inspections of the Borrower's or Guarantor's premises to inspect the Borrower's Collateral or Guarantor's Collateral. Section 4.11 BORROWER, GUARANTOR AND LIEN NOT RELEASED. From time to time, the Lender may, at the Lender's option, without giving notice to or obtaining the consent of the Borrower, the Borrower's successors or assigns or of any other lienholder or Guarantor, without liability on the Lender's part, and notwithstanding the Borrower's breach of any covenant or agreement of the Borrower in this Agreement, extend the time for payment of said indebtedness or any part thereof, reduce the payments thereon, release anyone liable on any of said indebtedness, accept a renewal note or notes therefor, modify the terms and the time of payment of said indebtedness, release from the lien of this Agreement any part of the Borrower's Collateral or Guarantor's Collateral, take or release other or additional security, reconvey any part of the Borrower's Collateral or Guarantor's Collateral, consent to any map or plan of the Borrower's Collateral or Guarantor's Collateral, consent to the granting of any easement, join in any extension or subordination agreement, and agree in writing with the Borrower to modify the rate of interest or period of amortization of the Note or change the amount of any installments payable thereunder. Any actions taken by the Lender pursuant to the terms of this Section shall not affect the obligation of the Borrower or the Borrower's successors or assigns or Guarantor to pay the sums secured by this Agreement and to observe the covenants of the Borrower and Guarantor contained herein, shall not affect the guaranty of Guarantor or any person, corporation, partnership, or other entity for payment of the indebtedness secured hereby, and shall not affect the lien or priority of lien hereof on the Borrower's Collateral or Guarantor's Collateral. The Borrower shall pay the Lender a reasonable service charge, together with attorneys' fees as may be incurred at the Lender's option for any such action if taken at the Borrower's request. Section 4.12 FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by the Lender in exercising any right or remedy hereunder, or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of any right or remedy. The acceptance by the Lender of payment of any sum secured by this Agreement after the due date of such payment shall not be a waiver of the Lender's right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. The procurement of insurance or the payment of taxes, rents or other liens or charges by the Lender shall not be a waiver of the Lender's right to accelerate the maturity of the indebtedness secured by this Agreement, nor shall the Lender's receipt of any awards, proceeds or damages as provided in this Agreement operate to cure or waive the Borrower's or Guarantor's default in payment of sums secured by this Agreement. Section 4.13 UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Agreement is intended to be a security agreement pursuant to the Uniform Commercial Code for any of the items specified above as part of the Borrower's Collateral and Guarantor's Collateral which, under applicable law, may be subject to a security interest pursuant to the Uniform Commercial Code, and the Borrower and Guarantor each hereby grant the Lender a security interest in said items. The Borrower and Guarantor each agree that the Lender may file any appropriate document in the appropriate index as a financing statement for any of the items specified above as part of the Borrower's Collateral and Guarantor's Collateral. In addition, the Borrower and Guarantor each agree to execute and deliver to the Lender, upon the Lender's request, any financing statements, as well as extensions, renewals and amendments thereof, and reproductions of this Agreement in such form as the Lender may reasonably require to perfect a security interest with respect to said items. The Borrower shall pay all costs of filing such financing statements and any extensions, renewals, amendments, and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements the Lender may reasonably require. The Borrower or Guarantor shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the Borrower's Collateral and Guarantor's Collateral, other than the security interests of the Secured Parties, including replacements and additions thereto. Upon the occurrence of an Event of Default, each Secured Party shall have the remedies of a Lender under the Uniform Commercial Code and, at the Secured Party's option, may also invoke the other remedies provided in this Agreement as to such items. In exercising any of said remedies, the Secured Parties may proceed against the items of real property and any items of personal property specified above as part of the Borrower's Collateral and Guarantor's Collateral separately or together and in any order whatsoever, without in any way affecting the availability of the Secured Party's remedies under the Uniform Commercial Code or of the other remedies provided in this Agreement. ARTICLE FIVE CONDITIONS OF LENDING Section 5.1 CONDITIONS PRECEDENT TO LOAN. The obligation of Lender to disburse the Loan hereunder is subject to the following conditions precedent: Section 5.1.1 RECEIPT OF DOCUMENTS. Lender shall have received all of the following, on or before the Closing Date, in form and substance satisfactory to Lender: The Note, duly executed and delivered by Borrower; The Guaranty, duly executed and delivered by the Guarantor; The appropriate UCC-1 financing statements duly executed and delivered by Borrower and Guarantor; Certified copies of the resolutions of the Board of Directors of each of Borrower and the Guarantor evidencing approval of the execution, delivery and performance of this Agreement, the Note and the Guaranty and other matters contemplated hereby; Such other agreements, certificates, opinions of counsel and documents as Lender may reasonably require. Section 5.1.2 COMPLIANCE. All of the representations and warranties of Borrower and Guarantor in this Agreement, the Guaranty, and the Warrant Agreement and in each other agreement, document, or instrument executed or delivered pursuant hereto or thereto (collectively, the "LOAN DOCUMENTS") shall be true and accurate in all material respects on and as of the Closing Date. Borrower shall be in compliance with all of the applicable terms and provisions of this Agreement and no Event of Default shall have occurred and be continuing. Borrower shall have performed all obligations and taken all actions to be performed or taken by it hereunder on or prior to such date. ARTICLE SIX REPRESENTATIONS AND WARRANTIES In order to induce Lender to enter into this Agreement and make the Loan, Borrower and Guarantor represent and warrant as follows: Section 6.1 Existence and Standing. Section 6.1.2 Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, is qualified to do business and in good standing under the laws of each other jurisdiction in which it conducts its business, and has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, this Agreement, the Note and all other Loan Documents. Section 6.1.3 Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida, is qualified to do business and in good standing under the laws of each other jurisdiction in which it conducts its business, and has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, this Agreement, the Note, the Guaranty and all other Loan Documents. Section 6.2 AUTHORIZATIONS, COMPLIANCE WITH LAWS. The execution, delivery and performance by each of Borrower and Guarantor of each Loan Document to which it is a party, and of each other document required to be executed and delivered by it pursuant to this Agreement or any other Loan Document, have been duly authorized by all necessary corporate action and do not and will not (i) violate (A) any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Borrower or Guarantor or (B) any provision of the Certificate of Incorporation, By-laws or other organizational documents of Borrower or Guarantor; or (ii) result in a breach of or constitute a default under any agreement or instrument to which Borrower or Guarantor is a party or by which any of their properties may be affected; or (iii) result in the creation of a lien, charge or encumbrance of any nature upon Borrower's or Guarantor's properties or assets other than as contemplated by this Agreement. Section 6.3 APPROVALS. No authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department or agency or any other person is or will be necessary for the valid execution, delivery and performance by Borrower or Guarantor of this Agreement, the Note, the Guaranty, the Warrant Agreement or any other document required to be executed and delivered by Borrower or Guarantor pursuant to this Agreement. Section 6.4 BINDING OBLIGATIONS. This Agreement, the Note, the Guaranty, the Warrant Agreement and all other documents required to be executed and delivered by Borrower and Guarantor pursuant to this Agreement have been executed and delivered by a duly authorized officer of Borrower and Guarantor and constitute legal, valid and binding obligations of Borrower and Guarantor, enforceable in accordance with their respective terms. Section 6.5 COMPLIANCE WITH LAWS. Each of Borrower and Guarantor has complied and is in compliance in all material respects with all applicable federal, state and local laws. Each of Borrower and Guarantor has obtained all necessary licenses and permits required for the conduct of its business and operations or such licenses and permits have been applied for and are now being diligently pursued. Section 6.6 TAXES. Except as set forth on Schedule 6.6 attached hereto, each of Borrower and Guarantor has filed all tax returns and reports (federal, state and local) required to be filed by it, and has paid all taxes shown thereon, including interest and penalties, and all assessments received by it (except to the extent that the same are being contested in good faith by appropriate proceedings diligently prosecuted and as to which adequate reserves have been set aside on the books of Borrower and its Subsidiaries, as appropriate, in conformity with generally accepted accounting principles). Section 6.7 TITLE TO PROPERTIES. Each of Borrower and Guarantor has title to all of its property and assets and valid and enforceable leasehold interests in the property which it holds under lease. Each of Borrower and Guarantor owns or possesses the valid right to use all the patents, patent applications, patent and know-how licenses, inventions, technology, permits, trademark registrations and applications, trademarks, service marks, trade names, copyrights, product designs, applications, formulae, processes, circulation, and other subscriber lists, industrial property rights and licenses and rights in respect of the foregoing used or necessary for the conduct of its business (collectively, "proprietary rights"). Except as set forth in Schedule 6.7, neither Borrower nor Guarantor are aware of any existing or threatened infringement or misappropriation of (a) any such proprietary rights of others by Borrower or Guarantor or (b) any proprietary rights of Borrower or Guarantor by others. ARTICLE SEVEN COVENANTS OF BORROWER AND GUARANTOR Section 7.1 COVENANTS. So long as the Note shall remain unpaid and this Agreement shall not have been terminated, Borrower and Guarantor each hereby agree, unless Lender shall otherwise consent in writing, to: Section 7.1.1 PAYMENT OF OBLIGATIONS. Pay punctually and discharge when due: (i) all indebtedness heretofore or hereafter incurred; (ii) all taxes, assessments and governmental charges or levies imposed upon it or its income or profits, or upon any properties belonging to it; and (iii) all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid might become a lien or charge upon the property of Borrower or Guarantor; provided that this covenant shall not require the payment of any of the matters set forth in (i), (ii) and (iii) above if the same shall be contested in good faith and by proper proceedings diligently pursued and as to which adequate reserves have been set aside on the books of Borrower or Guarantor in accordance with generally accepted accounting principles. Section 7.1.2 PRESERVATION OF EXISTENCE. Preserve and maintain Borrower's and Guarantor's respective corporate existence, and all material rights, franchises, licenses and privileges used or useful in the operation of their business. Section 7.1.2 MAINTENANCE OF PROPERTIES. Maintain and preserve all of their properties necessary or useful in the proper conduct of their business in good working order and condition, ordinary wear and tear excepted. Section 7.1.3 COMPLIANCE WITH LAWS. Comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any governmental authority. Section 7.1.4 PERFECTION OF LIENS. Do all things requested by Lender to preserve and perfect the security interests of Lender arising pursuant to this Agreement or any other agreement required hereunder. Section 7.1.5 GOVERNMENTAL APPROVAL. If counsel to Lender reasonably determines that the consent of the Federal Communications Commission or any other federal, state or local governmental or licensing authority is required in connection with the execution, delivery and performance of this Agreement, the Note, the Guaranty, the Warrant Agreement or any other document delivered to Lender in connection herewith or therewith or as a result of any action which may be taken pursuant hereto or thereto, then Borrower and Guarantor, at their sole cost and expense, agrees to use its good faith reasonable efforts to secure such consent and to cooperate with Lender in any action commenced by Lender to secure such consent. Section 7.1.6 AGREEMENTS. Comply with their respective obligations under the Loan Documents. ARTICLE EIGHT ORDER OF PAYMENTS Section 8.1 ORDER OF PAYMENTS. Any and all amounts actually received by the Lender in connection with the enforcement of this Agreement, including the proceeds of any collection, sale or other disposition of all or any part of the Borrower's Collateral and Guarantor's Collateral (collectively, the "PROCEEDS"), shall, promptly upon receipt by the Lender, be applied: (i) first, to the payment in full of the Secured Obligations, or in the event that such Proceeds are insufficient to pay in full the Secured Obligations, to the Secured Obligations of the Secured Parties in the following order of priority: (A) to all interest (including default interest) owing to the Secured Parties on Secured Obligations, such amounts to be allocated to each Secured Party in accordance with its pro rata share of loans outstanding to Borrower at such time; then (B) to principal amounts owing to the Secured Parties on Secured Obligations, such amounts to be allocated to each Secured Party in accordance with its pro rata share of loans outstanding to Borrower at such time; (C ) any other fees or expenses incurred hereunder; and (ii) second, to the Borrower or in the manner that a court of competent jurisdiction shall direct. ARTICLE NINE EVENTS OF DEFAULT AND REMEDIES Section 9.1 EVENTS OF DEFAULT. The Borrower or the Guarantor shall be in default under this Agreement when any of the following events or conditions occurs (each an "EVENT OF DEFAULT"): Section 9.1.1 Borrower shall fail to pay all principal due under the Note on or before the Maturity Date; or Section 9.1.2 Borrower shall fail to pay any of the Secured Obligations (other than payment of principal due under the Note on or before the Maturity Date) pursuant to the terms of this Agreement and such failure is not remedied within five (5) days of Lender's written notice to Borrower; or Section 9.1.3 Any representation or warranty made by Borrower or Guarantor (or any of their officers) herein, in this Agreement, the Warrant Agreement, the Guaranty or any other Loan Document or in any certificate, agreement, instrument or statement contemplated by or made or delivered pursuant to or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect when made; or Section 9.1.4 Borrower or Guarantor shall fail to perform or observe any other term, covenant or agreement contained in this Agreement, the Note, the Guaranty, the Warrant Agreement or any other Loan Document, and any such failure remains unremedied for a period of thirty (30) days after receipt of written notice from Lender; or Section 9.1.5 Either (i) Borrower or Guarantor shall file a petition commencing a voluntary case concerning it under any Chapter of Title 11 of the United States Code entitled "BANKRUPTCY"; or (ii) Borrower or Guarantor shall apply for or consent to the appointment of any receiver, trustee, custodian or similar officer for it or for all or any substantial part of its property; or (iii) such receiver, trustee, custodian or similar officer shall be appointed without the application or consent of Borrower or Guarantor and such appointment shall continue undischarged for a period of forty five (45) days; or (iv) an involuntary case is commenced against Borrower or Guarantor under any Chapter of the aforementioned Title 11 and an order for relief under such Title 11 is entered or the petition commencing the case is controverted but is not dismissed within forty five (45) days after the commencement of the case; or (v) Borrower or Guarantor shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction; or (vi) any such proceeding shall be instituted against Borrower or Guarantor and shall remain undismissed for a period of forty five (45) days; or (vii) Borrower or Guarantor shall take any action for the purpose of effectuating any of the foregoing; or Section 9.1.6 Any court, government, or government agency shall condemn, seize or otherwise appropriate or take custody or control of all or a substantial portion of the property or assets of Borrower or Guarantor; or Section 9.1.7 Borrower or Guarantor defaults under any funded indebtedness, included but not limited to indebtedness evidenced by notes or capital leases, of Borrower or Guarantor other than the amounts loaned pursuant to this Agreement; or Section 9.1.8 Any money judgment, writ or warrant of attachment, or similar process involving, either individually or in the aggregate, an amount in excess of $100,000, and in either case not adequately covered by insurance as to which the insurance company has acknowledged coverage, shall be entered or filed against Borrower or Guarantor or its assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or in any event later than five (5) days prior to the date of any proposed sale thereunder. Section 9.2 ACCELERATION. At the option of the Lender, upon an Event of Default, all sums due hereunder shall become immediately due and payable. Section 9.3 RIGHTS OF SECURED PARTIES. (a) Upon an Event of Default, the Secured Parties may require the Borrower and Guarantor to assemble the Borrower's Collateral and Guarantor's Collateral and make it available to the Secured Parties at the place to be designated by the Secured Parties which is reasonably convenient to the parties. The Secured Parties may sell all or any part of the Borrower's Collateral or Guarantor's Collateral as a whole or in parcels either by public auction, private sale, or other method of disposition. The Secured Parties may bid at any public sale on all or any portion of the Borrower's Collateral and Guarantor's Collateral. Unless the Borrower's Collateral and Guarantor's Collateral is perishable or threatens to decline speedily in value or is of the type customarily sold on a recognized market, the Secured Parties shall give the Borrower reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of the Borrower's Collateral and Guarantor's Collateral is to be made, and notice given at least 10 days before the time of the sale or other disposition shall be conclusively presumed to be reasonable. A public sale in the following fashion shall be conclusively presumed to be reasonable: (b) Notice shall be given at least 10 days before the date of sale by publication once in a newspaper of general circulation published in the county in which the sale is to be held; (c) The sale shall be held in a county in which the Borrower's Collateral and Guarantor's Collateral or any part is located or in a county in which the Borrower or Guarantor has a place of business; (d) Payment shall be in cash or by certified check immediately following the close of the sale; (e) The sale shall be by auction, but it need not be by a professional auctioneer; (f) The Borrower's Collateral and Guarantor's Collateral may be sold as is and without any preparation for sale. (g) Notwithstanding any provision of this Agreement, the Secured Parties shall be under no obligation to offer to sell the Borrower's Collateral and Guarantor's Collateral. In the event the Secured Parties offer to sell the Borrower's Collateral and Guarantor's Collateral, the Secured Parties will be under no obligation to consummate a sale of the Borrower's Collateral and Guarantor's Collateral if, in their reasonable business judgment, none of the offers received by them reasonably approximates the fair value of the Borrower's Collateral and Guarantor's Collateral. (h) In the event the Secured Parties elect not to sell the Borrower's Collateral and Guarantor's Collateral, the Secured Parties may elect to follow the procedures set forth in the Uniform Commercial Code for retaining the Borrower's Collateral and Guarantor's Collateral in satisfaction of the Borrower's obligation, subject to the Borrower's or Guarantor's rights under such procedures. (i) In addition to the rights under this Agreement, in the event of a default by the Borrower, the Secured Parties shall be entitled to the appointment of a receiver for the Borrower's Collateral and Guarantor's Collateral as a matter of right whether or not the apparent value of the Borrower's Collateral and Guarantor's Collateral exceeds the outstanding principal amount of the Notes and any receiver appointed may serve without bond. Employment by the Secured Parties shall not disqualify a person from serving as receiver. ARTICLE TEN MISCELEANEOUS PROVISIONS Section 10.1 EXPENSES. Borrower agrees to pay on demand all costs and expenses incurred by Lender directly in the enforcement of this Agreement, the Note, the Guaranty, and other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of any attorney to whom the Note is referred for collection (whether or not litigation is commenced) or for representation out of court, in trial, on appeal or in proceedings under any bankruptcy or insolvency law or otherwise. In addition, Borrower shall pay any and all taxes and fees payable or determined to be payable in connection with the execution, delivery or recordation of any instruments and documents to be delivered hereunder. Section 10.2 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of Lender in exercising any right, power or remedy hereunder shall operate as a waiver, nor shall any single or partial exercise of any such right, power or remedy hereunder operate as a waiver. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 10.3 AMENDMENTS. No amendment, modification, termination or waiver of any provision of this Agreement, the Note or any other Loan Document, nor consent to any departure by Borrower or Guarantor, shall in any event be effective unless in writing, signed by Lender and then only in the specific instance and for the specific purpose for which given. No notice to or demand on Borrower or Guarantor in any case shall entitle it to any other or further notice or demand in similar or other circumstances except as expressly provided herein or in another Loan Document. Section 10.4 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be delivered in person or by mailing a copy thereof by registered or certified U.S. mail, return receipt requested, to the applicable party at the addresses indicated below: If to Borrower: WorldxChange Corp. 13751 South Wadsworth Park Drive Suite 200 Draper, Utah 84020 Attention: Gary Wasserson, President & Chief Executive Officer Telecopier: 801-576-4295 With a copy (which shall not constitute notice) to: WorldxChange Corp. 13751 South Wadsworth Park Drive Suite 200 Draper, Utah 84020 Attention: General Counsel Telecopier: 801-576-4295 If to Guarantor: I-LINK INCORPORATED 13751 South Wadsworth Park Drive Suite 200 Draper, Utah 84020 Attention: Gary Wasserson, Chief Executive Officer Telecopier: 801-576-4295 With a copy (which shall not constitute notice) to: I-LINK INCORPORATED 13751 South Wadsworth Park Drive Suite 200 Draper, Utah 84020 Attention: General Counsel Telecopier: 801-576-4295 If to Lender: Counsel Corporation (US) 280 Park Avenue 28th Floor, West Building New York, NY 10017 Telecopier: (212) 286-5036 or at such other address as may be designated by either party in a written notice to the other complying as to delivery with the terms of this Section. All such notices and other communications shall be effective when deposited in the mails. Section 10.5. BINDING EFFECT. This Agreement shall become effective when executed and thereafter shall be binding upon and inure to the benefit of Borrower, Lender and their respective successors and assigns, except that Borrower shall not have the right to assign any rights or obligations hereunder without the prior written consent of Lender. Lender shall be permitted to assign, without Borrower's consent, all or any portion of Lender's rights and interests hereunder and under each other document executed in connection with this Agreement. Section 10.6 GOVERNING LAW. This Agreement, the Note, the Guaranty, and related documents shall be governed by, and construed in accordance with, the laws of the State of New York with the exception of its conflicts of laws provisions; provided that the effect of any recordation shall be determined by the State thereof. Section 10.7 SEVERABILITY OF PROVISIONS. Any provision of this Agreement, the Note, or the Guaranty that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions or affecting the validity or enforceability of any provisions in any other jurisdiction. Section 10.8 HEADINGS. Article and Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 10.9 RIGHTS AFFECTED BY EXTENSIONS. The rights of Lender and its assigns shall not be impaired by any indulgence, release, renewal, extension or modification which Lender may grant with respect to the indebtedness or any part thereof, or with respect to the Borrower's Collateral and Guarantor's Collateral or with respect to any endorser, guarantor, or surety without notice or consent of Borrower or any endorser, guarantee or surety. Section 10.10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in this Agreement and in any agreements, documents or certificates delivered pursuant hereto or thereto shall survive the execution and delivery of this Agreement and the Note and the making of the Loan hereunder and continue in full force and effect, as of the respective dates as of which they were made, until all of the obligations of Borrower to Lender hereunder have been paid in full. Section 10.11 FURTHER ASSURANCES. From time to time, Borrower shall execute and deliver, or cause to be executed and delivered, to Lender such additional documents as Lender may reasonably require to carry out the purposes of this Agreement or any of the documents entered into in connection herewith, or to preserve and protect the rights of Lender hereunder or thereunder. Section 10.12 INDEMNIFICATION. Borrower hereby indemnifies and holds harmless Lender and its partners, directors, officers, shareholders, employees, agents, counsel, subsidiaries and affiliates (the "INDEMNIFIED PERSONS") from and against any and all losses, liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against any Indemnified Person in any way relating to or arising out of this Agreement, the other Loan Documents, the documents entered into in connection herewith or therewith, or any of them or any of the transactions contemplated hereby or thereby, the making of the Loan, the use of the proceeds of the Loan or the ownership or operation of the business or assets of Borrower or any of its subsidiaries; provided, however, that Borrower shall not be liable to any Indemnified Person, if there is a judicial determination that such losses, liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the negligence or willful misconduct of such Indemnified Person. JURY TRIAL WAIVER. EACH OF LENDER, BORROWER AND GUARANTOR HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER/GUARANTOR RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, REPLACEMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN. Section 10.13 MAXIMUM INTEREST. Lender and Borrower intend that this Agreement and the other Loan Documents conform to all applicable usury laws. Accordingly, no provisions of the Loan Documents shall require the payment or permit the collection of interest in excess of the maximum rate permitted by applicable law ("MAXIMUM RATE"), or obligate Borrower to pay any taxes, assessments, charges, insurance premiums or other amounts which are held to constitute interest to the extent that such payments, when added to the other obligations under the Loan Documents, would be held to constitute contracting for, or the payment by Borrower of, interest at a rate greater than the Maximum Rate. Lender and Borrower further agree that: Section 10.13.1 if any excess of interest in such respect is herein or in any such other instrument provided for, or shall be adjudicated to be so provided for herein or in any such instrument, the provisions of this subsection shall govern, and neither Borrower nor its successors or assigns shall be obligated to pay the amount of such interest to the extent it is in excess of the Maximum Rate; Section 10.13.2 if at any time the amount of interest under any of the Loan Documents for a calendar year exceeds the Maximum Rate had the Maximum Rate at all times been in effect, the interest chargeable under any such Loan Document shall be limited to the amount of interest that could have been charged if the Maximum Rate had at all times been in effect, but any subsequent reductions in the interest due shall not reduce the rate of interest chargeable under any such Loan Document below the Maximum Rate until the total amount of interest accrued under any such Loan Document equals the amount of interest that would have accrued if the interest provided for in any such Loan Document had at all times been in effect and collectible; Section 10.13.3 if the maturity of any Loan Document is accelerated for any reason, or in the event of any prepayment by Borrower, or in any other event, earned interest may never include more than the Maximum Rate, computed from the date of disbursement of the funds evidenced by such Loan Document until payment, and any interest otherwise payable under such Loan Document that is in excess of the Maximum Rate shall be canceled automatically as of such acceleration or such other event and (if theretofore paid) shall be credited against principal; Section 10.13.4 if it should be held that any interest payable or chargeable under any Loan Document is in excess of the Maximum Rate, the interest payable or chargeable under such Loan Document shall be reduced to the maximum amount permitted by applicable federal or state law, whichever shall permit the higher lawful interest, as construed by courts having jurisdiction thereof; and Section 10.13.5 the spreading, prorating and amortizing of interest over the Maturity Date of the Loan Documents shall be allowed to the fullest extent permitted by applicable law. IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be executed by their respective duly authorized officers as of the date first above written. I-LINK INCORPORATED By:_______________________________ Gary Wasserson, Chief Executive Officer WORLDXCHANGE CORPORATION By:_______________________________ Gary Wasserson, President COUNSEL CORPORATION (US) By:_______________________________ EXHIBIT 1.2 FORM OF PROMISSORY NOTE $15,000,000 June 4, 2001 FOR VALUE RECEIVED, the undersigned, WORLDXCHANGE CORP., a Delaware corporation (the "MAKER"), promises to pay to the order of COUNSEL CORPORATION (US), a Delaware limited liability company (the "PAYEE"), on or before June 4, 2001 (the "MATURITY DATE"), the principal sum of fifteen million dollars ($15,000,000), or if less, the outstanding principal balance of the Loan made by Payee to Maker pursuant to the Loan Agreement, as that term is defined below, together with interest thereon as provided herein. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Loan Agreement. 1. INTEREST. The unpaid principal balance of this Note shall bear interest at the rates determined in accordance with the provisions of that certain Loan and Security Agreement, dated as of June 4, 2001, between the Maker and the Payee (as the same may be amended, modified, extended or restated, the "LOAN AGREEMENT"). Interest accrued hereunder shall be paid quarterly in arrears and in cash on last business day of each quarter until all principal and interest hereunder is paid in full at the repayment or maturity of the Loan. 2. PRINCIPAL REPAYMENT. The aggregate principal balance of this Note shall be due and payable as provided in the Loan Agreement. 3. PREPAYMENTS. This Note may be voluntarily prepaid in whole or in part without premium or penalty at any time and from time to time. In making a prepayment in whole, the Maker shall pay all accrued interest through the date of such prepayment. The Maker shall make a mandatory prepayment of the outstanding principal amount of the Note together with all accrued interest on and subject to the terms and conditions of the Loan Agreement. 4. PAYMENT ON BUSINESS DAYS. If any payment of principal or interest on this Note shall become due on a Saturday, Sunday or public holiday, such payment may be made on the next succeeding business day, and such extension of time in such case shall be included in the computation of interest in connection with such payment. 5. FORM OF PAYMENT. All payments made pursuant to the terms of this Note shall be made in lawful money of the United States of America and shall be payable to the Payee at its principal office located at 280 Park Avenue, West Building, 28th Floor, New York, NY 10017 or at such other place as the Payee shall have designated to the Maker in writing. 6. CHOICE OF LAW. This Note shall be governed by and construed in accordance with the laws of the State of New York. 7. EVENTS OF DEFAULT. Upon the occurrence of any Event of Default, Lender may at its option by written notice to Borrower declare the entire unpaid principal amount of the Note, together with all unpaid interest and all other amounts payable hereunder, immediately due and payable. 8. COLLECTION EXPENSES. If at any time the indebtedness evidenced by this Note is collected through legal proceedings or this Note is placed in the hands of attorneys for collection, the Maker and each endorser of this Note hereby jointly and severally agree to pay all costs and expenses (including reasonable attorneys' fees) incurred by the holder of this Note in collecting or attempting to collect such indebtedness. 9. WAIVERS. To the extent permitted by law, except as otherwise provided herein or in the Loan Agreement, the Maker and each endorser of this Note, and their respective heirs, successors, legal representatives and assigns, hereby severally waive presentment; protest and demand; notice of protest, demand, dishonor and nonpayment; diligence in collection, and any relief whatever from the valuation or appraisement laws of any state. IN WITNESS WHEREOF, THE MAKER HAS EXECUTED THIS NOTE AS OF THE DATE AND YEAR FIRST ABOVE WRITTEN. WORLDXCHANGE CORPORATION, a Delaware corporation By:_______________________________ Gary Wasserson, President SCHEDULE 6.6 [To be determined and supplemented] SCHEDULE 6.7 [To be determined and supplemented] EX-10.3 5 a2057554zex-10_3.txt EXHIBIT 10.3 EXHIBIT 10.3 NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT AGREEMENT NOR THE SHARES OF COMMON STOCK THAT MAY BE PURCHASED UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE LAW. SUCH WARRANTS AND SHARES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE LAW, (2) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (3) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM SUCH REGISTRATION UNDER SUCH ACT IS AVAILABLE. WARRANT AGREEMENT by and between COUNSEL CORPORATION (US) and I-LINK INCORPORATED Dated as of June 4, 2001 WARRANT AGREEMENT THIS WARRANT AGREEMENT (this "AGREEMENT"), dated as of June 4, 2001, by and between I-LINK INCCORPORATED, a Florida corporation (the "COMPANY"), and COUNSEL CORPORATION (US), a Delaware corporation (the "HOLDER"). R E C I T A L S: A. The Holder and the Company have entered into a Loan and Security Agreement dated as of the date hereof (the "LOAN AGREEMENT"); B. In connection with the Loan Agreement, the Company has agreed to issue three series of warrants which, in aggregate, are exercisable to purchase up to fifteen million ($15,000,000) shares of the common stock of the Company ("COMMON STOCK"), subject to adjustment and cancellation as set forth in this Agreement; and C. The Company wishes to define the terms and provisions of the Warrants and the respective rights and obligations thereunder of the Company and the holder of the Warrants. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms have the meanings specified below: "BOARD OF DIRECTORS" means the Board of Directors of the Company. "BUSINESS DAY" means any day other than Saturday, Sunday or any other day on which banking institutions in Salt Lake City, Utah are permitted or required to close. "EVENT OF DEFAULT" is defined in Section 9.1 of the Loan Agreement. "EXERCISE PRICE" is defined in Section 5.3 hereof. "EXPIRATION DATE" is defined in Section 5.4 hereof. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "GAAP" means generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of the determination. "NOTE" is defined in Section 1.2 of the Loan Agreement. "PERSON" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity. "SEC" means the Securities and Exchange Commission or any successor thereto. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "TRANCHE 1 WARRANTS" means, collectively, any and all Warrants issued to the Holder pursuant to Section 2.1(a) and evidenced by a Tranche 1 Warrant Certificate. "TRANCHE 2 WARRANTS" means, collectively, any and all Warrants issued to the Holder pursuant to Section 2.1(b) and evidenced by a Tranche 2 Warrant Certificate. "TRANCHE 3 WARRANTS" means, collectively, any and all Warrants issued to the Holder pursuant to Section 2.1(c) and evidenced by a Tranche 3 Warrant Certificate. "TRANCHE 1 WARRANT CERTIFICATE" means a certificate for the Tranche 1 Warrants in substantially the form attached hereto as Exhibit A. "TRANCHE 2 WARRANT CERTIFICATE" means a certificate for the Tranche 2 Warrants in substantially the form attached hereto as Exhibit A. "TRANCHE 3 WARRANT CERTIFICATE" means a certificate for the Tranche 3 Warrants in substantially the form attached hereto as Exhibit A. "TRANCHE 1 EXERCISE PERIOD" is defined in Section 5.4(a) hereof. "TRANCHE 2 EXERCISE PERIOD" is defined in Section 5.4(b) hereof. "TRANCHE 3 EXERCISE PERIOD" is defined in Section 5.4(c) hereof. "WARRANT CERTIFICATES" means, collectively, the Tranche 1 Warrant Certificates, the Tranche 2 Warrant Certificates, and the Tranche 3 Warrant Certificates. "WARRANTHOLDER" means initially the Holder and thereafter each Person to whom Holder or other Warrant Holder may transfer any Warrants. "WARRANTS" means, collectively, the Tranche 1 Warrants, the Tranche 2 Warrants and the Tranche 3 Warrants. Capitalized terms used but not defined herein shall have the meaning set forth in the Loan Agreement. ARTICLE II ISSUANCE, FORM AND EXECUTION OF WARRANT CERTIFICATES SECTION 2.1 ISSUANCE OF WARRANTS. Upon the Closing and full funding of the Note, the Company shall issue to the Holder: (a) warrants to purchase five million (5,000,000) shares of Common Stock of the Company at an Exercise Price (defined herein) of $0.60 per share, subject to adjustment as provided elsewhere herein (the "TRANCHE 1 WARRANTS"); and (b) warrants to purchase five million (5,000,000) shares of Common Stock of the Company at an Exercise Price (defined herein) of $0.60 per share, subject to adjustment and cancellation as provided elsewhere herein (the "TRANCHE 2 WARRANTS"); and (c) warrants to purchase five million (5,000,000) shares of Common Stock of the Company at an Exercise Price (defined herein) of $0.60 per share, subject to adjustment and cancellation as provided elsewhere herein (the "TRANCHE 3 WARRANTS"). The Warrants shall be evidenced by Warrant Certificates and each Warrant Certificate shall represent the right, subject to the provisions contained herein, to purchase from the Company (and the Company shall issue and sell to the registered holder of such Warrants) the number of shares of Common Stock (as may be adjusted pursuant to Article 7 hereof) issuable to the Warrantholder upon exercise of such Warrants, at the price specified herein. SECTION 2.2 FORM OF WARRANT CERTIFICATES. The Warrant Certificates evidencing the Warrants shall be in registered form only and shall be substantially in the form set forth in EXHIBIT A attached hereto, shall be dated the date on which signed by the Company and may have such letters, numbers or other marks of identification or designation printed, lithographed, engraved or otherwise affixed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto. SECTION 2.3 EXECUTION OF WARRANT CERTIFICATES. Warrant Certificates shall be executed on behalf of the Company by the president, any vice president or the treasurer of the Company and signed by the secretary or any assistant secretary of the Company and have affixed thereon the seal of the Company. Each such signature and seal may be manual or facsimile. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer before countersignature and delivery by the Company, such Warrant Certificates, nevertheless, may be countersigned, issued and delivered with the same force and effect as though such person had not ceased to be such officer; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Agreement such person was not such an officer of the Company. Upon countersignature on behalf of the Company and delivery, the Warrant Certificate shall be valid and binding upon the Company, and the Warrantholder thereof shall be entitled to all of the benefits of this Agreement. ARTICLE III REGISTRATION SECTION 3.1 REGISTRATION. THE COMPANY SHALL NUMBER AND REGISTER THE WARRANT CERTIFICATES IN A REGISTER (THE "WARRANT REGISTER") MAINTAINED AT 13751 SOUTH WADSWORTH PARK DRIVE, DRAPER, UTAH 84020 (THE "OFFICE") AS THEY ARE ISSUED BY THE COMPANY (OR SUCH OTHER LOCATION AS THE COMPANY MAY ESTABLISH AFTER GIVING NOTICE THEREOF TO THE WARRANTHOLDERS). THE COMPANY SHALL KEEP COPIES OF THIS AGREEMENT AVAILABLE FOR INSPECTION BY THE WARRANTHOLDERS DURING NORMAL BUSINESS HOURS AT THE OFFICE. ARTICLE IV TRANSFER, EXCHANGE OR REPLACEMENT OF WARRANT CERTIFICATES SECTION 4.1 WARRANT TRANSFER. The Warrants granted hereunder shall not be pledged, assigned or otherwise transferred without the prior written consent of the Company, which will not be unreasonably withheld. Upon exercise, in whole or in part, of such pledged, assigned of transferred Warrants, certificates representing the Warrant Securities (defined below) shall bear a legend substantially similar to the legend set forth in Section 4.3 SECTION 4.2 REGISTRATION OF TRANSFERS. Subject to the provisions of this Agreement, the Company shall from time to time register the transfer of any outstanding Warrant Certificate on the Warrant Register maintained at the Office, upon surrender thereof accompanied by a written instrument or instruments of transfer in form reasonably satisfactory to the Company, duly endorsed by the registered holder thereof or by such Warrantholder's appointed legal representative or attorney-in-fact, or accompanied by proper evidence of succession, assignment or authority to transfer. Each such written instrument or instruments of transfer or proper evidence of succession, assignment or authority to transfer shall be accompanied by an unqualified written opinion of legal counsel who shall be, and whose legal opinion shall be reasonably satisfactory to the Company and addressed to the Company, to the effect that the proposed transfer of the Warrants may be effected without registration under the Securities Act and any applicable state law. In all cases of transfer by an attorney, the original power of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited and remain with the Company. Upon any such registration or transfer in such name or names as may be directed in writing by the Warrantholder, the Company shall execute and deliver (or cause to be delivered) a new Warrant Certificate(s) without charge to such Warrantholder, or to the Person or Persons entitled to receive the same, and the surrendered Warrant Certificate shall be canceled by the Company. SECTION 4.3 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrants, the Warrant Shares and any of the other securities issuable upon exercise of the Warrants have not been registered under the Securities Act. Upon exercise, in part or in whole, of the Warrants, certificates representing the Common Stock and any of the other securities issuable upon exercise of the Warrants (collectively, the "WARRANT SECURITIES") shall bear the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended ("Act"), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available. SECTION 4.4 EXCHANGES OF WARRANT CERTIFICATES. Each Warrant Certificate may be exchanged at the option of the Warrantholder without charge to such Warrantholder when surrendered to the Company at the Office properly endorsed in the manner described in Section 4.2 hereof for another Warrant Certificate(s) of like tenor and representing in the aggregate a like number of shares of Common Stock, as may be adjusted pursuant to Article 7 hereof. Thereupon, the Company shall execute and deliver to the Person(s) entitled thereto a new Warrant Certificate(s) as so requested. Warrant Certificates surrendered for exchange shall be canceled by the Company. SECTION 4.5 MUTILATED OR MISSING WARRANT CERTIFICATES. In the event that any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing Warrants for a like amount of Common Stock, but only, in case of a lost, stolen or destroyed Warrant Certificate, upon receipt of (i) evidence satisfactory to the Company of such loss, theft or destruction and the absence of actual notice to the Company that such Warrant Certificate has been acquired by a bona fide purchaser or holder in due course, and (ii) an indemnity bond in form and substance and with surety satisfactory to the Company. Every substitute Warrant Certificate executed and delivered pursuant to this Section 4.5 in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute an additional contractual obligation of the Company, whether or not the lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone, and shall be entitled to the benefits of (but shall be subject to all the limitations of rights set forth in) this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 4.5 are exclusive with respect to the replacement of mutilated, lost, stolen or destroyed Warrant Certificates. ARTICLE V EXERCISE OF WARRANTS; EXERCISE PRICE; EXERCISE PERIOD SECTION 5.1 EXERCISE OF WARRANTS. Subject to the provisions of this Agreement, each Warrantholder shall have the right to purchase from the Company the number of shares of Common Stock that the Warrantholder may at the time be entitled to purchase on exercise of the Warrants and payment of the Exercise Price (as defined below) for such Common Stock. SECTION 5.2 MECHANICS OF EXERCISE. (a) Subject to the provisions of this Agreement, Warrants may be exercised by the Warrantholder in whole or in part upon surrender at the Office to the Company of the Warrant Certificate(s) evidencing the Warrants, together with the form of election to purchase (the "ELECTION TO PURCHASE"), in the form set forth as EXHIBIT B hereto, duly completed and signed by such Warrantholder or by such Warrantholder's appointed legal representative or attorney-in-fact and upon payment in full of the Exercise Price for each Warrant exercised. Payment of the aggregate Exercise Price shall be made by immediately available funds. (b) Upon due exercise of the Warrants and surrender of the Warrant Certificate, duly completed and signed, and payment of the Exercise Price as aforesaid, the Company shall cause to be issued to or upon the written order of the Warrantholder and in such name or names as the Warrantholder may designate in the Election to Purchase, the Common Stock so purchased. If all of the items referred to in the first sentence of the preceding paragraph are received by the Company at or prior to 1:00 p.m., Salt Lake City time, on a Business Day, the exercise of the Warrants to which such items relate will be effective on such Business Day. If all of such items are received after 1:00 p.m., Salt Lake City time, on a Business Day, the exercise of the Warrants to which such items relate will be effective on the next Business Day. (c) The number and kind of Common Stock for which Warrants may be exercised shall be subject to adjustment from time to time as set forth in Article 7 hereof. (d) The Warrants shall be exercisable as provided herein at the election of the Warrantholder in whole or in part. In the event that the holder of a Warrant Certificate shall exercise Warrants with respect to fewer than all the Common Stock evidenced thereby, a new Warrant Certificate(s) evidencing the remaining unexercised Warrants shall be issued to such Warrantholder, and the Company is hereby irrevocably authorized to execute and deliver the required new Warrant Certificate(s) pursuant to provisions of Article 2 and Article 3 of this Agreement. (e) All Warrant Certificates surrendered upon exercise of Warrants shall be canceled and disposed of by the Company. SECTION 5.3 EXERCISE PRICE. The price at which the Warrants shall be exercisable in exchange for Common Stock shall initially be $0.60 per share (the "EXERCISE PRICE"), subject to adjustment as provided in Article 7 herein. SECTION 5.4 EXERCISE PERIODS. The exercise periods for the Warrants are as follows: (a) The right to exercise the Tranche 1 Warrants shall commence on the Closing Date (as defined in the Loan Agreement) and terminate on June 4, 2003 (the "EXPIRATION DATE") (the "TRANCHE 1 EXERCISE PERIOD"). (b) The Tranche 2 Warrants shall not become exercisable unless and until Borrower fails to repay the Note in full on or before the three (3) month anniversary of the Closing Date, in which case the right to exercise the Tranche 2 Warrants shall commence on the three (3) month anniversary of the Closing Date and terminate on the Expiration Date (the "TRANCHE 2 EXERCISE PERIOD"). (c) The Tranche 3 Warrants shall not become exercisable unless and until Borrower fails to repay the Note in full on or before the six (6) month anniversary of the Closing Date, in which case the right to exercise the Tranche 2 Warrants shall commence on the six (6) month anniversary of the Closing Date and terminate on the Expiration Date (the "TRANCHE 3 EXERCISE PERIOD"). The Company shall record the exercise period of each Warrant in the Warrant Register. SECTION 5.5 CASHLESS EXERCISE. (a) At any time during the applicable exercise period of any Warrant, the Warrantholder may, at its option, exchange such Warrants, in whole or in part (a "WARRANT EXCHANGE"), into the number of fully paid and non-assessable shares of Common Stock determined in accordance with this Section 5.5, by surrendering the Warrant Certificate relating to such Warrants at the Office, accompanied by a notice stating such Warrantholder's intent to effect such exchange, the number of shares of Common Stock to be exchanged and the date on which the Warrantholder requests that such Warrant Exchange occur (the "NOTICE OF EXCHANGE"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange, or, if later, the date the Notice of Exchange is received by the Company (the "EXCHANGE DATE"). Certificates for shares of Common Stock issuable upon such Warrant Exchange and, if applicable, a new Warrant Certificate of like tenor evidencing the balance of the shares of Common Stock remaining subject to the Warrantholder's Warrant Certificate, shall be issued as of the Exchange Date and delivered to the Warrantholder within three (3) days following the Exchange Date. In connection with any Warrant Exchange, the Warrantholder's Warrant Certificate shall represent the right to subscribe for and acquire the number of shares of Common Stock (rounded to the next highest integer) equal to (A) the number of shares of Common Stock specified by the Warrantholder in its Notice of Exchange (the "TOTAL SHARE NUMBER") multiplied by (B) the fraction obtained by dividing (i) the Market Price (defined herein) of a share of Common Stock minus the then applicable Exercise Price per share; by (ii) the Market Price (defined herein) of a share of Common Stock. (b) As used in this Section 5.5, the phrase "MARKET PRICE" at any date will be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the stock exchange on which the Common Stock is listed or admitted to trading or by The Nasdaq Stock Market, Inc. ("NASDAQ"), or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted by Nasdaq , the average closing bid price as furnished by the OTC Bulletin Board ("OTCBB") or similar organization if the OTCBB is not reporting such information, or if the Common Stock is not quoted by OTCBB or a similar organization, at such price as the Board of Directors in good faith, shall reasonably determine to be market value, in its sole discretion. SECTION 5.6 ELIMINATION OF FRACTIONAL INTEREST. The Company shall not be required to issue certificates representing fraction of shares of Common Stock upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction down to the nearest whole number of shares of Common Stock or other securities, properties or rights. ARTICLE VI RESERVATION OF COMMON STOCK SECTION 6.1 RESERVATION. The Company shall at all times keep reserved, free from preemptive rights, out of its authorized Common Stock, or other securities of the Company issuable upon the exercise of the Warrants, a number of shares of Common Stock, or such other securities, sufficient to provide for the exercise of the right of purchase represented by all outstanding and unexpired Warrants. SECTION 6.2 COVENANT. The Company covenants that any shares of Common Stock will, upon issuance, be validly issued and upon payment of the exercise price therefor, fully paid and free from all taxes payable by the Company, liens, charges and security interests (except any liens, charges or security interests created or suffered to be created by any of the Warrantholders), and will not be subject to any restrictions on voting or transfer thereof that are created by the Company, except for such restrictions on transfer under the Securities Act or applicable state securities laws. ARTICLE VII ADJUSTMENTS AFFECTING THE EXERCISE OF WARRANTS SECTION 7.1 SPECIAL DEFINITIONS. For purposes of this Article 7, the following definition shall applies: "ORIGINAL ISSUE DATE" shall mean the date on which a Warrant was first issued. SECTION 7.2 ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company shall, at any time or from time to time after the Original Issue Date for the Warrants, effect a subdivision of the outstanding Common Stock, the number of shares of Common Stock issuable upon exercise of such Warrant shall be proportionately increased. If the Company shall, at any time or from time to time after the Original Issue Date for the Warrants, combine the outstanding shares of Common Stock, the number of shares of Common Stock issuable upon exercise of such Warrant shall be proportionately decreased and the Exercise Price shall be proportionately increased. Any adjustment under this Section 7.2 shall become effective at the close of business on the date the subdivision or combination becomes effective. SECTION 7.3 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the Common Stock issuable upon the exercise of the Warrants shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for below), then and in each such event the holder of the Warrants shall have the right thereafter to convert each such share Common Stock issuable upon the exercise of the Warrants into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock for which such Warrants might have been exercised immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. SECTION 7.4 ADJUSTMENT FOR MERGER OR REORGANIZATION. In case of any consolidation or merger of the Company with or into another Company, each Warrant shall thereafter be exercisable for the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Company deliverable upon exercise of such Warrant would have been entitled upon such consolidation or merger; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Article 7 set forth with respect to the rights and interest thereafter of the holders of the Warrants, to the end that the provisions set forth in this Article 7 shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the exercise of the Warrants. SECTION 7.5 FORM OF WARRANT CERTIFICATE. Irrespective of any adjustments in the Exercise Price or the kind of Common Stock purchasable upon the exercise of the Warrants, Warrant Certificates evidencing such Warrants theretofore or thereafter issued may continue to express the same number and kind of Common Stock as are stated in the Warrant Certificates initially issuable pursuant to this Agreement. SECTION 7.6 NO IMPAIRMENT. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Common Stock to be issued upon the exercise of the Warrants from time to time outstanding will, when issued, be fully paid and non-assessable. In addition, without limiting the generality of Section 6.1, the Company shall take all such action as shall be necessary so that the total number of shares of Common Stock or other capital stock of the Company then authorized by the articles of incorporation of the Company as then in effect and available for the purpose of issuance upon such exercise shall exceed the total number of shares of Common Stock issuable upon the exercise of all of the outstanding Warrants. The Company will not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Article 7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholders against impairment. ARTICLE VIII NOTICES TO WARRANTHOLDERS SECTION 8.1 NOTICES TO WARRANTHOLDERS. (a) Notices to Warrantholders shall be mailed to such holders at the addresses of such holders as they appear in the Warrant Register. Any such notice shall be sufficiently given if sent by first-class certified or registered mail, postage prepaid, facsimile or overnight courier. (b) In the event (i) of any consolidation or merger or binding exchange of interests to which the Company is a party and for which approval of the Holder or any holders of equity interests of the Company is required, or of the conveyance or sale of all or substantially all of the assets of the Company, or of any change of the Common Stock or other securities issuable upon exercise of the Warrants (other than the rights offering made pursuant to an agreement between the Holder and the Company for which no notice shall be required); or (ii) the Company shall make any distribution in respect of the Common Stock; or (iii) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall send to each Warrantholder at least thirty (30) days prior to the applicable date hereinafter specified, a written notice stating (A) the date for the determination of the holders of Common Stock (or other securities issuable upon the exercise of the Warrants) entitled to receive any such distribution, (B) the initial expiration date set forth in any offer for exchange of interests, or (C) the date on which any such consolidation, merger, exchange of interests, conveyance, transfer, reclassification, dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that holders of record of Common Stock (or other securities issuable upon the exercise of the Warrants) shall be entitled to exchange such Common Stock for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, exchange of interests, conveyance, transfer, dissolution, liquidation or winding up. SECTION 8.2 NOTICES TO COMPANY. Any notice or demand authorized by this Agreement to be given to or on the Company shall be delivered in person or by facsimile transmission, by courier guaranteeing overnight delivery or mailed by first-class United States certified or registered mail, postage prepaid, to the Company as follows: I-LINK INCORPORATED 13751 SOUTH WADSWORTH PARK DRIVE Draper, UT 84020 Attention: Chief Executive Officer Copy to: De Martino Finkelstein Rosen & Virga 1818 N Street, NW Suite 400 Washington, DC 20036 Attn: Ralph V. De Martino SECTION 8.3 RECEIPT OF NOTICE. Any notice hereunder shall be in writing and shall be deemed to have been duly given if personally delivered, sent by overnight courier or sent by Common Stocked States mail, or by telex or facsimile transmission, and will be deemed received (a) if sent by certified or registered mail, return receipt requested, when actually received, (b) if sent by overnight courier, when actually received, (c) if sent by telex or facsimile transmission, on the date sent provided confirmatory notice is sent by overnight courier or by first-class mail, postage prepaid, and (d) if delivered by hand, on the date of receipt. ARTICLE IX MISCELLANEOUS SECTION 9.1 ARBITRATION. (a) To the fullest extent not prohibited by law, any controversy, claim or dispute arising out of or relating to this Agreement, including the determination of the scope or applicability of this Agreement to arbitrate, shall be settled by final and binding arbitration in accordance with the rules then in effect of the American Arbitration Association ("AAA"). The decision of the arbitrators shall be final and binding; PROVIDED, HOWEVER, that where a remedy for breach is prescribed hereunder or limitations on remedies are prescribed, the arbitrators shall be bound by such restrictions, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. (b) In the event of any controversy, claim or dispute that is subject to arbitration under this Section 9.1, any party thereto may commence arbitration hereunder by delivering notice to the other party or parties thereto. Within five business days of delivery of a list of qualified potential arbitrators from AAA, such parties shall attempt to agree on one arbitrator; PROVIDED that if such parties cannot agree on one arbitrator within such time period, each party to the controversy, claim or dispute shall within five business days thereafter appoint one arbitrator, and the two arbitrators so appointed shall within five business days of their appointment mutually agree upon and appoint one additional arbitrator (or, if such arbitrators cannot agree on an additional arbitrator, the additional arbitrator shall be appointed by the AAA as provided under its rules); PROVIDED that persons eligible to be selected as arbitrators shall be limited to attorneys at law who (i) are on the AAA's Large, Complex Case Panel and (ii) have practiced law for at least fifteen years as an attorney specializing in either general commercial litigation or general corporate and commercial matters. (c) The arbitration hearing shall commence no later than thirty (30) business days after the completion of the selection of the arbitrators or at such other time as the parties shall reasonably agree. Consistent with the intent of the parties hereto that the arbitration be conducted as expeditiously as possible, the parties agree that (i) discovery shall be limited to the production of such documents and the taking of such depositions as the arbitrator(s) determine are reasonably necessary to the resolution of the controversy, claim or dispute and (ii) the arbitrator(s) shall limit the presentation of evidence by each side in such arbitration to not more than ten (10) full days (or the equivalent thereof) or such shorter period as the arbitrator(s) shall determine to be necessary in order to resolve the controversy, claim or dispute. The arbitrator(s) shall be instructed to render a decision within thirty (30) calendar days of the close of the arbitration hearing. (d) The arbitrators shall base their decision on the terms of this Agreement and the law of the State of Florida, regardless of the law that might be applicable under conflicts of law principles, and shall render their decision in writing. Each party agrees to cooperate fully with the arbitrator(s) to resolve any controversy, claim or dispute. The arbitrator(s) shall not be empowered to award punitive damages or damages in excess of actual damages. The venue for all arbitration proceedings shall be Salt Lake City, Utah. SECTION 9.2 PAYMENT OF TAXES. The Company covenants and agrees that it will pay when due and payable all documentary, stamp and other taxes attributable to the issuance or delivery of the Warrant Certificates or of the Common Stock purchasable upon the exercise of Warrants; PROVIDED, HOWEVER, the Company shall not be required to pay any tax or taxes that may be payable in respect of any transfer involving the issue of any Warrant Certificate(s) or any certificate(s) for Common Stock in a name other than that of the Warrantholder of such exercised Warrant Certificate(s), and the Company shall not be required to issue or deliver such Warrant Certificate(s) or any such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 9.3 AMENDMENT. (a) The Company may modify this Agreement and the terms of the Warrants only with the consent of the Warrantholders representing at least a majority of the Common Stock for the purpose of adding any provision to or changing in any manner or eliminating any of the provisions of this Agreement or modifying in any manner the rights of the holders of the outstanding Warrants. (b) Any such modification or amendment will be conclusive and binding on all present and future holders of Warrant Certificates whether or not they have consented to such modification or amendment or waiver and whether or not notation of such modification or amendment is made upon such Warrant Certificates. Any instrument given by or on behalf of any holder of a Warrant Certificate in connection with any consent to any modification or amendment will be conclusive and binding on all subsequent holders of such Warrant Certificate. SECTION 9.4 TERMINATION. This Agreement shall terminate on or upon (a) the repurchase by the Company of all Warrants, or (b) upon expiration of the Warrants. SECTION 9.5 REPORTS TO WARRANTHOLDERS. The Company will cause to be delivered, by first-class mail, postage prepaid, facsimile or overnight courier, to each Warrantholder at such Warrantholder's address appearing on the Warrant Register, a copy of any reports delivered by the Company to any of the holders of the Common Stock. SECTION 9.6 GOVERNING LAW. THE LAWS OF THE STATE OF FLORIDA SHALL GOVERN THIS AGREEMENT AND THE WARRANT CERTIFICATES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. SECTION 9.7 BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Warrantholders and the holders of Common Stock any legal or equitable right, remedy or claim under this Agreement; this Agreement shall be for the sole and exclusive benefit of the Company, the Warrantholders and the holders of Common Stock. SECTION 9.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 9.9 SEVERABILITY OF PROVISIONS. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 9.10 HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement. SECTION 9.11 COMPLETE AGREEMENT. This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof, and supersedes all agreements, representations, warranties, statements, promises and understanding, whether oral or written, with respect to the subject matter hereof. SECTION 9.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against the Company or Holder, whether under any rule of construction or otherwise. Neither party to this Agreement shall be considered the draftsman. The Company and Holder acknowledge and agree that this Agreement has been reviewed, negotiated, and accepted by them and their respective attorneys and shall be construed and interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of the Company and Holder. SECTION 9.13 ASSIGNABILITY. This Agreement shall inure to the benefit and be binding upon the parties hereto and their respective successors and permitted assigns. This Agreement shall not be assignable, in whole or in part, by the Holder without the prior written consent of the Company. Any purported assignment effected without such consent shall be null and void. A change in control of either party shall not be deemed to be an assignment. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be duly executed, as of the date first above written. I-LINK INCORPORATED By: ______________________________ Gary J. Wasserson Chief Executive Officer COUNSEL CORPORATION (U.S.) By: ______________________________ Its: ______________________________ EXHIBIT A FORM OF TRANCHE 1, 2 & 3 WARRANT CERTIFICATE I-LINK INCORPORATED COMMON STOCK PURCHASE WARRANT NUMBER _______ TRANCHE [1] [2] [3] WARRANT CERTIFICATE EVIDENCING RIGHT TO PURCHASE 5,000,000 SHARES OF COMMON STOCK (SUBJECT TO ADJUSTMENT) This is to certify that Counsel Corporation (US), or assigns, is entitled to purchase up to the above-referenced number of shares of Common Stock (the "COMMON STOCK") of I-Link Incorporated, a Florida corporation (the "COMPANY") during the [Tranche 1 Exercise Period] [Tranche 2 Exercise Period] [Tranche 3 Exercise Period] for the Exercise Price for the [Tranche 1 Warrants] [Tranche 2 Warrants] [Tranche 3 Warrants] specified in the Warrant Agreement, dated as of June 4, 2001, between the Company and Counsel Corporation (US), a Delaware corporation (the "WARRANT AGREEMENT"), pursuant to which this Warrant Certificate is issued. All rights of the holder of this Warrant Certificate are subject to the terms and provisions of the Warrant Agreement, copies of which are available for inspection the Company's office located 13751 South Wadsworth Park Drive, Draper, Utah 84020 (the "OFFICE"). This Warrant Certificate is subject to cancellation prior to the [three (3)] [six (6)] month anniversary of the Closing Date (defined in the Loan Agreement) in the circumstances described in the Warrant Agreement. NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SHARES OF COMMON STOCK THAT MAY BE PURCHASED UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE LAW. SUCH WARRANTS AND SHARES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE LAW, (2) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (3) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM SUCH REGISTRATION UNDER SUCH ACT IS AVAILABLE. Subject to the provisions of the Act, applicable state laws and such Warrant Agreement, this Warrant Certificate and all rights hereunder are transferable, in whole or in part, at the Office by the holder hereof in person or by a duly authorized attorney, upon surrender of this Warrant Certificate, together with the assignment hereof duly endorsed. Until transfer of this Warrant Certificate on the books of the Company, the Company may treat the registered holder hereof as the owner hereof for all purposes. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be executed on June 4, 2001 in Draper, Utah, by its proper company officers thereunto duly authorized. I-LINK INCORPORATED By: ______________________________ Gary Wasserson Chief Executive Officer Attest:_______________________ Name:_______________________ Title:________________________ EXHIBIT B ELECTION TO PURCHASE (To be executed by the registered holder if such holder desires to exercise any Warrant Certificate) The undersigned, the registered holder of the attached Warrant Certificate, hereby irrevocably elects to exercise Warrants represented by such Warrant Certificate and acquire an aggregate of ______________ shares of Common Stock of I-Link Incorporated, a Florida corporation, and herewith tenders payment for such Common Stock in the amount of $__________ (by certified check or official bank check) in accordance with the terms hereof. The undersigned requests that the aforementioned Common Stock be registered in the name of _______________, whose address is ________________________ Dated:___________________ Name of registered holder of Warrant Certificate: ________________________________________________________________ (please print) Address of registered holder:____________________________________ Signature:_____________________________ (Note: the signature to the foregoing Election must correspond to the name as written upon the face of the Warrant Certificate in every particular, without alteration or any change whatsoever.) EX-10.4 6 a2057554zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 LEASE AGREEMENT No. This LEASE AGREEMENT, is effective on June 2, 2001 between TELECOMMUNICATIONS FINANCE GROUP OF SIEMENS CARRIER NETWORKS LLC (hereinafter "Lessor"), and WORLDXCHANGE CORP., a Delaware corporation with its principal office located at 9775 Business Park Avenue, San Diego, California 92131, (hereinafter "Lessee"). 1. LEASE. Lessor, subject to the conditions set forth in Section 25 hereof, agrees to lease to Lessee and Lessee agrees to lease from Lessor hereunder, those items of personal property (the "equipment") which are described on the schedule(s) attached to the Certificate(s) of Delivery and Acceptance (hereinafter "Schedule") and amendments to such Schedule. Lessee agrees to execute and deliver to Lessor a Certificate of Delivery and Acceptance immediately after Acceptance of the equipment, and such execution shall constitute Lessee's irrevocable acceptance of such items of equipment for all purposes of this Lease. 2. DEFINITIONS. "ACCEPTANCE" shall mean that point in time when the equipment installation personnel complete testing of the equipment and Lessee concurs that the installation effort is complete, or when the equipment is placed into service, whichever first occurs. "AMORTIZATION DEDUCTIONS" as defined in Section 11 (b) (i) hereof. "APPRAISAL PROCEDURE" shall mean the following procedure for determining the Fair Market Sale Value of any item of equipment. If either Lessor or Lessee shall request by notice (the "Appraisal Request") to the other that such value be determined by the Appraisal Procedure, (i) Lessor and Lessee shall, within 15 days after the Appraisal Request, appoint an independent appraiser mutually satisfactory to them, or (ii) if the parties are unable to agree on a mutually acceptable appraiser within such time, Lessor and Lessee shall each appoint one independent appraiser (PROVIDED that if either party hereto fails to notify the other party hereto of the identity of the independent appraiser chosen by it within 30 days after the Appraisal Request, the determination of such value shall be made by the independent appraiser chosen by such other party), and (iii) if such appraisers cannot agree on such value within 20 days after their appointment and if one appraisal is not within 5% of the other appraisal, Lessor and Lessee shall choose a third independent appraiser mutually satisfactory to them (or, if they fail to agree upon a third appraiser within 25 days after the appointment of the first two appraisers, such third independent appraiser shall within 20 days thereafter be appointed by the American Arbitration Association), and such value shall be determined by such third independent appraiser within 20 days after his appointment, after consultation with the other two independent appraisers. If the first two appraisals are within 5% of each other, then the average of the two appraisals shall be the Fair Market Sale Value. The fees and expenses of all appraisers shall be paid by Lessee. "BUSINESS DAY" shall mean a day other than a Saturday, Sunday or legal holiday under the laws of the State of Florida. "CERTIFICATE OF DELIVERY AND ACCEPTANCE" as defined in Section 1 hereof. "CODE" shall mean the Internal Revenue Code of 1954, as amended, or any comparable successor law. "COMMENCEMENT DATE" as defined in Section 3 hereof. "DEFAULT" shall mean any event or condition which after the giving of notice or lapse of time or both would become an Event of Default. "EQUIPMENT" as defined in Section 1 hereof. "EVENT OF DEFAULT" as defined in Section 18 hereof. "EVENT OF LOSS" shall mean, with respect to any item of equipment, the actual or constructive total loss of such item of equipment or the use thereof, due to theft, destruction, damage beyond repair or rendition thereof permanently unfit for normal use from any reason whatsoever, or the condemnation, confiscation or seizure of, or requisition of title to or use of, such item of equipment. "FAIR MARKET SALE VALUE" shall, at any time with respect to any item of equipment, be equal to the sale value of such item of equipment which would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer-user (other than a lessee currently in possession or a used equipment or scrap dealer). For purposes of Section 7(b) hereof, Fair Market Sale Value shall be determined by (i) an independent appraiser (at Lessee's expense) selected by Lessor or (ii) by the Appraisal Procedure if the Appraisal Request is made at least 90 days (but not more than 360 days) prior to the termination or expiration of the Lease Term, as the case may be, which determination shall be made (a) without deduction for any costs or expenses of dismantling or removal; and (b) on the assumption that such item of equipment is free and clear of all Liens and is in the condition and repair in which it is required to be returned pursuant to Section 7 (a) hereof but shall be no greater than 10.5% of the leased equipment value. For purposes of Section 19(c) hereof, Fair Market Sale Value shall be determined (at Lessee's expense) by an independent appraiser selected by Lessor, on an "as-is, where-is" basis, without regard to the provisions of clauses (a) and (b) above; PROVIDED that if Lessor shall have sold any item of equipment pursuant to Section 19(b) hereof prior to giving the notice referred to in Section 19(c) hereof, Fair Market Sale Value of such item of equipment shall be the net proceeds of such sale after deduction of all costs and expenses incurred by Lessor in connection therewith; PROVIDED FURTHER, that if for any reason Lessor is not able to obtain possession of any item of equipment pursuant to Section 19(a) hereof, the Fair Market Sale Value of such item of equipment shall be zero. "IMPOSITION" as defined in Section 11 (a) hereof. "INDEMNITEE" as defined in Section 17 hereof. "LATE CHARGE RATE" shall mean an interest rate per annum equal to the higher of two percent (2%) over the Reference Rate or eighteen percent (18%), but not to exceed the highest rate permitted by applicable law. "LEASE" and the terms "hereof", "herein", "hereto" and "hereunder", when used in this Lease Agreement, shall mean and include this Lease Agreement, Schedules, and Exhibits hereto as the same may from time to time be amended, modified or supplemented. "LEASE TERM" shall mean, with respect to any item of equipment, the term of the lease of such item of equipment hereunder specified in Section 3 hereof. "LESSEE" as defined in the introductory paragraph to this Lease. "LESSOR" as defined in the introductory paragraph of this Lease. "LESSOR'S VALUE" shall mean, with respect to any item of equipment and installation if applicable, the total amount set forth in the Schedule hereto. "LESSOR'S LIENS" shall mean (i) any mortgage, pledge, lien, security interest, charge, encumbrance, financing statement, title retention or any other right or claim of any person claiming through or under Lessor, not based upon or relating to ownership of the equipment or the lease thereof hereunder and (ii) any mortgage, pledge, lien, security interest, charge, encumbrance, financing statement, title retention or any other right or claim of Owner (other than Lessor) claiming through or under Lessor in connection with the transactions described in Section 21(b) hereof. "LIENS" shall mean any mortgage, pledge, lien, security interest, charge, encumbrance, financing statement, title retention or any other right or claim of any person, other than any Lessor's Lien. "LOSS PAYMENT DATE" shall mean with respect to any item of equipment the date on which payment, as described in Section 16 (b) hereof, is made to the Lessor by the Lessee as the result of an Event of Loss with respect to such item. The Loss Payment Date shall be within ninety (90) days of the said Event of Loss. "OWNER" shall mean the entity or person having ownership interest to the equipment as contemplated by the provisions of Section 21(b) hereof and may be a person other than Lessor. "OWNER'S ECONOMICS" shall mean the after-tax yield and periodic after-tax cash flow anticipated by Owner as of the date of this Lease, in connection with the transactions contemplated by this Lease as determined by Owner unless Lessor shall have transferred its interest in the equipment to another person as contemplated by the provisions of Section 21(b) hereof in which case "Owner's Economics" shall mean the after-tax yield and periodic after-tax cash flow anticipated by such person as of the date of the lease between such person and Lessor contemplated by said provisions, in connection with the transactions contemplated by such lease as determined by such person. "RECOVERY DEDUCTIONS" as defined in Section 11 (b) (i) hereof. "REFERENCE RATE" shall mean the rate of interest publicly announced by Citibank, N.A. in New York, New York from time to time as its prime rate. The reference rate is not intended to be the lowest rate of interest charged by Citibank, N.A. in connection with extensions of credit to debtors. The Reference Rate shall be determined at the close of business on the 15th day of each calendar month (if the 15th day is not a Business Day, then on the first preceding Business Day) and shall become effective as of the first day of the calendar month succeeding such determination and shall continue in effect to, and including, the last day of said calendar month. "RENT PAYMENT DATE" shall mean each date on which an installment of rent is due and payable pursuant to Section 5(a) hereof. "STIPULATED LOSS VALUE" shall mean, with respect to any item of equipment, the amount determined by multiplying the Lessor's Value of such item of equipment by the percentage set forth in Schedule A hereto opposite the applicable Rent Payment Date; provided, that for purposes of Sections 16 (b) and 19 (c) hereof, any determination of Stipulated Loss Value as of a date occurring after the final Rent Payment Date with respect to such item of equipment, shall be made as of such final Rent Payment Date. "TAX BENEFITS" shall mean the right to claim such deductions, credits, and other benefits as are provided by the Code to an owner of property, including the Recovery Deductions and Amortization Deductions. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. 3. LEASE TERM. The term of the lease of the equipment hereunder shall commence on the Commencement Date specified in the Certificate of Delivery and Acceptance ("Commencement Date") and, unless earlier terminated pursuant to the provisions hereof or at law or equity, shall continue for a term of forty-eight (48) months from such Commencement Date. The Commencement Date specified in the Certificate of Delivery and Acceptance shall be the 2nd day of the month following the date on which Acceptance occurs at a site provided by Lessee in accordance with the provisions of Section 4 hereof. 4. INSTALLATION. Lessee acknowledges installation is complete. 5. RENT; UNCONDITIONAL OBLIGATIONS. (a) Lessee agrees to pay to Lessor, at the address specified in Section 24 hereof or at such other address as Lessor may specify, rent as shown in the lease payment schedule for the initial equipment, as set forth in the Schedule dated June 2, 2001, (plus applicable sales or use taxes) per month, in forty-eight (48) consecutive monthly installments, with the first installment of rent being due on the first day of the month following the Commencement Date, and succeeding installments being due on the same date of each month thereafter. In the event of any additions to the initially leased equipment, the rent for the additional equipment will be the rent as shown on the amendment to the lease payment schedule. (b) Lessee shall also pay to Lessor, after 3 days prior notice and Lessee's failure to pay, interest at the Late Charge Rate on any installment of rent and on any other amount owing hereunder which is not paid on its due date, for any period for which the same shall be overdue. Each payment made under this Lease shall be applied first to the payment of interest then owing and then to rent or other amounts owing hereunder. Interest shall be computed on the basis of a 360-day year and actual days elapsed. (c) This Lease is a net lease, and Lessee's obligation to pay all rent and all other amounts payable hereunder is ABSOLUTE AND UNCONDITIONAL under any and all circumstances and shall not be affected by any circumstances of any character whatsoever, including, without limitation, (i) any set-off, counterclaim, recoupment, defense, abatement or reduction or any right which Lessee may have against Lessor, the manufacturer or supplier of any of the equipment or anyone else for any reason whatsoever; (ii) any defect in the title, condition, design, or operation of, or lack of fitness for use of, or any damage to, or loss of, all or any part of the equipment from any cause whatsoever; (iii) the existence of any Liens with respect to the equipment; (iv) the invalidity, unenforceability or disaffirmance of this Lease or any other document related hereto; or (v) the prohibition of or interference with the use or possession by Lessee of all or any part of the equipment, for any reason whatsoever, including without limitation, by reason of (1) claims for patent, trademark or copyright infringement; (2) present or future governmental laws, rules or orders; (3) the insolvency, bankruptcy or reorganization of any person; and (4) any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. Lessee hereby waives, to the extent permitted by applicable law, any and all rights which it may now have or which may at any time hereafter be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender the lease of any equipment. If for any reason whatsoever this Lease or any Supplement, other than pursuant to Section 16 (b) hereof, shall be terminated in whole or in part by operation of law or otherwise, Lessee will nonetheless pay to Lessor an amount equal to each installment of rent at the time such installment would have become due and payable in accordance with the terms hereof. Each payment of rent or other amount paid by Lessee hereunder shall be final and Lessee will not seek to recover all or any part of such payment for Lessor for any reason whatsoever. 6. WARRANTY DISCLAIMER; ASSIGNMENT OF WARRANTIES. (a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND LESSEE HEREBY EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE, FREEDOM FROM INTERFERENCE OR INFRINGEMENT OR THE LIKE, OR AS TO THE TITLE TO OR LESSOR'S OR LESSEE'S INTEREST IN THE EQUIPMENT OR AS TO ANY OTHER MATTER RELATING TO THE EQUIPMENT OR ANY PART THEREOF. LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH PART THEREOF ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR. LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE TRANSACTIONS CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES AND/OR TAX TREATMENT THEREOF. (b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY HAVE (TO EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS' AND SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED, HOWEVER, THAT THE FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT HEREUNDER, OR UPON THE RETURN OF THE EQUIPMENT TO LESSOR. LESSEE AGREES TO SETTLE ALL CLAIMS WITH RESPECT TO THE EQUIPMENT DIRECTLY WITH THE MANUFACTURERS OR SUPPLIERS THEREOF, AND TO GIVE LESSOR PROMPT NOTICE OF ANY SUCH SETTLEMENT AND THE DETAILS OF SUCH SETTLEMENT. HOWEVER, IN THE EVENT ANY WARRANTIES ARE NOT ASSIGNABLE, THE LESSOR AGREES TO ACT ON BEHALF OF THE LESSEE IN SETTLING CLAIMS ARISING UNDER THE WARRANTY WITH THE MANUFACTURER OR SUPPLIER. (c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR PROFITS, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR FROM ANY CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 7. DISPOSITION OF EQUIPMENT. (a) RETURN. Lessee shall, upon the expiration or earlier termination of the Lease Term of each item of equipment, subject to paragraph (b) below, return such item of equipment to Lessor at such place within the continental United States of America as Lessor shall designate in writing to Lessee. Until such item of equipment is returned to Lessor pursuant to the provisions of this Section, all of the provisions of this Lease with respect thereto shall continue in full force and effect. Lessee shall pay all the costs and expenses in connection with or incidental to the return of the equipment, including, without limitation, the cost of removing, assembling, packing, insuring and transporting the equipment. At the time of such return, the equipment shall be in the condition and repair required to be maintained by Section 12 hereof and free and clear of all Liens. (b) PURCHASE OPTION. So long as no Default or Event of Default shall have occurred and be continuing, Lessee may, by written notice given to Lessor at least 120 days (but not more than 360 days) prior to the expiration date of the Lease Term of any item of equipment (which notice shall be irrevocable), elect to purchase such item of equipment on such expiration date for a cash purchase price equal to the Fair Market Sale Value of such item of equipment determined as of such expiration date, plus an amount equal to all taxes (other than income taxes on any gain on such sale), costs and expenses (including legal fees and expenses) incurred or paid by Lessor in connection with such sale. Upon payment by Lessee of such purchase price, and of all other amounts then due and payable by Lessee, Lessor shall transfer title, if any, to such items of equipment except computer software to Lessee on an "as-is, where-is" basis, without recourse and without representation or warranty of any kind, express or implied, other than a representation and warranty that such item of equipment is free and clear of any Lessor's Liens. 8. REPRESENTATION AND WARRANTIES. In order to induce Lessor to enter into this Lease and to lease the equipment to Lessee hereunder, Lessee represents and warrants that: (a) ORGANIZATION. Lessee is duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business and is in good standing in the State in which the equipment will be located. (b) POWER AND AUTHORITY. Lessee has full power, authority and legal right to execute, deliver and perform this Lease, and the execution, delivery and performance hereof has been duly authorized by Lessee's governing body or officer(s). (c) ENFORCEABILITY. This Lease has been duly executed and delivered by Lessee and constitutes a legal, valid and binding obligation of Lessee enforceable in accordance with its terms. (d) CONSENTS AND PERMITS. The execution, delivery and performance of this Lease does not require any approval or consent of any trustee, shareholder, partner, sole proprietor, or holders of any indebtedness or obligations of Lessee, and will not contravene any law, regulation, judgment or decree applicable to Lessee, or the certificate of partnership or incorporation or by-laws of Lessee, or contravene the provisions of, or constitute a default under, or result in the creation of any Lien upon any property of Lessee under any mortgage, instrument or other agreement to which Lessee is a party or by which Lessee or its assets may be bound or affected; and no authorization, approval, license, filing or registration with any court or governmental agency or instrumentality is necessary in connection with the execution, delivery, performance, validity and enforceability of this Lease. (e) FINANCIAL CONDITION OF THE LESSEE. The financial statements and any other financial information of Lessee heretofore furnished to Lessor are complete and correct and fairly present the financial condition of Lessee and the results of its operations for the respective periods covered thereby, there are no known contingent liabilities or liabilities for taxes of Lessee which are not reflected in said financial statements and since the date thereof, there has been no material adverse change in such financial condition or operations. (f) NO LITIGATION. There is no action, suit, investigation or proceeding by or before any court, arbitrator, administrative agency or other governmental authority pending or threatened against or affecting Lessee (A) which involves the transactions contemplated by this Lease or the equipment; or (B) which, if adversely determined, could have a material adverse effect on the financial condition, business or operations of Lessee. (g) UNITED STATES SOURCE INCOME. No items of equipment shall be used in a way that results in the creation of an item of income to Lessor, the source of which for Federal Income Tax purposes is without the United States. 9. LIENS. Lessee will not directly or indirectly create, incur, assume, suffer, or permit to exist any Lien on or with respect to the equipment. 10. INSURANCE. Lessee shall maintain at all times on the equipment, at its expense, property damage, direct damage and liability insurance in such amounts, against such risks, in such form and with such insurers as shall be reasonably satisfactory to Lessor and any other Owner; provided, that the amount of direct damage insurance shall not on any date be less than the greater of the full replacement value or the Stipulated Loss Value of the equipment as of such date. Each insurance policy will, among other things, name Lessor and any other Owner as an additional insured or as loss payee (as the case may be) as their interests may appear, require that the insurer give Lessor and any such Owner at least thirty (30) days prior written notice of any alteration in or cancellation of the terms of such policy, and require that the interest of Lessor and any such Owner continue to be insured regardless of any breach of or violation by Lessee of any warranties, declarations or conditions contained in such insurance policy. Lessee shall furnish to Lessor and such Owner a certificate or other evidence satisfactory to Lessor that such insurance coverage is in effect provided, however, that Lessor and such Owner shall be under no duty to ascertain the existence or adequacy of such insurance. 11. TAXES. (a) GENERAL TAX PROVISIONS. Lessee shall timely pay, and shall indemnify and hold Lessor harmless from and against, all fees, taxes (whether sales, use, excise, personal property or other taxes), imposts, duties, withholdings, assessments and other governmental charges of whatever kind or character, however designated (together with any penalties, fines or interest thereon), all of the foregoing being herein collectively called "Impositions", which are at any time levied or imposed against Lessor, Lessee, this Lease, the equipment or any part thereof by any Federal, State, or Local Government or taxing authority in the United States or by any foreign government or any subdivision or taxing authority thereof upon, with respect to, as a result of or measured by (i) the equipment (or any part thereof), or this Lease or the interests of the Lessor therein; or (ii) the purchase, ownership, delivery, leasing, possession, maintenance, use, operation, return, sale or other disposition of the equipment or any part thereof; or (iii) the rentals, receipts or earnings payable under this Lease or otherwise arising from the equipment or any part thereof; EXCLUDING, HOWEVER, taxes based on or measured by the net income of Lessor that are imposed by (1) the United States of America, or (2) the State of Florida or any political subdivision of the State of Florida, or (3) any other State of the United States of America or any political subdivision of any such State in which Lessor is subject to Impositions as the result (whether solely or in part) of business or transactions unrelated to this Lease. In case any report or return is required to be filed with respect to any obligation of Lessee under this Section or arising out of this Section, Lessee will notify Lessor of such requirement and make such report or return in such manner as shall be satisfactory to Lessor; PROVIDED, that the payment of any use taxes shall be made in such manner as specified by Lessor in writing to Lessee; or (iv) The provisions of this Section shall survive the expiration or earlier termination of this Lease. (b) SPECIAL TAX PROVISIONS. (i) The Owner of the items of equipment, shall be entitled to take into account in computing its Federal income tax liability, Current Tax Rate and such deductions, credits, and other benefits as are provided by the Code to an owner of property, including, without limitation: (A)Recovery deductions ("Recovery Deductions") under Section 168 (a) of the Code for each item of equipment in an amount determined, commencing with the 2001 taxable year, by multiplying the Owner's Cost of such item of equipment by the percentages applicable under Section 168 (b) of the Code with respect to "(5)-year property" within the meaning of Section 168 (c) (2) of the Code; (B) Amortization of expenses ("Amortization Deductions") paid or to be paid by Owner in connection with this Lease at a rate no less rapid than straight line over the Lease Term. (ii) For the purposes of this Subsection 11 (b) only, the term "Owner" shall include the "common parent" and all other corporations included in the affiliated group, within the meaning of Section 1504 of the Code (or any other successor section thereto), of which Owner is or becomes a member. 12. COMPLIANCE WITH LAWS; OPERATION AND MAINTENANCE. (a) Lessee will use the equipment in a careful and proper manner, will comply with and conform to all governmental laws, rules and regulations relating thereto, and will cause the equipment to be operated in accordance with the manufacturer's or supplier's instructions or manuals. (b) Lessee will, at its own expense, keep and maintain the equipment in good repair, condition and working order and furnish all parts, replacements, mechanisms, devices and servicing required therefor so that the value, condition and operating efficiency therefor will at all times be maintained and preserved, reasonable wear and tear excepted. Lessee will, at its own expense, perform all required acts necessary to maintain any manufacturer's warranties and guarantees respecting the equipment. All such repairs, parts, mechanisms, devices and replacements shall immediately, without further act, become the property of Lessor and part of the equipment. (c) Lessee will not make or authorize any improvement, change, addition or alteration to the equipment (i) if such improvement, change, addition or alteration will impair the originally intended function or use of the equipment or impair the value of the equipment as it existed immediately prior to such improvement, change, addition or alteration; or (ii) if any parts installed in or attached to or otherwise becoming a part of the equipment as a result of any such improvement, change, addition or alteration shall not be readily removable without damage to the equipment. Any part which is added to the equipment without violating the provisions of the immediately preceding sentence and which is not a replacement or substitution for any property which was a part of the equipment, shall remain the property of Lessee and may be removed by Lessee at any time prior to the expiration or earlier termination of the Lease Term. All such parts shall be and remain free and clear of any Liens. Any such part which is not so removed prior to the expiration or earlier termination of the Lease Term shall, without further act, become the property of Lessor. 13. INSPECTION. Upon prior notice, Lessor or its authorized representatives may at any reasonable time or times inspect the equipment when it deems it necessary to protect its interest therein. 14. IDENTIFICATION. Lessee shall, at its expense, attach to each item of equipment a notice satisfactory to Lessor disclosing Owner's ownership of such item of equipment. 15. PERSONAL PROPERTY. Lessee represents that the equipment shall be and at all times remain separately identifiable personal property. Lessee shall, at its expense, take such action (including the obtaining and recording of waivers) as may be necessary to prevent any third party from acquiring any right to or interest in the equipment by virtue of the equipment being deemed to be real property or a part of real property or a part of other personal property, and if at any time any person shall claim any such right or interest, Lessee shall, at its expense, cause such claim to be waived in writing or otherwise eliminated to Lessor's satisfaction within 30 days after such claim shall have first become known to Lessee. 16. LOSS OR DAMAGE. (a) All risk of loss, theft, damage or destruction to the equipment or any part thereof, however incurred or occasioned, shall be borne by Lessee and, unless such occurrence constitutes an Event of Loss pursuant to paragraph (b) of this Section, Lessee shall promptly give Lessor written notice hereof and shall promptly cause the affected part or parts of the equipment to be replaced or restored to the condition and repair required to be maintained by Section 12 hereof. (b) If an Event of Loss with respect to any item of equipment shall occur, Lessee shall promptly give Lessor written notice thereof, and Lessee shall pay to Lessor as soon as it receives insurance proceeds with respect to said Event of Loss but in any event no later than 90 days after the occurrence of said Event of Loss an amount equal to the sum of (i) the Stipulated Loss Value of such item of equipment computed as of the Rent Payment Date with respect to such item of equipment on or immediately preceding the date of the occurrence of such Event of Loss; and (ii) all rent and other amounts due and owing hereunder for such item of equipment on or prior to the Loss Payment Date. Upon payment of such amount to Lessor, the lease of such item of equipment hereunder shall terminate, and Lessor will transfer within forty days to Lessee, Lessor's right, title, if any, and interest in and to such item of equipment, on an "as-is, where-is" basis, without recourse and without representation or warranty, express or implied, other than a representation and warranty that such item of equipment is free and clear of any Lessor's Liens. (c) Any payments received at any time by Lessor or Lessee from any insurer with respect to loss or damage to the equipment shall be applied as follows: (i) if such payments are received with respect to an Event of Loss they shall be paid to Lessor, but to the extent received by Lessor, they shall reduce or discharge, as the case may be, Lessee's obligation to pay the amounts due to Lessor under Section 16 (b) hereof with respect to such Event of Loss; or (ii) if such payments are received with respect to any loss of or damage to the equipment other than an Event of Loss, such payments shall, unless a Default or Event of Default shall have occurred and be continuing, be paid over to Lessee to reimburse Lessee for its payment of the costs and expenses incurred by Lessee in replacing or restoring pursuant to Section 16 (a) hereof the part or parts of the equipment which suffered such loss or damage. 17. GENERAL INDEMNITY. Lessee assumes liability for, and shall indemnify, protect save and keep harmless Lessor, the partners comprising Lessor, its and their directors, officers, employees, agents, servants, successors and assigns (an "Indemnitee") from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses (other than customary internal administrative costs and expenses associated with the Lease, which shall be borne by the party incurring them), including reasonable legal expenses, of whatsoever kind and nature, imposed on, incurred by or asserted against any Indemnitee, in any way relating to or arising out of this Lease or the enforcement hereof, or the manufacture, purchase, acceptance, rejection, ownership, possession, use, selection, delivery, lease, operation, condition, sale, return or other disposition of the equipment or any part thereof (including, without limitation, latent or other defects, whether or not discoverable by Lessee or any other person, any claim in tort whether or not for strict liability and any claim for patent, trademark, copyright or other intellectual property infringement); provided, however, that Lessee shall not be required to indemnify any Indemnitee for loss or liability arising from acts or events which occur after the equipment has been returned to Lessor in accordance with the Lease, or for loss or liability resulting solely from the willful misconduct or gross negligence of such Indemnitee. The provisions of this Section shall survive the expiration or earlier termination of this Lease. 18. EVENTS OF DEFAULT. The following events shall each constitute an event of default (herein called "Event of Default") under this Lease: (i) Lessee shall fail to execute and deliver to Lessor (or Lessor's agent) the "Certificate of Delivery and Acceptance" within twenty-four (24) hours of Acceptance of the equipment by Lessee. (ii) Lessee shall fail to commence lease payments on the first day of the month following the Commencement Date, or such other initiation of lease payments as specified in Section 5 of this Lease and Lessee fails to cure such non-payment after 3 days written notice. (iii) Lessee shall fail to make any payment of rent or other amount owing hereunder or otherwise after notice has been given that payment is past due and Lessee fails to cure such non-payment after 3 days written notice; or (iv) Lessee shall fail to maintain the insurance required by Section 10 hereof or to perform or observe any of the covenants contained in Sections 21 or 22 hereof; or (v) Lessee shall fail to perform or observe any other covenant, condition or agreement to be performed or observed by it with respect to this Lease or any other agreement between Lessor and Lessee and such failure shall continue unremedied for 30 days after the earlier of (a) the date on which Lessee obtains, or should have obtained knowledge of such failure; or (b) the date on which written notice thereof shall be given by Lessor to Lessee; or (vi) Any representation or warranty made by Lessee herein or in any document, certificate or financial or other statement now or hereafter furnished Lessor in connection with this Lease shall prove at any time to have been untrue, incomplete or misleading in any material respect as of the time when made; or (vii) The entry of a decree or order for relief by a court having jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or insolvent, or approving as properly filed a petition seeking a reorganization, arrangement, adjustment or composition of or in respect of Lessee in an involuntary proceeding or case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of Lessee or of any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 30 days; or (viii) The institution by Lessee of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the commencement by Lessee of a voluntary proceeding or case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or the consent by it to the filing of any such petition or to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or sequestrator (or other similar official) of Lessee or of any substantial part of its property, or the making by it of any assignment for the benefit of creditors or the admission by it of its inability to pay its debts generally as they become due or its willingness to be adjudicated a bankrupt or the failure of Lessee generally to pay its debts as they become due or the taking of corporate action by Lessee in furtherance of any of the foregoing. (ix) Substantial change (sale or transfer of 50% or more of the controlling interests, i.e., shares, partnership interest. etc. of Lessee) in the ownership of the Lessee without first obtaining the written approval of Lessor, which approval shall not be unreasonably withheld. 19. REMEDIES. If an Event of Default specified in Subsection 18(vii) or (viii) above shall occur, then, and in any such event, Lessor shall not be obligated to purchase or lease any of the equipment and this Lease shall, without any declaration or other action by Lessor, be in default. If an Event of Default, other than an Event of Default specified in Subsection 18(vii) or (viii) above, shall occur, Lessor may, at its option, declare this Lease to be in default. At any time after this Lease is in default under the first sentence of this Section 19, Lessor has declared this Lease to be in default under the second sentence of this Section 19, Lessor and/or its representative may do any one or more of the following with respect to all of the equipment or any part thereof as Lessor in its sole discretion shall elect, to the extent permitted by applicable law then in effect: (a) demand that Lessee, and Lessee shall at its expense upon such demand, return the equipment promptly to Lessor at such place in the continental United States of America as Lessor shall specify, or Lessor and/or its agents, at its option, may with or without entry upon the premises where the equipment is located and disable the equipment, or make the equipment inoperable permanently or temporarily in Lessor's sole discretion, and/or take immediate possession of the equipment and remove the same by summary proceedings or otherwise, all without liability for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or for disabling or otherwise; (b) sell the equipment at public or private sale, with or without notice, advertisement or publication, as Lessor may determine, or otherwise dispose of, hold, use, operate, lease to others or keep idle the equipment as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or for any proceeds with respect thereto; (c) by written notice to Lessee specifying a payment date which shall be not earlier than 20 days after the date of such notice, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty, all accrued and unpaid rent for the equipment due on all Rent Payment Dates up to and including the payment date specified in such notice PLUS an amount (together with interest on such amount at the Late Charge Rate, from the payment date specified in such notice to the date of actual payment) equal to the excess, if any, of the Stipulated Loss Value of the equipment as of the payment date specified in such notice over the Fair Market Sale Value of the equipment as of such date; (d) Lessor may exercise any other right or remedy which may be available to it under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Lease. Lessor is entitled to recover any amount that fully compensates the Lessor for any damage to or loss of the Lessor's residual interest in the equipment caused by the Lessee's default. In the event any present value discounting is applied, the discount rate used shall be the Federal Reserve Board Discount Rate. In addition, Lessee shall be liable for any and all unpaid rent and other amounts due hereunder before or during the exercise of any of the foregoing remedies and for all reasonable legal fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all reasonable costs and expenses incurred in connection with the placing of the equipment in the condition required by Section 12 hereof. No remedy referred to in this Section 19 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to herein or otherwise available to Lessor at law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all such other remedies. No express or implied waiver by Lessor of an Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default. To the extent permitted by applicable law, Lessee hereby waives any rights now or hereafter conferred by statute or otherwise which may require Lessor to sell or lease or otherwise use the equipment in mitigation of Lessor's damages or losses or which may otherwise limit or modify any of Lessor's rights or remedies under this Lease. 20. LESSOR'S RIGHT TO PERFORM. IF LESSEE FAILS TO MAKE ANY PAYMENT, OTHER THAN RENT DUE HEREUNDER, REQUIRED TO BE MADE BY IT HEREUNDER OR FAILS TO PERFORM OR COMPLY WITH ANY OF ITS OTHER AGREEMENTS CONTAINED HEREIN, LESSOR MAY ITSELF MAKE SUCH PAYMENT OR PERFORM OR COMPLY WITH SUCH AGREEMENT, AND THE AMOUNT OF SUCH PAYMENT AND THE AMOUNT OF THE REASONABLE EXPENSES OF LESSOR INCURRED IN CONNECTION WITH SUCH PAYMENT OR THE PERFORMANCE OF OR COMPLIANCE WITH SUCH AGREEMENT, AS THE CASE MAY BE, TOGETHER WITH INTEREST THEREON AT THE LATE CHARGE RATE, SHALL BE DEEMED TO BE ADDITIONAL RENT, PAYABLE BY LESSEE WITHIN 30 DAYS OF NOTICE. 21. LOCATION; ASSIGNMENT OR SUBLEASE; TITLE TRANSFER. (a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION SPECIFIED IN THE SCHEDULE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE THE CONTINENTAL U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT ALL TIMES BE IN THE SOLE POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, ASSIGN THIS LEASE OR ANY INTEREST HEREIN OR SUBLEASE OR OTHERWISE TRANSFER ITS INTEREST IN ANY OF THE EQUIPMENT, AND ANY ATTEMPTED ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE IN VIOLATION OF THESE PROVISIONS SHALL BE VOID. (b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER ITS INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR. LESSOR MAY CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER, AND (ii) MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE ABOVE-DESCRIBED TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE (i) THAT ANY SUCH TRANSFER AND/OR ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE LESSEE'S DUTIES AND OBLIGATIONS HEREUNDER, (ii) THAT SUCH TRANSFER AND/OR ASSIGNMENT DOES NOT MATERIALLY INCREASE THE BURDENS OR RIGHTS IMPOSED ON THE LESSEE, AND (iii) THAT THE ASSIGNMENT IS PERMITTED EVEN IF THE ASSIGNMENT COULD BE DEEMED TO MATERIALLY AFFECT THE INTEREST OF THE LESSEE. 22. STATUS CHANGES IN LESSEE. (a) Lessee will not, without Lessor's prior written consent, which consent shall not be unreasonably withheld: (i) enter into any transaction of merger or consolidation unless it is the surviving corporation; (ii) change the form of organization of its business; (iii) liquidate, dissolve or take any such similar action; or (iv) sell, transfer or otherwise dispose of all or any substantial part of its assets. (b) In the event that (i) the majority of the voting stock of Lessee is transferred to persons other than existing shareholders of Lessee as of the date of this lease ("Existing Shareholders") or relatives or affiliates of Existing Shareholders; or (ii) a sale, exchange or transfer (other than a transfer in trust or to a subsidiary or affiliate) occurs of all or substantially all of the assets of Lessee, then in such event Lessee shall be required to pay off the unamortized lease balance, any billed but unpaid interest and any late charges and applicable property taxes, prior to or concurrently with the closing of the sales transaction. 23. FURTHER ASSURANCES; FINANCIAL INFORMATION. (a) Lessee will, at its expense, promptly and duly execute and deliver to Lessor such further documents and assurances and take such further action as Lessor may from time to time reasonably request in order to establish and protect the rights, interests and remedies created or intended to be created in favor of Lessor hereunder, including, without limitation, the execution and filing of Uniform Commercial Code financing statements covering the equipment and proceeds therefrom in the jurisdictions in which the equipment is located from time to time. To the extent permitted by applicable law, Lessee hereby authorizes Lessor to file any such financing statements without the signature of Lessee. (b) Lessee will qualify to do business and remain qualified in good standing, in each jurisdiction in which the equipment is from time to time located. (c) Lessee will furnish to Lessor as soon as available, but in any event not later than 90 days after the end of each fiscal year of Lessee, a consolidated balance sheet of Lessee as at the end of such fiscal year, and consolidated statements of income and changes in financial position of Lessee for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles applied on a basis consistently maintained throughout the period involved. These reports will not be disclosed to anyone other than the Lessor and/or the Owner as provided in Section 21 (b). 24. NOTICES. All notices, demands and other communications hereunder shall be in writing, and shall be deemed to have been given or made when deposited in the United States mail, first class postage prepaid, addressed as follows or to such other address as any of the authorized representatives of the following entities may from time to time designate in writing to the other listed below: Lessor: TELECOMMUNICATIONS FINANCE GROUP OF SIEMENS CARRIER NETWORKS LLC Attn: Director, Credit & Leasing 400 Rinehart Road Lake Mary, Florida 32746 TELECOMMUNICATIONS FINANCE GROUP OF SIEMENS CARRIER NETWORKS LLC Attn: General Counsel 900 Broken Sound Parkway Boca Raton, Florida 33487 Lessee: WORLDXCHANGE CORP. Attn: Legal Dept. 9775 Business Park Avenue San Diego, California 92131 I-LINK INCORPORATED Attn: General Counsel 13751 South Wadsworth Park Drive Draper, UT 84020
25. CONDITIONS PRECEDENT: (a) Lessor shall not be obligated to lease the items of equipment described herein to Lessee hereunder unless: (i) Such Uniform Commercial Code financing statements covering equipment and proceeds therefrom and landlord and/or mortgagee waivers or disclaimers and/or severance agreements with respect to the items of equipment covered by this Lease as Lessor shall deem necessary or desirable in order to perfect and protect its interests therein shall have been duly executed and filed, at Lessee's expense, in such public offices as Lessor shall direct; (ii) All representations and warranties of Lessee contained herein or in any document or certificate furnished Lessor in connection herewith shall be true and correct on and as of the date of this Lease with the same force and effect as if made on and as of such date; no Event of Default or Default shall be in existence on such date or shall occur as a result of the lease by Lessee of the equipment specified in the Schedule; (iii) In the sole judgment of Lessor, there shall have been no material adverse change in the financial condition or business of Lessee; (iv) All proceedings to be taken in connection with the transactions contemplated by this Lease, and all documents incidental thereto, shall be satisfactory in form and substance to Lessor and its counsel; (v) Lessor shall have received from Lessee, in form and substance satisfactory to it, such other documents and information as Lessor shall reasonably request; (vi) All legal matters in connection with the transactions contemplated by this Lease shall be satisfactory to Lessor's counsel; and (vii) No Change in Tax Law, which in the sole judgment of Lessor would adversely affect Lessor's Economics, shall have occurred or shall appear, in Lessor's good faith judgment, to be imminent. 26. SOFTWARE LICENSE. Reference is made to the form of Software Product License Agreement attached hereto as Exhibit B (the "License Document"). Lessor has arranged for the equipment manufacturer to grant Lessee a license to use the Software as defined in the License Document in conjunction with the equipment leased hereunder in accordance with the terms of the License Document. The original license fee is contained in the lease rate. To avail itself of the license grant, Lessee must execute the License Document, upon Commencement of the Lease. "Buyer" and "Licensee" as used in the License Document are synonymous with lessee. 27. LIMITATION OF LIABILITY. LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE, SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR FROM ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, OR OTHER LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE FOR ANY LOST PROFITS OR REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY ANY OTHER PARTY. 28. MISCELLANEOUS. (a) Any provision of this Lease which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provisions in any other jurisdiction. To the extent permitted by applicable law, Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. (b) No terms or provisions of this Lease may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which the enforcement of the change, waiver, discharge or termination is sought. No delay or failure on the part of Lessor to exercise any power or right hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof, or the exercise of any other power or right. After the occurrence of any Default or Event of Default, the acceptance by Lessor of any payment of rent or other sum owed by Lessee pursuant hereto shall not constitute a waiver by Lessor of such Default or Event of Default, regardless of Lessor's knowledge or lack of knowledge thereof at the time of acceptance of any such payment, and shall not constitute a reinstatement of this Lease, if this Lease shall have been declared in default by Lessor pursuant to Section 18 hereof or otherwise, unless Lessor shall have agreed in writing to reinstate the Lease and to waive the Default or Event of Default. In the event Lessee tenders payment to Lessor by check or draft containing a qualified endorsement purporting to limit or modify Lessee's liability or obligations under this Lease, such qualified endorsement shall be of no force and effect even if Lessor processes the check or draft for payment. (c) This Lease with exhibits contains the full, final and exclusive statement of the agreement between Lessor and Lessee relating to the lease of the equipment. (d) This Lease shall constitute an agreement of an operating lease, and nothing herein shall be construed as conveying to Lessee any right, title or interest in the equipment except as Lessee only. (e) This Lease and the covenants and agreements contained herein shall be binding upon, and inure to the benefit of, Lessor and its successors and assigns and Lessee and, to the extent permitted by Section 21 hereof, its successors and assigns. (f) The headings of the Sections are for convenience of reference only, are not a part of this Lease and shall not be deemed to affect the meaning or construction of any of the provisions hereof. (g) This Lease may be executed by the parties hereto on any number of separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. (h) This Lease is deemed made and entered into in the State of Florida and shall be governed by and construed under and in accordance with the laws of the State of Florida as if both parties were residents of Florida. (i) Lessee hereby irrevocably consents and agrees that any legal action, suit, or proceeding arising out of or in any way in connection with this Lease shall be instituted or brought in the courts of the State of Florida, or the United States Courts for the District of Florida, and by execution and delivery of this Lease, Lessee hereby irrevocably accepts and submits to, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of any such court, and to all proceedings in such courts. Lessee irrevocably consents to service of any summons and/or legal process by registered or certified United States mail, postage prepaid, to Lessee at the address set forth in Section 24 hereof, such method of service to constitute, in every respect, sufficient and effective service of process in any legal action or proceeding. Nothing in this Lease shall affect the right to service of process in any other manner permitted by law or limit the right of Lessor to bring actions, suits or proceedings in the court of any other jurisdiction. Lessee further agrees that final judgment against it in any such legal action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction, within or outside the United States of America, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of the liability. In the event legal action is taken by Lessor or Lessee to enforce their respective rights under this Lease, all costs and expenses, including without limitation reasonable attorneys' fees, incurred by the prevailing party shall be paid by the non-prevailing party. IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be duly executed as of the day and year first above written and by its signature below Lessee expressly acknowledges that this Lease may not be modified unless done so in a writing signed by each of the parties hereto or their successors in interest. WORLDXCHANGE CORP. (Lessee) By: ______________________________ _________________________________ (Name & Title) Date Signed: _____________________ TELECOMMUNICATIONS FINANCE GROUP OF SIEMENS CARRIER NETWORKS LLC (Lessor) By: ______________________________ JEFFREY D. BOGGS _________________________________ Authorized Representative Date Signed: _____________________ EX-10.5 7 a2057554zex-10_5.txt EXHIBIT 10.5 EXHIBIT 10.5 AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated as of April 17, 2001 by and among WebToTel, Inc., a Delaware corporation (the "Company"), Counsel Communications LLC, a Delaware limited liability company ("Counsel"), I-Link Incorporated, a Florida corporation (the "Purchaser"), I-Link Acquisition Corp., a Delaware corporation (the "Merger Sub"), and the other shareholders of the Company as listed on the signature pages hereof. W I T N E S S E T H: WHEREAS, the respective Boards of Directors of the Company, the Purchaser and Merger Sub have approved and adopted the merger of the Company with and into Merger Sub on the terms and subject to the conditions set forth herein; and WHEREAS, pursuant to the Merger, the outstanding shares of the common stock of the Company, $0.001 par value per share (the "Company Common Stock") will be converted into the right to receive the consideration described below. NOW, THEREFORE, in consideration of the mutual covenants contained herein, and intending to be legally bound, the parties hereto agree as follows: ARTICLE I Certain Definitions Section 1.1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms have the respective meanings set forth below. "Affiliate" means, with respect to any Person, any other Person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlled" and "controlling" have meanings correlative thereto. "Code" means the Internal Revenue Code of 1986, as amended. "GAAP" means generally accepted accounting principles as in effect in the United States on the date of this Agreement. "Governmental Authority" means any national, federal, state, provincial, county, municipal or local government, foreign or domestic, or the government of any political subdivision of any of the foregoing, or any entity, authority, agency, ministry or other similar body exercising executive, legislative, judicial, regulatory or administrative authority or functions of or pertaining to government, including any authority or other quasi-governmental entity established to perform any of such functions. "Material Adverse Change" means, with respect to any Person, a material adverse change in the business, financial condition or results of operations of such Person. "Person" means an individual, partnership, limited liability company, corporation, joint stock company, unincorporated organization or association, trust or joint venture, or a governmental agency or political subdivision thereof. "Purchaser Common Stock" means the common stock, par value $0.007 per share, of the Purchaser. "RESTRICTED STOCK" MEANS ANY SHARES OF COMMON STOCK OF THE PURCHASER ISSUED IN CONNECTION WITH THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. "Securities Act" means the Securities Act of 1933 or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Taxes" means any and all taxes, charges, fees, levies or other like assessments (and all related interest, additions to tax and penalties), including, income, transfer, gains, gross receipts, excise, inventory, property (real, personal or intangible), customs duty, sales, use, license, withholding (including backup withholding), payroll, employment, capital stock or franchise taxes and escheat liability, imposed by the United States, or any state, local or foreign government, or any subdivision or agency of any of the foregoing, whether computed on a unitary, combined or any other basis. "Tax Return" means any report, return, information reports or returns or other information with respect to Taxes (including any attached schedules or any amendments to such report return or other information) required to be filed with or supplied to any taxing authority. Section 1.2. INTERPRETATION. Unless otherwise indicated to the contrary herein by the context or use thereof: (i) the words, "herein," "hereto," "hereof" and words of similar import refer to this Agreement as a whole and not to any particular Section or paragraph hereof; (ii) words importing the masculine gender shall also include the feminine and neutral genders, and vice versa; and (iii) words importing the singular shall also include the plural, and vice versa. ARTICLE II The Merger Section 2.1. THE MERGER. Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined in Section 2.2), the Merger Sub shall be merged with and into the Company (the "Merger") and the separate corporate existence of the Merger Sub shall thereupon cease. The Company shall be the surviving corporation in the Merger and shall continue to be governed by the Delaware General Corporation Law (the "DGCL"). The separate corporate existence of the Company with all its rights, privileges, powers and franchises shall continue unaffected by the Merger. The Merger shall have the effects specified in the DGCL. From and after the Effective Time, the Company is sometimes referred to herein as the "Surviving Corporation." Section 2.2. CERTIFICATE OF MERGER. On the Closing Date (as defined in Section 2.13), the parties hereto shall cause a certificate of merger (the "Certificate of Merger"), meeting the requirements of Section 251 of the DGCL, to be properly executed and filed in accordance with the DGCL. The Merger shall be effective at the time and on the date of the filing of the Certificate of Merger in accordance with the DGCL, or at such other time and date specified in the Certificate of Merger (the "Effective Time"). Section 2.3. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of the Company in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with applicable law. Section 2.4. BY-LAWS. The by-laws of the Company in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until amended in accordance with applicable law. Section 2.5. OFFICERS. The officers of the Surviving Corporation from and after the Effective Time shall be designated by the Purchaser and will hold office until their successors are duly elected or appointed and qualify in the manner provided in the certificate of incorporation or by-laws of the Surviving Corporation or as otherwise provided by law, or until their earlier death, resignation or removal. Section 2.6. DIRECTORS. The directors of the Surviving Corporation from and after the Effective Time shall be designated by the Purchaser and will serve until their successors are duly elected or appointed and qualify in the manner provided in the certificate of incorporation or by-laws of the Surviving Corporation or as otherwise provided by law, or until their earlier death, resignation or removal. Section 2.7. CONVERSION OF SHARES. The aggregate amount of consideration payable pursuant to this Section 2.7 is hereinafter referred to as the "Merger Consideration," and is calculated based on a $0.56 per share valuation of Purchaser Common Stock to be delivered as the Merger Consideration (with the result that the shareholders of the Company will own 17,454,333 shares of the outstanding Purchaser Common Stock immediately following the Merger. Subject to the terms and conditions of this Agreement, as of the Effective Time (and as elected by each stockholder of the Company prior to the Effective Time), by virtue of the Merger and without any action on the part of the Merger Sub, the Company or the holder of any shares of the Company Common Stock, the following shall occur: (a) EACH SHARE OF COMPANY COMMON STOCK ISSUED AND OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME (OTHER THAN SHARES HELD IN THE COMPANY'S TREASURY), SHALL, BY VIRTUE OF THE MERGER AND WITHOUT ANY ACTION ON THE PART OF THE HOLDERS THEREOF, BE CONVERTED INTO THE RIGHT TO RECEIVE 0.1313 (THE "EXCHANGE RATIO") OF A SHARE OF PURCHASER COMMON STOCK (SUBJECT TO ADJUSTMENT AS PROVIDED HEREIN), SUCH THAT IMMEDIATELY AFTER THE EFFECTIVE TIME 17,454,333 SHARES OF THE PURCHASER WILL BE OWNED BY THE COMPANY'S SHAREHOLDERS, AS INDICATED ON EXHIBIT A ATTACHED HERETO. (b) All shares of Company Common Stock converted in accordance with Section 2.7(a) shall, when so converted, no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock (a "Certificate") shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration payable with respect thereto. Each share of Company Stock held in the treasury of the Company shall, by virtue of the Merger and without any action on the part of the holders thereof, be canceled, retired and cease to exist and no payment shall be made with respect thereto. (c) Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Merger Sub or the Purchaser, be converted into one share of common stock of the Surviving Corporation. Section 2.8. PAYMENT OF MERGER CONSIDERATION. On the Closing Date, the Purchaser shall deliver the Merger Consideration payable to Counsel and the other Company shareholders registered in their respective names. The Merger Consideration is subject to adjustment as set forth in Section 2.9. Section 2.9. ADJUSTMENTS. In the event that, subsequent to the date of this Agreement and prior to the Effective Time, the outstanding shares of Purchaser Common Stock or Company Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other like changes in the Purchaser's or the Company's capitalization, then an appropriate and proportionate adjustment shall be made in the terms of the consideration provided for in this Article II. Section 2.10 FRACTIONAL SHARES. No fraction of a share of Purchaser Common Stock will be issued, but in lieu thereof, each holder of shares of Company Common Stock who would otherwise be entitled to a fraction of a share of Purchaser Common Stock (after aggregating all fractional shares of Purchaser Common Stock to be received by such holder) shall be entitled to receive from Purchaser an amount of cash (rounded down to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the value ascribed to each share of Company Common Stock pursuant to this Agreement. Section 2.11. EXCHANGE OF CERTIFICATES. (a) AT THE CLOSING, COUNSEL AND THE OTHER COMPANY SHAREHOLDERS SHALL SURRENDER ITS CERTIFICATE OR CERTIFICATES, WITH SUCH STOCK POWERS EXECUTED IN BLANK OR OTHERWISE IN PROPER FORM FOR TRANSFER TO THE PURCHASER AS THE PURCHASER MAY REASONABLY REQUEST IN EXCHANGE FOR THE PORTION OF THE MERGER CONSIDERATION INTO WHICH THE SHARES OF COMPANY COMMON STOCK REPRESENTED BY SUCH CERTIFICATE OR CERTIFICATES SHALL HAVE BEEN CONVERTED PURSUANT TO THIS AGREEMENT. UPON SUCH SURRENDER, COUNSEL AND THE OTHER COMPANY SHAREHOLDERS SHALL BE ENTITLED TO RECEIVE IN EXCHANGE THEREFOR THE MERGER CONSIDERATION TO WHICH COUNSEL AND THE OTHER COMPANY SHAREHOLDERS SHALL HAVE BECOME ENTITLED PURSUANT TO THE PROVISIONS OF THIS ARTICLE II AND THE CERTIFICATE SO SURRENDERED SHALL FORTHWITH BE CANCELED. NO INTEREST WILL BE PAID OR ACCRUED ON ANY CASH CONSTITUTING MERGER CONSIDERATION AND ANY UNPAID DIVIDENDS AND DISTRIBUTIONS, IF ANY, PAYABLE TO HOLDERS OF CERTIFICATES. UNTIL SURRENDERED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 2.11, EACH CERTIFICATE (OTHER THAN CERTIFICATES CANCELED PURSUANT TO SECTION 2.7(b)) SHALL REPRESENT FOR ALL PURPOSES ONLY THE RIGHT TO RECEIVE THE MERGER CONSIDERATION PROVIDED FOR BY THIS AGREEMENT, WITHOUT INTEREST. (b) No dividends or other distributions declared after the Effective Time with respect to the Purchaser Common Stock and payable to the holders of record thereof shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Article II. After the surrender of a Certificate in accordance with this Article II, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of the Purchaser Common Stock, if any, represented by such Certificate. (c) After the Effective Time, there shall be no transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration as provided for, and in accordance with, the provisions of this Section 2.11. (d) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Purchaser, the posting by such person of a bond in such amount as the Purchaser reasonably may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Purchaser will issue in exchange for such lost, stolen or destroyed Certificate the cash and shares of Purchaser Common Stock deliverable in respect thereof pursuant to this Agreement. Section 2.12. CLOSING. The closing of the transactions contemplated hereby (the "Closing") shall take place as soon as practicable following the satisfaction or waiver (to the extent waivable) of the conditions set forth in Article VI or at such other time and place (including via exchange of facsmile documents) as the parties may agree. The time and date of the Closing is herein referred to as the "Closing Date." ARTICLE III Representations and Warranties Regarding the Company The Company hereby represents and warrants to the Purchaser and the Merger Sub that: Section 3.1. ORGANIZATION AND GOOD STANDING. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power and authority, corporate and other, to own, lease and operate its properties and assets and to carry on its business as currently conducted. Section 3.2. AUTHORIZATION. The Company has full power and authority (corporate and other) and legal capacity to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by the Company in connection with the consummation of the transactions contemplated by this Agreement (this Agreement, together with all such other agreements, documents, instruments and certificates required to be executed by the Company being referred to herein, collectively, as the "COMPANY DOCUMENTS"), and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement by the Company has been duly authorized by the Board of Directors of the Company, and no further corporate action on the part of the Company or its shareholders is necessary to authorize this Agreement and the performance of the transactions contemplated hereby. This Agreement has been, and each of the other Company Documents will be at or prior to Closing, duly and validly executed and delivered by the Company and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the other Company Documents when so executed and delivered will constitute, legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Section 3.3. CAPITALIZATION. (a) As of the date hereof: (i) all of the issued and outstanding shares of capital stock of the Company were duly authorized for issuance and are validly issued, fully paid and non-assessable; (ii) EXHIBIT A fully and accurately describes the capital structure of the Company and, except as set forth on EXHIBIT A, there are no outstanding securities of the Company convertible into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company, there are no outstanding or authorized options, warrants, calls, subscription rights, commitments or other agreements of any character requiring, and there are no securities outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any additional shares of capital stock of the Company or other equity securities of the Company or other securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase shares of capital stock of the Company or other equity securities of the Company, or any stock appreciation rights, phantom stock or similar equity equivalent rights issued by or binding upon the Company; (iii) there are no voting trusts or other voting agreements with respect to the capital stock of the Company or other ownership interests of the Company or any agreement relating to the issuance, sale, redemption, transfer or other disposition of any such interests of the Company to which the Company is a party, or of which the Company has knowledge.; and (iv) the Company controls the voting capital stock of Nexbell Communications, Inc. ("Nexbell") and CPT-1 Holdings Inc. Section 3.4. CORPORATE RECORDS; CONFLICTS; CONSENTS. The execution and delivery by the Company of this Agreement and the other Company Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by the Company with any of the provisions hereof or thereof will not (i) conflict with, or result in the breach of, any provision of the Articles of Incorporation or Bylaws of the Company; (ii) conflict with, violate, result in the breach or termination of, or constitute a default under any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which the Company is a party or by which the Company or its properties or assets are bound; (iii) violate any statute, rule, regulation, order or decree of any Governmental Authority by which the Company is bound; or (iv) result in the creation of any Lien (except as contemplated herein) upon the properties or assets of the Company except, in case of clauses (ii), (iii) and (iv), for such violations, breaches or defaults as would not, individually or in the aggregate, have a Material Adverse Change. No consent, waiver, approval, order, permit or authorization of, or declaration or filing with, or notification to, any Person, including without limitation any Governmental Authority, is required on the part of the Company in connection with the execution, delivery and performance of this Agreement or the other Company Documents, or the compliance by the Company with any of the provisions hereof or thereof. Section 3.5. REPORTS AND FINANCIAL STATEMENTS. (a) The Company and its subsidiaries have been and are in compliance with all federal, state and local laws, statutes, ordinances, rules and regulations (including without limitation the Securities Act and the Securities Exchange Act of 1934, as amended) as of the date hereof, the failure to comply with which could materially adversely affect the business, assets, operations, earnings, prospects or condition (financial or otherwise) of the Company or which would subject any officer or director of the Company to civil or criminal penalties or imprisonment. The Company has materially complied with the rules and regulations of all governmental agencies having authority over its business or its operations, including without limitation, agencies concerned with intra-state and interstate commerce, occupational safety, environmental protection and employment practices, except where the failure to comply would not have a material adverse effect on the business, operations, earnings, assets or condition (financial or otherwise) of the Company. The Company has no knowledge of and has not received any notice of violation of any such rule or regulation during the two years prior to the date hereof which could result in any liability of the Company for penalties of damages or which could subject the Company to any injunction or government writ, order or decree. To the best of the Company's knowledge, there are no facts, events or conditions that could interfere with, prevent continued compliance with or give rise to any material liability under any federal, state or local governmental laws, statutes, ordinances or regulations applicable to the business, operations, earnings, assets or condition (financial or otherwise) of the Company. (b) The audited financial statements of Nexbell for the year ended July 31, 2000 and any unaudited interim financial statements of Nexbell through and including January 31, 2001 (collectively, the "COMPANY FINANCIAL STATEMENTS") have been prepared in accordance with the United States generally accepted accounting principles ("GAAP") applied on a basis consistent with prior periods and fairly presented the consolidated financial position of Nexbell as of the dates thereof (subject, in the case of unaudited interim statements to normal year-end adjustments and the absence of certain footnote disclosures). (c) As of the date of this Agreement, except as set forth in the Company Financial Statements or as previously disclosed in writing to the Purchaser and prior to the date of this Agreement, to the Company's knowledge neither the Company nor any of its subsidiaries is a party to or bound by (i) any "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) or (ii) any non-competition agreement or any other agreement or arrangement that materially limits the Company or any of its subsidiaries or any of their respective affiliates, or that would, after the date hereof similarly limit Nexbell or the Company or any successor thereto, from engaging or competing in any line of business or in any geographic area after giving effect to the transactions contemplated hereby. Section 3.6. ABSENCE OF UNDISCLOSED LIABILITIES; AFFILIATE TRANSACTIONS. (a) Except for matters reflected or reserved against in the balance sheet as of July 31, 2000 and January 31, 2001 included in the Company Financial Statements or as previously disclosed in writing to the Purchaser, neither the Company nor any of the Company Subsidiaries had at such date or has incurred since that date any liabilities, obligations (whether absolute, accrued, contingent or otherwise) or contingencies of any nature, except (i) liabilities, obligations or contingencies (A) which are accrued or reserved against in the Company Financial Statements or reflected in the notes thereto or (B) which were incurred after July 31, 2000 and January 31, 2001 in the ordinary course of business and consistent with past practices; or (ii) liabilities, obligations or contingencies which are of a nature not required to be reflected in the consolidated financial statements of the Company and the Company Subsidiaries prepared in accordance with GAAP consistently applied and which were incurred in the ordinary course of business. The Company and its subsidiaries are current in the payment of all taxes. (b) There are no other transactions, agreements, arrangements or understandings between the Company or the Company Subsidiaries, on the one hand, and the Company's affiliates (other than wholly-owned subsidiaries of the Company) or other Persons, on the other hand, that would be required to be disclosed under Item 404 of Regulation S-K promulgated under the Securities Act. Section 3.7. INTELLECTUAL PROPERTY. The Company owns, or has the right to use (or believes, after due inquiry, that it can obtain the right to use on reasonable commercial terms), all patents, patent applications, trademarks, service names, trade names, copyrights, licenses, trade secrets or other proprietary rights necessary to conduct its business as now being conducted and as proposed to be conducted to the Company's knowledge without any conflict or infringement of the rights of others and, except as set forth on Schedule 3.7 the Company has not received a notice that it is infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing, and to the Company's knowledge there is no basis for any such claim. The Company has no patents or patent applications issued, pending or issuable. The Company is not aware of any violation by a third party of any of the Company's or its subsidiaries' patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or that would conflict with the Company's business as now being conducted and as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the conduct of the Company's business will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated. Section 3.8. LEGAL PROCEEDINGS. There are no legal proceedings pending or, to the knowledge of the Company or its Affiliates, threatened that are reasonably likely to prohibit or restrain the ability of the Company or its Affiliates to enter into this Agreement or consummate the transactions contemplated hereby or which otherwise would result in a Material Adverse Change. Section 3.9. NO MISREPRESENTATION. This Agreement (including the Exhibits hereto) as of the date hereof contains no untrue statement of a material fact nor omits a material fact necessary in order to make the statements contained herein not misleading. ARTICLE IV Representations and Warranties Regarding the Purchaser and the Merger Sub The Purchaser and the Merger Sub, jointly and severally, hereby represent and warrant to the Company that: Section 4.1. ORGANIZATION AND GOOD STANDING. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and the Merger Sub is a corporation duly organized existing and in good standing under the laws of Delaware. The Purchaser and Merger Sub have full power and authority (corporate and other) to own, lease and operate its properties and assets and to carry on their business as currently conducted. Section 4.2. AUTHORIZATION. The Purchaser and Merger Sub have full power and authority (corporate and other) and legal capacity to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by the Purchaser and/or the Merger Sub in connection with the consummation of the transactions contemplated by this Agreement (this Agreement, together with all such other agreements, documents, instruments and certificates required to be executed by the Purchaser and the Merger Sub being referred to herein, collectively, as the "PURCHASER AND MERGER SUB DOCUMENTS"), and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement by the Purchaser and the Merger Sub have been duly authorized by the Board of Directors of the Purchaser and Merger Sub, and no further corporate action on the part of the Purchaser and the Merger Sub or its shareholders is necessary to authorize this Agreement and the performance of the transactions contemplated hereby. This Agreement has been, and each of the other Purchaser and Merger Sub Documents will be at or prior to Closing, duly and validly executed and delivered by the Purchaser and the Merger Sub and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the other Purchaser and the Merger Sub Documents when so executed and delivered will constitute, legal, valid and binding obligations of the Purchaser and the Merger Sub, enforceable against the Purchaser and the Merger Sub in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Section 4.3. CAPITALIZATION. (a) As of the date hereof: (i) all of the issued and outstanding shares of capital stock of the Purchaser and the Merger Sub were duly authorized for issuance and are validly issued, fully paid and non-assessable; (ii) EXHIBIT B fully and accurately describes the capital structure of the Purchaser and the Merger Sub and, except as set forth on EXHIBIT B, there are no outstanding securities of the Purchaser and the Merger Sub convertible into or evidencing the right to purchase or subscribe for any shares of capital stock of the Purchaser and the Merger Sub, there are no outstanding or authorized options, warrants, calls, subscription rights, commitments or other agreements of any character requiring, and there are no securities outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any additional shares of capital stock of the Purchaser and the Merger Sub or other equity securities of the Purchaser and the Merger Sub or other securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase shares of capital stock of the Purchaser and the Merger Sub or other equity securities of the Purchaser, or any stock appreciation rights, phantom stock or similar equity equivalent rights issued by or binding upon the Purchaser and the Merger Sub; and (ii) there are no voting trusts or other voting agreements with respect to the capital stock of the Purchaser and/or the Merger Sub or other ownership interests of the Purchaser and the Merger Sub or any agreement relating to the issuance, sale, redemption, transfer or other disposition of any such interests of the Purchaser and/or the Merger Sub to which the Purchaser and/or the Merger Sub are parties, or of which the Purchaser and the Merger Sub have knowledge. (b) Upon the consummation of the transactions contemplated hereby, all of the Purchaser Common Stock issued as Merger Consideration hereunder will have been and will be duly authorized, validly issued, fully paid and nonassessable, and free and clear of all liens. All shares of Purchaser Common Stock shall have been issued in material compliance with all applicable federal and state securities laws and regulations. Section 4.4. CORPORATE RECORDS; CONFLICTS; CONSENTS. Except as set forth in the attached Schedule 4.4, the execution and delivery by the Purchaser and the Merger Sub of this Agreement and the other Purchaser and the Merger Sub Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by the Purchaser and the Merger Sub with any of the provisions hereof or thereof will not (i) conflict with, or result in the breach of, any provision of the Articles of Incorporation or Bylaws of the Purchaser or the Merger Sub; (ii) conflict with, violate, result in the breach or termination of, or constitute a default under any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which the Purchaser or the Merger Sub is a party or by which the Purchaser or the Merger Sub or their properties or assets are bound; (iii) violate any statute, rule, regulation, order or decree of any Governmental Authority by which the Purchaser and/or the Merger Sub is bound; or (iv) result in the creation of any Lien (except as contemplated herein) upon the properties or assets of the Purchaser and/or the Merger Sub except, in case of clauses (ii), (iii) and (iv), for such violations, breaches or defaults as would not, individually or in the aggregate, have a Material Adverse Change. No consent, waiver, approval, order, permit or authorization of, or declaration or filing with, or notification to, any Person, including without limitation any Governmental Authority, is required on the part of the Purchaser and/or the Merger Sub in connection with the execution, delivery and performance of this Agreement or the other Purchaser and the Merger Sub Documents, or the compliance by the Purchaser and the Merger Sub with any of the provisions hereof or thereof. Section 4.5. REPORTS AND FINANCIAL STATEMENTS. (a) Since January 1, 1996, the Purchaser has filed with the Securities and Exchange Commission (the "SEC") all forms, statements, reports and documents (including all exhibits, post-effective amendments and supplements thereto) required to be filed by it under each of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the respective rules and regulations promulgated thereunder, all of which, as amended (if applicable), complied in all material respects, when filed with all applicable requirements of the appropriate act and the rules and regulations thereunder. The Purchaser has previously delivered or made available to Company copies (including all exhibits, post-effective amendments and supplements thereto) of its (i) Annual Reports on Form 10-K for the years ended December 31, 2000, December 31, 1999 and December 31, 1998, as filed with the SEC; (ii) definitive proxy and information statements relating to all meetings of its stockholders (whether annual or special) from December 31, 1998 until the date hereof; and (iii) all other reports, including quarterly reports, and registration statements filed by the Purchaser with the SEC since December 31, 1998 (other than registration statements filed on Form S-8) (the documents referred to in clauses (i), (ii) and (iii) being referred to as the "PURCHASER SEC REPORTS"). As of their respective dates (or to the extent amended or superseded by a subsequent filing, with respect to the information in such subsequent filing, or as of the date of the subsequent filing), the Purchaser SEC Reports did not or will not (as the case may be) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The audited consolidated financial statements of the Purchaser included in the Purchaser's Annual Report on Form 10-K for the years ended December 31, 2000, December 31, 1999 and December 31, 1998 (collectively, the "PURCHASER FINANCIAL STATEMENTS") have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a basis consistent with prior periods and fairly presented the consolidated financial position of the Purchaser and the Purchaser Subsidiaries as of the dates thereof and the related consolidated statement of operations, cash flows and stockholders' equity included in the Purchaser SEC Reports fairly presented the consolidated results of operations of the Purchaser and the Purchaser Subsidiaries for the respective periods then ended (subject, in the case of unaudited interim statements to normal year-end adjustments and the absence of certain footnote disclosures). (c) The audited consolidated financial statements of the Purchaser included in the Purchaser's Annual Report on Form 10-K for the years ended December 31, 2000, December 31, 1999 and December 31, 1998 and any interim financial statements of the Purchaser since December 31, 2000 (collectively, the "PURCHASER FINANCIAL STATEMENTS") have been prepared in accordance with the United States generally accepted accounting principles ("GAAP") applied on a basis consistent with prior periods and fairly presented the consolidated financial position of the Purchaser as of the dates thereof and the related consolidated statement of operations, cash flows and stockholders' equity included in the Purchaser SEC Reports fairly presented the consolidated results of operations of the Purchaser for the respective periods then ended (subject, in the case of unaudited interim statements to normal year-end adjustments and the absence of certain footnote disclosures). (d) As of the date of this Agreement, except as set forth in the Purchaser's Annual Report for the year ended December 31, 2000 or in any other Purchaser SEC Report filed since that Annual Report or as previously disclosed in writing to the Company and prior to the date of this Agreement, neither the Purchaser nor any of its subsidiaries is a party to or bound by (i) any "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) or (ii) any non-competition agreement or any other agreement or arrangement that limits the Purchaser or any of its subsidiaries or any of their respective affiliates, or that would, after the date hereof similarly limit the Purchaser or the Company or any successor thereto, from engaging or competing in any line of business or in any geographic area after giving effect to the transactions contemplated hereby. Section 4.6. ABSENCE OF UNDISCLOSED LIABILITIES; AFFILIATE TRANSACTIONS. (a) Except for matters reflected or reserved against in the balance sheet for the period ended December 31, 2000 included in the Purchaser Financial Statements or as previously disclosed in writing to the Company, neither the Purchaser nor any of the Purchaser Subsidiaries (including the Merger Sub) had at such date or has incurred since that date any liabilities, obligations (whether absolute, accrued, contingent or otherwise) or contingencies of any nature, except (i) liabilities, obligations or contingencies (A) which are accrued or reserved against in the Purchaser Financial Statements or reflected in the notes thereto or (B) which were incurred after December 31, 2000 in the ordinary course of business and consistent with past practices; or (ii) liabilities, obligations or contingencies which are of a nature not required to be reflected in the consolidated financial statements of the Purchaser and the Purchaser Subsidiaries prepared in accordance with GAAP consistently applied and which were incurred in the ordinary course of business. The Purchaser and the Merger Sub are current in the payment of all taxes. (e) Except as specifically disclosed in the Purchaser SEC Reports filed prior to the date of this Agreement or as previously disclosed in writing to the Company, there are no other transactions, agreements, arrangements or understandings between the Purchaser or the Purchaser Subsidiaries (including the Merger Sub), on the one hand, and the Purchaser's affiliates (other than wholly-owned subsidiaries of the Purchaser) or other Persons, on the other hand, that would be required to be disclosed under Item 404 of Regulation S-K promulgated under the Securities Act. Section 4.7. INTELLECTUAL PROPERTY. The Purchaser and the Merger Sub own, or have the right to use (or believes, after due inquiry, that it can obtain the right to use on reasonable commercial terms), all patents, patent applications, trademarks, service names, trade names, copyrights, licenses, trade secrets or other proprietary rights necessary to conduct their business as now being conducted and as proposed to be conducted to the Purchaser's and Merger Sub's knowledge without any conflict or infringement of the rights of others and the Purchaser, except as disclosed on Schedule 4.7, has not received a notice that it is infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing, and to the Purchaser's and the Merger Sub's knowledge there is no basis for any such claim. The Purchaser and the Merger Sub have disclosed to Counsel a complete list of patents and pending patent applications of the Purchaser and the Merger Sub. Neither the Purchaser nor the Merger Sub is aware of any violation by a third party of any of the Purchaser's or Merger Sub's patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights. Neither the Purchaser nor the Merger Sub is aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Purchaser and/or the Merger Sub or that would conflict with the Purchaser's and the Merger Sub's business as now being conducted and as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the conduct of the Purchaser's and Merger Sub's businesses will, to the Purchaser's and Merger Sub's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated. Section 4.8. LEGAL PROCEEDINGS. Except as set forth in the attached Schedule 4.8, there are no Legal Proceedings pending or, to the knowledge of the Purchaser and the Merger Sub, threatened that are reasonably likely to prohibit or restrain the ability of the Purchaser and the Merger Sub to enter into this Agreement or consummate the transactions contemplated hereby or which otherwise would result in a Material Adverse Change. Section 4.9. NO MISREPRESENTATION. Neither this Agreement (including the Exhibits hereto), nor (as of the date hereof) any Purchaser SEC Report contains any untrue statement of a material fact nor omits a material fact necessary in order to make the statements contained herein or therein not misleading. ARTICLE V Covenants and Agreements Section 5.1. ACCESS AND INFORMATION. Prior to the Closing, each of the parties shall be entitled to make or cause to be made such investigation of the other party hereto, and the financial and legal condition thereof, as such investigating party deems reasonably necessary or advisable, and the other party hereto shall cooperate with any such investigation. In furtherance of the foregoing, but not in limitation thereof, each party shall permit the other party hereto and its agents and representatives or cause them to be permitted to have full and complete access to its premises, books and records upon reasonable notice during regular business hours and shall furnish such financial and operating data, projections, forecasts, business plans, strategic plans and other data relating to itself and its business as the other party hereto shall reasonably request from time to time. Prior to the Closing, the parties hereto agree that except as otherwise required by law, any and all public announcements or other communications concerning this Agreement and the transactions contemplated hereby shall be subject to the prior written approval of each of the parties hereto. Section 5.2. COMPANY AFFIRMATIVE COVENANTS. Prior to the Closing, except as otherwise expressly provided herein, the Company shall, except as otherwise contemplated by this Agreement, conduct its business only in the ordinary and regular course of business. Section 5.3. COMPANY NEGATIVE COVENANTS. Prior to the Closing, without the prior written consent of the Purchaser, except as otherwise expressly provided herein, the Company shall not enter into any contract, agreement or commitment (other than in the ordinary course of business) which, if entered into prior to the date of this Agreement, would cause any representation or warranty of the Company or Counsel to be untrue in any material respect or be required to be disclosed on any Schedule delivered pursuant to Article III hereof. Section 5.4 PURCHASER AND MERGER SUB NEGATIVE COVENANTS. Prior to the Closing, without the prior written consent of the Company, except as otherwise expressly provided herein, the Purchaser will conduct its business only in the ordinary and regular course of business consistent with past practices and the Merger Sub will not conduct any material business or incur any material liabilities. Section 5.5. CLOSING DOCUMENTS. The Company shall, prior to or on the Closing Date, execute and deliver, or cause to be executed and delivered to the Purchaser, the documents or instruments described in Section 6.2. The Purchaser and Merger Sub shall, prior to or on the Closing Date, execute and deliver, or cause to be executed and delivered, to the Company, the documents or instruments described in Section 6.3. Section 5.6. BEST EFFORTS; FURTHER ASSURANCES. Subject to the terms and conditions herein provided, each of the parties hereto shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. Each of the parties hereto will use its respective best efforts to obtain consents of all Governmental Authorities and third parties necessary to the consummation of the transactions contemplated by this Agreement. In the event that at any time after Closing any further action is reasonably necessary to carry out the purposes of this Agreement, each of the parties hereto shall take all such action without any further consideration therefor. Section 5.7. REORGANIZATION TREATMENT. Neither the Purchaser nor the Company shall intentionally take, or fail to take or cause to be taken or not be taken, any action within its control, whether before or after the Effective Time, which it has reason to believe after consultation with its advisors would disqualify the Merger as a "reorganization" within the meaning of Section 368(a) of the Code. Section 5.8. APPROVAL BY PURCHASER. The Purchaser, in its capacity as the sole stockholder of Merger Sub, shall vote the shares of Merger Sub to approve and adopt the Merger, this Agreement and the transactions contemplated hereby, and shall cause Merger Sub to take any and all actions as may be necessary or appropriate to consummate the Merger and the other transactions contemplated hereby in accordance with the terms hereof. Section 5.9. REGISTRATION RIGHT AND OTHER BENEFITS. Counsel shall be afforded the same registration rights and other benefits with respect to the Restricted Stock issued by the Purchaser hereunder as are set forth in the Securities Support Agreement dated as of March ___, 2001 by and among Counsel and the Purchaser, including the Exhibits attached thereto. Section 5.10 EXPENSE REIMBURSEMENT. Promptly upon demand, whether prior to, or subsequent to, the Closing, the Purchaser hereby agrees to reimburse Counsel and its Affiliates for their expenses in connection with this transaction and any and all out-of-pocket expenses incurred by Counsel and its Affiliates with respect to the Company and/or the Purchaser on an ongoing basis in the course of their activities as Affiliates with the Purchaser, provided however that amounts related to engagements by Counsel of third party advisors related to activities of the Company, where such amounts are in excess of $5,000, shall be pre-approved by the Purchaser. ARTICLE VI Conditions to Closing Section 6.1. MUTUAL CONDITION. The respective obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to Closing of the condition that no Governmental Authority of competent jurisdiction shall have (i) enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order which is in effect; or (ii) commenced or threatened any action or proceeding, which in the case of either clause (i) or (ii) would prohibit consummation of the transactions contemplated by this Agreement. Section 6.2. CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND MERGER SUB. The obligations of the Purchaser and Merger Sub to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment prior to or at Closing of each of the following conditions: (a) All representations and warranties made by the Company and Counsel in this Agreement and the Schedules hereto shall be true, correct and complete on the date hereof and as of the Closing Date as though such representations and warranties were made as of the Closing Date (except for representations and warranties made as of a specified date, which shall have been true, correct and complete as of such specified date), and the Company shall have duly performed or complied with all of the covenants, obligations and conditions to be performed or complied with by them under the terms of this Agreement on or prior to or at Closing. (b) The Purchaser shall have received a certificate from the Secretary or the Assistant Secretary of the Company in form reasonably satisfactory to the Purchaser attesting to the matters described in clause (a) above. (c) The Company shall have delivered such other closing documents as shall be requested by the Purchaser in form and substance reasonably acceptable to the Purchaser's counsel, including the following: (i) a certificate of the Secretary or Assistant Secretary of the Company, dated the Closing Date, as to the incumbency of any officer of the Company executing this Agreement or any document related thereto and covering such other matters as the Purchaser may reasonably request; (ii) a certified copy of (A) the Certificate of Incorporation and by-laws of the Company and all amendments thereto, (B) the resolutions of the Company's Board of Directors authorizing the execution, delivery and consummation of this Agreement and the transactions contemplated hereby and thereby and (C) the written consent of a majority of the holders of Company Common Stock authorizing the execution, delivery and consummation of this Agreement and the Merger; (iii) such other documents or instruments as the Purchaser reasonably requests to effect the authorization and validity of the transactions contemplated hereby. Section 6.3. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing of each of the following conditions: (a) All representations and warranties made by the Purchaser and Merger Sub in this Agreement shall be true, correct and complete on the date hereof and as of the Closing Date as though such representations and warranties were made as of the Closing Date except for representations and warranties as of a specified date, which shall have been true, correct and complete as of such specified date), and the Purchaser and Merger Sub shall have duly performed or complied with all of the covenants, obligations and conditions to be performed or complied with by it under the terms of this Agreement on or prior to or at the Closing. (b) The Company shall have received a certificate from a duly authorized officer of the Purchaser and the Merger Sub in form reasonably satisfactory to the Company attesting to the matters described in clause (a) above. (c) Prior to or at the Closing, the Purchaser and the Merger Sub shall have delivered to the Company such closing documents as shall be reasonably requested by the Company in form and substance reasonably acceptable to its counsel, including the following: (i) certificates of the Secretary or Assistant Secretary of each of the Purchaser and Merger Sub, dated the Closing Date, as to the incumbency of any officer of the Purchaser or Merger Sub, as applicable, executing this Agreement or any document related thereto and covering such other matters as the Company may reasonably request; (ii) certified copies of (1) the Certificate of Incorporation and by-laws of each of the Purchaser and Merger Sub and all amendments thereto, and (2) the resolutions of the Board of Directors of each of the Purchaser and Merger Sub authorizing the execution, delivery and consummation of this Agreement and the transactions contemplated hereby and thereby; and (iii)such other documents or instruments as the Company reasonably requests to effect the transactions contemplated hereby. ARTICLE VII Termination Section 7.1. TERMINATION. This Agreement may be terminated at any time prior to Closing as follows: (a) by joint consent of the Company and the Purchaser; (b) by the Company, if the Purchaser or Merger Sub shall breach in any material respect any of their respective representations, warranties or obligations contained in this Agreement; (c) by the Purchaser if the Company and Counsel shall breach in any material respect any of their respective representations, warranties or obligations contained in this Agreement; (d) by either the Purchaser or the Company, if any authorization, consent, waiver or approval required for the consummation of the transactions contemplated hereby shall impose any condition or requirement, which condition or requirement such party determines, in its good faith judgment, to be materially burdensome or to deny to such party in any material respect the benefits intended to be obtained by such party pursuant to the transactions contemplated by this Agreement; or (e) by either the Purchaser or the Company if the transactions contemplated by this Agreement shall not have been consummated on or before the date that is ninety (90) days from the date of this Agreement (or such later date as may be agreed upon in writing by the parties hereto). Section 7.1. EFFECT OF TERMINATION. If this Agreement is terminated pursuant to Section 7.1 hereof, all rights and obligations of the parties hereunder shall terminate and no party shall have any liability to the other party, except for obligations of the parties hereto in Sections 5.1 and 9.2, which shall survive the termination of this Agreement, and except nothing herein will relieve any party from liability for any breach of any representation, warranty, agreement or covenant contained herein prior to such termination. ARTICLE VIII Survival of Representations and Warranties; Indemnification Section 8.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties provided for in this Agreement shall survive the Closing for a period of three (3) years (the "Survival Period"). Section 8.2. INDEMNIFICATION. (a) Counsel shall indemnify and hold harmless the Purchaser, its Affiliates, officers, directors, employees, agents, counsel and representatives, and any Person claiming by or through any of them, against and in respect of any and all claims, costs, expenses, damages, liabilities, losses or deficiencies (including, without limitation, counsel's fees and other costs and expenses incident to any suit, action or proceeding) (the "Damages") arising out of, resulting from or incurred in connection with any inaccuracy in any representation or the breach of any warranty made by the Company in this Agreement for the applicable Survival Period (disregarding, for this purpose, any materiality limitation contained therein). (b) The Purchaser shall indemnify and hold harmless, each of the Company and Counsel and the other holders of Company Common Stock, their respective Affiliates, agents , counsel and representatives, and any Person claiming by or through any of them, against and in respect of any and all Damages arising out of, resulting from or incurred in connection with (i) any inaccuracy in any representation or the breach of any warranty made by the Purchaser; or the Merger Sub in this Agreement for the applicable Survival Period, (disregarding, for this purpose, any materiality limitation contained therein), or (ii) the breach by the Purchaser or the Merger Sub of any covenant or agreement to be performed by either of them hereunder. (c) Any Person providing indemnification pursuant to the provisions of this Section 8.2 is hereinafter referred to as an "Indemnifying Party" and any Person entitled to be indemnified pursuant to the provisions of this Section 8.2 is hereinafter referred to as an "Indemnified Party." Section 8.3. PROCEDURES FOR THIRD PARTY CLAIMS. In the case of any claim for indemnification arising from a claim of a third party (a "Third Party Claim"), an Indemnified Party shall give prompt written notice to the Indemnifying Party of any claim or demand of which such Indemnified Party has knowledge and as to which it may request indemnification hereunder. Notwithstanding the provisions of this Section 8.3, the Indemnifying Party's and its Affiliates' aggregate liability for any such Third Party Claim shall in any event be limited to the amount set forth in Section 8.4 of this Agreement. The Indemnifying Party shall have the right to defend and to direct the defense against any such Third Party Claim, in its name or in the name of the Indemnified Party, as the case may be, at the expense of the Indemnifying Party, and with counsel selected by the Indemnifying Party unless (i) such Third Party Claim seeks an order, injunction or other equitable relief against the Indemnified Party, or (ii) the Indemnified Party shall have reasonably concluded that (x) there is a conflict of interest between the Indemnified Party and the Indemnifying Party in the conduct of the defense of such Third Party Claim or (y) the Indemnified Party has one or more defenses not available to the Indemnifying Party. Notwithstanding anything in this Agreement to the contrary, the Indemnified Party shall, at the expense of the Indemnifying Party, cooperate with the Indemnifying Party, and keep the Indemnifying Party fully informed, in the defense of such Third Party Claim. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel employed at its own expense; PROVIDED, HOWEVER, that, in the case of any Third Party Claim described in clause (i) or (ii) of the second preceding sentence or as to which the Indemnifying Party shall not in fact have employed counsel to assume the defense of such Third Party Claim, the reasonable fees and disbursements of such counsel shall be at the expense of the Indemnifying Party. The Indemnifying Party shall have no indemnification obligations with respect to any Third Party Claim which shall be settled by the Indemnified Party without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. Section 8.4. PROCEDURES FOR INTER-PARTY CLAIMS. In the event that an Indemnified Party determines that it has a claim for Damages against an Indemnifying Party hereunder (other than as a result of a Third Party Claim), the Indemnified Party shall give prompt written notice thereof to the Indemnifying Party, specifying the amount of such claim and any relevant facts and circumstances relating thereto. The Indemnified Party shall provide the Indemnifying Party with reasonable access to its books and records for the purpose of allowing the Indemnifying Party a reasonable opportunity to verify any such claim for Damages. The Indemnified Party and the Indemnifying Party shall negotiate in good faith regarding the resolution of any disputed claims for Damages. Promptly following the final determination of the amount of any Damages claimed by the Indemnified Party, the Indemnifying Party shall pay such Damages to the Indemnified Party by wire transfer or check made payable to the order of the Indemnified Party, without interest. In the event that the Indemnified Party is required to institute legal proceedings in order to recover Damages hereunder, the cost of such proceedings (including costs of investigation and reasonable attorneys' fees and disbursements) shall be added to the amount of Damages payable to the Indemnified Party. No Indemnifying Party's and its Affiliates' aggregate liability, i.e. the amount of Damages payable, under this Section 8.4, shall exceed $ (excluding (i) liabilities for taxes (ii) liabilities arising from knowing misrepresentations or fraud and (iii) claims for breach of the representations and warranties contained in Section 3.5). Section 8.5. PAYMENT OF DAMAGES. To the extent that Counsel is liable for any Damages as the Indemnifying Party hereunder, such Damages be shall be funded solely from Merger Shares returned by Counsel in an amount such that the total Merger Shares so returned by Counsel shall equal the amount of such Damages, with the value of such shares to be the higher of the fair market value thereof or $0.56 per share. ARTICLE IX Miscellaneous Section 9.1. NOTICES. All notices or other communications required or permitted hereunder shall be in writing and shall be delivered personally, by facsimile or sent by certified, registered or express air mail, postage prepaid, and shall be deemed given when so delivered personally, or by facsimile, or if mailed, five days after the date of mailing, as follows: If to the Purchaser: I-Link Incorporated 13751 S. Wadsworth Park Drive Suite 200 Draper, Utah 84020 Telephone: (801) 576-5000 Facsimile: (801) 576 4295 Attention: John Edwards, President With a copy to: De Martino Finkelstein Rosen & Virga Suite 400, 1818 N Street, N.W. Washington, District of Columbia 20036 Telephone: (202)659-0494 Facsimile: (202) 659-1290 Attention: Ralph De Martino If to the Company: WebToTel Inc. c/o Counsel Corporation 280 Park Avenue, 28th Floor New York, New York 10017 Telephone: (212) 286-5000 Facsimile: (212) 867-3226 Attention: Allan Silber, Chairman With a copy to: Wollmuth Maher & Deutsch LLP 500 Fifth Avenue, Suite 1200 New York, New York 10110 Telephone: (212) 382-3300 Facsimile: (212) 382-0050 Attention: Mason H. Drake, Esq.
or to such other address as any party hereto shall notify the other parties hereto (as provided above) from time to time. Section 9.2. EXPENSES. Except as otherwise specifically provided in this Agreement (including, without limitation, Section 5.10 hereof, which provides for payment by the Purchaser of Counsel's and its Affiliates' expenses), each party will pay its own expenses incident to this Agreement and the transactions contemplated hereby, including legal and accounting fees and disbursements. Any payments for sales, transfer or other taxes or fees applicable to the conveyance and transfer to the holders of Company Common Stock of the Merger Consideration shall be borne by the Purchaser. The provisions of this Section shall survive any termination of this Agreement. Section 9.3. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without reference to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the non-exclusive jurisdiction of the courts of the State of Delaware and the United States District Court for the District of Delaware for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Section 9.4. ASSIGNMENT; SUCCESSORS AND ASSIGNS; NO THIRD PARTY RIGHTS. Except as otherwise provided herein, this Agreement may not be assigned by operation of law or otherwise, and any attempted assignment shall be null and void. The Purchaser may assign all of its rights under this Agreement to any Affiliate; PROVIDED such Affiliate assumes all of the obligations of the Purchaser hereunder; and PROVIDED further that the Purchaser shall remain liable for such Affiliate's failure to meet any of the obligations of Purchaser hereunder. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, assigns and legal representatives. This Agreement shall be for the sole benefit of the parties to this Agreement and their respective heirs, successors, assigns and legal representatives and is not intended, nor shall be construed, to give any Person, other than the parties hereto and their respective heirs, successors, assigns and legal representatives, any legal or equitable right, remedy or claim hereunder. Section 9.5. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original agreement, but all of which together shall constitute one and the same instrument. Section 9.6. TITLES AND HEADINGS. The headings in this Agreement are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. Section 9.7. ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits attached thereto, constitutes the entire agreement among the parties with respect to the matters covered hereby and supersedes all previous written, oral or implied understandings among them with respect to such matters. Section 9.8. AMENDMENT AND MODIFICATION. This Agreement may only be amended or modified in writing signed by the party against whom enforcement of such amendment or modification is sought. Section 9.9 WAIVER. Any of the terms or conditions of this Agreement may be waived at any time by the party or parties entitled to the benefit thereof, but only by a writing signed by the party or parties waiving such terms or conditions. Section 9.10. SEVERABILITY. The invalidity of any portion hereof shall not affect the validity, force or effect of the remaining portions hereof. If it is ever held that any restriction hereunder is too broad to permit enforcement of such restriction to its fullest extent, such restriction shall be enforced to the maximum extent permitted by law. Section 9.11.NO STRICT CONSTRUCTION. Each party hereto acknowledges that this Agreement has been prepared jointly by the parties hereto, and shall not be strictly construed against either party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. I-LINK INCORPORATED By:______________________________ Title: I-LINK ACQUISITION CORP. By:______________________________ Title: WEBTOTEL INC. By:______________________________ Title: COUNSEL COMMUNICATIONS LLC By:______________________________ Title: -----END PRIVACY-ENHANCED MESSAGE-----