KTEL KonaTel Inc (QB)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Date of earliest event reported: January 22, 2024

 

KonaTel, Inc.

(Exact name of Registrant as specified in its charter)

 

N/A

(Former name or address, if changed since last report)

 

Delaware		001-10171		80-0973608
(State or Other Jurisdiction Of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification Number)

 

500 N. Central Expressway, Suite 202

Plano, Texas 75074

(Address of Principal Executive Offices, Including Zip Code)

 

(214) 323-8410

(Registrant’s Telephone Number, Including Area Code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

 

☐  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) 

 

☐  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) 

 

☐  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter or Rule 12b-2 of the Securities and Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☐ 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

FORWARD LOOKING STATEMENTS

 

This Current Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Current Report. We cannot assure you that the forward-looking statements in this Current Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should carefully read this Current Report completely, and it should be read and considered with all other reports filed by us with the United States Securities and Exchange Commission (the “SEC”). Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

 

EXPLANATORY NOTES

 

Except as otherwise indicated by context, references to the “Company,” “we,” “our,” “us” and words of similar import refer to “KonaTel, Inc.,” a Delaware corporation, formerly named Dala Petroleum Corp., which is the Registrant (“KonaTel”), and our wholly-owned subsidiaries, KonaTel, Inc., a Nevada corporation (“KonaTel Nevada”), Apeiron Systems, Inc., a Nevada corporation (“Apeiron Systems”), and IM Telecom, LLC, an Oklahoma limited liability company doing business as “Infiniti Mobile” (“IM Telecom” or “Infiniti Mobile”).

 

Section 1 - Registrant’s Business and Operations

 

Item 1.01 Entry into a Material Definitive Agreement.

Item 2.01 Completion of Acquisition or Disposition of Assets.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

Membership Interest Purchase Agreement

 

On January 22, 2024 (the “Effective Date”), KonaTel and IM Telecom entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Excess Telecom, Inc., a Nevada corporation (“Excess”). Pursuant to the Purchase Agreement, KonaTel agreed to sell 100% of KonaTel’s membership interest in IM Telecom (the “Membership Interest”) to Excess for an aggregate purchase price of $10,000,000 (the “Initial Purchase Price”). The executed Purchase Agreement and the related agreements described below under this Section 1 (the “Transaction Documents”) have been deposited in escrow with legal counsel for Excess pending the “Initial Closing.” Under the terms of the Purchase Agreement, the sale of the Membership Interest is to occur in two (2) closings. Subject to the terms and conditions of the Purchase Agreement, on the Initial Closing Date, which shall be the date that is two (2) Business Days following Excess’ receipt from Universal Service Administrative Company (“USAC”) of its January 2024 account receivable in connection with the ACP Connectivity Program (an FCC Communications Commission [“FCC] benefit program that helps ensure that households can afford broadband for various uses [respectively, the “ACP Connectivity Program” or “ACP”]), KonaTel shall sell, transfer and deliver certain Class A Units in IM Telecom, which Class A Units have a Membership Percentage Interest of Forty-Nine Percent (the “49% Interest” or the “Class A Units”) of IM Telecom to Excess, and Excess shall purchase all of KonaTel’s right, title and interest in and to such 49% Interest (respectively the “Initial Closing” and the “Initial Closing Date”) in consideration of $10,000,000.

 

Payment of the Purchase Price shall be made as follows and as more fully discussed below: (i) $1,000,000 within one (1) Business Day of the Effective Date (the “Deposit” [paid January 23, 2024]); (ii) on the Initial Closing Date, the Initial Purchase Price ($10,000,000 [received on January 30, 2024]) minus the $1,000,000 Deposit; the Closing Liabilities of approximately $5,201,855, subject to per diem adjustments (the “CCUR Loan” principal of $3,650,000, if paid by January 29, 2024, along with accrued interest of approximately $52,925 and attorney’s fees of $11,585; and approximately $1,462,345 in principal and $25,000 in attorney’s fees of $25,000 owed to “ACP Financing” [the “Secured Debt”]); the Holdback Amount (“$1,000,000”); and two-thirds (2/3^rds of the Finder’s Fee Payment ($250,000); (iii) and if on or before December 31, 2024, the ACP Connectivity Program is renewed by Congress for a duration of greater than four (4) months (the “ACP Renewal Condition”), Excess will pay KonaTel the additional sum of $5,000,000 (the “ACP Renewal Earnout), less the balance of the Finder’s Fee Payment (approximately $125,000); and at the Final Closing, Excess will pay KonaTel the sum of $100.00 for the remaining Fifty-One Percent (51%) of the Membership Percentage Interest in IM Telecom. Excluding the ACP Renewal Earnout payment of $5,000,000, KonaTel will have received a net of approximately $3,548,145 (which includes the $1,000,000 Deposit paid on January 23, 2024) on the Initial Closing Date and will have satisfied all of its Secured Debt referenced above. KonaTel’s miscellaneous transaction fees and legal fees will also be paid out of the Initial Purchase Price.

 

 

The Purchase Agreement requires that $1,000,000 of the sale proceeds at the Initial Closing to be held back by Excess and retained by Excess pending resolution of certain liabilities of IM Telecom and the performance of certain obligations of KonaTel following the Initial Closing. These liabilities and obligations generally include resolution of non-material potential infractions of which IM Telecom has been notified of by the FCC, the assignment of real estate leases from IM Telecom to KonaTel and any present or future employment or tax matters that arise prior to or after the date of Initial Closing. The holdback provisions include a process for the parties to agree upon a closing settlement statement to address any charges, fees, taxes or penalties that may arise within 180 days of the Initial Closing date and upon final settlement by the parties, any remaining funds will the paid over to KonaTel.

 

The Purchase Agreement also requires that KonaTel obtain security interest releases of IM Telecom from credit facilities to which IM Telecom is bound and such releases have been obtained. In obtaining such security interest releases, KonaTel will pay or has paid all amounts owed to CCUR Holdings, Inc., a Delaware corporation and its loan participants under a credit facility pursuant to the Note Purchase Agreement, dated as of June 14, 2022 in the approximate outstanding principal amount of $3,681,660 (subject to per diem adjustment [the “CCUR Loan”]), which payment will be or has been made from the sale proceeds received from Excess under Initial Closing of the Purchase Agreement. See the 8-K Current Report dated June 14, 2022, and filed with the SEC on June 21, 2022, and the 8-KA Current Report dated June 14, 2022, and filed with the SEC on June 7, 2023, regarding the CCUR Loan, and which are Hyperlinked in Section 9-Financial Statements and Exhibits, Item 9.01 Financial Statements and Exhibits (“Item 9.01”), below, and are incorporated herein by reference.

 

KonaTel will continue to operate Infiniti Mobile under the licenses held by IM Telecom as the 51% majority owner of IM Telecom while the parties seek FCC approval and applicable state approvals for the final sale of the remaining Membership Interest. The FCC approval process is expected to take up to one (1) year or longer. During this time, KonaTel will remain the 51% majority equity owner of IM Telecom.

 

Upon the Initial Closing, KonaTel will cause certain tangible and intangible assets of IM Telecom (such as all furnishings, fixtures and equipment and the tradename of “Infiniti Mobile” and “Lifeline+”) to be transferred and assigned to KonaTel. KonaTel will use such assets for the purpose of continuance of the brand “Infiniti Mobile.” The only material asset of IM Telecom following the Initial Closing and transfer of the assets above to KonaTel will be its current licenses and permits (collectively the “Licenses”) to continue to operate its Lifeline Program, which is administered by the USAC pursuant to authorizations, certificates, designations and registrations from the FCC, and eleven (11) states (the “Lifeline Business”); and providing Infiniti Mobile prepaid wireless phone services throughout the United States through online marketing, affiliate programs and through distributors to low-income customers that qualify for the Lifeline Program and Affordable Connectivity Program and wireless phone services (the Lifeline Business and the “ACP Business” may be referred to hereinafter collectively the “Business”). For purposes of ensuring the ongoing Infiniti Mobile sales, KonaTel will transfer all of the employees of IM Telecom as of the Initial Closing date to KonaTel, and such employees will become direct employees of KonaTel.

 

Following the Initial Closing, the Purchase Agreement requires that KonaTel and Excess cooperate with each other and use reasonable best efforts to obtain the necessary federal and state governmental approvals for a change in control of IM Telecom (collectively, the “Approvals”) for the sale of all the Membership Interest to Excess. Excess will bear the cost of preparing all filings and submissions for obtaining the Approvals, including legal fees associated therewith. Additionally, IM Telecom has filed for twenty-six (26) additional state Lifeline approvals and will continue to pursue these approvals for the use of the current and new licenses by KonaTel under the Infiniti Mobile brand. The second closing under the Purchase Agreement (the “Final Closing”) is conditioned on obtaining the Approvals, among other customary closing conditions. In the event that Excess is unable to procure the Approvals, Excess may, in its sole discretion, wait for the Approvals without any deadline or outside date; or assign its rights and interests under the Purchase Agreement and related transaction documents to any third party.

 

After the Initial Closing until the Final Closing, Excess and KonaTel will (x) conduct the business of the IM Telecom in the ordinary course of business consistent with past practice and the terms of an interim management agreement; and (y) use reasonable best efforts to maintain and preserve intact the IM Telecom’s current organization, operations and franchise and to preserve the rights, franchises, goodwill and relationships of its customers, lenders, suppliers, regulators and others having relationships with the IM Telecom.

 

The Purchase Agreement requires that KonaTel refund the Initial Purchase Price paid by Excess only if, prior to the Final Closing of the remaining 51% interest in IM Telecom, (i) the License from the FCC to operate the Lifeline Business is revoked by the FCC solely due to KonaTel’s failure to operate its business in compliance with the terms of such License, (ii) KonaTel terminates or is purported to terminate the Purchase Agreement, or (iii) KonaTel’s Default in any of its obligations

 

under the Purchase Agreement necessary to effectuate the Initial or Final Closing or any conditions precedent thereto; provided, that, the failure by Excess to obtain the Approvals not arising from or in connection with any act or omission of a KonaTel, will not be a Refundable Termination Event. KonaTel’s “Default” means KonaTel’s breach of, default under, or inaccuracy or incompleteness in, any representation, warranty, covenant, or agreement contained in this Agreement or any other document or instrument to be delivered pursuant to the terms of this Agreement, following the expiration or termination of any applicable cure period, if any, with respect to covenants and agreements in the instance such breach or default with respect to a covenant or agreement is capable of cure. Except as provided in the termination provision(s) of the Purchase Agreement, summarized above, if the FCC does not approve Excess’ acquisition of IM Telecom (i.e., transfer of majority ownership of IM Telecom from KonaTel to Excess), KonaTel shall NOT be obligated to refund any portion of the Purchase Price or Excess’s associated costs for this transaction, and KonaTel shall continue to own 51% of the equity interest in IM Telecom.

 

Upon satisfaction (or waiver) of the closing conditions for the Final Closing and as indicated above, Excess is required to pay KonaTel $100.00 for the remaining 51% of the Membership Interest. After the Final Closing, KonaTel will continue to serve its customers and procure new customers using its tradenames of “Infiniti Mobile” and “Lifeline+” under the Licenses of IM Telecom pursuant to a Master Distribution Agreement between IM Telecom and KonaTel (the “Distribution Agreement”), which has been signed by each party and will become effective as of the date of Final Closing and which is discussed further below.

 

A $375,000 finder’s fee is also payable from the proceeds of the Purchase Price to a party not affiliated with KonaTel, IM Telecom or Excess in the manner provided above.

 

The Purchase Agreement also contains various customary provisions regarding Efforts and Further Assurances; Expenses; Notices; Binding Agreement and Assignment; No Third Party Beneficiaries; Indemnification; Specific Performance; Severability; Captions; Entire Agreement; Counterparts; Amendment and Modification and Waiver; Successors and Assigns; Governing Law, Jurisdiction and Venue; Attorney Fees; Interpretation; Time of the Essence; and Definitions. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement. A copy of the Purchase Agreement is attached hereto as Exhibit 10.1 and is incorporated herein by reference in Item 9.01 below, and should be fully considered in reviewing the foregoing summary.

 

Although there is strong bipartisan support for extension of the ACP Connectivity Program, the FCC is taking steps to inform customers of upcoming deadlines.  Because funding is needed for the extension, we suggest further reading on this topic to be fully informed on the progress of Congress to extend the program at:  https://docs.fcc.gov/public/attachments/DOC-399712A1.pdf

 

Management Agreement

 

As of the Initial Closing date of January 18, 2024, management of IM Telecom will be conducted pursuant to a management agreement (the “Management Agreement”) until the earlier of the date of Final Closing or 99 years. KonaTel and Excess desire and intend that the Management Agreement and the performance of the services thereunder comply fully with all applicable laws, including without limitation, applicable telecommunications laws and regulations, and that the Management Agreement will be interpreted and applied in such a manner as is consistent with all such laws and regulations. If the FCC or any state body of competent jurisdiction determines that any provision of the Management Agreement violates any communications licenses or the applicable telecommunications laws and regulations, KonaTel and Excess will use their reasonable best efforts to immediately bring the Management Agreement into compliance therewith, consistent with the non-violative terms and provisions of the Management Agreement. KonaTel and Excess agree that nothing in the Management Agreement is intended to give Excess any right that would be deemed to constitute a transfer by IM Telecom of “control” (as defined in applicable telecommunications laws and regulations) of its Business, any or all of its Licenses, or of one or more of its communications licenses to Excess.

 

Pursuant to the Management Agreement, a manager, acting as an independent contractor, will perform certain services such as managing the Business, filing FCC forms for the collection of reimbursements from USAC and state Lifeline administrators and collecting the amounts owed by the IM Telecom’s customers, preparing and filing applications, submissions, correspondence, reports and other documents that are required or necessary to be filed with any governmental authority with respect to the Business of IM Telecom, other than tax returns and for the payment of any and all liabilities arising in connection therewith. In addition, the manager will have authority and responsibility on all regulatory, legality and compliance issues, including initial enrollment standards, customer transfers (subject to KonaTel’s obligations in connection with KonaTel’s customers) and submission of claims for federal or state reimbursements from USAC or any other governmental body or the administrator of such governmental bodies; provided, that all such activities shall be undertaken in a commercially prudent manner and the manager is not permitted to take any actions that would cause the Licenses to be terminated, suspended or otherwise lapse.

 

 

The Management Agreement also provides for the receipt and distribution of proceeds that IM Telecom receives for its own account resulting from the operation of the Business, including, without limitation, any funds received for claims for reimbursements from the USAC under the Lifeline Business or the Affordable Connectivity Program. The distribution of the proceeds above to KonaTel and Excess will generally occur on a monthly basis as such proceeds are received by IM Telecom. In addition, the Management Agreement provides for the apportionment of certain expenses of the IM Telecom operations between KonaTel and Excess in an equitable manner so as to segregate the operating expenses and sales and use taxes for administration of business activities relating to their respective customers.

 

KonaTel will remain liable and responsible for, and is required to pay, perform and discharge fully and timely when due, all costs and expenses incurred by, or undertaken in connection with, the KonaTel’s customers under the IM Telecom License, including, without limitation, all losses, liabilities, damages, actions, claims, obligations, fines, costs, interest charges, lease, contract or rental payments, professional fees and other expenses of operation that exist, have existed, or have arisen or accrued with respect to IM Telecom or KonaTel or its business. Similarly, Excess is liable and responsible for, and will pay, perform and discharge fully and timely when due, all costs and expenses incurred by, or undertaken in connection with its customers, including, without limitation, all losses, liabilities, damages, actions, claims, obligations, fines, costs, interest charges, lease, contract or rental payments, professional fees and other expenses of operation that have arisen or accrued with respect to its customers.

 

The Management Agreement also contains various additional provisions. A copy of the Management Agreement is attached hereto as Exhibit 10.2 and is incorporated herein by reference in Item 9.01 below, and should be fully considered in reviewing the foregoing summary. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Management Agreement.

 

Master Distribution Agreement

 

On January 18, 2024, KonaTel, IM Telecom and Excess Telecom Inc. also executed a Master Distribution Agreement (the “Distribution Agreement”), the term of which will commence upon the Final Closing under the Purchase Agreement referenced above for a period of not less than ten (10) years. Pursuant to the Distribution Agreement, IM Telecom engages KonaTel as a master distributor of IM Telecom’s wireless services, products, Lifeline services, Affordable Connectivity Program (“ACP”) services to potential customers and such other ancillary services relating to Lifeline and ACP services offered to KonaTel’s customers under the Licenses held by IM Telecom (the “Services”). These Services provided by KonaTel will be offered under the Infiniti Mobile brand. The Services provided by KonaTel under the Distribution Agreement will be marketed under the Infiniti Mobile tradename and service mark, and the Infiniti Mobile Services are made exclusive to KonaTel under this Distribution Agreement.

 

During the term of the Distribution Agreement, under the brand name of Infiniti Mobile owned by KonaTel, KonaTel has the right to, (i) facilitate the enrollment of customers in the IM Telecom program under the Licenses held by IM Telecom, (ii) provide areas to display “point of sale” materials for implementing the IM Telecom program and procuring customers for KonaTel thereunder, (iii) implement and maintain reasonable physical, technical, administrative, and organizational safeguards to protect against unauthorized access to, or unauthorized destruction, use, modification, or disclosure of, confidential information, (iv) procure compatible devices and tablets in accordance with FCC and USAC rules and regulations, and (v) to activate service for KonaTel’s customers under the Infiniti Mobile brand and on the appropriate network(s) of KonaTel’s underlying cellular carrier(s).

 

Either Excess and IM Telecom, on the one hand, or KonaTel, on the other hand, may terminate the Distribution Agreement for the other’s material breach of the Distribution Agreement unless such breach is cured within the applicable cure period.

 

After any termination of the Distribution Agreement, KonaTel will be entitled to: (i) receive, the unpaid amounts payable under Distribution Agreement as of the date of termination to the extent actually received by IM Telecom, (ii) to continue to receive each month, for not more than three (3) years, the recurring compensation as provided for each valid customer secured by KonaTel during the term of the Distribution Agreement so long as (a) such customer remains active including having usage; and (b) Excess and/or IM Telecom continues to receive state and federal Lifeline or ACP funding for such customer (and IM Telecom or Excess, as applicable, agree not to intentionally cease to allow receipt of such funding), and (iii) transition the customers in clause (ii) above to another ACP or LifeLine program over such three [3] year period.

 

KonaTel’s compensation under the Distribution Agreement is 100% of the amount of funds (revenue) collected from the Lifeline and ACP reimbursement funds each month for each customer acquired by the KonaTel less the IM Telecom flat monthly fee amounts for the applicable number of customers for the applicable calendar month period and expenses incurred by IM Telecom in the provision of IM Telecom products and wireless services to the customers acquired by KonaTel. The flat monthly fee amounts to be paid by KonaTel are generally based on the number of KonaTel customers under the IM Telecom license platform as follows: $10,000, if less than 100,000 KonaTel customers; $20,000 if 100,000 KonaTel customers, but less than 250,000 KonaTel customers; and $30,000 if 250,000 KonaTel customers (the “KonaTel Flat Fee”). The KonaTel Flat Fee amounts above will be determined on a monthly basis and based on the applicable number of the KonaTel customers for such monthly period.

 

The Distribution Agreement also contains various additional provisions. A copy of the Distribution Agreement is attached hereto as Exhibit 10.3 and is incorporated herein by reference in Item 9.01 below, and should be fully considered in reviewing the foregoing summary. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Management Agreement.

 

Amended and Restated Operating Agreement

 

On January 18, 2024, KonaTel and Excess have entered into an Amended and Restated Operating Agreement for IM Telecom (the “Operating Agreement”) to document the respective ownership of the Membership Interest. Pursuant to the Operating Agreement, KonaTel owns 51% of the Membership Interest in IM Telecom and Excess owns 49% of the Membership Interest in IM Telecom. The Operating Agreement provides that cash proceeds that IM Telecom receives for its own account resulting from the operation of the Business of IM Telecom, including, without limitation, any funds received for claims for reimbursements from USAC under the Lifeline Program administered by USAC and state Lifeline administrators (and any funds received under the Affordable Connectivity Program) and any other amounts owed or paid by IM Telecom’s customers, any sale, exchange, or other dispositions of property, including condemnation or casualty will be distributed to KonaTel and Excess. Such proceeds will be apportioned between KonaTel and Excess based on receipts arising from their respective customers and subscribers under the IM Telecom platform as opposed to the equity Membership Interest percentages of KonaTel and Excess in IM Telecom. The payment of such proceeds will be adjusted for (i) operating charges and expenses (which shall not include any depreciation or amortization deductions) included in computing tax profits and losses, (ii) the payment of all expenses of IM Telecom incident to the transactions resulting in such proceeds, (iii) the payment of debts and liabilities of IM Telecom then due and outstanding, and (iv) the establishment of any reserves that Excess reasonably elects to maintain subject to certain terms therein.

 

As of January 18, 2024, KonaTel and Excess are the only members of IM Telecom under the Operating Agreement (each a “Member” and collectively the “Members”). Following the Initial Closing under the Purchase Agreement, the parties acknowledge that the effect of Purchase Agreement will result in Excess having a book capital account of $15,000,000, and KonaTel having a book Capital Account of $0.00.

 

Pursuant to the Operating Agreement, IM Telecom will be managed in accordance with the operational terms in the Management Agreement described above. In general and subject to certain terms under the Operating Agreement, no Member, acting solely in the capacity as a Member, is permitted to participate in the management or conduct of the IM Telecom’s business, operations or affairs, except with respect to those matters requiring the approval of Members whose aggregate percentage Membership Interests in IM Telecom equals or exceeds Seventy-Five Percent (75%) of all Membership Interests or any other vote, consent or approval of the Members as expressly set forth in the Operating Agreement or applicable law.

 

The Operating Agreement allows each Member (KonaTel and Excess) to engage or invest in any activity even if it directly or indirectly competes with IM Telecom, and neither IM Telecom nor any Member shall have any right in or to such other activities or to the income or proceeds derived by such parties outside the business of IM Telecom. For a period of three (3) years after a Member is no longer a Member of IM Telecom (the “Restricted Period”), such Member may not directly or indirectly do any of the following: (i) intentionally solicit, call on, divert, take away, influence or induce any of the other Member’s (the “Other Member”) (a) clients, customers or distributors or prospective customers or distributors (wherever located) with respect to goods, products or services that are competitive with the Other Member’s business, or (b) suppliers or vendors or prospective suppliers or vendors (wherever located) to supply materials, resources or services to be used in connection with goods or services that are competitive with those of the Other Member’s business, or in a manner that would materially and

 

adversely affect the Other Member’s relationship with such persons; (ii) hire, solicit, or take away any person or entity who or which was an employee of or service provider or consultant to the Other Member within the twelve (12) month period prior to the date of such hiring, solicitation or taking away, or is or becomes at any time during the Restricted Period an employee or service provider or consultant of the Other Member or any of its affiliates or related parties; or (iii) directly or indirectly assist any person or entity to take or attempt or offer to take any of the foregoing actions; provided, the foregoing provisions will not be deemed or construed to restrict general solicitations that may, without specific intent, violate the foregoing terms above.

 

In general, the other operational and tax matters in the Operating Agreement require the cooperation of the Members. However, the approval of KonaTel is required for any amendment to the Purchase Agreement, the Management Agreement or any compromise of any claim on behalf of IM Telecom with respect to a breach by Excess under the Purchase Agreement or the Management Agreement. In managing the Business and day-to-day affairs of IM Telecom and in carrying out the respective duties of the Members in connection therewith, the members are required to act in good faith.

 

Distributable proceeds resulting from ordinary operations of the IM Telecom will be specifically allocated and distributed to KonaTel and Excess in proportion to their respective entitlement to the distributions of cashflow pursuant to and under the Management Agreement.

 

In general, no Member may transfer, for consideration or by way of gift, bequest or otherwise, all or any part of its Membership Interest, whether or not any change in record or beneficial ownership occurs, nor may all or any part of his, her or its Membership Interest be made subject to execution, attachment or similar process, either voluntarily, involuntarily or by operation of law without the approval of the Members. However, under certain circumstances, the Members may transfer economic interests in IM Telecom to third parties. Upon the Member’s approval, IM Telecom may be dissolved.

 

The Members of IM Telecom expect and intend applicable taxing authorities to treat IM Telecom as a partnership for income tax purposes. Under the Operating Agreement, the Members agree that they shall not (i) take a position, or make any assertion, on any federal, state, local or other Tax return that is inconsistent with such expectation or intent, or (ii) make any election or do any act or thing that could cause IM Telecom to be treated as other than a partnership for income tax purposes. The Operating Agreement includes customary terms for arbitration of disputes, tax reporting, indemnification and maintenance and review of books and records of IM Telecom.

 

The Operating Agreement also contains various additional provisions. A copy of the Operating Agreement is attached hereto as Exhibit 10.3 and is incorporated herein by reference in Item 9.01 below, and should be fully considered in reviewing the foregoing summary. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Management Agreement.

 

Other Matters

 

Sale of Tempo Telecom Contract Rights

 

On January 24, 2023, KonaTel entered into a non-material Membership Interest Purchase Agreement to acquire 100% of Tempo Telecom, LLC, a Georgia limited liability company, an Eligible Telecommunications Carrier (“ETC”), authorized to provide Lifeline services in twenty-one (21) states (respectively, the “Tempo Purchase Agreement” and “Tempo”), the closing of which is subject to the approval of the FCC and applicable state and other governmental agencies, among other conditions.

 

On April 6, 2023, pursuant to a Purchase of Contract Rights Agreement between KonaTel and Insight Mobile, Inc., a Delaware corporation (respectively, the “Insight Mobile Agreement” and “Insight Mobile”), KonaTel and Insight Mobile executed and delivered an Assumption of Membership Interest Purchase Agreement (the “Assignment Agreement”), which is being held in escrow by counsel for Insight Mobile (the “Escrow Agent”) pending satisfaction of all conditions to the Closing of the Purchase Agreement, and whereby Insight Mobile has agreed to pay KonaTel a Purchase Price of $4,500,000 for KonaTel’s “Contract Rights” under the Tempo Purchase Agreement. Filings for FCC approval of the Tempo Purchase Agreement and the Assignment Agreement were filed with the FCC in May, 2023, and such approvals generally require approximately one (1) year or more to obtain.

 

Nothing contained in this Current Report related to the agreements with Excess has any effect on the rights of KonaTel to the $4,500,000 Purchase Price under the Insight Mobile Agreement and the Assignment Agreement. For additional information on the Insight Mobile Agreement and the Assignment Agreement, see the 8-K Current Report dated April 6, 2023, and filed with the SEC on April 17, 2023, which is Hyperlinked in Item 9.01 below and is incorporated herein by reference.

 

On January 23, 2024, Insight Mobile exercised its rights under Section 1.07 of the referenced Membership Interest Purchase Agreement regarding a “Notice of Extension of Closing Condition-Governmental Approvals, seeking an extension of 180 days for closing or such longer period as may be required to satisfy the required Governmental Approvals to closing.

 

ACP Financing Installment Sale Agreement

 

Effective December 18, 2023, KonaTel and IM Telecom, as Purchasers, entered into an Installment Sale Agreement (the “Installment Sale Agreement”) with ACP Financing VII Limited Liability Company, a Texas limited liability company (“ACP Financing”), as Seller, pursuant to which Seller has agreed to purchase new and refurbished cellular devices for distribution through the Purchaser’s distribution network to Affordable Connectivity Program Federal Lifeline and California Lifeline eligible consumers, such devices operating on 4G or better technology platforms or any such other consumer technology equipment upon the mutual agreement of Seller and Purchaser (the “Devices”), and to sell such Devices to Purchaser. KonaTel plans to novate this Installment Sale Agreement to its use following the payment of any outstanding amounts owed to ACP Financing on the Initial Closing of the Purchase Agreement with Excess. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Installment Sale Agreement. For additional information on the Installment Sale Agreement, see the 8-K Current Report dated December 18, 2023, and filed with the SEC on December 22, 2023, which is Hyperlinked in Item 9.01 below and is incorporated herein by reference. The total liability of KonaTel under the Installment Sale Agreement at January 29, 2024, is approximately $1,462,345 in principal and an additional $25,000 in attorney’s fees, which is referenced above under the description of the Initial Closing Date of the Purchase Agreement between KonaTel and Excess.

 

Section 9 – Financial Statements and Exhibits

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits:

 

Exhibit No.		Description of Exhibit
10.1		Membership Interest Purchase Agreement
10.2		Management Agreement
10.3		Master Distribution Agreement
10.4		Amended and Restated Operating Agreement

 

8-K Current Report dated June 14, 2022, and filed with the SEC on June 21, 2022 (CCUR Loan)

 

8-KA Current Report dated June 14, 2022, and filed with the SEC on June 7, 2023 (CCUR Loan)

 

8-K Current Report of the Company dated April 6, 2023, and filed with the SEC on April 17, 2023 (Insight Mobile Agreement-Assignment Agreement-Tempo)

 

8-K Current Report dated December 18, 2023, and filed with the SEC on December 22, 2023 (ACP Financing Installment Sale Agreement)

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	KonaTel, Inc.
Date: January 30, 2024	By:	/s/ D. Sean McEwen
		D. Sean McEwen
		Chairman and Chief Executive Officer

  

8

 

 

eXHIBIT 10.1

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”), dated and effective as of January 22, 2024 (the “Effective Date”), by and among IM Telecom, LLC, an Oklahoma limited liability company (hereafter the “Company”); KonaTel, Inc., a Delaware corporation (hereafter the “Seller”); and Excess Telecom, Inc., a Nevada corporation (hereinafter the “Buyer”). The Company, Seller and Buyer are referred to herein collectively as the “Parties” or individually as a “Party.”

RECITALS

WHEREAS, the Company is engaged in the business of providing wireless phone services to low-income customers which qualify for the Federal Communications Commission (“FCC”) Lifeline Program which is administered by the Universal Service Administrative Company (“USAC”) pursuant to authorizations, certificates, designations, and registrations from the FCC and (11) states (the “Lifeline Business”);

WHEREAS, the Company is also engaged in the business of providing prepaid wireless phone services throughout the United States through online marketing and through distributors to low-income customers that qualify for the Affordable Connectivity Program (the “ACP Business”) (the Lifeline Business and the ACP Business may be referred to hereinafter collectively the “Business”);

WHEREAS, the term “Regulated Assets” shall mean (a) the Company’s Lifeline and ACP customers including USAC and state reimbursements arising out of the Business; (b) all applications, billing, usage, customer support and other books and records evidencing or relating to the Company’s Lifeline or ACP customers including enrollment, transfers and verifications; (c) the FCC’s Compliance Plan approval (the “Compliance Plan”); (d) current and future state Eligible Telecommunications Carrier designations currently issued by California, Georgia, Kentucky, Maryland, Nevada, New York, Oklahoma, Pennsylvania, South Carolina, Vermont and Wisconsin (“State ETC Designations”); (e) state wireless registrations (“CMRS”); authorizations to transact business (“SOS”); (f) domestic FCC Section 214 authorization; and (g) FCC and USAC ACP Approvals;

WHEREAS, the term “Authorizations” shall mean: the Company’s: ((a) FCC Compliance Plan; (b) current and future State ETC Designations; (c) FCC Section 214 domestic authorization; (d) CMRS approvals ; (e) SOS approvals; and (f) FCC and USAC ACP Approvals;

WHEREAS, the term “Regulatory Approvals” shall mean the approval of the transactions contemplated herein by the following: (a) FCC of Revised Compliance Plan; (b) all applicable state public utilities commissions (“PUCs”) for the State ETC Designations and CMRS; and (c) any other applicable Governmental Authority having jurisdiction over the Regulated Assets. The foregoing shall collectively be referred to herein as the “Regulatory Agencies”);

WHEREAS, Seller is the sole owner of the Company and is the owner of all right, title and interest in and to all the limited liability company ownership interests of the Company (the “Membership Interests”) and intends for Buyer to acquire those interests and receive the benefit of all of the Company’s assets, except the Excluded Assets;

WHEREAS, Company, Seller, and Buyer intend to use their reasonable best efforts to apply for and receive, all Regulatory Approvals to transfer the Membership Interests and the Regulated Assets from Company to Buyer, free and clear of all Liens and Liabilities;

WHEREAS, Seller desires to sell to Buyer all of the Membership Interests of the Company, in exchange for the consideration described herein, and Buyer desires to acquire the Membership Interests from Seller free and clear of all Liens and Liabilities (the “Transaction”); and

WHEREAS, immediately after the execution of this Agreement, the Parties intend to seek and obtain the Regulatory Approvals required for the Transaction.

NOW, THEREFORE, subject to the conditions set forth herein and in consideration of the mutual benefits to be derived from this Agreement and of the representations, warranties, conditions, agreements and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

Article 1.
PURCHASE AND SALE; CLOSING

Section 1.1                       Purchase and Sale.

(a)       Initial Closing. Subject to the terms and conditions set forth herein, on the Initial Closing Date, which shall be the date two (2) Business Days following Buyer’s receipt from USAC of its January 2024 account receivable in connection with the ACP program, Seller shall sell, transfer and deliver the Class A Units, which Class A Units have a Percentage Interest of Forty-Nine Percent (the “49% Interest” or the “Class A Units”) to Buyer, and Buyer shall purchase all of Seller’s right, title and interest in and to such 49% Interest (the “Initial Closing”), free and clear of any and all liens, mortgages, pledges, security interest, right of first refusal, restriction of any kind, or Claims of any kind (collectively, “Liens”) or liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise (“Liabilities”); provided, that a portion of the Purchase Price will be used to discharge the specific Liens set forth on Section 1.1 of the Disclosure Schedule. The day on which the Initial Closing takes place being the “Initial Closing Date”).

(b)               Final Closing. Subject to the terms and conditions of this Agreement, the purchase and sale of the Class B Units in the Company, comprised of the Common Units with Percentage Interest of fifty-one percent (51%) (the “51% Interest” or the “Class B Units”) shall take place at a closing (the “Final Closing”) no later than two (2) days after the conditions set forth in Section 1.4 have been satisfied or waived, at the offices of Seller’s counsel, or remotely by exchange of documents and signatures (or their electronic counterparts), or at such other time or on such other date or at such other place as Seller and Buyer may mutually agree upon in writing (the day on which the Final Closing takes place being the “Final Closing Date”). The representations, warranties, covenants, and agreements will be made on a mutatis mutandis basis as of the Final Closing Date, subject in each case only to those changes necessary to conform each such representation, warranty, covenant, and agreement to reflect valid changes in the ownership of Units of the Company as a result of the Initial Closing. It is understood and agreed that by transferring the 51% Interest to Buyer on the Final Closing Date, Buyer will become the sole owner of the Company which owns all of the Permits and Regulated Assets, including the customer base of Buyer and all assets, tangible or intangible, as described in the Recitals above without limitation, including the Business, but excluding assets such as any interests in real estate, the receivables arising or payable by Company’s customers as of the Effective Date and receivables arising or payable by customers of the Company

(including any amounts due under the ACP or other Regulated Assets relating to such customers) and Seller pursuant to and as described in the Master Distribution Agreement and Management Agreement, or other assets which are listed in Schedule 1.1 (the “Excluded Assets”) which will be transferred from the Company to, and fully assumed by, Seller or another Person designated by Seller within 30 days of the Initial Closing Date; provided, however, all Liabilities arising from or in connection with such Excluded Assets shall continue to be Excluded Liabilities.

Section 1.2                       Purchase Price. The purchase price for the Membership Interests shall be Ten Million Dollars ($10,000,000.00) (the “Initial Purchase Price”) plus the ACP Renewal Earnout defined in Section 1.3(e) below (collectively, with the Initial Purchase Price, to the extent the ACP Renewal Earnout is actually earned, the “Purchase Price”), provided, that, the parties agree that the entire Purchase Price, subject only to the ACP Renewal Condition, will be deemed earned as of the Initial Closing subject to the occurrence of a Refundable Termination Event in accordance with the terms and conditions below, and at the Final Closing, the 51% Interest will be deemed and construed to have been purchased by Buyer or redeemed by the Company in consideration of the representations, warranties, covenants, and agreements of Buyer herein, the Company in any executory agreement in effect following the Initial Closing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged (including, without limitation, Buyer’s consent to the release of the Initial Purchase Price upon the Initial Closing). Upon Buyer’s demand following a Refundable Termination Event, the entire Purchase Price, to the extent funded by Buyer, will be immediately refunded to Buyer, and the foregoing obligation will accrue interest at the per annum rate of eighteen percent (18%) compounding monthly, commencing five (5) business days following Buyer’s demand, provided, further, that upon full return of such amounts, Buyer shall assign the 49% Interest back to Seller or otherwise void the original assignment thereof. The Purchase Price assumes that the Company has no liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise (collectively, “Liabilities”) that are not paid from and offset against the Purchase Price or unpaid taxes as of the date of each the Initial Closing and the Final Closing other than those Liabilities set forth on Exhibit A attached hereto and other Liabilities and obligations incurred in the ordinary course of business such as trade payables and payroll (the “Closing Liabilities”), and those Liabilities expressly permitted under the Master Distribution Agreement (which Liabilities shall continue to be Excluded Liabilities). In furtherance of the foregoing sentence, all amounts owing from the Company to Seller or affiliates of either Seller or the Company will be paid in full, waived, or eliminated prior to or simultaneously with the Initial Closing, including the Secured Debt. For the avoidance of doubt, Closing Liabilities includes all Closing Indebtedness and Transaction Expenses.

(a)       “Indebtedness” or “Closing Indebtedness” means as of the Initial Closing Date and as of the Final Closing Date: (i) all obligations of the Company for borrowed money or in respect of loans or advances, (ii) all obligations of the Company evidenced by bonds, debentures, notes or other similar instruments or debt securities, (iii) all obligations in respect of letters of credit and bankers’ acceptances issued for the account of the Company, (iv) all obligations arising from cash/book overdrafts, (v) all obligations arising from deferred compensation arrangements and all obligations arising out or in respect of severance plans or arrangements, bonus plans (including transaction bonuses) or similar arrangements payable as a result of the consummation of the Contemplated Transactions (whether triggered solely by the consummation of such transactions or upon such transactions and the occurrence of any other event), and the employer’s portion of all payroll, employment, unemployment, social security or Medicare Taxes payable with respect to the foregoing (regardless of when payable and without regard to any deferral available under the CARES Act or any Payroll Tax Executive Order), (vi) all obligations of the Company secured by a Lien (other than a Permitted Lien), (vii) all obligations required to be recorded as capital leases in accordance with GAAP as of the date of determination of such Indebtedness, (viii) all obligations for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables incurred in the ordinary course of business), including all deferred purchase price liabilities related to

past acquisitions, whether contingent or otherwise (including any “earn-out” or similar payments or obligations at the maximum amount payable in respect thereof), (ix) all unpaid Taxes of the Company in respect of all Pre-Closing Tax Periods, whether or not then due or payable, without regard to any deferral available to the Company, (x) (A) all accrued 401(k) plan employer contributions and (B) all obligations with respect to vacation, paid time off (PTO) benefits or sick leave owed to Seller or any employees of the Company (regardless of when payable and without regard to any deferral available under the CARES Act or any Payroll Tax Executive Order), (xi) all guaranties of the Company in connection with any of the foregoing, and (xii) all obligations in respect of accrued interest, prepayment premiums or the like or penalties related to any of the foregoing.

(b)               “Refundable Termination Event” means, in each case prior to the Final Closing (i) the revocation by the FCC of the Company’s license from the FCC to operate the Lifeline Business solely due to the Seller's failure to operate its business in compliance with the terms of such license, (ii) Seller’s termination or purported termination of this Agreement, (iii) Seller Default in any of its obligations under this Agreement necessary to effectuate the Closings or any conditions precedent thereto; provided, that, the failure by Buyer to obtain the Regulatory Approvals not arising from or in connection with any act or omission of a Seller Releasor, will not be a Refundable Termination Event. Seller’s “Default” means Seller's breach of, default under, or inaccuracy or incompleteness in, any representation, warranty, covenant, or agreement contained in this Agreement or any other document or instrument to be delivered pursuant to the terms of this Agreement, following the expiration or termination of any applicable cure period with respect to covenants and agreements in the instance such breach or default with respect to a covenant or agreement is capable of cure.

(c)       “Transaction Expenses” means (i) all Taxes, fees, costs and expenses (including investment bankers, attorney’s and accountant’s fees, costs and expenses) incurred by the Company or Seller in connection with the transactions contemplated by this Agreement, (ii) all change of control, bonus, incentive, termination, severance, retention or other similar payments that become payable by the Company or Seller to any Person as a result of the Contemplated Transactions or any other Transaction Document, in each case, together with the employer’s portion of any employment and payroll taxes and any payroll expenses related thereto (regardless of when payable and without regard to any deferral available under the CARES Act or any Payroll Tax Executive Order), (iii) all costs related to obtaining any directors and officers insurance or tail policy⁴, and (iv) third party out-of-pocket fees, costs and expenses incurred by or on behalf of the Company (including any such fees, costs and expenses of Seller’s or Company’s pre-Closing legal counsel), with respect to work performed for the Company in connection with this Agreement and the transactions and other agreements contemplated by this Agreement or the related solicitation of other potential buyers of the Company; provided, that the term “Transaction Expenses” shall not include any expenses for which Buyer incurs or is obligated to incur under this Agreement for the transfer of the Regulated Assets or otherwise expressly stated as a Buyer expense herein.

Section 1.3                       Payment of the Purchase Price. The Purchase Price shall be paid via federal funds wire transfer pursuant to wire instructions provided by the applicable payee below as follows:

(a)      Within one (1) Business Day of the Effective Date, Buyer will pay to Seller as a deposit and advance against the Purchase Price, the sum of One Million Dollars ($1,000,000), which amount will be credited to the Purchase Price at the Initial Closing (the “Deposit”).

(b)       On the Initial Closing Date, the Initial Purchase Price minus (i) the Closing Liabilities, (ii) minus the Holdback Amount, (iii) minus the FAStek Payment shall be paid to Seller, (iv) minus the Deposit, and (v) minus the Holdback Amount.

(c)               One Million Dollars ($1,000,000) of the Purchase Price constituting the Holdback Amount will be held back by Buyer pursuant to Section 1.8 below.

(d)       A two-thirds of the Three Hundred and Seventy-Five Thousand Dollars ($375,000.00) fee (the “FAStek Payment”) payable to FAStek Corporate Services, Inc (“FAStek”) shall be paid to FAStek.

(e)      If, on or before December 31, 2024, the ACP program is renewed by Congress for a duration of greater than four (4) months (the “ACP Renewal Condition”), then, within five (5) Business Days of the satisfaction of the ACP Renewal Condition, Buyer will pay to Seller the sum of Five Million Dollars ($5,000,000) (the “ACP Renewal Earnout”), less the remaining portion of the FAStek Payment, which will be paid directly to FAStek.

(f)          At the Final Closing, the Buyer shall pay to Seller the sum of One Hundred Dollars ($100.00), it being acknowledged that Seller shall have received other good and valuable consideration for the 51% Interest under and pursuant to the terms of the Transaction Documents.

Section 1.4                       Conditions to Buyer’s Obligations to Close. All obligations of Buyer under this Agreement are subject, at Buyer’s option, to the fulfillment, or waiver upon mutual agreement of the Parties, of each of the following conditions, before or at the date stated below for each condition:

(a)        For the Initial Closing, the representations and warranties of Seller contained herein shall be true and correct in all respects as of the Initial Closing Date.

(b)               For the Final Closing, the representations and warranties of Seller contained herein shall be true and correct in all respects as of the Final Closing Date.

(c)       Seller shall have performed and complied with all the terms and conditions required by this Agreement to be performed or complied with by Seller or the Company before or on the each of the Initial Closing Date and the Final Closing Date, as applicable to such dates, including without limitation timely making all deliveries required by Section 1.6(a).

(d)               Before or at the Initial Closing, Seller shall have made arrangements to transfer all Excluded Assets out of the Company, and upon such transfer, Seller shall provide proof (to Buyer’s reasonable satisfaction) that all Excluded Assets have been sufficiently assigned or assumed by persons of entities other than the Company to the extent such proof is reasonably available or customarily provided based on the type of a particular asset.

(e)       As of the Initial Closing Date and Final Closing Date, neither Seller nor the Company shall be subject to any applicable law or injunction restraining, prohibiting or making illegal the consummation of the transactions contemplated hereby; provided, that after the Initial Closing the parties intend to obtain the Regulatory Approvals necessary to consummate the assignment of the Regulated Assets.

(f)       As of the Final Closing, all Regulatory Approvals shall have been obtained other than those Regulatory Approvals that the Buyer and the Seller shall have agreed to obtain after the Final Closing.

(g)               Buyer shall have received certificates, dated as of each of the Initial Closing Date and the Final Closing Date, respectively, and in each case signed by a duly authorized officer of Seller, that each of the conditions set forth in Section 1.4(a) and Section 1.4(b), as applicable, have been satisfied.

(h)               Buyer shall have received a certificate of the Secretary of Seller certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Seller authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby.

(i)        Seller shall have delivered, to hold in trust pending the Final Closing, a counterpart signature page to the Master Distribution Agreement in a form mutually agreed to by Seller and Buyer (the “ Master Distribution Agreement”), which agreement will commence immediately following the Final Closing Date.

(j)        Seller shall have delivered an executed Management Agreement in the form of that attached hereto as Schedule 1.4(i) (the “Management Agreement”) with a term to start on the Initial Closing Date.

(k)               Seller shall have delivered to Buyer such other documents or instruments as Buyer reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement, to the extent permitted by applicable law or regulation and within Seller’s power or control to do so.

(l)         Buyer shall have completed and is satisfied with its due diligence review of the Company, in its sole discretion, which shall include, without limitation, a review of title to all tangible and intangible property of the Company, leases, contracts, and all other obligations or liabilities of the Company and information provided to Buyer by Seller or the Company hereunder; and

(m)             Seller shall have delivered to Buyer written resignations on or before the Initial Closing Date, to be effective as of the Final Closing Date and conditioned on the Final Closing, of all officers of the Company, if any; provided, that staff and operational managers of the Company may be retained by Seller as Seller’s employees and Seller will initiate the process with its payroll service provider to transition the employees of the Company to Seller within one (1) Business Day after the Initial Closing Date and Seller’s receipt of the funds in accordance with Section 1.3 (a) above.

Section 1.5                       Conditions to Seller’s Obligations to Close. All obligations of Seller under this Agreement are subject, at Seller’s option, to the fulfillment of each of the following conditions, before or at the date stated below for each condition:

(a)        The representations and warranties of Buyer contained herein shall be true and correct in all respects as of the Initial Closing Date and the Final Closing Date.

(b)               Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or on the Initial Closing Date and the Final Closing Date, as applicable.

(c)        The Buyer shall not be subject to any applicable law or injunction restraining, prohibiting or making illegal the consummation of the transactions contemplated hereby.

(d)               For the Final Closing, all Regulatory Approvals shall have been obtained other than those Regulatory Approvals that the Buyer and the Seller shall have agreed to obtain after the Final Closing.

(e)       Seller shall have received a certificate, dated the Initial Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions set forth in Section 1.5(a) and Section 1.5(b) have been satisfied as applicable to such dates.

(f)        Seller shall have received a certificate of the Secretary of Buyer certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Buyer authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby.

(g)              Buyer shall have delivered the Purchase Price on the Initial Closing Date as set forth in Section 1.3.

(h)               Buyer shall have delivered, to hold in trust pending the Final Closing, a counterpart signature page to the Master Distribution Agreement .

(i)         Buyer shall have delivered an executed Management Agreement attached hereto as Schedule 1.4(i).

(j)        Buyer shall have delivered to Seller such other documents or instruments as Seller reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

Section 1.6                       Closing Deliverables.

(a)       At the Initial Closing and the Final Closing, as applicable, Seller will deliver or cause to be delivered to Buyer:

(i)

A true, complete and correct copy of a current certificate of good standing of the Company from the Secretary of State of Oklahoma at the Initial Closing;

(ii)

At the Initial Closing, a commitment or pay off statement from any lien holder of the Company to deliver File-stamped copies of UCC-3 termination statements and/or copies of lien releases or other documents of any kind, if any exist, to the reasonable satisfaction of Buyer, evidencing all Liens or Liabilities with respect to the Membership Interests or assets of the Company have been or will be released upon payment of the Secured Debt;

(iii)

A duly executed assignment of the Membership Interests evidencing the transfer to Buyer of the 49% Interest, substantially in the form that attached hereto on Schedule 1.6 (iii) (the “49% Assignment”), and at the Final Closing, a duly executed Assignment of the 51% Interest evidencing the transfer to Buyer of the 51% Interest (the “51% Assignment”);

(iv)

At the Initial Closing, evidence reasonably satisfactory to Buyer that the Excluded Assets have been transferred or Seller has made arrangements to transfer the Excluded Assets and fully assumed by a Person other than the Company upon such transfer(s) in accordance with 1.4(d) above; and

(v)

At the Initial Closing and Final Closing, such other documents and certificates as Buyer may reasonably request for the purpose of evidencing the satisfaction of any condition referred to in Section 1.4, including but not limited to documentation reasonably acceptable to the Buyer evidencing Seller’s sale, transfer, and assignment of all of the Membership Interests to the Buyer.

(b)               At the Initial Closing and the Final Closing, as applicable, Buyer will deliver or cause to be delivered to Seller:

(i)

At the Initial Closing, the Purchase Price as set forth in Section 1.3 above6; and

(ii)

At the Initial Closing and the Final Closing, such other documents and certificates as Seller may reasonably request for the purpose of evidencing the satisfaction of any condition referred to in Section 1.5.

Section 1.7                       Employees and Employee Benefits.

(a)Within one (1) Business Day following the Initial Closing Date and Seller’s receipt of funds in accordance with Section 1.3(a) above, Seller shall cause the Company to terminate or initiate the process with its

payroll service provider to transfer to Seller of all employees of the Company who employed by the Company. Seller shall bear any and all obligations and liability under the WARN Act resulting from employment losses pursuant to this Section 1.7.

(b)               Seller shall be solely responsible, and neither Buyer nor the Company shall have any obligations whatsoever for, any compensation or other amounts payable to any current or former employee, officer, member, independent contractor or consultant of the Company as of immediately prior to the Initial Closing Date, including, without limitation, hourly pay, commission, bonus, salary, accrued vacation, fringe, pension or profit sharing benefits or severance pay for any period relating to the service with the Company at any time on or prior to the Initial Closing Date and Seller shall pay all such amounts to all entitled persons on or prior to the Initial Closing Date.

(c)       Seller shall remain solely responsible for the satisfaction of all claims for medical, dental, life insurance, health accident or disability benefits brought by or in respect of current or former employees, officers, members, independent contractors or consultants of the Company or the spouses, dependents or beneficiaries thereof, which claims relate to events occurring on or prior to the Initial Closing Date. Seller also shall remain solely responsible for all worker’s compensation claims of any current or former employees, officers, members, independent contractors or consultants of the Company which relate to events occurring on or prior to the Initial Closing Date. Seller shall pay, or cause to be paid, all such amounts to the appropriate persons as and when due.

Section 1.8                       Purchase Price Adjustment; Holdback.

(a)       Proration Holdback. One Million Dollars ($1,000,000.00), plus those contingent Liabilities that would come due under any lease of real property by the Company that is not fully assigned and novated as of the Initial Closing (the “Holdback Amount”) will be held back from the Purchase Price by Buyer (the “Proration Holdback”) to pay certain Excluded Liabilities and prorated Liabilities of the Company as of the Initial Closing, including, without limitation, amounts necessary to discharge any tax or employment obligations that have accrued through the Initial Closing or which accrue following the Initial Closing at the direction of Seller, and amounts for which the Company may become liable pursuant to Federal Communications Commission (“FCC”) Case No.: EB-FD-22- 00033208 and as set out in that one certain letter of inquiry dated February 8, 2022, from Rakesh Patel, Chief, Fraud Division, Enforcement Bureau of the Federal Communications Commission to the Company, and any related investigations by any department, agency, or other division of the federal or any state governmental authority or any contractor thereto (“FCC LOI”). Without limitation, Seller shall be solely responsible to pay all attorneys’ fees and costs and other expenses incurred in responding to or defending against the FCC LOI (collectively, “Response Costs”) and to pay all fines, penalties, chargebacks, and other assessments and settlement and similar payments, made in connection with the FCC LOI (collectively, “FCC LOI Penalty”); provided, that, with the prior written consent of Buyer (which shall not unreasonably be withheld) Seller may, at its sole cost and expense, with counsel reasonably approved by Seller but under Buyer’s direction and control, be entitled to contest any such FCC LOI Penalties. Following the later of (a) the one hundred eighty (180) days after the Initial Closing Date, and (b) the final determination with respect to the FCC LOI, Buyer shall prepare and deliver to Seller a statement setting forth in reasonable detail Buyer’s good faith calculation of Excluded Liabilities and other prorated Liabilities to the extent outstanding or unpaid as of such date (the “Post-Initial Closing Statement”). After receipt of the Post-Initial Closing Statement, Seller shall have ten (10) days (the “Review Period”) to review the Post-Initial Closing Statement. On or prior to the last day of the Review Period, Seller may object to the Post-Initial Closing Statement by delivering to Buyer a written statement setting forth Seller’s objections in reasonable detail, indicating each disputed item or amount and the basis for Seller’s disagreement therewith (the “Statement of Objections”). If Seller fails to deliver the Statement of Objections

before the expiration of the Review Period, the Post-Initial Closing Statement and amounts reflected in the Post-Initial Closing Statement shall be deemed to have been accepted by Seller. If Seller delivers the Statement of Objections before the expiration of the Review Period, Buyer and Seller shall negotiate in good faith to resolve such objections within 30 days after the delivery of the Statement of Objections (the “Resolution Period”), and, if the same are so resolved within the Resolution Period, the Post-Initial Closing Adjustment with such changes as may have been previously agreed in writing by Buyer and Seller, shall be final and binding. If Seller and Buyer fail to reach an agreement with respect to all of the matters set forth in the Statement of Objections before expiration of the Resolution Period, then any amounts remaining in dispute (“Disputed Amounts” and any amounts not so disputed, the “Undisputed Amounts”) shall be submitted for resolution to Ernst and Young, or in the event Ernst and Young is unable to serve, another nationally recognized firm of independent certified public accountants selected by Buyer and reasonably acceptable to Seller (the “Independent Accountants”) who, acting as experts and not arbitrators, shall resolve the Disputed Amounts only and make any adjustments to the Post-Initial Closing Statement. The parties hereto agree that all adjustments shall be made without regard to materiality. The Independent Accountants shall only decide the specific items under dispute by the parties and their decision for each Disputed Amount must be within the range of values assigned to each such item in the Post-Initial Closing Statement and the Statement of Objections, respectively. The fees and expenses of the Independent Accountant shall be paid by Seller, on the one hand, and by Buyer, on the other hand, based upon the percentage that the amount actually contested but not awarded to Seller or Buyer, respectively, bears to the aggregate amount actually contested by Seller and Buyer. The Independent Accountants shall make a determination as soon as practicable within thirty (30) days (or such other time as the parties hereto shall agree in writing) after their engagement, and their resolution of the Disputed Amounts and their adjustments to the Post-Initial Closing Statement shall be conclusive and binding upon the parties hereto. Payment of any portion of the Proration Holdback to be released to Seller, if any, shall be due within ten (10) Business Days of acceptance of the Post-Initial Closing Statement, or if there are Disputed Amounts, then within ten (10) Business Days of the resolution of the Independent Accountant.

(b)               Buyer Offset Rights. Buyer shall be entitled to retain and/or set off any amounts to which it is entitled from Seller including, without limitation, pursuant to Seller’s indemnification obligations under this Agreement, against any amounts that might be payable by Buyer or any Affiliate of Buyer to Seller or an Affiliate of Seller, as applicable (the “Offset Right”), whether such amount due Seller or its Affiliate is pursuant to an earnout provision, holdback provision, , or otherwise The exercise of or failure to exercise such right of set off will not constitute an election of remedies or limit in any manner the enforcement of any other remedy that may be available to a party.

Section 1.9                       Certification of Membership Interest as a Security. In order to facilitate the Closings as contemplated by this Agreement, the Parties covenant and agree to the matters set forth in this Section 1.9. Specifically, as security for the due and punctual payment and performance of Seller’s obligations under this Agreement and the other Transaction Documents, Seller irrevocably pledges and grants to Purchase a security interest in the 51% Interest. The Company hereby irrevocably elects that all membership interests in the Company shall constitute a “security” within the meaning of, and governed by, (i) Article 8 of the Uniform Commercial Code as in effect from time to time in the State of Oklahoma (the “UCC”). Notwithstanding any provision of this Agreement or any other agreement relating to the Company to the contrary, to the extent that any provision of this Agreement or any such other agreement is inconsistent with any non-waivable provision of Article 8 of the UCC, such provision of Article 8 of the UCC shall control. Contemporaneous with the execution of this Agreement, the Company shall issue one (1) Membership Interest Certificate (as defined below) in the name of each of Seller and Buyer. Such Membership Interest Certificate shall represent and evidence 100% of the Membership Interests issued to such Member, shall be signed by each of Seller and Buyer, and together will

represent one hundred percent (100%) of the Membership Interests immediately following the Initial Closing. “Membership Interest Certificate” means a certificate issued and endorsed by the Company which evidences the ownership of membership interests in the Company. In addition to the foregoing, Seller hereby specifically agrees and acknowledges that until the Final Closing, Seller shall give the Buyer possession and control of the Membership Interest Certificate representing the Class B Units, and will and may not, at any time cause the Company to issue (1) any replacement or substitution of the Membership Interest Certificate representing the Class B Units or (2) any other new membership interests in the Company..

Article 2.
REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer, as of the date hereof, and as of the Initial Closing Date, and through the Final Closing Date, subject only to the consummation of the Initial Closing:

Section 2.1                       Organization. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Oklahoma and is duly qualified or licensed to do business and in good standing in each other jurisdiction where the nature of its business makes such qualification, licensing or good standing necessary.

Section 2.2                       Authority. The Seller has the full power and authority to execute, deliver, and perform its obligations under this Agreement. This Agreement and each of the other applicable transaction documents contemplated hereby (the “Transaction Documents”) have been duly executed and delivered by the Seller and, assuming the due execution and delivery of this Agreement by the other Parties, constitutes a valid and binding obligation of the Seller and the Company enforceable against each person or entity in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

Section 2.3                       Capitalization. Seller owns all of the Membership Interests in the Company, which have been validly issued, are fully paid and non-assessable, and were issued in compliance with applicable federal and state laws regulating such securities and are free and clear of Liens other than Liens which will be released upon or in connection with the Initial Closing. There are no (i) outstanding obligations, options, warrants, convertible or exchangeable securities or other rights, agreements or commitments (contingent or otherwise) relating to the equity interests of the Company or obligating the Company to issue or sell or otherwise transfer any equity interests of the Company, (ii) outstanding obligations of the Company to repurchase, redeem or otherwise acquire equity interests of the Company or to make any investment (in the form of a loan, capital contribution or otherwise) in any other (“Person”), (iii) voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of equity interests of the Company, and (iv) there are no restrictions on transfer of any equity rights of the Company, including any preemptive rights, that would preclude consummation of the transactions contemplated by this Agreement. The Company does not (i) have any subsidiary or (ii) own, directly or indirectly, any security of or issued by, or any partnership, joint venture or other similar equity interest in, any Person. The Company has provided Buyer with true and complete copies of the Organizational Documents of the Company, and all of the foregoing have not been subsequently amended and are in full force and effect.

Section 2.4                       No Violation; Consents. The execution and delivery of this Agreement and the other applicable Transaction Documents and the consummation of the transactions contemplated hereby and thereby

by Seller will not: (i) violate the provisions of the Organizational Documents of the Company; (ii) violate any law or order to which the Company is subject or by which its properties or assets are bound; (iii) result in a violation or breach of (with or without due notice or lapse of time or both), give rise to any right of termination, cancellation or acceleration under, or require the consent of any third party to, any contract; or (iv) result in the imposition or creation of any Lien upon or with respect to any of the assets or properties of the Company, provided, that the Buyer acknowledges that Seller will be required to obtain a release from Seller’s creditors to convey the Membership Interests to the Buyer, which release will be obtained upon the Initial Closing and Final Closing (contingent only open payment out of the Purchase Price) and funding of the Purchase Price and the foregoing matters are subject to the Regulatory Approvals. No consent, approval, permit, governmental order, declaration or filing with, or notice to, any governmental authority is required by or with respect to Seller in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, except for the Regulatory Approvals.

Section 2.5                       Financial Statements. The Company is a wholly owned subsidiary of the Seller and as such the financial records of the Company are included in the financial records of the Seller. Seller has provided the Buyer with copies of the Seller’s financial statements including its balance sheet, statement of income and statement of cash flows resulting from the Company’s Business (the “Financial Statements”) for the most recent calendar year and statement of income and cash flow for the trailing twelve (12) months, by month, which are true, accurate and complete in all material respects; which Financial Statements include the financial information of the Company on an aggregated basis. An internally prepared year-to-date balance sheet for the Company (which will be separate from the Seller’s overall financial statements) will be provided to Buyer prior to the Initial Closing when such statement will be available. The Financial Statements (i) were prepared in accordance with the books of account and other financial records of the Company, and (ii) present fairly in all material respects the financial condition and results of operations of the Company as of the dates thereof or for the periods covered thereby. The books of account and other financial records of the Company: (i) reflect all items of income and expense and all assets and liabilities required to be reflected therein in accordance with the Company’s historical accounting practices consistently applied, (ii) are complete and correct in all material respects, and do not contain or reflect any material inaccuracies or discrepancies, and (iii) have been maintained in accordance with good business and accounting practices. Seller makes no representation or warranty regarding the financial condition or creditworthiness of any customers or payees of obligations owed to the Company.

Section 2.6                       Undisclosed Liabilities. The Company has no Liabilities or Indebtedness arising out of any transaction entered at or prior to the Initial Closing Date, or any action or inaction at or prior to the date hereof, or any state of facts existing at or prior to the Initial Closing Date, except (i) those which have been incurred in the ordinary course of business since the date of the most recent balance sheet and which are not material in amount, and (ii) those that will be discharged as against the Company at the Initial Closing as Closing Indebtedness. The Company has no leases, subleases or other right to occupy real property to be assumed by Buyer.

Section 2.7         Title to Assets, Sufficiency. Other than with respect to the Excluded Assets, the Company has good and valid title to all of the tangible and intangible properties and assets used by the Company in the conduct of its business, including the Regulated Assets (the “Assets”). Other than with respect to the Excluded Assets, each item of tangible personal property is in good operating condition and state of repair (ordinary wear and tear excepted) and the Assets are suitable for the purposes for which they are used.

Section 2.8                       Taxes.

(a)        The Company has prepared and timely filed all returns, reports or statements filed or required to be filed with respect to any tax including any information return, claim for refund, amended return or declaration of estimated tax (“Tax Returns”) required to be filed by the Company. All Tax Returns required to be filed by the Company are accurate, complete and correct in all material respects.

(b)                The Company has collected all sales or use taxes required to be collected and have remitted such amounts to the IRS and/or any other governmental body responsible for the administration or collection of any tax (each a “Taxing Authority”) for the period prior to the Initial Closing.

(c)        The Company has timely paid all taxes that have become due and payable (whether or not shown on a Tax Return) for periods prior to the Initial Closing.

(d)               The Company has not been provided notice from any Taxing Authority in any jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to tax by that jurisdiction. No extensions or waivers of statutes of limitations with respect to any Tax Returns have been given by or requested from the Company.

(e)        Seller has not received notice of any claim for assessment or collection of taxes is presently being asserted against the Company, there is no presently pending audit examination, request for information, refund, claim, litigation, proceedings, proposed adjustment or matter in controversy with respect to taxes of or with respect to the Company and no such action or proceeding is being contemplated.

(f)        There are no Liens for taxes upon the Assets of the Company other than inchoate or other statutory liens of general application arising out of operation of law (such as property tax liens) .

(g)               The Company has complied with all applicable laws in all material respects relating to the payment and withholding of taxes and has, within the times and in the manner prescribed by applicable law, withheld and paid to the proper Taxing Authority all taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, member, or other Person, and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed. All Persons who have provided material services to the Company and have been classified by the Company as independent contractors were properly classified as such, and the Company has fully and accurately reported their compensation on IRS Forms 1099 when required to do so.

Section 2.9                       Real Property. Within thirty (30) days after the Initial Closing Date, the Company will assign any and all leases for real property to Seller or some other person to the extent any leases are in the name of the Company and provide satisfactory evidence to Buyer of such transfer and any such assignment will contain a release of the Company from any past or future obligations under such lease. Buyer shall not assume any obligations whatsoever of the Company or Seller under any lease, sublease or other right to occupy real property. As of the Initial Closing Date, the Company does not own any real property.

Section 2.10                   Legal Compliance. Except the FCC LOI, the Company is, and has been, in compliance with all applicable laws in all material respects. No event has occurred or circumstance exists that (with or without notice or lapse of time) (a) would reasonably be expected to constitute or result in a violation by the Company, or a failure on the part of the Company to be in compliance with, any law, which if determined adversely to the Company (or the Seller or any Affiliate thereof) would result in a Material Adverse Effect or (b) may give rise to any obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial

action of any nature. Except the FCC LOI, the Company has not received any written notice from a governmental body asserting any violation by the Company of applicable law.

Section 2.11                   Intellectual Property. To Seller’s Knowledge, after due inquiry and investigation, all intellectual property owned or leased to the Company is valid, subsisting and enforceable, and the Company has not received any notice or claim challenging the validity or enforceability of any intellectual property or alleging any misuse of intellectual property which, taken in the aggregate, would have a Material Adverse Effect on the Company. The Company’s ownership and use of its intellectual property do not infringe upon, misappropriate, violate, dilute or constitute the unauthorized use of, and have not infringed upon, misappropriated, violated, diluted or constituted the unauthorized use of, any intellectual property rights of any third party. The Company’s intellectual property rights as of the date hereof, together with intellectual property rights Seller and its affiliates include all of the intellectual property reasonably necessary and sufficient to enable the Company to conduct its businesses in the manner in which it is currently conducted.

Section 2.12                   Permits. The Company holds, and is not in violation of, or default under, all permits that are necessary for the operation of the business of the Company as now conducted. All such permits are valid and in full force and effect and no modification, termination, suspension or cancellation thereof is pending. Provided that all of the Regulatory Approvals are obtained, no such permit will be revoked, terminated or not renewed as a result of the consummation of the transactions contemplated by this Agreement and the other applicable Transaction Documents.

Section 2.13                   Litigation and Audits. Except as disclosed on Schedule 2.13 and the FCC LOI, neither the Seller nor the Company has received notice of any claims, actions, causes of action, demands, lawsuits, arbitrations, inquiries, audits, notices of violation, proceedings, litigation, citations, summons, subpoenas, or investigations of any nature, whether at law or in equity (each a “Proceeding”) pending or, to Seller’s knowledge threatened in writing against the Company, its assets or Seller or any of their officers, managers, employees, or members, including without limitation, pending or active PUC, FCC, ACP or USAC audits, reviews, notices of apparent liability, or any other PUC, FCC, ACP or USAC actions relating to the Business of the Company.

Section 2.14                   Insurance. As of the Initial Closing Date, the Company has adequate insurance coverage for its assets and the operations of the Business. To the Seller’s Knowledge, all policies of insurance to which the Company is a party are valid, outstanding and enforceable. With respect to each existing policy of insurance to which it is a party or that provides coverage to its business, the Company has not received (A) any refusal of coverage or any notice that a defense will be afforded with reservation of rights or (B) any notice of cancellation or any other indication that any policy of insurance is no longer in full force or effect or that the issuer of any policy of insurance is not willing or able to perform its obligations thereunder. As of the Initial Closing Date, the Company has paid all premiums due, and has otherwise performed in all material respects all of its obligations, under each policy of insurance to which it is a party.

Section 2.15                   Labor Matters.

(a)Seller has provided a Schedule(the “Employee Schedule”) dated as of January 1, 2024 which correctly sets forth the name (and/or employee ID#), job title, date of hire, W-2 employer, status as “exempt” or “non-exempt” for employment classification purposes, accrued leave as of the date specified therein, annual salary (or hourly wages, as applicable) and full-time or part-time status of each of the Company’s current full- or part-time employees, as well as whether any such employees are absent from active employment, including leave of absence or disability and their anticipated date of return (if known) (the “Business Employees”). Except as set forth on

Employee Schedule, for the last five (5) years, the Company has complied, and is in compliance, in each case, in all material respects, with all Laws relating to employment, labor and employment practices (including, without limitation, provisions thereof relating to wages, hours, worker classification, equal opportunity, immigration, collective bargaining, employee leave and paid time off, occupational health and safety, workers’ compensation, discrimination, plant closures and layoffs (including the WARN Act)).

(b)               The Company is not a party to or bound by any labor or collective bargaining arrangement. There is not, and there have not been, any labor disputes, strikes, controversies, slowdowns, work stoppages or lockouts pending or threatened against or affecting the Company.

(c)        The Company has complied in all respects with all applicable laws governing labor, employment and employment practices. The Company is not engaged in any unfair labor practice. No unfair labor practice or labor charge or complaint is pending or to the Seller’s Knowledge, threatened in writing with respect to the Company before the National Labor Relations Board, the Equal Employment Opportunity Commission or any other governmental body.

(d)               The Company has fully and timely paid all wages, salaries, wage premiums, commissions, bonuses, severance and termination payments, fees, and other compensation that has come due and payable under applicable laws, contract or Company policy.

(e)        To Seller’s actual knowledge, no Person is in any respect in violation of any term of any employment agreement, nondisclosure agreement, common law nondisclosure obligation, fiduciary duty, noncompetition agreement, restrictive covenant or other obligation: (i) with or to the Company, or (ii) to any third party with respect to such Person’s right to be employed or engaged by the Company or to the knowledge or use of trade secrets or proprietary information.

(f)        Seller has provided to Buyer a schedule which set forth an accurate and complete list of each Plan (as hereinafter defined) (the “Plan Schedule”). “Plan” means each “employee benefit plan” (as such term is defined in Section 3(3) of ERISA, whether or not subject to ERISA) and each other benefit or compensation plan, program, policy, agreement or arrangement (including any bonus, deferred compensation, retirement, severance, vacation, paid time off, sick leave, health, fringe benefit, equity or equity-based, incentive, retention, profit-sharing, employment, consulting or other benefit or compensation plan, program, policy, agreement or arrangement) that is maintained, sponsored, or contributed to (or required to be contributed to) by the Company or under or with respect to which the Company has or would reasonably be expected have any current or contingent liability or obligation. Each such item listed or required to be listed on the Plan Schedule is referred to herein as a “Plan.” No Plan is, and neither the Company nor any Person that, together with the Company, at any relevant time would be treated as a single employer under Code Section 414 (each, an “ERISA Affiliate”) sponsors, maintains, contributes to, has any obligation to contribute to, or has any current or contingent obligation or liability under or with respect to, a (i) “multiemployer plan” (as defined in Section 3(37) of ERISA), (ii) a plan which is or was subject to Section 302 or Title IV of ERISA or Code Section 412 or 430 (iii) a multiple employer plan (within the meaning of Code Section 413(c)) or (iv) a multiple employer welfare arrangement (as defined in Section 3(40) of ERISA). No liability to the Pension Benefit Guaranty Corporation or otherwise under Title IV of ERISA has been or is reasonably expected to be incurred by the Company, including by reason of at any time being considered a single employer with any ERISA Affiliate. With respect to the Plans, all payments, premiums, distributions, contributions, reimbursements or accruals for all periods ending prior to or as of the Initial Closing have been timely made in accordance with the terms of the Plan and the requirements of applicable Law or properly accrued on the Latest Balance Sheet to the extent required by GAAP.

                  

Section 2.16        Certain Business Practices. As of the Initial Closing and the Final Closing, as applicable, neither the Company, the Seller nor or any of their representatives, or any Person associated with or acting for or on behalf of such Persons, has (i) used any funds of the Company for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity or to influence official action, (ii) made any direct or indirect unlawful payment from funds of the Company to any official or employee of any governmental body, (iii) made any unlawful bribe, payoff, influence payment, kickback or other unlawful payment, (iv) has taken any action, directly or indirectly, that violates the Foreign Corrupt Practices Act of 1977 or any other applicable anti-corruption law of any foreign jurisdiction or (v) has created or caused the creation of any false or inaccurate books and records of the Company related to any of the foregoing. None of the Company, the Seller nor any of their representatives, or any Person associated with or acting for or on behalf of such Persons, is a Person that is the subject of sanctions administered or enforced by the U.S. Treasury Department’s Office of Foreign Assets Control or other applicable sanctions authority of any foreign jurisdiction. The Company is and has been in material compliance with and in possession of any and all licenses, registrations, and permits that may be required for the lawful conduct of the business of the Company under applicable import and export control laws, including the Export Administration Regulations and the International Traffic in Arms Regulations. The Company has not made any voluntary disclosures to any governmental body under U.S. economic sanctions laws or U.S. import or export control laws and, has not been the subject of any governmental investigation or inquiry regarding the compliance of the Company with such laws or been assessed any fine or penalty under such laws.

Section 2.17                  Warranty. Seller has provided Buyer an accurate description of any outstanding guarantee, warranty or other indemnity given by the Company to any Person in connection with its products and services.

Section 2.18                   Suppliers and Customers. As of the Initial Closing Date, the Company has not received any written notice that any supplier will not sell supplies, merchandise, and other goods to the Company on terms and conditions substantially similar to those used in its current sales to the Company, subject only to general and customary price adjustments.

Section 2.19                   Contracts and Commitments. Except as set forth on the attached Schedule 2.19, the Company is not a party to or bound by any written or oral contract that is material to the Company’s operations and business prospects (a “Contract” herein). The Company has made available to Buyer a true and correct copy of each of the written Contracts and an accurate description of the material terms of each of the oral Contracts (if any), together with all amendments, waivers or other changes thereto. Seller has performed all obligations required to be performed by it and to Seller’s Knowledge is not in default under or in breach of nor in receipt of any claim of default or breach under any Contract, and to Seller’s Knowledge no event has occurred which with the passage of time or the giving of notice or both would result in a default, breach or event of noncompliance by Seller under any Contract. Neither the Company nor any other party to any Contract has sought to terminate any Contract, or any of such party’s obligations thereunder, pursuant to a “force majeure” or similar provision. Seller has made available to Buyer a true and correct copy of each of the written material Contracts together with all amendments, waivers or other changes thereto.

Section 2.20                   Information Privacy, Data Security.

(a)       The Company has provided sufficient disclosure with respect to its privacy policies and its privacy practices, including providing any type of notice and obtaining any type of consent required by applicable Privacy Law. Such disclosures have not contained any material omissions of the Company’s privacy policies and its privacy practices.

(b)               The Company has (i) in all material respects, complied with all Privacy Laws governing the receipt, collection, use, storage, processing, sharing, security disposal, disclosure, or transfer of Personal Information that is collected or possessed by or otherwise subject to the control of the Company and all of the Company’s policies regarding privacy and data security, including all privacy policies and similar disclosures published on the Websites or otherwise communicated to third parties, and (ii) implemented and maintained industry standard measures to ensure that the Company complies with such Privacy Laws and that the Company will not acquire, fail to secure, share or use such Personal Information in a manner inconsistent with (A) such Privacy Laws, (B) any notice to or consent required from the provider of Personal Information, (C) any policy adopted by the Company, (D) any contractual commitment made by the Company that is applicable to such Personal Information, (E) any privacy policy or privacy statement from time to time published or otherwise made available by the Company to the Persons to whom the Personal Information relates, and (F) the Payment Card Industry Data Security Standard, with respect to any payment card data collected or handled by the Company, or by third parties on the Company’s behalf or having authorized access to the Company’s records.

(c)       With respect to all Personal Information collected by the Company, the Company has at all times taken all steps reasonably required and consistent with industry standards to protect such Personal Information against loss and against unauthorized access, use, modification, disclosure or other misuse, including implementing and monitoring compliance with reasonable measures with respect to technical and physical security of such Personal Information. the Company has the level of safeguards in place to protect Personal Information in its possession or control from unauthorized access or disclosure, including by its employees, independent contractors and consultants. There has been no unauthorized access to, disclosure of, or other misuse of any Personal Information.

(d)               The transfer of Personal Information in connection with the transactions contemplated by this Agreement will not violate any applicable Privacy Laws in any material respect or the Company’s privacy policies as they currently exist or as they existed at any time during which any of the Personal Information was collected or obtained. The Company is not subject to any contractual requirements or other legal obligations that, following the Closing, would prohibit the Company or Buyer from receiving or using Personal Information in the manner in which the Company receives and uses such Personal Information prior to the Closing.

(e)       In connection with each third-party servicing, outsourcing or similar arrangement involving Personal Information acquired from or with respect to the Company, the Company has contractually obligated any service provider to (i) comply with the Privacy Laws applicable with respect to Personal Information, (ii) protect and secure Personal Information from unauthorized disclosure, (iii) restrict use of Personal Information to those authorized or required under the servicing, outsourcing or similar arrangement, and (iv) certify or guarantee the return or adequate disposal of Personal Information.

(f)       The Company has not sold, rented or otherwise made available, and does not sell, rent or otherwise make available, to third parties any Personal Information. To the extent the Company’s privacy policies or products are subject to any self-regulatory guidelines or codes, including the Network Advertising Initiative’s Self-Regulatory Code of Conduct (2015) (“NAI Code”) or the Federal Trade Commission’s Principles for the Self-Regulation of Online Behavioral Advertising (2009) (“FTC Principles”), the Company’s privacy policies, privacy practices and products conform to any such self-regulatory guidelines or codes, including the NAI Code and the FTC Principles, as applicable.

(g)               Seller has not received any written threat or notice in writing, and has no Knowledge of any claims, investigations, or violations (alleged or threatened) of Privacy Laws with respect to Personal Information

collected or possessed by or otherwise subject to the control of the Company, and to Seller’s Knowledge there are no facts or circumstances which could form the basis for any such violation.

(h)               There have been no data breaches involving any Personal Information.

Section 2.21                   Business Continuity. To Seller’s Knowledge, as of the Initial Closing Date, none of the software, computer hardware (whether general or special purpose), telecommunications capabilities (including all voice, data and video networks) and other similar or related items of automated, computerized, and/or software systems and any other networks or systems and related services owned or leased by the Company or used exclusively by the Company for the operation of the Business have experienced bugs, failures, breakdowns, or continued substandard performance in the past twelve (12) months that has caused or to Seller’s Knowledge reasonably could be expected to cause any substantial disruption or interruption in or to the use of any such systems; provided, that the foregoing representation shall not apply to any Excluded Assets.

Section 2.22                   Brokers. With the exception of FASTek Corporate Services, Inc. (“FASTek”), no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by the Company, the Seller and/or their respective affiliates.

Section 2.23                   Disclosure; No Other Representations and Warranties.

(a)       Except for the representations and warranties contained in this Agreement (including the related portions of the Disclosure Schedules) and any other agreement, document, or certificate delivered by the Company or Seller or entered into in contemplation of furtherance of this Agreement (collectively, the “Express Representations”), none of Seller, the Company or any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of Seller or the Company, including any representation or warranty as to the future revenue, profitability or success of the Company, or any representation or warranty arising from statute or otherwise in law.

(b)               No representation or warranty by Seller in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading. No representation or warranty of Seller or the Company, nor any statement, certificate, schedule or exhibit, schedule, list or other document furnished or to be furnished by or on behalf of Seller or the Company, or pursuant hereto contains or will contain any untrue statement of a material fact or will omit to state a material fact necessary to make the statements herein or therein not misleading under the circumstances. No investigation by or on behalf of Buyer or information revealed as a consequence thereof shall absolve Seller from any liability for any such untrue statement or omission .

(c)       In the event Seller or the Company, following the Initial Closing, becomes aware of any fact that has resulted, or that in the reasonable judgment will result in a material change in the business, operations, or assets of Seller that have not been set forth in this Agreement or otherwise disclosed in writing to Buyer, Seller will disclose such fact to Buyer in writing as soon as Seller becomes aware of said fact

(d)               Buyer acknowledges and agrees that solely with respect to those Express Representations delivered as of the Final Closing that relate to periods following the Initial Closing and prior to the Final Closing, in case such Express Representations will be interpreted excepting any breach thereof primarily or exclusively

resulting from (i) the gross negligence or willful misconduct of Buyer, or Buyer’s uncured material breach of the Management Agreement, or (ii) matters in the ordinary course of business contemplated by Management Agreement that do not (1) individually, or in the aggregate, adversely affect the Company, or (2) impose any Liability upon the Company other than specifically pursuant to Buyer’s commercial activities under the Management Agreement following the Initial Closing.

Article 3.
REPRESENTATIONS AND WARRANTIES OF BUYER

Section 3.1                       Buyer represents and warrants to Seller, as of the date hereof, and as of the Initial Closing Date and Final Closing Date:

Section 3.2                       Organization and Authority of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the state of Nevada. Buyer has all necessary corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery by Buyer of this Agreement, the performance by Buyer of its obligations hereunder and the consummation by Buyer of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by Seller) this Agreement constitutes a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

Section 3.3                       No Conflicts; Consents. The execution, delivery and performance by Buyer of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not: (a) result in a violation or breach of any provision of the organizational documents or bylaws of Buyer; (b) result in a violation or breach of any provision of any Law or governmental order applicable to Buyer; or (c) require the consent, notice or other action by any person under, conflict with, result in a violation or breach of, constitute a default under or result in the acceleration of any agreement to which Buyer is a party, except in cases where the violation, breach, conflict, default, acceleration or failure to give notice would not have a material adverse effect on Buyer's ability to consummate the transactions contemplated hereby. No consent, approval, permit, governmental order, declaration or filing with, or notice to, any governmental authority is required by or with respect to Buyer in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, except for the Regulatory Approvals. Buyer has not received any notice in writing that Buyer is ineligible to hold any of the Authorizations necessary to obtain all Regulatory Approvals, and has no actual knowledge of the basis for rejection of Regulatory Approvals.

Section 3.4                       Investment Purpose. Buyer is acquiring the Membership Interests solely for its own account for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof. Buyer acknowledges that the Membership Interests are not registered under the Securities Act of 1933, as amended, or any state securities laws, and that the Membership Interests may not be transferred or sold except pursuant to the registration provisions of the Securities Act of 1933, as amended or pursuant to an applicable exemption therefrom and subject to state securities laws and regulations, as applicable. Buyer is able to bear the economic risk of holding the Membership Interests for an indefinite period (including total loss of its investment), and has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risk of its investment.

                      

Section 3.5              Brokers. With the exception of FASTek Corporate Services, Inc. (“FASTek”), no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by the Buyer or its respective Affiliates.

Section 3.6                       Independent Investigation. Buyer has, or will have prior to Closing, conducted its own independent investigation, review and analysis of the business, results of operations, prospects, condition (financial or otherwise) or assets of the Company, and acknowledges that it has been provided adequate access to the personnel, properties, assets, premises, books and records, and other documents and data of Seller and the Company for such purpose. Buyer acknowledges and agrees that: (a) in making its decision to enter into this Agreement and the Master Distribution Agreement and to consummate the transactions contemplated hereby and thereby, Buyer has relied solely upon its own investigation and the Express Representations; and (b) none of Seller, the Company or any other Person has made any representation or warranty as to Seller, the Company or this Agreement, except for the Express Representations.

Article 4.
COVENANTS

Section 4.1                       Consents and Approvals

(a)        From the Effective Date through the Final Closing, Buyer and Seller shall: (i) cooperate and use reasonable best efforts to obtain all necessary Regulatory Approvals from the Regulatory Agencies to ensure the Authorizations remain with the Company after the Closing and are not impacted by the change of control of the Company contemplated hereby; and (ii) timely, accurately and fully assist and cooperate with Buyer’s counsel, Lance J.M. Steinhart, PC, in preparing and filing all documents required to be submitted by Buyer to any Regulatory Agencies in connection with such transactions and in obtaining any consents, waivers, authorizations, or approvals that may be required to be obtained by Buyer in connection with such transactions.

(b)             At Buyer’s sole cost and expense, Buyer’s counsel shall prepare for Seller’s review all registrations, filings and submissions required to be made with any Regulatory Agencies in connection with obtaining Regulatory Approvals to transfer control of the Company to Buyer within thirty (30) days after the Effective Date (such as being the “Submittal Deadline”), and Seller and Buyer shall each cooperate with Buyer’s counsel to diligently prosecute all applications for Regulatory Approvals. Buyer shall be in charge of and responsible for prosecuting applications seeking Regulatory Approvals for Buyer to take control of the Company upon the Final Closing Date at Buyer’s sole cost and expense. In the event that Buyer is unable to procure the Regulatory Approvals, Buyer it may exercise its rights in its sole discretion, including, the following: (i) wait for the Regulatory Approvals without any deadline or outside date; or (ii) assign its rights, tiles and interests under the Transaction Documents to any third party, in Buyer’s sole and absolute discretion. Buyer may indefinitely avail itself of the foregoing remedies until the Regulatory Approvals are received.

(c)        Seller shall use good faith efforts to (i) give Buyer and its counsel prompt written notice of the making or commencement of any written request, inquiry, investigation or legal proceeding by or before any Regulatory Agencies with respect to the transactions contemplated hereby; (ii) keep Buyer informed as to the status of any such request, inquiry, investigation or legal proceeding; and (iii) promptly inform Buyer of any communication to or from any Regulatory Agencies regarding the transactions contemplated hereby.

(d)               Buyer shall pay all legal fees, filing fees and other expenses required in connection with every registration, filing and submission made to the Regulatory Agencies to secure required Regulatory Approvals (i) to consummate the Final Closing of the sale of Company to Buyer and (ii) after the Final Closing, to transfer Authorizations that are not obtained or transferred prior to the Final Closing.

Section 4.2                       New State ETC Designations.

(a)        From the Effective Date through the Closing, Buyer and Seller shall: (i) cooperate and use commercially reasonable efforts to obtain new State ETC Designations from the Regulatory Agencies; and (ii) fully, accurately and timely assist and cooperate with Buyer’s counsel, Lance J.M. Steinhart in preparing and filing all documents required to be submitted by Buyer or Seller to any Regulatory Agencies in connection with such designations.

(b)               Buyer’s counsel shall prepare for Seller’s review all registrations, filings and submissions made with any Regulatory Agencies in connection with obtaining new State ETC Designations prior to the submission of the same to such Regulatory Agencies, and Seller shall review such submissions within two (2) days as time is of the essence.

(c)        Buyer shall pay all legal fees, filing fees and other expenses required in connection with obtaining new State ETC Designations.

Section 4.3                       Public Announcements. Unless otherwise required by applicable Law, neither Seller, nor, prior to the Final Closing, the Company, may make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of Buyer; provided, that Seller may disclose this Agreement and the Transactions contemplated hereunder in connection with any disclosures required under federal or state securities laws or quarterly earnings calls or reports.

Section 4.4                       Tax Matters.

(a)        Seller, at its sole cost and expense, shall prepare or cause to be prepared and file or cause to be filed all Tax Returns of the Company required to be filed on or before the Initial Closing Date, and Seller shall prepare and file, or cause to be prepared and filed, all Tax Returns for the Company for all periods ending on or prior to the Initial Closing Date that are required to be filed after the Initial Closing Date with respect to which the items of income, gain, loss, deduction and other tax items pass through to the Seller and Seller agrees to pay any taxes associated with such Tax Returns.

(b)               Buyer, in its reasonable discretion, will determine the intended treatment of the transactions contemplated hereby for tax purposes (as the case may be, the “Intended Tax Treatment”), and Seller will in all respects report the transactions contemplated hereby consistent with the Intended Tax Treatment.

(c)        Each party shall pay all taxes properly levied on it that arise from the Transaction, including taxes based on Seller’s capital gains or income.

(d)               After the Final Closing Date, Buyer, to the extent permitted by law, shall have the right to amend, modify or otherwise change all Tax Returns of the Company for all tax periods; provided, however, that Buyer shall indemnify Seller for any increase in its tax liability for any period prior to the Final Closing Date resulting from any amendment, modification or change to any Tax Returns (other than any amendment, modification or change necessary to comply with law or to correct any inaccurate statement of fact), to the extent that Seller has not consented to such amendment, modification or change.

(e)        Buyer, the Company and the Seller shall (and shall cause their respective Affiliates to) (i) assist in the preparation and timely filing of any Tax Return of the Company; (ii) assist in any audit or other legal proceeding with respect to Taxes or Tax Returns of the Company and the return or refund of any Taxes paid by the Company; (iii) make available any information, records, or other documents relating to any Taxes or Tax Returns of the Company (including copies of Tax Returns and related work papers); and (iv) provide certificates or forms, and timely execute any Tax Return, that are necessary or appropriate to establish an exemption for (or reduction in) any Transfer Tax. Buyer, the Seller and the Company will retain, and will cause their Affiliates to retain, for the full period of any statute of limitations all documents and other information which may be relevant for the filing of any Tax Return or for any audit or other legal proceedings relating to Taxes. In addition, after the Initial Closing Date, Seller, to the extent permitted by law, shall have the right to seek and request the return or refund of any Taxes paid by the Company (including, without limitation, state sales and use taxes) for any period of time prior to the Initial Closing Date and Seller shall be entitled to retain any such returned or refunded Taxes recovered for such period.

(f)         Each Party agrees, upon request from the other Party, to use its commercially reasonable efforts to obtain any certificate or other document as may be necessary to mitigate, reduce or eliminate any tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).

(g)               The parties hereto shall file all Tax Returns (and cause their respective Affiliates to file all Tax Returns) consistently with the Intended Tax Treatment and the Allocation (including, but not limited to the preparation of Internal Revenue Service Form 8594) and shall not take any inconsistent position in connection with any Tax proceeding, except as otherwise required by a “determination” within the meaning of Section 1313(a) of the Code (or similar applicable Law).

(h)               Litigation Assistance. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact or circumstance or event occurring or related to an occurrence on or prior to the Closing Date involving the Company, each of the other Parties shall cooperate and provide such testimony and access to books and records as shall be reasonably necessary in connection with the contest or defense.

Section 4.5                       Restrictive Covenants.

(a)        Non-Solicitation.

(i)

Commencing on the Final Closing Date and continuing for a period of three (3) years from the Final Closing Date , Seller shall not solicit for employment, employ or retain the services of (whether as an employee, independent contractor or otherwise) or otherwise interfere with or damage the Company’s business relationship with, any employee or independent contractor of the Company; provided, that Seller shall not be restricted from hiring any person who is no

longer employed by the Company at the time of such hiring other than as a result of a solicitation by Seller. Commencing on the Effective Date and continuing for a period of three (3) years after the Final Closing Date, neither the Buyer nor the Company shall not solicit for employment, employ or retain the services of (whether as an employee, independent contractor or otherwise) or otherwise interfere with or damage the Seller’s business relationship with, any employee or independent contractor of the Company; provided, that Buyer or the Company shall not be restricted from hiring any person who is no longer employed by the Seller at the time of such hiring other than as a result of a solicitation by Buyer.

(ii)

Commencing on the Effective Date and continuing for a period of three (3) years from the Final Closing Date, Buyer shall not solicit for employment, employ or retain the services of (whether as an employee, independent contractor or otherwise) or otherwise interfere with or damage the Company’s business relationship with, any employee or independent contractor of the Company; provided, that Buyer shall not be restricted from hiring any person who is no longer employed by the Company at the time of such hiring other than as a result of a solicitation by Buyer.

(b)               Non-Disparagement. For a period of the longer of (i) three (3) years after the Final Closing Date or (ii) termination of the Master Distribution Agreement, neither Party shall, directly or indirectly, make any negative or disparaging statements regarding the Company or another Party, or any of their respective Affiliates or businesses. This Section 4.1subsection (b) shall not prohibit a Party from making statements of fact in legal proceedings to enforce this Agreement or other applicable Transaction Documents, or disclosures of fact required by law.

(c)       Scope. The Parties acknowledges and agrees that the duration and scope of the the non-solicitation/no-hire covenant, and other provisions described in this Article 6 are fair, reasonable and necessary in order to protect the legitimate interests of the Parties, and that adequate consideration has been received by each Party for such obligations. If, however, for any reason any court determines that the restrictions in this Article are not reasonable or that such consideration is inadequate, such restrictions shall be interpreted, modified or rewritten to include as much of the duration, scope and geographic area identified in this Article as will render such restrictions valid and enforceable.

(d)               Remedies. The Parties acknowledges that any breach of the provisions contained in this Article may result in serious and irreparable injury. Therefore, the Parties acknowledge and agree that in the event of a breach or threatened breach, the non-breaching Party shall be entitled, in addition to any other remedy available at applicable law or in equity to which the non-breaching Party may be entitled, to seek equitable relief, including, without limitation, an injunction to restrain the breaching Party from such breach and to compel compliance with the obligations hereunder in protecting or enforcing all applicable rights and remedies.

Section 4.6                       Conduct of Business Prior to the Final Closing. From the date hereof until the Final Closing, except as otherwise provided in this Agreement or consented to in writing by Buyer, Seller and the Company shall (x) conduct the business of the Company in the ordinary course of business consistent with past practice and the terms of the Management Agreement; and (y) use reasonable best efforts to maintain and preserve intact the Company’s current organization, operations and franchise and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having relationships with the Company.

                   

Section 4.7          Notice of Certain Events.

(a)         From the date hereof until the Final Closing, Seller shall promptly notify Buyer in writing of:

(i)

any fact, circumstance, event or action the existence, occurrence or taking of which by a Seller Releasor (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by Seller hereunder not being true and correct in any material respect or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions to closing in this Agreement to be satisfied;

(ii)

any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

(iii)

any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and

(iv)

any Actions commenced or, to Seller’s Knowledge, threatened against, relating to or involving or otherwise affecting the Business, the Purchased Assets or the Assumed Liabilities that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to this Agreement, or that relates to the consummation of the transactions contemplated by this Agreement.

(b)               Buyer’s receipt of information pursuant to this Section 4.7 shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Seller in this Agreement and shall not be deemed to amend or supplement the Disclosure Schedules. The foregoing notification requirements shall not apply to actions taken by Buyer in connection with its activities with Company under the Management Agreement.

Section 4.8                       Release of Claims.

(a)        Release by Seller Parties. Effective as of each of the Initial Closing and the Final Closing, Seller on behalf of itself and each of its Affiliates, their respective Representatives, and the predecessors, successors, and assigns of each of them (the “Seller Releasors”), hereby forever releases and discharges each of Buyer, each of its Affiliates (including the Company), their respective Representatives, and the successors and assigns of each of them (the “Buyer Releasees” or Buyer Indemnified Parties”), from and against, and forever waives, forfeits and relinquishes, each and every Claim, whether or not presently or later known, existing, asserted, suspected, liquidated, fixed, contingent, matured or anticipated, including, without limitation, each Claim that arises out of, relates to or otherwise is in any way connected with (i) the Company or Seller’s ownership of the Membership Interests, or any portion thereof, including, without limitation, any Claims for wages, compensation or any other Liability owing by the Company to a Seller Releasor, (ii) any dealings between any one or more Seller Releasors, on the one hand, and any one or more Buyer Releasees, on the other hand, prior to the Closing, or (iii) any Transaction Agreement, including the negotiation and execution thereof. “Claims” mean, collectively, actions, Liabilities, demands, lawsuits, litigation, actual losses, actual damages (including consequential damages and penalties), fees, costs and expenses (including settlement costs, and costs and expenses of counsel and other professional fees, including those incurred in investigating, bringing and defending any claim or action or threatened claim or action), obligations, fines, indebtedness, defenses and causes of action, of every and whatever type, kind, nature, description or character, and whether or not presently or later known, unknown, existing,

asserted, suspected, unsuspected, liquidated, unliquidated, fixed, contingent, matured, unmatured, anticipated or unanticipated, and whether sounding in law, equity, contract, tort, statute or otherwise, and whether or not asserted by or attributable to a third party.; provided, however, nothing in this Section will be deemed or construed to releasing Claims resulting from the performance of the obligations of Buyer under this Agreement, the Management Agreement or the Master Distribution Agreement that remain executory as of the Initial Closing or Final Closing, as the case may be (collectively, “Reserved Claims”).

(b)               General Release. Each party to this Agreement intends for this Section 4.8 to serve as a general release with respect to the Claims released pursuant hereto, subject to the Reserved Claims, and each party releasing Claims hereunder recognizes that such party may have claims of which such party is totally unaware and unsuspecting, but that which such party is nevertheless releasing and giving up by executing this Agreement and providing the general release set forth above. In furtherance of such understanding and intention, each party acknowledges that such party is familiar with, and hereby waives all of, the provisions of any Applicable Law that would preserve Claims that a releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party. Each Party to this agreement has been advised by such Party’s legal counsel as to the effect of the release being provided hereunder and understands that the facts with respect to which such release is given may be different from the facts now known or believed by such Party to be true. Each Party accepts and assumes the risk that such facts may turn out to be different. Nevertheless, each Party agrees that the release such party has provided under this Section 4.8 shall remain in all respects effective and shall not be subject to termination or rescission in the event such facts turn out to be different.

Section 4.9                       Interim License in Infiniti Mobile Marks. “Infiniti Mobile Marks” means, collectively, the tradename “Infiniti Mobile” and all related trademarks, service marks, trade names, service names, insignia, symbols, logos, decorative designs and other identifying marks now or hereafter relating thereto. Seller hereby grants to the Company the right and license to use the Inifiniti Mobile Marks and Infiniti Mobile DBA for any purpose that is reasonable or proper in furtherance of this Agreement, the Management Agreement, or any other matter proximally arising therefrom, for the period from the Initial Closing, through the time of the Final Closing.

Article 5.
MISCELLANEOUS

Section 5.1                       Efforts; Further Assurances. Subject to the terms and conditions of this Agreement, each Party will use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary or desirable under any applicable law to consummate the transactions contemplated by this Agreement, except as otherwise specified in this Agreement. Furthermore, at any time, and from time to time, after the Initial Closing Date, each Party will execute such additional instruments and take such action as may be reasonably requested by another Party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of this Agreement.

Section 5.2                       Expenses. Except as otherwise expressly provided in in a Transaction Agreement and this Agreement, each Party shall pay its own fees, costs, and expenses, including taxes associated with such fees, costs, and expenses (including, fees, costs and expenses of legal counsel, accountants, or other representatives and consultants and appraisal fees, costs, and expenses incurred in connection with the negotiation of this Agreement, the performance of its obligations hereunder and thereunder, and the consummation of this Agreement and the transactions contemplated hereby and thereby.

                      

Section 5.3         Notices. All notices, demands, and other communications given or delivered under this Agreement shall be in writing and shall be deemed to have been given: (i) when received if given in person, (ii) on the date of electronic confirmation of delivery if sent by e-mail, other electronic transmission, or (iii) on the first business date of attempted delivery during business hours by a reputable overnight courier. Notices, demands, and communications to the Parties shall, unless another address is specified in writing, be sent to the address indicated below:

if to Seller:

KonaTel, Inc.
Attn: Charles D. Griffin
500 N. Central Expressway, Suite 202
Plano, Texas 75074.
cgriffin@konatel.com

with a copy to:

Kutak Rock LLP
2001 16^th Street, Suite 1800
Denver, Colorado 80202
Attention: Stephen J. Ismert, Esq.
Telephone: 303-297-2400
Email: stephen.ismert@kutakrock.com

 

if to Company:

IM Telecom, LLC
Attn: Charles D. Griffin
500 N. Central Expressway, Suite 202
Plano, Texas 75074
cgriffin@konatel.com

 

if to Buyer:

Excess Telecom, Inc.
Attn: Cobby Pourtavosi
3773 Howard Hughes Parkway, Suite 590S
Las Vegas Nevada 89169
pourtavosi@sbcglobal.net

 

with a copy to:

Lance J.M. Steinhart
Lance J.M. Steinhart, PC
1725 Windward Concourse, Suite 150
Alpharetta, GA 30005
lsteinhart@telecomcounsel.com

and

Matthew E. Wolf, Esq.
Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP
11400 W. Olympic Blvd., 9th Floor
Los Angeles, California 90064
mewolf@wrslawyers.com

Section 5.4                       Binding Agreement; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective heirs, successors, and permitted assigns; provided that neither this Agreement, nor any of the rights, interests, or obligations hereunder may be assigned by the Seller without the prior written consent of the Buyer.

Section 5.5                       No Third-Party Beneficiaries. This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 5.6                       Indemnification.

(a)        Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Final Closing and shall remain in full force and effect until the date that is three (3) years from the Final Closing Date; provided, however, that the representations and warranties contained in Section 2.1, Section 2.2, Section 2.3, Section 2.4, Section 2.8, Section 2.15, Section 2.22 (the “Fundamental Representations”) shall survive the Final Closing and shall remain in full force and effect until the date which is sixty (60) days following the expiration of the applicable statute of limitations (giving effect to any waiver, mitigation or extension thereof), but in no event less than the date which is thirty-six (36) months from the Final Closing Date. None of the covenants or other agreements contained in this Agreement shall survive the Final Closing Date other than those which by their terms contemplate performance after the Final Closing Date, and each such surviving covenant and agreement shall survive the Final Closing for the period contemplated by its terms. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching Party to the breaching Party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of such survival period and such claims shall survive until finally resolved.

(b)               Indemnification By Seller. Subject to the other terms and conditions of this Section 5.6,¹⁰ after the Initial Closing, Seller shall indemnify, defend, and protect each Buyer Indemnified Party against, and shall hold Buyer harmless from and against, all actual liabilities, losses, costs, damages, penalties, assessments, demands, claims, causes of action, including, without limitation, reasonable attorneys’ fees, accountants’ and

consultants’ fees and expenses and court costs (“Losses”) incurred or sustained by, or imposed upon, Buyer based upon, arising out of, with respect to or by reason of:

(i)

any inaccuracy in or breach of any of the Express Representations of Seller or the Company contained in this Agreement, the other Transaction Documents or in any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement;

(ii)

any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Seller or the Company pursuant to this Agreement, the other Transaction Documents or any certificate or instrument delivered by or on behalf of Seller or the Company pursuant to this Agreement;

(iii)

any Excluded Asset or any Excluded Liability;

(iv)

any Liabilities of the Company arising or accruing prior to the Final Closing (other than any Liabilities approved by Buyer or directly incurred by Buyer under the Management Agreement), including, without limitation, (a) any Third Party Claim based upon, resulting from or arising out of the business, operations, properties, assets or obligations of the Company or any of its Affiliates conducted, existing or arising prior to the Final Closing Date, (b) Taxes, (c) Closing Indebtedness, and (d) Transaction Expenses;

(v)

any Open Audit Matters, or new audit matters that arise in the future, including without limitation, any NAL or any overpayments or billing reconciliations relating to the sale of goods or services through the Final Closing Date;

(vi)

any Liens or Liabilities not fully satisfied and discharged at the Initial Closing,

(vii)

the acts or omissions of Seller, its Affiliates, their respective Representatives, or the successors or assigns of any of them that result in the sufferance or imposition of any Lien or Liability upon the Company (or a Buyer Party) or any portion of the Membership Interests in the Company.

(viii)

any Liabilities of the Company arising from or in connection with the data breach relating to CGM, LLC; or

(ix)

conduct by a Seller Releasor that constitutes or is deemed to be any of the following (“Disabling Conduct”): (a) a willful or intentional breach of any covenant or agreement, (b) fraud or intentional deceit, (iv) any willful misconduct, malfeasance or misfeasance, (c) any violation of criminal law or knowing violation of other Law, or (d) any intentional or willful act or omission that Person intentionally takes (or omits or fails to take) and knows would cause breach of a representation, warranty, covenant, or agreement of a hereunder.

(c)        Indemnification by the Company. Subject to the other terms and conditions of this Section 5.6, after the Final Closing the Company shall indemnify, defend, and protect Seller against, and shall hold Seller harmless from and against, any and all Losses incurred or sustained by, or imposed upon, Seller based upon, arising out of, with respect to or by reason of:

(i)

any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement; or

(ii)

any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement.

(d)               Certain Limitations. The party making a claim under this Section 5.6 is referred to as the "Indemnified Party", and the party against whom such claims are asserted under this Section 5.6 is referred to as the "Indemnifying Party". The indemnification provided for in Section 5.6(b) and (c) shall be subject to the following limitations, except with respect to Claims arising from or in connection with (i) a breach or inaccuracy in a Fundamental Representations, (iii) Open Audit Matters, or new audit matters that arise in the future, including without limitation, any NAL, (iii) a breach of any covenant or agreement relating to taxes of the Company or Seller, or (iv) Disabling Conduct (such Claims being “Unlimited Claims”):

(i)

The Indemnifying Party shall not be liable to the Indemnified Party for indemnification under Section 5.6(b) or (c), as the case may be, until the aggregate amount of all Losses in respect of indemnification under Section 5.6(a) or (b) exceeds Twenty Thousand Dollars (the "Deductible"), in which event the Indemnifying Party shall only be required to pay or be liable for Losses in excess of the Deductible.

(ii)

The aggregate amount of all Losses for which an Indemnifying Party shall be liable pursuant to Section 5.6(b) or (c) as the case may be, shall not exceed the Purchase Price.

(iii)

Payments by an Indemnifying Party in respect of any Loss shall be limited to the amount of any liability or damage that remains after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment received by the Indemnified Party (or the Company) in respect of any such claim. The Indemnified Party shall use its commercially reasonable efforts to recover under insurance policies or indemnity, contribution or other similar agreements for any Losses prior to seeking indemnification under this Agreement.

(iv)

Except with respect to an award pursuant to the Third-Party Claim, an Indemnifying Party shall not be liable to any Indemnified Party for any punitive, incidental, consequential, special or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, or diminution of value or any damages based on any type of multiple.

(v)

Each Indemnified Party shall take, and cause its Affiliates to take, all commercially reasonable steps required by applicable law to mitigate any Loss upon becoming aware of any event or circumstance that would be reasonably expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the breach that gives rise to such Loss.

(e)        If any Indemnified Party receives notice of the assertion or commencement of any action, suit, claim or other legal proceeding made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a "Third-Party Claim") against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party prompt written notice thereof. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except

and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third-Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third-Party Claim at the Indemnifying Party's expense and by the Indemnifying Party's own counsel, and the Indemnified Party shall cooperate in good faith in such defense. In the event that the Indemnifying Party assumes the defense of any Third-Party Claim, it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third-Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right, at its own cost and expense, to participate in the defense of any Third-Party Claim with counsel selected by it, subject to the Indemnifying Party's right to control the defense thereof. If the Indemnifying Party elects not to compromise or defend such Third-Party Claim or fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, the Indemnified Party may pay, compromise, defend such Third-Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third-Party Claim. Seller and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any Third-Party Claim, including making available records relating to such Third-Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third-Party Claim.

(f)        Notwithstanding anything else to the contrary, in the case of a Buyer Indemnified Party, if in the reasonable opinion of counsel to the Indemnified Party, (i) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; (ii) there exists a material conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, (iii) a Claim seeks the imposition of equitable relief on the Company or Buyer, (iv) a Claim is asserted by a vendor, supplier, or other Person who or which has a commercial relationship with the Company or Buyer following the Final Closing Date, or (v) a Claim is asserted or threatened by a Governmental Authority, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required, and the Indemnified Party shall control defense of such Claim.

(g)               Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third-Party Claim without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed), except as provided in this Section 5.6. If a firm offer is made to settle a Third-Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third-Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third-Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third-Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third-Party Claim, the Indemnifying Party may settle the Third-Party Claim upon the terms set forth in such firm offer to settle such Third-Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 5.6, it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).

(h)               Any claim by an Indemnified Party on account of a Loss which does not result from a Third-Party Claim (a "Direct Claim") shall be asserted by the Indemnified Party giving the Indemnifying Party prompt written notice thereof. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim. During such thirty-day period, the Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party's investigation by giving such information and assistance (including access to the Company's premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such thirty-day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.

(i)       Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the Parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.

(j)        Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate or by reason of the Indemnified Party’s waiver of any condition set forth herein, as the case may be. Furthermore, for the purposes of calculating the amount of Losses arising from any breach or default of any of the representations, warranties, covenants and agreements contained in this Agreement (but not with respect to whether such breach or default has occurred), the applicable provisions thereof shall be read and interpreted as if any qualification stated herein with respect to materiality or Material Adverse Effect was not contained therein.

(k)               Exclusive Remedies. The Parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than pursuant to Section 5.7 or Claims arising from Disabling Conduct) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement after the Final Closing, shall be pursuant to the indemnification provisions set forth in this Agreement. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in this Section 5.6.

Section 5.7                       Specific Performance. Each of the Company and Seller acknowledges and agrees that Buyer would be damaged irreparably in the event any term of this Agreement is not performed in accordance with its specific terms or otherwise is breached, so that Buyer will be entitled to seek injunctive relief to prevent

breaches of this Agreement and to enforce specifically this Agreement and the terms hereof in addition to any other remedy to which Buyer may be entitled, at law or in equity. In particular, each Party acknowledges that the Business is unique and recognizes and affirms that in the event any Party breaches this Agreement, money damages may be inadequate and Buyer would have no adequate remedy at law, so that Buyer will have the right, in addition to any other rights and remedies existing in its favor, to seek enforcement of its rights and each other Party’s obligations hereunder not only by action for damages but also by action for specific performance, injunctive or other equitable relief.

Section 5.8                       Severability. Except with respect to Section 4.5, which is subject to the alternative “blue pencil” provisions of Section 4.5(c), whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under all applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under any applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement, provided that the basic economic benefits of the Parties can be preserved.

Section 5.9                       Captions. The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption had been used in this Agreement.

Section 5.10                   Entire Agreement. This Agreement, together with the other Transaction Documents, and each exhibit, schedule, or other attachment hereto and thereto, constitutes the entire agreement among the Parties pertaining to the subject matter hereof and supersedes all prior agreements, representations, and understandings of the parties. No additions to or modification of this Agreement shall be binding unless executed in writing by all the Parties. Except as may be otherwise provided in this Agreement, no waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver, and no waiver shall be binding unless evidenced by an instrument in writing executed by the Party making the waiver.

Section 5.11                   Counterparts. This Agreement may be executed in multiple counterparts (including by means of scanned signature pages), each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument.

Section 5.12                   Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each Party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

Section 5.13                   Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning party of any of its obligations

hereunder. Notwithstanding anything herein to the contrary, Excess Telecom, Inc. may assign its obligations hereunder to an Affiliate or successor by virtue of stock or asset purchase.

Section 5.14                   Governing Law, Jurisdiction and Venue.

(a)       This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction).

(b)               The Parties agree that all disputes between them arising out of or relating to this Agreement shall be adjudicated in the federal courts of the United States of America, located in Clark County, Nevada, and each Party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service, of process, summons, notice or other document by mail to such Party’s address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The Parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

(c)       Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such Party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this agreement. Each Party to this Agreement certifies and acknowledges that (i) no representative of any other Party has represented, expressly or otherwise, that such other Party would not seek to enforce the foregoing waiver in the event of a legal action, (ii) such Party has considered the implications of this waiver, (i) such Party makes this waiver voluntarily, and (iv) such Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.14.

Section 5.15                   Attorney Fees. If any legal action or other proceeding is brought to enforce the provisions of this Agreement, the prevailing Party shall be entitled to recover reasonable attorney fees and other costs incurred in the action or proceeding, in addition to any other relief to which the prevailing Party may be entitled.

Section 5.16                   Interpretation. When a reference is made in this Agreement to an Article, a Section, Exhibit or Schedule, such reference shall be to an Article of, a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. Whenever the words “for example”, “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”, and the term “or” shall not be exclusive. The words “material” and “materiality” and words of similar import, when used in this Agreement, are to be understood by reference to the businesses, assets and properties of the Company, taken as a whole. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have such defined meanings when used in any document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument of statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes, and references to all attachments thereto and instruments incorporated therein and the rules and regulations promulgated thereunder.

                

Section 5.17         Time of the Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

Section 5.18                   Definitions. As used herein, the following terms shall have the meanings set forth below:

“Affiliate” of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. The term “Affiliate” does not include the officers, directors, or employees of a Person, if the Person is a corporation, and does not include the employees of a Person, if the Person is a limited liability company or limited partnership.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in the State of Nevada are authorized or required by law to remain closed.

“Excluded Liability” means any Liability of the Company that accrues or matures prior to the Final Closing that is not expressly ratified by Buyer, or imposed on the Company primarily or exclusively as a result of Buyer’s commercial activities under the Management Agreement.

“Governmental Authority” means (a) any governmental municipality or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department instrumentality or public body, or (c) any court, administrative tribunal or public utility.

"Material Adverse Effect" means any event, occurrence, fact, condition or change that is materially adverse to (a) the business, results of operations, financial condition or assets of the Company, or (b) the ability of Seller to consummate the transactions contemplated hereby; provided, however, that "Material Adverse Effect" shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to the following, except to the extent such event, occurrence, or fact disproportionately affects the Company relative to other participants in its specific industry: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which the Company operates, provided, however, not including changes to the ACP or Lifeline rules; (iii) any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest rates; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted by this Agreement or any action taken (or omitted to be taken) with the written consent of or at the written request of Buyer; (vi) any changes in applicable Laws or accounting rules (including GAAP); (vii) the announcement, pendency or completion of the transactions contemplated by this Agreement, including losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with the Company; (viii) any natural or man-made disaster or acts of God; or (ix) any failure by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition).

“Ordinary Course of Business” or “ordinary course of business” means, in respect of any Person, the ordinary course of such Person’s business through the reference date, as conducted by any such Person in accordance with past practice (including with respect to quantity and frequency) and undertaken by such Person

in good faith and not for purposes of evading any covenant or restriction in this Agreement or in any Transaction Document.

“Person” means any natural person, any unincorporated association, any corporation, any partnership, any joint venture, any limited liability company, any trust, any other legal entity, or any Governmental Authority.

“Personal Information” means, in addition to any definition provided by Company for any similar term (e.g., “personally identifiable information” or “PII”) in any Company privacy policy or other public-facing statement, all information regarding or capable of being associated with an individual person or device, including (a) information that identifies, could be used to identify or is otherwise identifiable with an individual, including name, physical address, telephone number, email address, financial account number or government-issued identifier (including Social Security number and driver’s license number), medical, health or insurance information, gender, date of birth, educational or employment information, religious or political views or affiliations, marital or other status, and any other data used or intended to be used to identify, contact or precisely locate an individual (e.g., geolocation data), (b) biometric information relating to measurable biological (anatomical and physiological) or behavioral characteristics used for identification of an individual (e.g., fingerprints, retinal scans, facial scans, signatures, handwriting analysis and voice pattern recognition), (c) information that is created, maintained, or accessed by an individual (e.g., videos, audio or individual contact information), (d) any data regarding an individual’s activities online or on a mobile device or other application (e.g., searches conducted, web pages or content visited or viewed), and (e) Internet Protocol addresses, unique device identifiers or other persistent identifiers. Personal Information may relate to any individual, including a current, prospective or former customer or employee of any Person. Personal Information includes information in any form, including paper, electronic and other forms.

“Privacy Laws” means all Laws governing the receipt, collection, compilation, use, storage, processing, sharing, safeguarding, security, disclosure or transfer of Personal Information, including the European Union Data Protection Directive (Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data) and all related Laws, the Children’s Online Privacy Protection Act as revised effective July 1, 2013, the California Online Privacy Protection Act, the California Consumer Privacy Act, the Communications Decency Act, the Payment Card Industry Data Security Standard, the CAN-SPAM Act, Canada’s Anti-Spam Legislation, and any and all Laws governing data privacy breach notification.

“Representative” means, with respect to any Person, any and all members, managers, shareholders, directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

“Secured Debt” means the NOTE PURCHASE AGREEMENT, dated as of June 14 , 2022, by and among KONATEL, INC., CCUR HOLDINGS, INC., a Delaware corporation as collateral agent (in such capacity, “Collateral Agent”) and CCUR HOLDINGS, INC. and SYMBOLIC LOGIC, INC. (as the Purchaser thereunder). The Secured Debt is secured by the Membership Interests.

“Systems” means computer Software, computer firmware, computer hardware (whether general purpose or special purpose), electronic data processing, information, record keeping, communications, telecommunications, networks, third-party Software, peripherals and computer systems, including any outsourced systems and processes, and other similar or related items of automated, computerized and/or Software systems that are used or relied on by Seller.

“Taxes” or “taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, documentary, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

“Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Transaction Documents” means this Agreement, and the other agreements, instruments and documents required to be delivered at the Initial Closing or the Final Closing to effectuate the transactions contemplated hereby.

[SIGNATURE PAGES FOLLOW]

 

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

 

SELLER:
KonaTel, Inc.
By:	/s/ Charles D. Griffin
Name:	Charles D. Griffin
Title:	President
COMPANY:
IM Telecom, LLC
By:	/s/ Charles D. Griffin
Name:	Charles D. Griffin
Title:	President of Seller in its
capacity as a Member of IM Telecom, LLC, and as its Authorized Representative
BUYER:
Excess Telecom, Inc.
By:	/s/ Cobby Pourtavosi
Name:	Cobby Pourtavosi
Title:	CEO

 

 

   

SCHEDULE 1.1

EXCLUDED ASSETS

All leases for office space or equipment as of the Effective Date of this Agreement.

Trade name “Infiniti Mobile” and associated URLs, logos, abbreviations or combinations

Trade name “Lifeline Plus” and associated URL’s, logos, abbreviations or combinations

Inventory of Handsets, Tablets and SIM cards

Accounts Receivable with respect to existing customers of the Company as of the Effective Date.

All items tangible and personal property and fixture used by the Company; including, without limitation all furniture, equipment, computers, copiers and other items now or hereafter located at the Company’s leased office space.

All software owned, leased or licensed to the Company for the operation of its business as conducted on the Initial Closing Date.

Subject to the netting out of Liabilities all cash and cash equivalents, accounts receivable and working capital, insurance proceeds, insurance claims, security or other deposits, monies owed to Seller from any third party, in each case as of the Initial Closing.

Any refunds or returns of Taxes or deposits paid by the Company from any taxing authority or Governmental Authority relating to any period of time prior to the Initial Closing Date.

 

 

Schedule 1.4(i)

Form of Management Agreement

 

[attached]

 

 

 

 

Exhibit 10.2

 

MANAGEMENT SERVICES AGREEMENT

 

THIS MANAGEMENT SERVICES AGREEMENT (this “Management Agreement”), dated as of the date of the Initial Closing under the Purchase Agreement (the “Effective Date”), is hereby entered into by and among IM Telecom, LLC, an Oklahoma limited liability company (hereafter the “Company”); KonaTel, Inc., a Delaware corporation (“KonaTel”); and Excess Telecom, Inc., a Nevada corporation (hereinafter the “Manager”). The Company, KonaTel and the Manager may be referred to herein collectively as the “Parties” or individually as a “Party.”

 

WHEREAS, the Company is engaged in the business of providing wireless phone and broadband services to low-income customers which qualify for the Federal Communications Commission (“FCC”) Lifeline Program which is administered by the Universal Service Administrative Company (“USAC”) pursuant to authorizations, certificates, designations, and registrations from the FCC and currently eleven (11) states (collectively, the “Lifeline Business”);

 

WHEREAS, pursuant to approvals from the FCC and USAC, the Company is also engaged in the business of providing wireless phone and broadband services to low-income customers which qualify for the Affordable Connectivity Program (the “ACP Business”);

 

WHEREAS, the term “Regulated Assets” shall mean (a) the Company’s Lifeline and ACP subscribers (the “Subscribers”); (b) all enrollment applications, billing, usage, verifications, transfer consents, customer support and other books and records evidencing or relating to the Subscribers; (c) FCC Compliance Plan approval (the “Compliance Plan”); (d) current and future state Eligible Telecommunications Carrier designations (“ETC Designations”); (e) state wireless registrations (“Wireless Approvals”); (f) and authorizations to transact business (“SOS approvals”); and (g) FCC domestic authorizations, including ACP approvals;

 

WHEREAS, pursuant to the terms and conditions of a Membership Interest Purchase Agreement by and among KonaTel (as the sole member of the Company), the Company and the Manager effective as of the date of this Management Agreement (the “Purchase Agreement”), the Manager is purchasing all the issued and outstanding ownership/membership interests of the Company (the “Transaction”);

 

WHEREAS, the closing of the Transaction is contingent upon approval by: (1) the FCC, including a revised Compliance Plan and (2) state public utility commissions for transfer of control of the ETC designations and the Wireless Approvals (collectively the “Government Approvals”);

 

WHEREAS, the Parties desire to enter into this Management Agreement pursuant to which Manager will provide certain management services to the Company as such services are detailed herein until the Final Closing as set forth in the Purchase Agreement consistent with the Federal Communications Act of 1934, as amended, regulations or case law of the FCC, applicable state telecommunications laws, and applicable regulations and case law of state public utility commissions (collectively the “Applicable Telecommunications Laws and Regulations”).

 

NOW, THEREFORE, in consideration of the above recitals and mutual promises and covenants contained herein, the Parties, intending to be legally bound, hereby agree as follows:

 

1.                  Appointment and Provision of Services. The Company and KonaTel hereby appoints the Manager to perform the following services all at Manager’s sole cost and expense (collectively, the “Services”):

 

(a)               Without limiting the generality of any provision of the Purchase Agreement, during the Management Period (as defined below), and subject to Section 2, below, the Manager shall:

(i) manage the Lifeline Business and the ACP Business (hereinafter collectively the “Business”);

(ii) file FCC Form 497 and other claims for reimbursements from USAC and state Lifeline administrators and collect amounts owed by the Company’s customers;

(iii) cooperate with and aid the Company with whatever actions the Company is required to take in order to obtain or maintain regulatory compliance under applicable laws, including without limitation, the Federal Communications Act of 1934, as amended; regulations or case law of the FCC and Applicable Telecommunications Laws and Regulations;

(iv) apply for applicable licenses, registrations and eligible telecommunications carrier (“ETC”) designations in the states for which purposes the Manager and the Company appoint the Law Office of Lance J.M. Steinhart, P.C. to prepare all necessary applications, submissions and responses subject to review, supervision, and express consent of the Company and the Manager;

(v) prepare and file all applications, submissions, correspondence, reports, and other documents that are required to be filed with any governmental authority or any other Person with respect to the Company’s Business, other than tax returns (collectively “Required Filings”) and for the payment of any and all liabilities arising in connection therewith. In connection with the preparation of Required Filings, including, without limitation, any extension of time within which to file any Required Filing associated with the Company’s Business, the Manager shall coordinate the preparation, review and filing of the same with the Company (and such accountants, auditors and other Persons (as defined in the Purchase Agreement) designated by the Company); and

(vi) collect revenues related to the Company’s Business and prepare and submit the monthly certification of claims for reimbursement for Lifeline subscribers with the USAC state administrators.

Notwithstanding anything to the contrary in this Management Agreement, the Purchase Agreement or the Master Distribution Agreement, the Manager shall have final authority and responsibility on all regulatory, legality and compliance issues, including initial enrollment standards, customer transfers (subject to KonaTel’s obligations in connection with KonaTel Customers) and submission of claims for federal or state reimbursements from USAC or any other governmental body or the administrator such governmental bodies; provided, that all such activities shall be undertaken in a commercially prudent manner and Manager shall not take any actions that would cause the Compliance Plan, ETC Designations or ACP approval to be terminated, suspended or otherwise lapse.

2.                  Responsibilities of the Company and KonaTel. Without limiting the generality of Section 1, above, or any provision of the Purchase Agreement, during the Management Period, the Company and KonaTel shall, solely in relation to the customers of the Company as of the date hereof and any other end user of in the Lifeline Business or ACP Business of the Company procured by KonaTel under the Infiniti Mobile DBA of the Company(collectively, the “KonaTel Customers”):

 

(a)               provide Manager with access to all financial, subscriber and other information and materials regarding the operation of the Company during the Management Period in its possession or under its control that Manager may request in connection with the provision of the Services;

(b)               provide Manager with full and unincumbered access to all policies, procedures, data and programs of the Company for program compliance review and shall implement in an expedited timeline manner any new or updated policies, procedures or programs reasonably requested by Manager for compliance with Applicable Telecommunications Laws and Regulations;

(c)               be solely responsible for the performance of the Company’s obligations under any current vendor contracts regarding the Business and the maintenance of the Company’s relationships with its customers, agents, carriers, providers and suppliers

(d)               provide the following services: telecommunications and data services, billing, collection, cash and bank account distributions); and handling of complaints at the request of Manager; pay amounts owed to its suppliers, providers, independent agents and other creditors in accordance with the terms and provisions of the contracts of the Company’s Business (collectively, the “KonaTel Services”); provided, however, KonaTel (i) will exercise reasonable best efforts to cause the assignment of all vendor agreements relating specifically to KonaTel Customers to be assigned directly to KonaTel or otherwise terminated at KonaTel’s sole cost and expense, and (ii) may not enter into any new agreements on behalf of the Company (including in relation to the KonaTel Services), or extend any such agreements; provided, further notwithstanding anything to the contrary provided herein, all provisioning of services and devices, marketing, and enrollment and verification of subscribers, shall be governed solely terms of the Distribution Agreement;

(e)               cooperate with and aid the Manager with actions the Company is required to take in order to obtain or maintain regulatory compliance under applicable laws, including without limitation, the Federal Communications Act of 1934, as amended; regulations or case law of the FCC and Applicable Telecommunications Laws and Regulations and implementation of standard operating procedures, including compliance procedures;

(f)                fully support the application for applicable licenses, registrations and eligible telecommunications carrier (“ETC”) designations (provided, that the cost of processing such applications shall be the responsibility of Manager);

(g)               except for the expenses to be paid by Manager hereunder and under the Purchase Agreement, pay all expenses related to the Company's Business to the extent or proportion incurred by the Company for servicing and maintaining the KonaTel Customers;

(h)               provide Manager with access to view financial statements and accounts of the Company;

(i)                 provide Manager with copies of all material correspondence and communications relating to the Company (excluding any attorney-client materials or materials that KonaTel reasonably deems to be confidential), including, without limitation, communications with governmental authorities (which in no event may be deemed confidential);

(j)                 communicate with third parties as reasonably requested by Manager, including responding to their inquiries, requests and correspondence (excluding attorney-client matters, materials or materials that KonaTel reasonably deems to be confidential);

(k)               upon consultation and agreement between the Company and the Manager, timely exercise whatever rights that it has under any contracts regarding the Company’s Business, including, but not limited to, rights, whether in law or equity, with respect to breach, termination, set-off, indemnity, waiver, sub-contracting and assignment; and

(l)                 remain responsible for the preparation and filing of any and all tax returns that are required to be filed with any governmental authority with respect to the Company’s Business (collectively “Tax Returns”) and for the payment of any and all liabilities arising in connection therewith. In connection with the preparation of Tax Returns, including, without limitation, any extension of time within which to file any Tax Return associated with the Company’s Business, the Company shall coordinate the preparation, review and filing of the same with Manager (and such accountants, auditors and other Persons designated by Manager).

3.                  Apportionment of Expenses and Revenues.

 

(a)

Expenses.

i.

As applicable, when and to the extent that a KonaTel or the Manager is the recipient of the benefit of goods (“Goods”), third party services (“Third Party Services”), and management and other direct services including (“Shared Services”) to the other Party under the terms and conditions of this Agreement, it is referred to herein as a “Recipient.” To the extent not expressly covered under this Agreement or the Purchase Agreement, the Parties intend to apportion the expenses of the Company in an equitable manner so as to segregate the operating expenses and sales and use taxes for administration of business activities relating to their respective customers.

ii.

In the event that costs are incurred by the Company that benefit or are necessary for the operation of the business as a whole (as opposed to operational cost associated with the Parties respective customers), the Parties will cooperate in good faith to apportion such expenses among the Manager and KonaTel.

iii.

In addition, until the Final Closing under the Purchase Agreement, the employees of the Company (other than employees hired by Manager) shall be at the expense and control of KonaTel; provided, that KonaTel may transition such employees to become direct employees of KonaTel over the term of this Agreement, at KonaTel’s sole cost and expense, including, without limitation, the expense of termination by the Company.

iv.

Any employees of the Company hired by Manager after the date hereof, shall be at Manager’s sole cost and expenses.

v.

Subject to KonaTel’s indemnification obligations (under the Purchase Agreement or otherwise), all expenses incurred by KonaTel during the term of this Agreement shall be expenses of the Company for tax purposes and used to offset revenues received by the Company arising from the KonaTel Customers.

(b)

Specific Allocation of Profits and Losses and Distribution of Distributable Cashflow. Notwithstanding any provision of the Operating Agreement to the contrary, to the fullest extent possible, the activity under this Agreement will be allocated to KonaTel

and the Manager, and correspondingly distributed, in their capacities as Members of the Company, so that the Profits and Losses and Distributable Cashflow of the Company during the Management Period arising from the operations of the Company contemplated by this Agreement, will be allocated or Distributed, as applicable, to KonaTel and the Manager, respectively according to the Party which incurred or generated such Profits and Losses and each party’s respective customers under the Lifeline Business or ACP Business of the Company. The Manager is hereby authorized and empowered to equitably allocate any Profits and Losses that are not unambiguously generated by the activity of a single Party. The Parties acknowledge that certain expenses of the Company will not be deductible by the Company, and accordingly may cause an offset against amounts distributable to a Party hereto, but which will nonetheless be allocated as Profits to the Party which generated the underlying Profits. The amounts of Distributable Cashflow that are distributable to KonaTel pursuant to payments received by the Company for the KonaTel Customers under the Lifeline Business or ACP Business or otherwise received from KonaTel Customers shall be distributed to KonaTel promptly following the latter of (i) receipt by the Company of such amounts, and (ii) the calculation by the Manager of such amounts; provided, that the Manager will use commercially reasonable efforts to promptly render such calculations following the end of each calendar month. “Distributable Cashflow” means all proceeds that the Company receives for its own account resulting from the operation of the business of the Company, including, without limitation, any funds received for claims for reimbursements from the USAC under the Lifeline Business or Affordable Connectivity Program, less (1) operating charges and expenses (which shall not include any depreciation or amortization deductions) included in computing Profits and Losses, (2) the payment of all expenses of the Company incident to the transaction resulting in such proceeds, (3) the payment of debts and liabilities of the Company then due and outstanding, and (4) the establishment of any reserves that the Manager reasonably elects to maintain for the administrative requirements of the Company not directly related to the Parties activities under this Agreement. “Profits” and “Losses” means for each fiscal year of the Company, the taxable income or loss of the Company, as reasonably determined by the Manager in a manner that gives substantive economic effect to the activities of the Company and the relative income, expenses, and other tax attributes attributable to the Manager or KonaTel, respectively.

 

(c)

Responsibility for Business Liabilities. (i) At all times, notwithstanding Manager’s engagement, KonaTel will remain liable and responsible for, and will pay, perform and discharge fully and timely when due, all costs and expenses incurred by, or undertaken in connection with, the KonaTel Customers, including, without limitation, all losses, liabilities, damages, actions, claims, obligations, fines, costs, interest charges, lease, contract or rental payments, professional fees, and other expenses of operation that exist, have existed, or have arisen or accrued with respect to the Company prior to the Effective Date, or KonaTel or its business (including the KonaTel Customers, whether known or unknown, liquidated or unliquidated, contingent or otherwise and whenever accrued or incurred (collectively, “KonaTel Liabilities”). (ii) At all times, notwithstanding Manager’s engagement, Manager will remain liable and responsible for, and will pay, perform and discharge fully and timely when due, all costs and expenses incurred by, or undertaken in connection with, the Manager Customers, including, without limitation, all losses,

liabilities, damages, actions, claims, obligations, fines, costs, interest charges, lease, contract or rental payments, professional fees, and other expenses of operation that have arisen or accrued with respect to the Manager Customers, whether known or unknown, liquidated or unliquidated, contingent or otherwise and whenever accrued or incurred (collectively, “Manager Liabilities”)

(d)

No Assumption. This Agreement shall not be deemed to act as an assumption by Manager of any of the KonaTel Liabilities, or a limitation of the Company’s or KonaTel’s representations, warranties, covenants, or agreements under or pursuant to the Purchase Agreement or any other agreement, certificate, or instrument in connection therewith. This Agreement shall not be deemed to act as an assumption by KonaTel of any of the Manager Liabilities, or a limitation of the Manager’s representations, warranties, covenants, or agreements under or pursuant to the Purchase Agreement or any other agreement, certificate, or instrument.

(e)

No Warranty by Manager. Manager will render the Services in accordance with the terms herein and otherwise in Manager’s sole and absolute discretion in good faith. the Company expressly acknowledges that, except as provided in the preceding sentence, Manager has not made, and is not now making, any other promises, guarantees, assurances, representations or warranties of any kind or nature, express or implied, regarding the Services to be rendered hereunder, and Manager hereby expressly disclaims all of the same, including any warranty of a particular result or a particular benefit to be realized by the Company as a direct or indirect result of the Services hereunder, warranty of fitness for a particular purpose, non-infringement, and any warranties arising from course of dealing, usage or trade practice.

(f)

No Liability For Lost Profits. Notwithstanding anything to the contrary, in no event, other than as a result of the Manager’s sole gross negligence or willful misconduct (and for avoidance of doubt, excluding any contributory liability), shall Manager, its principals and affiliates, and their respective members, managers, shareholders, directors, officers, spouses, heirs, beneficiaries, trustees, employees, contractors, agents, or representatives, or any of the respective successors or assigns of the foregoing parties (each a “Manager Indemnitee,” and collectively, the “Manager Indemnitees”), be liable for lost profit, lost revenue or any other form of indirect, incidental, special, consequential or punitive damages, even if Manager or a Manager Indemnitee has been informed of the possibility of such indirect damages.

(g)

No Fiduciary Duty. This Agreement is not intended to, and does not, create or impose any fiduciary duty on any Indemnitee. Furthermore, to the fullest extent enforceable under applicable law, each of the Members and the Company hereby waives any and all fiduciary duties that, absent such waiver, may be implied by applicable law, and in doing so, acknowledges and agrees that the duties and obligation of each Indemnitee to each other and to the Company are only as expressly set forth in this Agreement. To the extent that the provision of this Agreement restrict the duties and liabilities of a Indemnitee otherwise existing at law or in equity, such provisions of this Agreement are agreed by the Members to replace such other duties and liabilities of such Indemnitee. Whenever in this Agreement a Indemnitee is permitted or required to make a decision (including a decision that is in

 

such Indemnitee’s “discretion” or under a grant of similar authority or latitude), the Indemnitee shall be entitled to consider only such interests and factors as such Indemnitee desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or any other Person. Whenever in this Agreement a Indemnitee is permitted or required to make a decision in such Indemnitee’s “good faith,” the Indemnitee shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or any other applicable law.

4.                  Compensation. During the Management Period, the Company shall remit to the Manager those amounts distributable pursuant to the allocation and distribution scheme in Section 3(b) above.

 

5.                  Independent Contractor Status. Manager is an independent contractor in the performance of the Services under this Management Agreement and shall determine the method, details and means of performing the Services in accordance with this Agreement. Without limiting the generality of the foregoing, Manager shall be permitted, in its sole discretion and sole expense, to (i) enter into and perform contracts and agreements on behalf of itself in its own name for the furnishing of Services, equipment, parts and supplies in connection with the Services, and (ii) recruit and hire its own employees (and to terminate the services of such employees) and independent contractors to provide the Services. Manager shall establish the terms and conditions of employment for its employees and shall pay all salaries and other compensation due to such employees. It is expressly understood and agreed that the Parties are not partners or joint venturers, and nothing contained herein is intended to create an agency relationship or a partnership or joint venture. Neither KonaTel nor any of its Affiliates (as defined in the Purchase Agreement) is an agent of Manager or any of its Affiliates and has no authority to represent Manager or any of its Affiliates as to any matters, except as authorized in this Agreement or in writing by Manager from time to time. Neither Manager nor any of its Affiliates is an agent of KonaTel or any of its Affiliates and has no authority to represent KonaTel or any of its Affiliates as to any matters, except as authorized in this Agreement or in writing by KonaTel from time to time. Notwithstanding anything herein to the contrary, (1) the Manager shall, without any further consent of the Parties being required, make any and all elections for federal, state, local, and foreign Tax purposes including any election, if permitted by applicable law, and (2) neither the Manager nor KonaTel will be deemed or construed, or may or will represent itself, as an agent of the Company, nor may or will either the Manager or KonaTel execute any instrument on behalf of the Company, or act for, or bind the Company in connection with any matter whatsoever, except as expressly authorized herein or pursuant to separate agreement executed by KonaTel.

 

6.                  Management Period. As used in this Management Agreement, the term “Management Period” shall mean the period commencing on the date of this Management Agreement, and ending on the earlier to occur of: (a) Final Closing under the Purchase Agreement (i.e. to occur upon receipt of all Closing Approvals (as defined in the Purchase Agreement)) of (i) the FCC, including the revised Compliance Plan; and (ii) the ETC Designations); and (b) the ninety ninth (99^th) anniversary of the effective date of this Management Agreement, unless extended or terminated by mutual agreement of the Parties.

 

7.                  Compliance with Laws. The Parties desire and intend that this Management Agreement and the performance of the Services hereunder comply fully with all applicable laws, including without limitation, the Applicable Telecommunications Laws and Regulations, and this Management Agreement shall be interpreted and applied in such manner as is consistent with all such laws. If the FCC or any state body of competent jurisdiction determines that any provision of this Management Agreement violates any communications licenses or the Applicable Telecommunications Laws and Regulations, the Parties shall use their reasonable best efforts

 

to immediately bring this Management Agreement into compliance therewith, consistent with the non-violative terms and provisions of this Management Agreement. It is expressly understood and agreed by the Parties that nothing in this Management Agreement is intended to give the Manager any right which would be deemed to constitute a transfer by the Company of “control” (as defined in the Applicable Telecommunications Laws and Regulations) of its Business, any or all of its Regulated Assets, or of one or more of its communications licenses to the Manager.

 

8.                  Dispute Resolution.

 

(a)

Dispute Resolution Procedures. Except as otherwise set forth in this Section 8, any and all disputes, claims and controversies based on, arising out of, under or in connection with this Agreement or the transactions contemplated hereby (including actions arising in contract or tort and any claims by a party against another party related in any way to this Agreement), or any course of conduct, course of dealing, statement (written or verbal) or action of any party, or any exercise by any party of their respective rights under this Agreement or in any way relating to this Agreement that are brought before a forum in which pre-dispute waivers of the right to trial by jury are invalid under applicable law (each, a “Dispute”) shall be settled and resolved by binding arbitration in Las Vegas, Nevada, before a single arbitrator with the JAMS (“JAMS”) pursuant to the then prevailing JAMS Comprehensive Commercial Arbitration Rules and Procedures except as modified by this Agreement. For the avoidance of doubt, any disagreement among the parties as to whether a dispute, claim or controversy is subject to arbitration under the terms of this Agreement shall constitute a Dispute.

 

(b)

Claims Procedures. The applicable employees of the Parties shall escalate any Dispute to the executives of the Parties for resolution. Upon receipt of any such escalated matter, the executives of the Parties shall discuss and attempt to resolve the matter within 15 business days immediately following the escalation. If by the end of the fifteenth business day, the matter has not been resolved to the satisfaction of both Parties, then the party that initiated the claim shall provide written notification to the other party in accordance with Section 8(c) of this Agreement, in the form of a claim identifying the issue or amount disputed and including a detailed reason for the claim. The party against whom the claim is made shall respond in writing to the claim within 15 business days from the date of receipt of the claim document. The party filing the claim shall have an additional 15 business days after the receipt of the response to either accept any resolution offered by the other party or request implementation of the procedures set forth in Section 8(c) (the “Escalation Procedures”). Following a Party’s waiver of, or failure to respond within, the time periods set forth in this Section 8(b), the other Party, may submit such Dispute to arbitration in the manner described in this Section 8.

 

(c)

In reaching a decision on any Dispute, the arbitrator shall be bound by the provisions of this Agreement and by the law that the parties have selected to govern the enforcement and interpretation of this Agreement. The arbitrator’s decision on the Dispute shall be a final and binding determination, and such decision may be confirmed and shall be fully enforceable as an arbitration award in any court having jurisdiction and venue over the parties. The arbitrator shall have exclusive jurisdiction to determine any questions of arbitrability and any such question shall be governed by the Federal Arbitration Act. Each party agrees to accept service of process for all arbitration proceedings in accordance with the notice provisions of this Agreement.

 

 

(d)

Nothing in this Section 8 is intended to restrict or prevent a party from (i) joining any party as a defendant in any action brought by or against a third party; (ii) bringing an action in court to effect any attachment or garnishment; (iii) bringing an action in court to compel arbitration as required by this Section 8, or (iv) seeking equitable or injunctive relief; provided, however, in furtherance of its obligations under the Purchase Agreement, KonaTel hereby waives any right to injunctive or equitable relief.

 

(e)

The KonaTel agrees that it would be difficult to calculate the extent of damages caused by, and to compensate the Company and the Manager fully for damages for, any violation by the KonaTel of the provisions of this Agreement. Accordingly, KonaTel agrees that the Company and the Manager shall be entitled to temporary, preliminary and permanent injunctive relief or other equitable relief (including specific performance), without necessity of posting bond, to enforce the provisions of this this Agreement, and that such relief may be granted without the necessity of proving actual damages. This right to equitable relief shall not, however, diminish the Company’s or the Manager’s right to claim and recover damages from KonaTel in addition to equitable relief. The remedies provided to the Company and the Manager in this Agreement are cumulative, and not exclusive, of any other remedies that may be available to the Company or the Manager.

 

(f)

If a Dispute includes multiple claims, some of which are found not subject to this Agreement, the parties shall stay the proceedings of the Disputes or part or parts thereof not subject to this Agreement until all other Disputes or parts thereof are resolved in accordance with this Agreement. If there are Disputes by or against multiple parties, some of which are not subject to this Agreement, the parties shall sever the Disputes subject to this Agreement and resolve them in accordance with this Agreement.

 

(g)

During the pendency of any Dispute which is submitted to arbitration in accordance with this Agreement, each of the parties to such Dispute shall bear equal shares of the fees charged and costs incurred by the arbitrator in performing the services described in this Agreement.

 

(h)

The prevailing party shall be entitled to reasonable costs of arbitration and legal fees, including reasonable attorney fees, expert witness fees, paralegal fees, the fees of the arbitrator and other reasonable costs and disbursements charged to the party by its counsel, in such amount as is determined by the arbitrator.

 

(i)

THE PARTIES UNDERSTAND THAT EACH PARTY IS CONSENTING TO, AND AGREEING TO PARTICIPATE IN REMOTE PROCEEDINGS WITH RESPECT TO THE ARBITRATION OF ANY DISPUTE, AND FURTHER AUTHORIZES AND DIRECTS THE ARBITRATOR TO COMPEL THE REMOTE PROCEEDINGS OF SUCH ARBITRATION.

 

(j)

Notwithstanding JAMS’ rules then in effect, the parties to this Agreement hereby specifically consent to, and agree to participate in, remote arbitration proceedings, using customary videoconferencing software. The arbitrator selected in accordance with this Section 8 is hereby empowered to compel each party to this Agreement to participate in such remote proceedings, and to conduct an arbitration notwithstanding a party’s refusal to participate.

 

9.                  No Assignment or Transfer of Control Prior to Closing. Notwithstanding any of the provisions set forth in this Management Agreement, no provision herein shall be construed to effect or permit an assignment or transfer of control related to the Company’s Lifeline Business or the Regulated Assets prior to the consummation of the Transaction in accordance with the terms and conditions set forth in the Purchase Agreement, and all provisions of this Management Agreement shall be interpreted consistent with all applicable laws including without limitation the Applicable Telecommunications Laws and Regulations.

 

10.              Indemnification and Insurance

 

(a)

Indemnification. Each of the Manager and KonaTel (as the case may be, an “Indemnitor”) shall indemnify, defend, protect and hold harmless the other (as the case may be an “Indemnitee”) and the Indemnitee’s respective shareholders, directors, officers, partners, employees, contractors, insurers, attorneys, advisors, agents, representatives, successors and assigns, as applicable (the “Indemnitee Parties”), from and against any and all claims, liabilities, demands, lawsuits, litigation, losses, damages (including consequential damages and penalties), fees, costs and expenses (including attorneys’ fees), obligations, liens, executions, fines, awards, defenses and causes of action of every and whatever type, kind or nature (collectively, “Claims”) to the extent asserted against an Indemnitee Party or the Company by a third party, that relate to or arise out of or in connection with: (a) a breach by an Indemnitor of its representations, warranties, covenants or agreements set forth in this Agreement; (b) an Indemnitor’s gross negligence or willful misconduct in connection with the acts or undertakings contemplated by or in furtherance of this Agreement, to the extent such Claims do not arise out of the gross negligence or willful misconduct of an Indemnitee; or (c) an Indemnitor’s failure to comply with applicable law in connection with the acts or undertakings contemplated by or in furtherance of this Agreement, to the extent such Claims do not arise out of the gross negligence or willful misconduct of an Indemnitee, provided, further, that to the extent Manager is the Indemnitor, Manager will not be obligated to indemnify the Company with respect to any Claim, and Manager will not be obligated to indemnify KonaTel, or their other Indemnitee Parties from or against any Claim that has accrued on or prior to the date of the commencement of this Agreement, including, without limitation, any Claim arising from any acts or omissions, or facts or occurrences prior to the Effective Date. This Section 10 shall survive any termination of this Agreement.

 

(b)

In the event of conflict between this Section 10 and the Purchase Agreement, the Purchase Agreement will control and supersede the terms of this Section 10.

 

11.              Notices. All notices, requests and other communications hereunder shall be given as set forth in the Purchase Agreement.

 

12.              Entire Agreement; No Third-Party Beneficiaries. This Management Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the Parties or any of them with respect to the subject matter hereof and thereof. This Management Agreement is not intended to confer upon any person other than the Parties hereto any rights or remedies hereunder. Except as expressly set forth in Section 10, nothing in this Management Agreement is intended to limit in any way the rights or obligations of any Party under the Purchase Agreement. If there is any conflict or inconsistency between the terms and conditions of this Agreement and the Purchase Agreement, the provisions of this Agreement shall control with respect to the rights and obligations of the parties regarding the Services provided, further, except with respect to the

 

Services, the Purchase Agreement will supersede this Agreement in the event of any conflict or ambiguity. Further, if there is any conflict or inconsistency between the terms and conditions of this Agreement and the Distribution Agreement, the provisions of the Distribution Agreement shall control.

 

13.              Headings; Interpretation. The title of and the section and paragraph headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of any of the terms or provisions of this Agreement. The term “this Agreement” or “this agreement” means this Agreement together with all Schedules, Exhibits, Addenda, Annexes, and other attachments hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. The word “or” shall be interpreted as inclusive (i.e. inclusive of “and”), unless otherwise stated. The word “including” or any variation thereof means “including, without limitation” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. The word “will” shall be construed to have the same meaning and effect as the word “shall.” References in this Agreement to any law shall be deemed also to refer to such law, as amended, and all rules and regulations promulgated thereunder. The words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole, including the Schedules, Exhibits, Addenda, Annexes, and other attachments hereto, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require or permit. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. All references herein to “$” or dollars shall refer to United States dollars. “Tax” or “Taxes” (whether or not capitalized) will mean, without duplication, charges, fees, contributions, social contributions, contributions on economic intervention imposts, levies or any other assessments imposed by any tax authority, of any country, state, province or municipality, including all income, profits, revenues, franchise, services, receipts, gross receipts, margin, capital, financial, net worth, sales, use, excise, recording, real estate, real estate transfer, escheat, unclaimed property, withholding, alternative minimum or add on, ad valorem, inventory, payroll, estimated, goods and services, employment, welfare, social security, disability, occupation, unemployment, general business, premium, real property, personal property, capital stock, stock transfer, stamp, transfer, documentary, conveyance, production, windfall profits, pension, duties, customs duties, contributions on import transactions, value added and other similar , withholdings, duties, charges, fees, levies, imposts, license and registration fees, governmental charges and assessments, including related interest, penalties, fines, additions to and expenses levied by any national, federal, state and local tax authority. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified, and if so specified, business days shall mean days for which banks are open in the State under which law this Agreement is governed and construed, unless otherwise specified. Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends. Where the last day of any such time period is not a business day, such time period shall be extended to the next business day following the day on which it would otherwise end. References in this Agreement and all Schedules, Exhibits, Addenda, Annexes, and other attachments hereto to any contract (including this Agreement) mean such contract as amended, restated, supplemented or modified from time to time in accordance with the terms thereof.

 

14.              Counterparts; Facsimile Signatures. This Management Agreement may be executed manually, by facsimile or by scan and email by the Parties hereto, in any number of counterparts, each of which shall be considered one and the same agreement and shall become effective when a counterpart hereof shall have been

 

signed by each of the Parties and delivered to the other Party.

 

15.              Severability. If any term or other provision of this Management Agreement is invalid, illegal or incapable of being enforced by rule of law or public policy, all other conditions and provisions of this Management Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Management Agreement so as to affect the original intent of the Parties as closely as possible.

 

16.              Governing Law; Jurisdiction. This Management Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada, without giving effect to conflicts of laws principles that would result in the application of the law of any other state. Each Party hereto irrevocably submits to the exclusive jurisdiction of the State of Nevada for purposes of any claim, action or proceeding arising out of this Management Agreement or any transaction contemplated hereby. The Parties agree that all disputes between them arising out of or relating to this Management Agreement shall be adjudicated only in the state courts situated in Clark County, Nevada. Each Party hereto further agrees that service of any process, summons, notice or document by United States registered mail to such Party’s address set forth under such Party’s signature on the signature page hereto shall be effective service of process for any claim, action or proceeding with respect to any matters to which it has submitted to jurisdiction.

 

17.              Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS MANAGEMENT AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS MANAGEMENT AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

18.              Assignment. This Management Agreement shall not be assigned by any Party (whether by operation of law or otherwise) without the prior written consent of the other Parties which consent shall not be unreasonably withheld, conditioned or delayed. This Management Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and assigns.

 

19.              Amendment and Modification; Waiver. This Management Agreement may not be amended except by an instrument in writing signed on behalf of each of the Parties hereto. Any Party may extend the time for the performance of any of the obligations or other acts of the other Party hereto, as applicable, or waive compliance with any of the agreements or conditions for the benefit of such Party contained herein. Any agreement on the part of a Party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. Any delay in exercising any right under this Management Agreement shall not constitute a waiver of such right.

 

20.              Attorneys' Fees. In the event that a Party institutes any legal suit, action, or proceeding against another Party in respect of a matter arising out of or relating to this Management Agreement, the prevailing Party in the suit, action, or proceeding shall be entitled to receive, in addition to all other damages to which it may be

 

entitled, the costs incurred by such Party in conducting the suit, action, or proceeding, including reasonable attorneys’ fees and expenses and court costs

 

21.              Reformation. If the FCC should (i) change its rules in a manner that would adversely affect the enforceability of this Agreement, (ii) directly or indirectly reject or take action to challenge the enforceability of this Agreement, or (iii) take any other steps whatsoever, on its own initiative or by petition from a third party, to directly or indirectly challenge this Agreement or any provision hereof, then the parties hereto shall promptly negotiate in good faith to attempt to reform and amend this Agreement so as to eliminate or amend to make unobjectionable any portion that is the subject of any FCC action, provided, that neither party shall be obligated to reform or amend this Agreement under the foregoing circumstances if any such amendment or modification, in the reasonable judgment of such party, would not provide to or afford such party substantially the same rights, duties and obligations such party has under this Agreement as of the date hereof.

 

22.              No Set-Off. The obligations under this Agreement shall not be subject to set-off for non-performance or any monetary or non-monetary claim by any party or any of their respective Affiliates under any other agreement between the parties or any of their respective Affiliates.

 

23.              Expenses. Except as otherwise provided in this Agreement, the parties shall bear their own expenses (including all time and expenses of counsel, financial advisors, consultants, actuaries and independent accountants) incurred in connection with this Agreement.

 

24.              Confidentiality.

 

(i)       Seller and its Affiliates and their respective officers, directors, partners, managers, shareholders, employees, agents and representatives will not disclose any confidential information about Purchaser or any of its Affiliates obtained as a result of the exercise of its rights or performance of its obligations under this Agreement. The obligations of Seller under this Section will survive the termination or expiration of this Agreement.

 

(ii)       Purchaser and its Affiliates and their respective officers, directors, partners, managers, shareholders, employees, agents and representatives will not disclose any confidential information about Seller or any of its Affiliates obtained as a result of the exercise of its rights or performance of its obligations under this Agreement. The obligations of Purchaser under this Section will survive the termination or expiration of this Agreement.

 

(iii)       Information shall not be deemed confidential and the receiving party shall have no obligation with respect to any such information which is or becomes publicly known through no wrongful act, fault or negligence of the receiving party; or was known by the receiving party prior to disclosure and the receiving party was not under a duty of non-disclosure, or is at any time developed by the receiving party independently of any such disclosure; or was disclosed to the receiving party by a third party who was free of obligations of confidentiality to the party providing the information; or is approved for release by written authorization of the disclosing party.

 

(iv)       The parties hereby agree that confidential information includes, but is not limited to, all information described in the Federal Communications Commission definition of “Customer Proprietary Network Information” (CPNI) set forth more particularly in 47 USC §222(h)(1) and corresponding Code

 

of Federal Regulations, if any, (as amended from time to time)

 

(v)       Notwithstanding the foregoing to the contrary, KonaTel may disclose the terms of this Agreement in connection with any disclosures required under federal or state securities laws or stock exchange rules.

 

 

[Remainder of Page Intentionally Left Blank. Signature Page Follows.]

 

 

 

 

 

 

 

 

 

 

IN WITNESS WHEREOF, the Parties have caused this Management Agreement to be duly executed as of the day and year first above written.

 

IM TELECOM, LLC, an Oklahoma limited liability company
By:	/s/ Charles D. Griffin
	Charles D. Griffin
	Authorized Representative and President of KonaTel, Inc. in its capacity as a Member of the Company
EXCESS TELECOM, INC, a Nevada corporation
By:	/s/ Cobby Pourtavosi
	Cobby Pourtavosi, CEO
KONATEL, INC., a Delaware corporation
By:	/s/ Charles D. Griffin
	Charles D. Griffin, President

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Management Services Agreement]

 

 

 15

 

 

 

Exhibit 10.3

 

MASTER DISTRIBUTION AGREEMENT

THIS MASTER DISTRIBUTION AGREEMENT (this “Agreement”), dated effective as of the Final Closing Date of that certain Membership Interest Purchase and Sale Agreement dated January 22, 2024, by and between Excess Telecom, Inc., and KonaTel, Inc. (the “PSA” or the “Purchase Agreement” and such date being the “Effective Date”) is entered into by and among (i) Excess Telecom, Inc., Nevada corporation, having its principal place of business located at 3773 Howard Hughes Parkway, Suite 590S, Las Vegas, Nevada (hereinafter referred to as “Excess Telecom”); (ii) KonaTel, Inc., a Delaware corporation , having its principal place of business located at 500 N. Central Expressway, Suite 202, Plano, Texas 75074 (hereinafter referred to as “Distributor”) and (iii) IM Telecom, LLC, an Oklahoma limited liability company (hereafter “IM Telcom”). Excess Telecom, Distributor and IM Telecom may be referred to herein each individually as a “Party” or collectively as the “Parties.”

WHEREAS, Distributor is in the business of providing marketing assistance for wireless telecommunications services, acquiring and distributing wireless handsets and tablets, shipping such handsets and tablets to customers, and provisioning wireless services pursuant to agreements with third party providers of wireless telecommunications carriers (the “Distribution Services”);

WHEREAS, IM Telecom is in the business of offering and providing wireless telecommunications services subsidized by the federal Lifeline program and state Lifeline programs (“LifeLine”), and the Affordable Connectivity Program (“ACP”) to qualified customers, and offering and providing handsets and tablets compatible with Wireless Services to such qualified customers;

WHEREAS, IM Telecom desires to engage and allow Distributor to perform the Distribution Services as set forth herein, and Distributor desires to be so engaged by IM Telecom;

WHEREAS, pursuant to the Purchase Agreement, Excess Telecom will purchase 100% of the membership interests in and to IM Telecom (the “Membership Interests”) from Distributor, and upon consummation of the Final Closing (as defined in the Purchase Agreement) of the purchase and sale of the sale of the Membership Interests, Excess Telecom will be the sole member of IM Telecom;

WHEREAS, the Parties are parties to that certain Management Services Agreement of even date herewith (the “Management Agreement”) pursuant to which Excess Telecom will perform certain services for IM Telecom until the Final Closing Date (as defined in the Purchase Agreement); and

WHEREAS, the Parties intend that this Agreement will survive the sale of the Membership Interest to Excess Telecom under the Purchase Agreement.

NOW, THEREFORE, in consideration of the mutual promises and obligations contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

 

1.

Nature of Business Relationship

The Parties to this Agreement are independent businesses entering into an arms-length contract in keeping with their pre-existing businesses. This Agreement will not be construed to create a partnership, joint venture, employment or franchise relationship among Excess Telecom and IM Telecom, or either of them, and Distributor, and no Party will represent that such a relationship exists. Distributor is solely responsible for all salaries and other compensation of its respective employees, suppliers, subcontractors, and agents, and for making all deductions and withholdings from employees’ salaries and other compensation and paying all contributions, taxes and assessments. Neither Distributor nor its employees, agents, independent contractors and/or subcontractors are entitled to participate in any workers’ compensation, retirement, insurance, stock options or any other benefits afforded to employees of IM Telecom or Excess Telecom. Except as set forth in Section 6.1 and as provided in the Management Agreement, Distributor has no authority to bind IM Telecom or Excess Telecom to a contract, Distributor is not authorized to act as an agent for IM Telecom or Excess Telecom, and Distributor will not represent that such a relationship exists. Except as provided herein, IM Telecom has no authority to bind Distributor to a contract, and IM Telecom is not authorized to act as an agent for the Distributor, and will not represent that such a relationships exists.

2.

Definitions

2.1.

“Affiliate” of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. The term “Affiliate” does not include the officers, directors, or employees of a Person, if the Person is a corporation, and does not include the employees of a Person, if the Person is a limited liability company or limited partnership.

2.2.

“Affordable Connectivity Fund” or “ACP” shall refer to the United States government-sponsored program that provides eligible households with a discount on broadband service and connected devices and any similar governmental programs that may be established providing similar service that may replace, expand or modify the current ACP.

2.3.

“Applicable Telecommunications Laws and Regulations” means Federal Communications Act of 1934, as amended, regulations or case law of the FCC, applicable state telecommunications laws, and applicable regulations and case law of state public utility commissions.

2.4.

“DBA” means and includes the names, trade styles, tradenames and lines of business now or hereafter established or created under which the IM Telecom Program is conducted or offered to End Users, including, without limitation, the line of business and doing-business-as operation known as “Infiniti Mobile”.

2.5.

“Distributor End User” means the End Users of IM Telcom as of the Term Start Date and any purchasers of Distributor Products and Wireless Services marketed or distributed by Distributor under this Agreement under the Infiniti Mobile DBA.

2.6.

“Distributor Products” shall mean the equipment or hardware, including handsets and tablets, distributed by Distributor to Distributor End Users pursuant to this Agreement.

2.7.

“Distributor Services” means the Distributor Wireless Services, Distributor Products, Lifeline services, ACP services and such other ancillary services relating to Lifeline and ACP services offered to Distributor End Users under the Licenses.

2.8.

“Distributor Wireless Services” means wireless telecommunications services subsidized by the federal Lifeline program and states that offer state Lifeline funds, and the ACP, provided by Distributor to Distributor End Users in coordination with Distributor’s underlying carrier(s) under the Licenses.

2.9.

“Effective Date” means the date set forth above.

2.10.

“End User” shall mean each end user of IM Telecom’s (including all DBA’s) Mobile Products and Wireless Services under the Licenses, for example, an individual customer that meets the Lifeline and/or ACP rules and regulations.

2.11.

“IM Telecom End User” means any End User other than (i) Distributor End Users and (ii) any End Users receiving products or services under the Infiniti Mobile DBA.

2.12.

“IM Telecom Products” shall mean the equipment or hardware, including handsets and tablets provided to IM Telecom End Users.

2.13.

“IM Telecom Wireless Services” means wireless telecommunications services subsidized by the federal Lifeline program and states that offer state Lifeline funds, and the ACP, provided by IM Telecom to IM Telecom End Users in coordination with IM Telecom’s underlying carrier(s) and the Licenses.

2.14.

“IM Telecom” means IM Telecom, LLC, an Oklahoma limited liability company.

2.15.

“IM Telecom Program” shall refer to the program in which End Users subscribe to Lifeline or ACP services now or hereafter provided to End Users under the Licenses.

2.16.

“Independent Sales Representatives” (“ISR”) shall mean any individual person that Distributor approves to market the IM Telecom Program to End Users under the Infiniti Mobile DBA.

2.17.

“Infiniti Mobile DBA” means and includes, without limitation, the DBA presently operated by IM Telecom in providing LifeLine and ACP program services under Licenses, together with any alterations, operational combinations or mergers of the Infiniti Mobile DBA with other DBAs that may occur over time, which other DBAs used by Distributor are subject to IM Telecom’s approval, which approval shall not be unreasonably withheld, conditioned or delayed.

2.18.

“Infiniti Mobile Marks” means, collectively, the tradename “Infiniti Mobile” and all related trademarks, service marks, trade names, service names, insignia, symbols, logos, decorative designs and other identifying marks now or hereafter relating thereto.

2.19.

“Licenses” means the licenses now or hereafter issued under Applicable Telecommunication Laws and Regulations for the operation of the IM Telecom Program and the Infiniti Mobile DBA and the provision of the Wireless Services and sales of the Mobile Products.

2.20.

“Lifeline” shall refer to the federal Lifeline program and other state Lifeline programs, collectively, unless a single Lifeline program is specified.

2.21.

“Person” means any natural person, any unincorporated association, any corporation, any partnership, any joint venture, any limited liability company, any trust, any other legal entity, or any Governmental Authority.

2.22.

“Territory” shall mean all areas where the ACP and/or Lifeline services are approved by under Applicable Telecommunications Laws and Regulations to be offered, and including, without limitation, such other areas that IM Telecom now or hereafter obtains a License to provided Lifeline or ACP services and such areas that IM Telecom now or hereafter markets and distributes its IM Telecom Products and Wireless Services, to members of the general public who qualify for Lifeline and ACP benefits, subject to compliance with IM Telecom’s compliance policies and procedures.

2.23.

“Top-Ups” shall mean a purchase of minutes, text messages, and/or data by End User that in addition to what is included each month in the End User’s Lifeline or ACP plan.

3.

Term and Exclusivity

3.1.

This Agreement will commence as of the Term Start Date (as defined below) and continue for a period of ten (10) years from the date of the Final Closing under the PSA (“Initial Term”). The Initial Term may be renewed for successive two (2) year periods (each a “Renewal Term”) unless a Party serves a notice to terminate (90) days prior to the end of the Initial Term or a Renewal Term. The word “Term” means the Initial Term and any Renewal Terms as provided above.

3.2.

Pursuant to the grant of rights under this Agreement, Distributor or its designated Affiliate shall have the non-exclusive right to provide the Distributor Services using Infiniti Mobile DBA during the Term of this Agreement, subject to the other terms herein. Excess Telecom and IM Mobile reserve the right to engage other distributors within the Territory.

3.3.

KonaTel hereby grants to IM Telecom the non-exclusive, non-transferrable and non-sublicensable right and license to use the Infiniti Mobile Marks and Infiniti Mobile DBA for any purpose that is reasonable or proper in furtherance of this Agreement, and not for use or license for or to any other distributor of IM Telecom without Distributor’s written consent (the “Infiniti License”). The Infiniti License will be irrevocable, subject to termination automatically upon the indefeasible satisfaction of all obligations under this Agreement following the termination or expiration of this Agreement.

3.4.

For purposes of this Agreement and notwithstanding any other provision of this Agreement to the contrary, the obligations of IM Telecom under this Agreement will be assumed by Excess Telecom in the event it dissolves IM Telecom or otherwise transfers IM Telecom’s Licenses.

3.5.

At any time during the Term, Distributor may provide services to End Users under its own licenses or licenses of its Affiliates and/or cease to procure new Distributor End Users under the IM Telecom DBA and the Licenses.

4.

Termination

4.1.

Either Excess Telecom and IM Telecom, on the one hand, or KonaTel, on the other hand, may terminate this Agreement for the other’s material breach of this Agreement following written notice specifying the nature of such failure or breach, and the opportunity for thirty (30) days to cure the breach unless such failure can be cured, but is not in the determination of the non-breaching Party reasonably susceptible of being cured within said thirty (30) day period (such determination of reasonable being “Cure Period Reasonability”), in which event such a failure shall not constitute a breach of this Agreement if breaching party commences curative action promptly following notice of the breach, and thereafter prosecutes such action to completion with all due diligence and dispatch and actually cures such breach within ninety (90) days.

4.2.

Either Excess Telecom and IM Telecom, on the one hand, or KonaTel, on the other hand, may terminate this Agreement upon written notice to the other Party if the other Party is found by a court of competent jurisdiction to have committed any act of fraud, theft, or files for bankruptcy protection.

4.3.

IM Telecom or Excess Telecom may terminate this Agreement if Distributor or its ISRs perform any act which IM Telecom or Excess Telecom reasonably determines may materially impair, diminish, or otherwise damage, the reputation or goodwill of IM Telecom or Excess Telecom, including without limitation, customer complaints by a Distributor End User that are excessive relative to Excess Telecom’s historic complaint rates, or which on an individual basis are more serious or pejorative that Excess Telecom’s historic complaints, or violations of the Lifeline or ACP rules and regulations which may include in the determination of IM Telecom or Excess Telecom, individually, or in the aggregate, result in any fine, investigation, suspension of the Licenses held by IM Telecom or Excess Telecom, and Distributor is unable to affect or provide adequate remedy within thirty (30) days after receipt of written notice from IM Telecom or Excess Telecom of such event. The Parties agree that the determination of what may injure, or reasonably tend to injure, the reputation or goodwill of the injured Party is a matter in the sole but reasonable discretion of IM Telecom or Excess Telecom and shall be based on customary business practices in the industry and Excess Telecom’s or IM Telecom’s documented policies and procedures.

4.4.

Either Excess Telecom and IM Telecom, on the one hand, or KonaTel, on the other hand, may terminate this Agreement on ninety (90) days’ notice if Distributor obtains its own licenses, or enters into a distribution agreement with another party which hold licenses substantially similar to the Licenses.

4.5.

Either Excess Telecom and IM Telecom, on the one hand, or KonaTel, on the other hand, may terminate this Agreement on thirty (30) days’ notice if there is claimable activity with respect to fewer than Five Thousand (5,000) Distributor End Users in the preceding ninety (90) day period.

4.6.

Notwithstanding any provision of this Agreement to the contrary, this Agreement may not be terminated for convenience or otherwise without cause by Excess Telecom and/or IM Telecom, provided that the non-renewal of the Term shall not be deemed or construed to be a termination for convenience.

5.

Effect of Termination; Remedies.

5.1.

Upon termination, Distributor shall immediately cease all marketing and distribution efforts with respect to Distributor Products and Distributor Wireless Services under License of IM Telecom or Excess Telecom, and shall immediately cease all marketing and distribution efforts with respect to any other IM Products or IM Mobile Services. Distributor shall maintain all data, records and reports for a minimum of twenty four (24) months after termination and make such data, records and reports available for download to Excess Telecom and IM Telecom at all times.

5.2.

If IM Telecom or Excess Telecom terminates this Agreement for any reason or no reason, Distributor shall be entitled to, at Distributor’s sole cost and expense, including the reasonably fees of professionals of Excess Telecom and IM Telecom in connection with such further acts: (i) receive, within thirty (30) days, the unpaid amount payable under Schedule A of the Agreement as of the date of termination solely to the extent actually received by IM Telecom, (ii) to continue to receive each month, for not more than three (3) years, the recurring compensation as provided on Schedule A for each valid customer secured by Distributor during the term of this Agreement so long as (a) such customer remains active including having usage; and (b) Excess Telecom and/or IM Telecom continues to receive state and federal Lifeline or ACP funding for such customer (and IM Telecom or Excess Telecom, as applicable, shall not intentionally cease to allow receipt of such funding) and (iii) transition the customers in clause (ii) above to another ACP or LifeLine program over such 3-year period; provided, however, the amounts payable pursuant this sentence will in any event continue to be subject to any clawbacks, fines, judgments, penalties, or other financial obligations arising from litigation, audits, or enforcement actions by Governmental Authorities. Excess Telecom and IM Telecom shall cooperate with Distributor in effecting the orderly transfer of customers under clause (iii) above and shall maintain the LifeLine and ACP programs during such transition period.

5.3.

Right of Offset. Excess Telecom and IM Telecom shall have the right to use amounts otherwise payable to Distributor under this Agreement to offset liabilities or monetary damages that IM Telecom or Excess Telecom actually incurs arising from Distributor’s activities in connection with this Agreement, including without limitation clawbacks, fines, judgments, penalties, or other financial obligations arising from litigation, audits, or enforcement actions by Governmental Authorities. Subject to the terms below, Distributor will forfeit, and have no rights to, any amounts so used to offset actual liabilities or damages to the extent incurred by IM Telecom or Excess Telecom. IM Telecom shall, in its regular monthly statements, provide Distributor with adequate detail concerning any charges taken and monies withheld. Upon the termination of this Agreement, all such amounts not used to offset liabilities or damages that IM Telecom or Excess Telecom incurs arising from Distributor’s activities in connection with this Agreement shall be promptly refunded back to Distributor, on the latter of (i) the conclusion of the last active pending investigation or proceeding by a government agency concerning Distributor Products or Wireless Services, and (ii) one (1) year plus five (5) business days

following the effective date of termination of this Agreement. If IM Telecom or Excess Telecom reasonably determines at the request of Distributor that any clawback, fine, or penalty is subject to meritorious and plausibly responsive contest, it will, at the sole and advance cost and expense of Distributor act in good faith to contest such clawback, fine, or penalty.

6.

Distributor’s Authority & Obligations.

6.1.

Conditional on Distributor’s material compliance with all terms and conditions of this Agreement, IM Telecom makes a limited grant of non-exclusive authority to Distributor as follows:

6.1.1.

IM Telecom grants to Distributor a non-exclusive, non-transferrable, non-sublicensable right to market and distribute Distributor Products and Wireless Services solely within the Territory to members of the general public who qualify for Lifeline and/or ACP benefits, and to enroll properly qualified Lifeline and ACP customers with IM Telecom in accordance with law and with IM Telecom’s approved enrollment process. Any purchasers of Distributor Products and Wireless Services marketed or distributed by Distributor shall be the customers of IM Telecom and not customers of Distributor for purposes of the Licenses and Applicable Telecommunication Laws. Distributor may delegate or perform the Services under this Agreement through current Affiliates of Distributor. All Affiliates and agents of Distributor, current or future, must be approved by IM Telecom prior to beginning marketing activities or activation of customers.

6.1.2.

IM Telecom authorizes Distributor, in Distributor’s discretion, to utilize Distributor’s employees or ISRs within the authorized Territory for the purpose of performing under this Agreement in marketing and distribution of Distributor Products and Distributor Services to End Users, provided that:

6.1.2.1.Except for Distributor’s ability to enroll properly qualified Lifeline and ACP customers on behalf of IM Telecom in accordance with law and with IM Telecom’s enrollment process, neither Distributor nor its employees or ISRs shall have any authority to bind IM Telecom in any manner whatsoever.

6.1.2.2.Distributor is solely responsible for selection of its employees and/or ISRs, for negotiating the terms of any contracts or agreements with such employees or ISRs, and for all payment or compensation to such employees and ISRs.

6.1.2.3.Distributor, its employees, and any ISRs that Distributor engages for the purpose of performing under this Agreement must adhere to all applicable laws, including without limitation federal and state regulations for Lifeline and ACP.

6.1.2.4.Distributor shall adhere to FCC guidelines that prohibit payment of commissions for enrollment representatives and adhere to IM Telecom audit requests for verification of compensation method.

6.2.

Excess Telecom and IM Telecom each acknowledge and agree that, subject to the Infiniti License, Distributor owns all rights in and to the Infiniti Mobile Marks and will use the Infinity Mobile Marks in connection with the Distributor Services and advertising to potential End

Users, subject in each case to industry standard guidelines that IM Telecom or Excess Telecom may update through notices sent to Distributor from time to time for purposes of maintaining compliance with Applicable Telecommunications Laws and Regulations and the Licenses; provided, that any such guidelines provided by IM Telecom Excess Telecom shall be reasonable and consistent with guidelines followed by IM Telecom or Excess Telecom in its own business operations. IM Telecom and Excess Telecom shall not, in any manner, represent that either has any ownership in the Infiniti Mobile Marks, and IM Telecom and Excess Telecom acknowledge that the use of the Infiniti Mobile Marks shall not create in IM Telecom’s or Excess Telecom’s favor any right, title or interest in and to the Infiniti Mobile Marks but all uses of the Infiniti Mobile Marks pursuant to this Agreement, if any, shall inure to the benefit of Distributor. Neither IM Telecom nor Excess Telecom shall have any right to use any of the Infiniti Mobile Marks under this Agreement, except solely in furtherance of the express terms hereof. Distributor may, in its sole discretion assign the Infiniti Mobile Marks to any third party, provided, that such assignment of the Infiniti Mobile Marks will not be deemed or construed to be an assignment or transfer by KonaTel of this Agreement or any rights, privileges, or obligations arising hereunder.

6.3.

During the term of this Agreement, Distributor shall have the right to, (i) facilitate the enrollment of End Users in the IM Telecom Program under the Licenses for the provision of Distributor Services, (ii) provide areas to display “point of sale” materials for implementing the IM Telecom Program and procuring customers for Distributor thereunder, (iii) implement and maintain reasonable physical, technical, administrative, and organizational safeguards to protect against unauthorized access to, or unauthorized destruction, use, modification, or disclosure of, Confidential Information, (iii) procure compatible devices and tablets in accordance with FCC and USAC rules and regulations, and to activate service for Distributor End Users on the appropriate network(s) of Distributor’s underlying carrier(s).

6.4.

Distributor acknowledges that a breach by Distributor of this Agreement with respect to the Licenses under this Section 6 would cause IM Telecom and Excess Telecom irreparable damages, for which an award of damages would not be adequate compensation and agrees that, in the event of such breach or threatened breach, IM Telecom and Excess Telecom will be entitled to equitable relief, including a restraining order, injunctive relief, specific performance and any other relief that may be available from any court without necessity of bond or proof of actual damages, in addition to any other remedy to which IM Telecom or Excess Telecom may be entitled at law or in equity. Such remedies shall not be deemed to be exclusive but shall be in addition to all other remedies available at law or in equity, subject to any express exclusions or limitations in this Addendum or the Agreement to the contrary.

7.

Additional Distributor Obligations, Duties, and Warranties

7.1.

Distributor shall perform its duties under this Agreement in a legal, professional and ethical manner and in compliance with all applicable laws, rules, regulations, and orders of the United States, and any other relevant government agencies (including, without limitation, the Federal Communications Commission (“FCC”), the Universal Service Administrative Company (“USAC”) and state utilities/public service commissions) with jurisdiction over either Party or its activities in the performance of its obligations under this Agreement. The parties specifically agree that state and federal rules governing the federal Lifeline program as established by 47

U.S.C. §254 and 47 C.F.R. § 54.400-417, apply to the activities of Distributor, IM Telecom, and Excess Telecom.

7.2.

Distributor agrees (i) to comply with any and all policies and procedures prescribed by the regulatory authorities governing Lifeline and ACP for the solicitation and enrollment of End Users on the IM Telecom Program, and (ii) to comply with any and all standards regarding the Distributor Products as set forth by the regulating authorities of Lifeline and ACP.

7.3.

Neither Distributor, nor any of its sales personnel, employees, agents or representatives are authorized to, and will not, make any, representation, warranty or covenant, whether in writing or orally, on behalf of IM Telecom or Excess Telecom, other than as approved by IM Telecom or Excess Telecom in writing, in advance of the delivery of such representation, warranty, or covenant.  Distributor shall not commit any act or omission that it knows, or reasonably should know, may reflect unfavorably on IM Telecom or Excess Telecom or otherwise diminish or impair its reputation or goodwill. Distributor shall not misrepresent any prices, products, services or other matters offered by IM Telecom or Excess Telecom, including, without limitation, with respect to ; provided, that, solely to the extent any misrepresentation is may actually be fully cured by doing so, Distributor may remedy any such misrepresentation by undertaking a corrective plan, including, without limitation, offering concessions at KonaTel’s direct expense to all adversely affected End Users, that is reasonably acceptable to IM Telecom or Excess Telecom. Distributor shall require all of its employees, ISRs, and subcontractors or independent contractors to abide by all of the requirements of this Agreement. Distributor shall cooperate with IM Telecom and Excess Telecom to resolve any actual, or potential, instances of non-compliance with the policies and procedures as set forth by the regulatory authorities, IM Telecom, or Excess Telecom governing Lifeline and ACP. Distributor further acknowledges that enrollment of Distributor End Users must be materially consistent with IM Telecom or Excess Telecom procedures and policies.

7.4.

Distributor agrees to meet with IM Telecom or Excess Telecom representatives periodically when reasonably requested by IM Telecom or Excess Telecom to discuss marketing and distribution activities, provisioning issues, problem resolution, and/or other topics related to the Parties’ performance under this Agreement.

7.5.

Distributor shall assure that all ISRs signed up by the Distributor are familiar with all federal and state regulations, and policies and procedures of IM Telecom and Excess Telecom, and will distribute IM Telecom Products and Wireless Services in compliance therewith, prior to such ISRs marketing or distributing any Mobile Products to End Users. Excess Telecom offers a voluntary training for individuals who wish to distribute IM Telecom Products and Wireless Services, and any of Distributor’s ISRs may participate in such Excess Telecom voluntary training if they so elect. Distributor shall timely respond to all questions, problems or other issues of ISRs, and shall visit all Distributor ISRs, as needed, to confirm compliance with state and federal regulations for Lifeline and ACP. If IM Telecom or Excess Telecom determines in its reasonable discretion that an ISR is not complying with ACP and/or Lifeline rules, or IM Telecom or Excess Telecom policies and procedures, Distributor must not circumvent IM Telecom’s or Excess Telecom’s termination of access to IM Telecom and Excess Telecom systems by such ISR , IM Telecom or Excess Telecom may terminate any such ISR’s system access.

7.6.

Distributor will provide customer service representatives at the sole expense of Distributor to serve Distributor End Users (including without limitation Distributor’s ISRs).

7.7.

Distributor, at its sole expense, will provide Distributor Products to Distributor End Users who have been acquired by Distributor or Distributor’s representatives. Such Distributor Products will be activated only upon Distributor End User’s qualification for Lifeline or ACP. Such handsets or tablets will be enabled to provide Distributor End Users access to emergency (E-911) services and will meet all applicable governmental standards and regulations (including standards pertaining to disabled customers). All tablets must be approved by USAC or the FCC before being distributed for the ACP. Distributor agrees to any and all inspections required by IM Telecom or Excess Telecom to ensure compliance with this provision. Distributor will be responsible for all costs related to maintaining the Distributor Products.

7.8.

Distributor will pay all income taxes on compensation received pursuant to this Agreement and will further pay all use, sales, value-added, and ad valorem taxes on property owned and used by Distributor in fulfilling Distributor’s duties under this Agreement. Distributor will also pay any and all payroll taxes for its employees who may be engaged in activities to fulfill Distributor’s duties under this Agreement.

7.9.

Distributor shall be solely responsible for all expenses incurred in Distributor’s performance under this Agreement, including without limitation the costs of materials used for marketing and distribution, and travel expenses. Distributor shall be responsible for marketing and marketing costs, and for developing and utilizing effective marketing techniques and materials.

7.10.

All marketing and advertising materials must be approved in writing by IM Telecom or Excess Telecom prior to dissemination or use to ensure that they (i) do not misrepresent Distributor Products or Distributor Wireless Services, and (ii) comply with all state or federal rules and regulations. Such approval shall not be unreasonably withheld.

7.11.

Distributor may market, distribute and/or represent IM Telecom’s Products and Wireless Services, in geographic Territories approved by IM Telecom or Excess Telecom.

7.12.

Each of Distributor, on the one hand, and IM Telecom and Excess Telecom, on the other hand, agree that, during the Term and for a period of three (3) years following the Term (the “Restricted Period”), such Party or Parties, and any person or entity acting on behalf of, under the control of or otherwise in affiliation with such Party or Parties, may not directly or indirectly do any of the following: (i) intentionally solicit, call on, divert, take away, influence or induce any of the other Party’s or Parties’ (as the case may be, the “Other Party”) (a) client, customers, or distributors or prospective customers or distributors (wherever located) with respect to goods, products or services that are competitive with the Other Party’s business, or (b) suppliers or vendors or prospective suppliers or vendors (wherever located) to supply materials, resources or services to be used in connection with goods or services that are competitive with those of the Other Party’s business, or in a manner that would materially and adversely affect the Other Party’s relationship with such persons; (ii) hire, solicit, or take away any person or entity who or which was an employee of or service provider or consultant to the Other Party within the twelve (12) month period prior to the date of such hiring, solicitation, or taking away, or is or becomes at any time during the Restricted Period an employee or service provider or consultant

of the Other Party or any of its affiliates; or (iii) directly or indirectly assist any person or entity to take or attempt or offer to take any of the foregoing actions described in this Section; provided, however, the foregoing provisions of this Section will not be deemed or construed to restrict general solicitations that may, without specific intent, violate the foregoing terms of this Section.

7.13.

Distributor acknowledges and agrees that this twenty-four (24) month non-solicitation provision is reasonable both in time and scope, and that Distributor has received adequate consideration under this Agreement for this provision.

8.

Operational Obligations and Duties of the Parties

8.1.

For Distributor End Users Distributor will provide and manage the services and products of an Operations Support System (“OSS”) provider, a compliance and billing provider, a tax service provider, legal and regulatory affairs provider(s), call center, an airtime service provider, and other administrative duties.

8.2.

Distributor is responsible for paying its underlying carrier(s) for monthly recurring charges for cost of service for Distributor End Users.

8.3.

IM Telecom will submit all necessary forms to USAC for reimbursements for the provision of Lifeline and ACP services and will collect all amounts provided by USAC for all End Users. IM Telecom will further manage all audit requests from any governmental or quasi-governmental entity (such as USAC) pertaining to Lifeline/ACP or service provisioning, usage, and payments and Distributor will participate fully and in a transparent and adequately timely manner as requested by IM Telecom.

8.4.

IM Telecom will review all orders or applications for IM Telecom Products and IM Telecom Wireless Services obtained by Distributor (or Distributor’s ISRs) prior to final acceptance of such customers, and IM Telecom must give its approval to all new prospective customers and be satisfied that such customers are qualified to receive Lifeline or ACP services before any IM Telecom Wireless Services are provided to customers, or before any IM Telecom Mobile Products are provided to End Users. IM Telecom’s review process will be performed in a reasonable and timely manner using best efforts, of a similar nature to those it would normally undertake with its own prospective customers. IM Telecom will promptly communicate all such review processes and results with reasonable specificity to Distributor and Distributor shall have the opportunity to address, substantiate and contest the qualifications of any new prospective customers.

8.5.

IM Telecom shall, at its expense (but without prejudice to Distributor’s obligations under this Agreement), maintain, or cause to be maintained, all Licenses for the IM Telecom Program and provision of the Lifeline and ACP services in good standing during the term of this Agreement.

8.6.

Distributor will be solely responsible for:

8.6.1.

Distributor’s call center operations, including telephone costs, customer service, and review queue;

8.6.2.

Wages and salaries of Distributor employees;

8.6.3.

Customer management functions, which may include but not limited to:

8.6.3.1.Sending non-usage text and email alerts;

8.6.3.2.30-day non-usage disconnects; and

8.6.3.3.Form 497 reporting.

8.7.

Distributor shall be solely responsible for the payment of all government-imposed taxes, surcharges and fees related to the sale of Distributor Products and Distributor Wireless Services to Distributor End Users, including but not limited to 911 fees and municipal, county, state, or other taxes, as well as any other fees related to the services, subject to Schedule A which is attached hereto.

8.8.

Distributor shall be solely responsible for the procurement of all Distributor Products for enrollment of Distributor End Users.

9.

Payment

9.1.

The agreement of the Parties with respect to compensation and distribution of anticipated revenues (including revenues derived from USAC payments, individual state Lifeline payments, ACP payments, and monthly Top-Ups) and are outlined in Schedule A attached hereto, the terms of which are incorporated herein by reference.

9.2.

Payment of customer-related fees will be based on a flat fee basis, and IM Telecom shall pay Distributor in accordance with Schedule A hereto to compensate Distributor for the duties and obligations provided and fulfilled by Distributor. Specifically, payments made to Distributor shall reflect the Distributor portion of revenue less IM Telecom’s expenses and fees, as set forth in Schedule A. Such payments will be made not later than three (3) business days following IM Telecom’ receipt of amounts received from USAC, and/or individual states, for the provision of Lifeline and ACP services to those customers who have been acquired by Distributor or Distributor’s representatives and who subscribe to Distributor Products and Distributor Wireless Services.

9.3.

Distributor will cooperate fully with IM Telecom in any audit or investigation or request for information by any governmental authority including any quasi-governmental authority such as USAC pertaining to Distributor Products or Distributor End Users and who subscribed to Distributor Products and Distributor Wireless Services. This duty to cooperate will survive any event of termination described in Section 5 or a period of three (3) years.

9.4.

Distributor agrees that any and all payments to be made by IM Telecom or IM Telecom under this Agreement to Distributor shall be subject to a chargeback in the form of deductions from future payments to reimburse IM Telecom for any and all regulatory fines that have been actually assessed to IM Telecom and deemed by a Governmental Authority to be owed, taxes, or fees (including 911 fees) related to providing wireless service to Distributor End Users under the Infiniti Mobile DBA, or chargebacks or adjustments to previous payments made by USAC

or any other source as a result of findings that customers under the Infiniti Mobile DBA are or were ineligible for Lifeline or ACP services or Mobile Products by the applicable Governmental Authority. If the payments due to Distributor the month following discovery of such fines, taxes, fees, or chargebacks do not completely satisfy all amounts owed to IM Telecom, Distributor will pay the difference directly to IM Telecom within thirty (30) calendar days of notice thereof together will proper supporting documentation, as reasonably determined by IM Telecom. IM Telecom and IM Telecom will use commercially acceptable efforts to negotiate fees and payment terms to mitigate the fines or penalties. Distributor hereby agrees to comply with all IM Telecom or IM Telecom agreed settlements relating to Distributor End Users in accordance this the terms above; provided.

9.5.

In the event of any compliance investigation, audit, or proceeding initiated by a Governmental Authority or as part of an internal regulatory audit which involves any act or omission by Distributor in connection with the performance of the Distributor Services accordance with this Agreement, IM Telecom may, in its sole discretion, withhold any or all payments due to Distributor in accordance with the terms hereof. In the event such compliance investigation is initiated as part of an internal regulatory audit, individual payments may not be withheld for any period in excess of thirty (30) days, provided, that, such period will extend to up to ninety (90) days if IM Mobile or Excess Telecom provide notice that such investigation may reasonably take more than thirty (30) days (such determination being “Investigation Withholding Reasonability”). In the event such investigation, audit, or proceeding results in a determination that Distributor (1) failed to materially comply with any written policy or regulation, or (2) failed to materially comply with any statute, rule, or regulation applicable to Distributor under this Agreement, then Distributor shall forfeit payments owed to Distributor for the sales of IM Telecom Products and IM Telecom Wireless Services which are determined by either IM Telecom or any governmental or quasi-governmental authority (such as USAC) to be invalid, unlawful, or not in compliance with applicable laws or regulations, and to the extent of any and all costs, expenses, damages, or losses incurred by IM Telecom as a result of such failures. IM Telecom’ remedies under this paragraph, including such forfeiture, shall be in addition to any other remedies available to IM Telecom under this Agreement or applicable law. IM Telecom shall give Distributor prompt notice of any such determination for forfeiture, and Distributor may within 30 days after receipt of such notice, (i) file suit for judicial review of the validity of such forfeiture or (ii) initiate the Dispute Resolution procedures in Section 5.5 above. Failure to file such suit or to initiate the Dispute Resolution procedures in Section 5.5 above within said 30-day period will constitute acceptance by Distributor of the forfeiture.

10.

Indemnification

10.1.

Distributor shall indemnify, defend, and hold Excess Telecom and IM Telecom, together with their respective affiliates, and such parties respective shareholders, officers, directors, employees, agents, affiliates, and their respective successors and assigns (“IM Telecom Indemnitees”) harmless from any and all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’ fees, fees and the costs of enforcing any right to indemnification under this Agreement and the cost of pursuing any insurance providers (collectively, “Losses”), incurred by IM Telecom Indemnitees relating to any claim or demand alleged or asserted by a third party that arise from or in connection with, or relate to

(1) Distributor’s or ISRs exercise of rights or privileges under this Agreement or performance of its obligations pursuant to this Agreement, including but not limited to offering for sale or sale of IM Telecom Products and Wireless Services, (2) any breach of any representation, warranty, covenant, or agreement in this Agreement by Distributor or ISRs, (3) any negligent or willful acts or omissions of Distributor, its employees, agents, or subcontractors resulting in any bodily injury or death to any person or loss, disappearance or damage to tangible or intangible property; (4) any infringement, misuse or misappropriation of any third-party intellectual property rights by Distributor, its employees, agents, or subcontractors; (5) any failure to comply with applicable laws, rules or regulations by Distributor, its employees, agents, or subcontractors; (6) any action initiated by Distributor’s employees, agents, or subcontractors against IM Telecom or Excess Telecom for wages, fringe benefits, other compensation, or similar claims under applicable law; (7) any employment related claims or demands made by the employees or contractors of Distributor, including, without limitation, any claim of co-employment by virtue of Distributor’s exercise of rights and privileges hereunder, or/and (8) any and all fees, costs and expenses, including, without limitation, reasonable attorneys’ fees incurred by or on behalf of IM Telecom or Excess Telecom in the investigation of or defense against any and all the foregoing Claims.

10.2.

The indemnification obligations imposed by this section includes, but is not limited to court costs, punitive or exemplary damages, and reasonable attorney’s fees.

10.3.

Subject to Section 12 below, Disclaimer of Warranties, IM Telecom shall indemnify, defend and hold harmless Distributor, its officers, directors, employees, agents, affiliates, successors and permitted assigns (each, an “Distributor Indemnitees”) against any and all Losses relating to any claim of a third party to the extent primarily resulting from IM Telecom’s gross negligence, willful misconduct or uncured material breach of this Agreement, or to the extent relating to any employment related claims or demands made by the employees or contractors of IM Telecom (excluding any person that is an employee or contractor of IM Telecom, LLC as of the Effective Date, or who or which is engaged at the direction of Distributor); provided, however, to the extent IM Telecom may receive a recovery of Distributor’s Losses from a third party that is not an IM Telecom Indemnitee or an insurer of any of them, IM Telecom will exercise commercially reasonable efforts to provide Distributor with the benefit of such recovery.

11.

Insurance

11.1.

Distributor shall at all times during the term of this Agreement, and for three (3) years thereafter, maintain in full force and effect at its sole expense, a comprehensive general liability insurance policy in protection of Distributor and IM Telecom, its officers, elected officials, boards, agents and employees for any and all damages and penalties which may arise as a result of Distributor’s Services under this Agreement. The policy shall name Distributor as insured and IM Telecom and Excess Telecom as an additional insured and must have a single occurrence limit of not less than two million dollars ($2,000,000), an aggregate limit of not less than three million dollars ($2,000,000). The deductible on the policy shall be no higher than $100,000. The insurance required under this paragraph shall be issued by insurers rated in “Best’s Insurance Guide” with a “General Policyholders Rating” of at least “A-” for “Financial Strength” and a “Financial Size Category” rating of at least X.

11.2.

Distributor shall procure and maintain workers’ compensation and employer’s liability insurance in accordance with the laws of the state during the term of this Agreement.

11.3.

Distributor shall submit to IM Telecom upon periodic request evidence that Distributor has the insurance required under this Section.

11.4.

Distributor shall ensure that IM Telecom receives at least thirty (30) days’ prior written notice before any policy is cancelled or materially modified to the extent such notice is provided by the applicable insurance in accordance with applicable law. If Distributor fails to obtain the necessary coverages after not less than 30 days’ prior notice to Distributor, IM Telecom may obtain such coverages to the extent reasonable and applicable at Distributor’s expense.

11.5.

Failure to comply with this Section shall constitute a material breach of this Agreement; provided, that Distributor shall have the right to cure such default in accordance with the term of this Agreement, provided, however, during any period for which Distributor is in breach of the terms of this Section 11, the limitations of liability will not apply to any claim for which Distributor is liable or owes indemnification to IM Telecom or any other party.

12.

DISCLAIMER OF WARRANTIES

12.1.

Each Party acknowledges that no Party hereto manufactures or assembles any Mobile Products, and no Party hereto sells or provides any Mobile Products other than code-division multiple access (“CDMA”) or Global System for Mobile Communications (“GSM”) voice-enabled devices, and that no IM Indemnitee has any responsibility, obligation, or liability for any Mobile Products distributed under this Agreement, and provides no warranties for such Mobile Products.

12.2.

THE PARTIES ACKNOWLEDGE THAT THE PRODUCTS AND MOBILE PRODUCTS PROVIDED BY AN IM INDEMNITEE UNDER THIS AGREEMENT ARE PROVIDED “AS IS,” “WITH ALL FAULTS” AND WITHOUT ANY WARRANTY. TO THE MAXIMUM EXTENT PERMITTED BY LAW, IM TELECOM AND EXCESS TELECOM EACH DISCLAIMS ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTY OF MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, WHETHER ARISING BY A COURSE OF DEALING, USAGE OR TRADE PRACTICE OR COURSE OF PERFORMANCE.

13.

LIMITATION OF LIABILITY

13.1.

SUBJECT TO SECTION 13.2 BELOW, NO PARTY SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO ANOTHER FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, EVEN IF SUCH PARTY HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING. UNDER NO CIRCUMSTANCES SHALL A PARTY BE LIABLE TO THE OTHER PARTY BEYOND THE AMOUNT IT RECEIVED UNDER THE AGREEMENT.

13.2.

The limitations on liability set forth in Section 13.1 do not apply to liability arising from (1) a Party’s duty to indemnify the other under this Agreement; (2) a breach of a Party’s

confidentiality obligations under this Agreement; or (3) any infringement, misuse or misappropriation of any Intellectual Property rights in any material respect, including, without limitation any breach by Distributor of Section 6.

13.3.

Subject to the other provisions of this Section 13, Distributor’s sole remedy for breach of this Agreement by IM Telecom will be an action at law for actual damages incurred by Distribution from such breach.

14.

Entire Agreement

This Agreement, including the exhibits and schedules attached hereto and the documents and instruments referred to herein, embodies the entire agreement and understanding of the Parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein. This Agreement, and any documents and instruments contemplated hereby, supersedes all prior agreements and undertakings between the Parties with respect to such subject matter. If any term or provision of this Agreement shall be found to be illegal or unenforceable, then notwithstanding such illegality or unenforceability, this Agreement shall remain in full force and effect, and such term or provision shall be deemed to be deleted. The Parties specifically agree that the attached Schedule A and any exhibits are incorporated by reference herein as a part of this Agreement, the same as if set forth in the body hereof.

15.

Amendments

This Agreement may be amended, modified or supplemented only by an instrument in writing executed by the Party against which enforcement of the amendment, modification or supplement may be sought.

16.

Assignment and Assumption

Except as expressly provided below, this Agreement may not be assigned by any Party at any time without the written consent of the other Parties, and any attempt to do so shall be void and of no effect. Notwithstanding the foregoing limitations on the assignment of this Agreement to the contrary, any Party to this Agreement may assign its rights under this Agreement without the consent of the other Parties, if the assignment is made to an Affiliate, or an entity acquiring all or substantially all of its assets or business of such transferring Party; provided, that the transferring Party will, prior to the effectiveness of such assignment, cause such Affiliate or the party acquiring the assets of such transferring Party to assume the obligations of such Party under this Agreement.

17.

Governing Law, Jurisdiction and Venue

This Agreement will be effective and binding only when executed by an authorized representative of each Party. This Agreement shall be governed by the laws of the State of Nevada, and both parties further consent to jurisdiction by the state and federal courts sitting in Clark County in the State of Nevada.

All notices provided under this Agreement must be in writing and will be deemed to be duly given after it has been sent by both electronic mail and First Class U.S. mail to the addresses below, or at such other address as any Party hereto may have furnished to the other Party in writing by pursuant to written notice under this Agreement:

To: Excess Telecom, Inc. or IM Telecom, LLC

Attn:

Cobby Pourtavosi 3773 Howard Hughes Parkway Las Vegas, Nevada Email: pourtavosi@sbcglobal.net with a copy to: Lance J.M. Steinhart Lance J.M. Steinhart, PC 1725 Windward Concourse, Suite 150 Alpharetta, GA 30005 Email: lsteinhart@telecomcounsel.com and Matthew E. Wolf, Esq. Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP 11400 W. Olympic Blvd., 9th Floor Los Angeles, California 90064 Email: mewolf@wrslawyers.com

KonaTel, Inc.

Attn:

Chuck Griffin 500 N. Central Expressway, Suite 202 Plano, TX 75074 cgriffin@konatel.inc and Kutak Rock, LLC 2001 16th Street, Suite 1800 Denver, CO 80202 Attn: Stephen J. Ismert Email: stephen.ismert@kutakrock.com

18.

Confidentiality

18.1.

Distributor agrees that it will take all necessary steps in accordance with industry standards to prevent the divulgence to any person or entity: (a) Customer Proprietary Information (CPI), Personally Identifying Information (PII), or Customer Proprietary Network Information (CPNI), or protected health information of any person learned as a result of performing under this Agreement in violation of applicable law; (b) the names, addresses, telephone numbers, or other personal data of IM Telecom’s customers or prospective customers; or (c) the contents of any communications by IM Telecom’s customers.

18.2.

Both Parties agree to keep confidential and not disclose or use, except in performance of its

obligations under this Agreement, confidential or proprietary information related to each party’s business that is learned in connection with this Agreement, including without limitation: information relating to both Parties’ products or technology, price lists, customer lists (including without limitation the names, addresses, telephone numbers, email addresses or other identifying or contact information pertaining to persons or concerns that are, were, or are likely to become IM Telecom customers), business plans, processes, trade secrets, know-how, ideas, inventions (whether patentable or not), computer programs, names and expertise of employees and consultants, all information relating to customers and customer transactions and other technical, business, financial, customer and product development plans, forecasts, strategies and information, any information about the financial or business affairs of IM Telecom, and any information that by its very nature may be reasonably assumed to be confidential in accordance with industry standards (“Confidential Information”).

18.3.

Each Party shall use reasonable precautions to protect Confidential Information and employ at least those precautions that it employs to protect its own confidential or proprietary information. “Confidential Information” shall not include information either party can document (a) is in or (through no improper action or inaction by Distributor) enters the public domain (and is readily available without substantial effort), or (b) was rightfully in its possession or known by its prior to the receipt from the other Party, or (c) was rightfully disclosed to it by another person without restriction, or (d) is expressly permitted pursuant to this Agreement, (e) was independently developed by Distributor by persons without access to such information and without use of any Confidential Information (f) was required by law or court order. Furthermore, Distributor may disclose the terms and conditions of this Agreement as is necessary in order for Distributor to make any public disclosures required under federal or state securities laws or regulations. Distributor acknowledges and agrees that due to the unique nature of IM Telecom’s Confidential Information, there can be no adequate remedy at law for any breach of its obligations hereunder, that any such breach may allow the Distributor or third parties to unfairly compete with IM Telecom resulting in irreparable harm to IM Telecom, and therefore, that upon any such breach or any threat thereof, IM Telecom shall be entitled to appropriate equitable relief in addition to whatever remedies it might have at law. Distributor will notify IM Telecom in writing immediately upon the occurrence of any unauthorized release of Confidential Information.

18.4.

Except as provided above, neither Party shall disclose the terms of this Agreement to any third party without the prior written consent of the other Party.

18.5.

Any material breach of this Section will constitute a material breach of this Agreement; provided, that if the release of the information described in Section 18.1 above is covered by Distributor’s cyber and technology services insurance policies such release of information shall not constitute a breach under this this Section 18.

19.

Compliance with Laws. The Parties desire and intend that this Agreement and the performance of the Distribution Services hereunder comply fully with all Applicable Telecommunications Laws and Regulations, and this Agreement shall be interpreted and applied in such manner as is consistent with all such laws. If the FCC or any state body of competent jurisdiction determines that any provision of this Agreement violates any communications licenses or the Applicable Telecommunications Laws and Regulations or the Licenses, the Parties shall use their best efforts to immediately bring this Agreement

into compliance therewith, consistent with the non-violative terms and provisions of this Agreement. It is expressly understood and agreed by the Parties that nothing in this Agreement is intended to give the Distributor any right which would be deemed to constitute a transfer of “control” (as defined in the Applicable Telecommunications Laws and Regulations) of IM Telecom of its Business, any or all of its Licenses, or of one or more of its communications licenses to Distributor.

20.

Miscellaneous

20.1.

Force Majeure. No Party shall be held responsible for any delay or failure to perform hereunder for which delay or failure is due to acts of God, fire, flood, earthquake, ice storms, or other natural disasters, solar flares, explosions, severe weather conditions, national or regional emergencies, insurrections, embargoes, a governmental authority’s failure to timely act, riots or other civil unrest, wars, invasions or hostilities (whether war is declared or not), terrorism threats or acts, strikes, lockouts, labor disputes, labor stoppages or slowdowns. The impacted Party will promptly notify the other in writing of the occurrence and details of any force majeure that has caused, or is likely to cause, the notifying Party to fail to perform its obligations under this agreement and will use diligent efforts to end the failure or delay and ensure the effects of such force majeure event are minimized. Failure of a Party to perform under this agreement due to the occurrence of a force majeure event lasting more than thirty (30) days will, upon twenty-four (24) hours’ written notice to the other Parties hereto, represent a ground for termination by a Party of the service affected by such force majeure, without termination fees or other liability or obligation.

20.2.

No Waiver. The waiver by any Party of any right hereunder, or waiver relative to a failure to perform or breach by the other Parties hereto, will not be deemed as a waiver of any other right hereunder, or a waiver relative to any other or subsequent breach of failure of the other Parties hereto of the same or similar or dissimilar nature.

20.3.

Intellectual Property. Distributor acknowledges and agrees that except as specified herein, Distributor shall have no rights, title or interest in any trademarks, service marks, or other intellectual property (collectively, the “Intellectual Property”) of IM Telecom or Excess Telecom.

20.4.

Counterparts. This Agreement may be executed in several counterparts, all of which taken together, shall constitute a single Agreement between the Parties. Each Party acknowledges that it has read and understood this Agreement and that it has had the opportunity to consult with legal counsel.

20.5.

Headings. The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement.

20.6.

Survival. Sections 5 (Termination), 9 (Payment), 10 (Indemnification), 11 (Insurance), 13 (Limitation of Liability), 16 (Governing Law, Jurisdiction and Venue) and 18 (Confidentiality), of this Agreement will be deemed to survive the termination or expiration of this Agreement. The Parties further agree that any provisions of this Agreement that by their nature would survive termination shall so survive.

20.7.

No Third-Party Beneficiaries. This Agreement benefits solely the Parties to this Agreement

and their respective permitted successors and assigns and nothing in this Agreement, express or implied, confers to any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

20.8.

Disputes Generally.

20.8.1.

Upon mutual agreement of the Parties, any dispute arising under this Agreement may be submitted to mediation upon terms and conditions agreed to by the Parties. If, within five (5) business days after a dispute arises, the Parties have not agreed to mediation or if the Parties agree to mediation but mediation is unsuccessful and such dispute is not resolved within fifteen (15) days after submission to mediation, except as otherwise set forth in this Section20.8, any and all disputes, claims and controversies based on, arising out of, under or in connection with this Agreement or the transactions contemplated hereby (including actions arising in contract or tort and any claims by a party against another party related in any way to this Agreement), or any course of conduct, course of dealing, statement (written or verbal) or action of any party, or any exercise by any party of their respective rights under this Agreement or in any way relating to this Agreement that are brought before a forum in which pre-dispute waivers of the right to trial by jury are invalid under applicable law (each, a “Dispute”) shall be settled and resolved by binding arbitration in Las Vegas, Nevada, before a single arbitrator with the JAMS (“JAMS”) pursuant to the then prevailing JAMS Comprehensive Commercial Arbitration Rules and Procedures except as modified by this Agreement. For the avoidance of doubt, any disagreement among the parties as to whether a dispute, claim or controversy is subject to arbitration under the terms of this Agreement shall constitute a Dispute.

20.8.2.

Notwithstanding the choice of JAMS Comprehensive Commercial Arbitration Rules and Procedures, solely in the case of the following Disputes, the Dispute will be resolved pursuant to JAMS Streamlined Commercial Arbitration Rules and Procedures:

20.8.2.1.

Any Dispute solely relating to the determination of Cure Period Reasonability; and

20.8.2.2.

Any Dispute solely relating to the determination of Investigation Withholding Reasonability.

20.8.3.

In reaching a decision on any Dispute, the arbitrator shall be bound by the provisions of this Agreement and by the law that the parties have selected to govern the enforcement and interpretation of this Agreement. The arbitrator’s decision on the Dispute shall be a final and binding determination, and such decision may be confirmed and shall be fully enforceable as an arbitration award in any court having jurisdiction and venue over the parties. The arbitrator shall have exclusive jurisdiction to determine any questions of arbitrability and any such question shall be governed by the Federal Arbitration Act. Each party agrees to accept service of process for all arbitration proceedings in accordance with the notice provisions of this Agreement.

20.8.4.

Nothing in this Section20.8 is intended to restrict or prevent a party from (i) joining any party as a defendant in any action brought by or against a third party; (ii) bringing an action

in court to effect any attachment or garnishment; (iii) bringing an action in court to compel arbitration as required by this Section20.8, or solely, in the case of IM Telecom or Excess Telecom, (iv) seeking equitable or injunctive relief.

20.8.5.

If a Dispute includes multiple claims, some of which are found not subject to this Agreement, the parties shall stay the proceedings of the Disputes or part or parts thereof not subject to this Agreement until all other Disputes or parts thereof are resolved in accordance with this Agreement. If there are Disputes by or against multiple parties, some of which are not subject to this Agreement, the parties shall sever the Disputes subject to this Agreement and resolve them in accordance with this Agreement.

20.8.6.

During the pendency of any Dispute which is submitted to arbitration in accordance with this Agreement, each of the parties to such Dispute shall bear equal shares of the fees charged and costs incurred by the arbitrator in performing the services described in this Agreement.

20.8.7.

The prevailing party shall be entitled to reasonable costs of arbitration and legal fees, including reasonable attorney fees, expert witness fees, paralegal fees, the fees of the arbitrator and other reasonable costs and disbursements charged to the party by its counsel, in such amount as is determined by the arbitrator.

20.8.8.

THE PARTIES UNDERSTAND THAT EACH PARTY IS CONSENTING TO, AND AGREEING TO PARTICIPATE IN REMOTE PROCEEDINGS WITH RESPECT TO THE ARBITRATION OF ANY DISPUTE, AND FURTHER AUTHORIZES AND DIRECTS THE ARBITRATOR TO COMPEL THE REMOTE PROCEEDINGS OF SUCH ARBITRATION.

20.8.9.

Because each party is giving up the right to litigate any Dispute, each party herein further confirms that it has read and understands the provisions in this Section20.8, and that it has further benefited from the advice of counsel. Additionally, by becoming a party to this Agreement, each party is voluntarily giving up important constitutional rights to trial by judge or jury, as well as rights to appeal. Each party understands that it has the right to have an independent attorney of its choice review this Section20.8, as well as this entire Agreement prior to becoming a party to this Agreement.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement by their respective authorized representatives below:

For Excess Telecom, Inc.:

Excess Telecom, Inc. a Nevada corporation

 

By:	/s/ Cobby Pourtavosi
	(signature)
Name:	Cobby Pourtavosi
Title:	Chief Executive Officer
Date:	January 22, 2024

 

 

For KonaTel, Inc.:

KonaTel, Inc., a Delaware corporation

 

By:	/s/ Charles D. Griffin
	(signature)
Name:	Charles D. Griffin
Title:	President
Date:	January 22, 2024

 

 

Agreed to and acknowledged by IM Telecom, LLC, an Oklahoma limited liability company.

 

IM Telecom, LLC, an Oklahoma limited liability company

By:	/s/ Charles D. Griffin
	(signature)
Name:	Charles D. Griffin
Date:	January 22, 2024

 

[TO BE ACKNOWLEDGED ON THE

 

SCHEDULE A

SCHEDULE OF EXPECTED REVENUE, FEES, AND EXPENSES

Distributor’s compensation shall be 100% of the amount of funds (revenue) collected from the Lifeline and ACP reimbursement funds each month for each End User acquired by the Distributor (i.e. a Distributor End User) minus the IM Telecom flat monthly fee amounts below for the applicable number of Distributor End Users for the applicable calendar month period below and expenses incurred by IM Telecom in the provision of IM Telecom Products and Wireless Services to the Distributor End Users as follows:

1.

A Flat Fee payable to IM Telecom in the amount of $10,000 if less than 100,000 Distributor End Users of Lifeline (stand-alone), ACP (stand-alone) or Combined LL/ACP (one customer).

 

2.

A Flat Fee payable to IM Telecom in the amount of $20,000 if 100,000 Distributor End Users but less than 250,000 Distributor End Users of Lifeline (stand-alone), ACP (stand-alone) or Combined LL/ACP (one customer).

 

3.

A Flat Fee payable to IM Telecom in the amount of $30,000 if 250,000 Distributor End Users or more of Lifeline (stand-alone), ACP (stand-alone) or Combined LL/ACP (one customer).

 

The Flat Fee amounts above will be determined on a monthly basis and based on the applicable number of Distributor End Users for such monthly period.

 

Reductions to Payments to Distributor for IM Telecom’s Expenses & Fees		Deducted from IM Telecom’s payments to Distributor
Applicable state and local taxes, fees, and surcharges.	Fees imposed on active Distributor End Users	100% of applicable fees, will be remitted by IM Telecom to Distributor

 

Exhibit 10.4

 

AMENDED AND RESTATED OPERATING AGREEMENT
OF
IM TELECOM, LLC
AN OKLAHOMA LIMITED LIABILITY COMPANY

 

THIS AMENDED AND RESTATED OPERATING AGREEMENT (this “Agreement”) is made effective as of the Initial Closing of the PSA (the “Effective Date”), and is entered into by and among those Persons identified on the signature page to this Agreement, with reference to IM TELECOM, LLC, AN OKLAHOMA LIMITED LIABILITY COMPANY (the “Company”).

RECITALS

A.       Articles of Organization (as may be amended from time to time, the “Articles”) for the Company have been filed with the Office of the Oklahoma Secretary of State.

B.       Pursuant to the Oklahoma Limited Liability Company Act, 2022 Oklahoma Statutes Title 18. Corporations §18-200 et seq. (as may be amended from time to time, the “Act”), the Members desire to adopt and approve this Agreement as the Company’s amended and restated Operating Agreement, restating any and all operating agreements of the Company in effect prior to the Effective Date.

C.       To the extent that any provision of this Agreement conflicts with any provision of the Act, the provision of this Agreement shall be deemed to supersede such conflicting provision of the Act, so long as the Act does not prohibit such provision from being superseded.

Accordingly, by this Agreement the Members set forth the Operating Agreement for the Company by agreeing as follows:

1.                  CERTAIN DEFINITIONS. As used in this Agreement, the following defined terms shall have the following meanings:

1.1          “Affiliate” means any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, another Person, and includes the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of securities, by contract or otherwise.

1.2              “Capital Account” means the account maintained for each Member in accordance with Section 5.1 to this Agreement.

1.3              “Capital Contribution” means, with respect to each Member, the total amount of cash and fair market value of property contributed to the Company by the particular Member, and accepted by the Class A Member on behalf of the Company, and which, by the terms of this Agreement, constitutes a contribution to the capital of the Company.

1.4              “Claims” means collectively, demands, judgments, settlements, penalties, claims, lawsuits, liabilities, damages, costs, losses, expenses, obligations and fines, including reasonable attorneys’, accountants’ and other professional fees, costs and expenses.

1.5              “Class A Member” means Excess Telecom, Inc., a Nevada corporation.

1.6              “Class B Member” means KonaTel, Inc., a Delaware corporation.

1.7              “Code” means the United States Internal Revenue Code of 1986, as amended from time to time.

1.8              “Covered Person” means (i) the Class A Member, and (ii) each Related Party or Affiliate of the Class A Member (including the Founder Member).

1.9              “Disability” means any physical or mental incapacity rendering an individual incapable of substantially handling such individual’s business and affairs as determined by an independent physician selected by the Company, and the actual inability of such Person to handle such Person’s business and affairs for a period of no less than one hundred twenty days during any twelve (12) month period.

1.10          “Distributable Proceeds” means all proceeds that the Company receives for its own account resulting from the operation of the business of the Company, including, without limitation, any funds received for claims for reimbursements from the Universal Service Administrative Company (“USAC”) under the Lifeline Program administered by USAC (“LifeLine”) and state Lifeline administrators (and any funds received under the Affordable Connectivity Program) and any other amounts owed or paid by the Company’s customers, any sale, exchange, or other dispositions of property, including condemnation or casualty, less (i) operating charges and expenses (which shall not include any depreciation or amortization deductions) included in computing Profits and Losses, (ii) the payment of all expenses of the Company incident to the transaction resulting in such proceeds, (iii) the payment of debts and liabilities of the Company then due and outstanding, and (iv) the establishment of any reserves that the Class A Member reasonably elects to maintain subject to the terms of Section 5.3 below.

1.11          “Distribution” means the transfer of money or property (including as Distributable Proceeds) by the Company to one or more Members with respect to their Membership Interests, without separate consideration.

1.12          “Economic Interest” means a Member’s right to receive distributions of the Company’s assets and allocations of income, gain, loss, deduction, credit and similar items from the Company pursuant to this Agreement and the Act, but shall not include any other rights of a Member, such as, without limitation, the right to vote on matters on which the Members’ vote is required or any right to information concerning the Company’s business and affairs.

1.13          “Enterprise” shall mean the Company and any other Person, joint venture, trust, employee benefit plan, entity or other enterprise that a Person is or was serving at the express written request of the Company as a manager, officer, employee, agent or fiduciary.

1.14          “Expenses” means and includes all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Claim, or responding to, or objecting to, a request to provide discovery in any Claim. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed

receipt of any payments under this Agreement, including the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, will expressly include amounts paid in settlement by an Indemnified Party or the amount of judgments or fines against an Indemnified Party.

1.15          “Fair Market Value” means the amount that would be paid for specific property in cash at the closing by a hypothetical willing buyer to a hypothetical willing seller, each having knowledge of all relevant facts and neither being under a compulsion to buy or sell, as reasonably determined by the Class A Member in good faith.

1.16          “Fiscal Year” means (i) any twelve-month period commencing on January 1 and ending on December 31; and (ii) the period commencing on the immediately preceding January 1 and ending on the date on which all property is distributed to the Members pursuant to the dissolution provisions of Section 8.4 of this Agreement.

1.17          “Insolvency Proceeding” means, and shall supersede and replace any definition of “bankruptcy” set forth in the Act, with respect to a Person, that such Person (specifically, with respect to an individual, such individual, and with respect to an entity, such entity), whereby an involuntary transfer of any Units held by such Person occurs where such Person: (i) applies for, or consents to, the appointment of a receiver, trustee or liquidator of such Person or of all, or substantially all, of such Person’s assets; (ii) files a voluntary petition in bankruptcy or admits in writing such Person’s inability to pay such Person’s debts as they become due; (iii) makes a general assignment for the benefit of creditors; (iv) files a petition or an answer seeking reorganization or arrangement with creditors or takes advantage of any insolvency law; (v) is subject to an order, judgment or decree that is entered by a court of competent jurisdiction or an application of a creditor, adjudicating to be bankrupt or insolvent, or approving a petition seeking reorganization or appointing a receiver, trustee or liquidator of all, or substantially all, of such Person’s assets, and such order, judgment or decree shall not have been dismissed within one hundred (120) days following the commencement thereof, or if within 90 days after the appointment without such Person’s consent or acquiescence of a trustee, receiver or liquidator of such Person or of all or any substantial part of its properties, the appointment is not vacated or stayed, or within 90 days after the expiration of any such stay, the appointment is not vacated; or (vi) any material portion of such Person’s properties or assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any other Person.

1.18          “Liabilities” means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

1.19          “Member” means each Person who holds a Membership Interest in accordance with the terms of this Agreement, so long as such Person holds a Membership Interest; and “Members” means such Persons collectively. The Members and their respective Units, Capital Contributions, Capital Accounts, and Percentage Interests are set forth on Exhibit B (as amended by the Class A Member from time to time in accordance with this Agreement) and in the books and records of the Company.

1.20          “Members’ Approval” means the vote, written consent or written approval of Members whose aggregate Percentage Interests equals or exceeds Seventy-Five Percent (75%) of all Investor Percentage Interests, provided, that the Members’ Approval will be subject to, or be deemed and construed granted or withheld, as the case may be, pursuant to the terms of the other Transaction Documents.

1.21          “Membership Interest” means a Member’s entire interest in the Company, including such Member’s membership or limited liability company interest (as defined in the Act), Economic Interest, transferable interest, right to vote or participate in management, and right to information concerning the business and affairs of the Company as provided in the Act, together with such Member’s obligations to comply with this Agreement.

1.22          “Percentage Interest” for each Member is determined by (i) dividing the number of Units of each class of Membership Interests owned by such Member by the total number of Units issued by the Company, then (ii) multiplying such quotient by One Hundred Percent (100%), but in each case subject to any adjustment that may be required pursuant to this Agreement.

1.23          “Person” means an individual or entity in any capacity, including any trust, estate, custodian, nominee, association, partnership, limited partnership, corporation, limited liability company, or other entity of any kind, whether domestic or foreign corporation.

1.24          “Prime Rate” means the “prime rate” (or “base rate”) reported in the “Money Rates” column or section of the United States version of The Wall Street Journal in the last published edition.

1.25          “Principal” means any individual who, with respect to an entity, (i) is the principal owner, manager or operator of such entity; (ii) has the right to exercise, directly or indirectly, control over the voting rights of such entity; or (iii) has the power to direct or cause the direction of such entity’s management and policies (whether such power is direct or indirect and whether such power is exercised through the ownership of voting interests, by contract or otherwise).

1.26          “Profits” and “Losses” mean, for each Fiscal Year, an amount equal to the Company’s Taxable income or loss for such Fiscal Year, determined in accordance with Code § 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code § 703(a)(1) shall be included in Taxable income or loss), with the following adjustments (without duplication):

1.26.1    Any income of the Company that is exempt from federal income Tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be added to such Taxable income or loss;

1.26.2    Any expenditures of the Company described in Code § 705(a)(2)(B) or treated as Code § 705(a)(2)(B) expenditures pursuant to Regulations § 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be subtracted from such Taxable income or loss;

1.26.3    In the event the Gross Asset Value of any property is adjusted pursuant to the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the property) or an item of loss (if the adjustment decreases the Gross Asset Value of the item of property) from the disposition of such property and shall be taken into account for purposes of computing Profits or Losses;

1.26.4    Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income Tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted Tax basis of such property differs from its Gross Asset Value;

1.26.5    In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such Taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with the definition of Depreciation;

1.26.6    To the extent an adjustment to the adjusted Tax basis of any item of property pursuant to Code § 734(b) is required, pursuant to Regulations § 1.704-1(b)(2)(iv)(m)(4) , to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s Membership Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the item of property) or loss (if the adjustment decreases such basis) from the disposition of such item of property and shall be taken into account for purposes of computing Profits or Losses; and

1.26.7    Notwithstanding any other provision of this Section 1.26, any items that are specially allocated pursuant to Section 5.1 shall not be taken into account in computing Profits or Losses.

1.27          “PSA” means the Membership Interest Purchase Agreement , dated and effective as of January 18, 2024, by and among KonaTel, Inc., a Delaware corporation (as “Seller”); and Excess Telecom, Inc., a Nevada corporation (as “Buyer”) with respect to the Units in the Company.

1.28          “Regulations” means the income Tax regulations, including temporary regulations, promulgated under the Code, as such regulations are amended from time to time.

1.29          “Related Party” means (i) with respect to any individual, (A) a child, heir, ascendant, descendant or more remote issue of such individual, or the estate of any of the foregoing individuals, (B) any trust or family partnership whose beneficiaries shall solely be such individual or any individual included in subsection (A) above, and (C) the estate of such individual;(ii) with respect to any Person which is not an individual, any other Person that, directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with or for the sole benefit of, such Person or one or more Persons included in subsection (i) above; and (iii) with respect to any trust, any individual who is currently the beneficiary of such trust or an ascendant or descendant of such beneficiary. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means, with respect to a corporation or limited liability company, the right to exercise, directly or indirectly, more than Fifty Percent (50%) of the voting rights in such controlled corporation or limited liability company and, with respect to any partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity. In the case of a partnership, the term “Related Party” shall also include any general partner of such partnership.

1.30          “Representative” means, with respect to any Person, any and all directors, officers, managers employees, consultants, financial advisors, counsel, accountants and other agents of such Person, and the predecessors, successors, and assigns of each of the foregoing.

1.31          “Security” or “security” means any stock, shares, membership or limited liability company interests, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.

1.32          “Tax” or “Taxes” (and, with correlative meaning, “Taxable”) means, without duplication,

charges, fees, contributions, social contributions, contributions on economic intervention imposts, levies or any other assessments imposed by any Tax Authority, of any country, state, province or municipality, including all income, profits, revenues, franchise, services, receipts, gross receipts, margin, capital, financial, net worth, sales, use, excise, recording, real estate, real estate transfer, escheat, unclaimed property, withholding, alternative minimum or add on, ad valorem, inventory, payroll, estimated, goods and services, employment, welfare, social security, disability, occupation, unemployment, general business, premium, real property, personal property, capital stock, stock transfer, stamp, transfer, documentary, conveyance, production, windfall profits, pension, duties, customs duties, contributions on import transactions, value added and other similar , withholdings, duties, charges, fees, levies, imposts, license and registration fees, governmental charges and assessments, including related interest, penalties, fines, additions to and expenses levied by any national, federal, state and local Tax Authority.

1.33        “Tax Authority” means any national, federal, state, local, or municipal governmental authority exercising authority to charge, audit, regulate or administer the imposition of Taxes.

1.34       “Transaction Documents” means the Transaction Documents defined in the PSA, including without limitation, the Management Agreement by and among the Company and the Members dated on or around the date hereof.

1.35            “Transfer” or “transfer” means, with respect to any Units, the assignment, sale, transfer, tender, pledge, hypothecation, or the grant, creation or suffrage of a lien or encumbrance in or upon, or the gift, placement in trust, or the Constructive Sale (as such term is defined below) or other disposition of such Units (including transfer by testamentary or intestate succession, merger or otherwise by operation of law) or any right, title or interest therein (including any right or power to vote to which the holder thereof may be entitled, whether such right or power is granted by irrevocable proxy or otherwise), or the record or beneficial ownership thereof, the offer to make such a sale, transfer, Constructive Sale or other disposition, and each agreement, arrangement or understanding, whether or not in writing, to effect any of the foregoing. “Constructive Sale” means, with respect to any Units, entering into a “put equivalent position” or any “call equivalent position,” a short sale with respect to such Units, entering into or acquiring an offsetting derivative contract with respect to such Units, entering into or acquiring a futures or forward contract to deliver such security, or entering into any other hedging or other derivative transaction that has the effect of materially changing the economic benefits and risks of ownership.

1.36          “Units” means denominated units of Membership Interests held by a Member representing such Member’s Membership Interest in the Company.

2.                  COMPANY GENERALLY.

2.1              Effective Date. The Members have formed a limited liability company pursuant to the Act effective as of the filing of the Articles with the Office of the Oklahoma Secretary of State. The effective date of this Agreement (the “Effective Date”) is the date set forth in this Agreement in the preamble above, provided further, that each Member will become a party hereto effective as of the date such Member acquires Units and executes a signature page or joinder to this Agreement.

2.2              Name and Principal Place of Business. The name of the Company is set forth in the Articles. The Company may conduct business under that name or any other name authorized by the Members’ Approval. The Company’s principal place of business shall be at such place as may be authorized by the Members’

Approval from time to time.

2.3              Term. The term of the Company shall commence as of the time the Company is formed and shall continue until the termination of the Company as set forth in this Agreement. Dissolution of the Company will be effective on the day on which the event occurs giving rise to the dissolution, but the Company will not terminate until the assets of the Company have been liquidated and distributed as provided in this Agreement. Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business of the Company and the rights and obligations of the Members will continue to be governed by this Agreement.

2.4              Registered Agent. The Company shall continuously maintain an office and registered agent in the State of Oklahoma as required by the Act. The registered agent shall be as stated in the Articles or as otherwise authorized by the Members’ Approval.

2.5              Company’s Business. The business of the Company shall be the business of providing prepaid wireless phone services throughout the United States through online marketing and through distributors to low-income customers that qualify for the Affordable Connectivity Program (collectively, the “Business Purpose”).

2.6              Company’s Powers. Subject to any limitations contained in the Articles or in the Act or any other applicable laws, and except as otherwise expressly provided in this Agreement, the Company shall have all the powers of a natural person in carrying out its business activities.

2.7              Title to Company Assets. Title to, and all right and interest in and to, the Company’s assets shall be acquired by, and held in the name of, the Company.

2.8              Restrictions on Member Activities.

2.8.1        Confidential Information. Each Member agrees that, while such Person is a Member and for a period of three (3) years thereafter (the “Restricted Period”), such Member shall not divulge, furnish or make accessible to anyone or use in any way (other than in the ordinary course of the business of the Company or its subsidiaries, affiliates and divisions and the Members business activities under the Management Agreement) any of Company’s Confidential Information. As used in this Agreement, “Company’s Confidential Information” means any confidential or secret information regarding the Company, Company trade secrets (including “trade secrets” as defined in the Uniform Trade Secrets Act and the 2016 Federal Defend Trade Secrets Act), and any other confidential or secret aspect of the business of the Company. Without limiting the generality of the foregoing, the parties agree the Company’s Confidential Information includes (a) any knowledge or information concerning the Company’s business, whether developed by a Member, or by others, and whether developed or acquired by the Company or from others, (b) the Company’s planned business operations and business plan for future operations, (c) the Company’s confidential or secret development or research work (including information concerning any future or proposed services or products), (d) all of the Company’s accounting, cost, revenue and other financial records and documents, as well as the contents of such information, and (e) the Company’s documents, contracts, agreements, correspondence and other similar business records. Notwithstanding anything to the contrary in this Agreement, Confidential Information excludes any information (1) that was already known to a recipient at the time such recipient received the same from the disclosing party or the Company, (2) that is or becomes available to the public other than by reason of breach of this Section; (3) that a recipient is required to disclose pursuant to judicial action or decree having jurisdiction over such recipient,

but only so long as such recipient gives the Company and the disclosing Person written notice of the requirement that the recipient disclose such Confidential Information and such recipient does not make such disclosure unless and until the parties have had a reasonable period of time to challenge such judicial action or decree or (4) that is required to be filed or disclosed under federal and state securities laws. The Members agree that monetary damages would be an inadequate remedy for any breach of the provisions of this Section and that the Company and each Member, as applicable, may, therefore, seek injunctive relief in the case of any such breach or threatened breach of the provisions of this Section with respect to such Person’s Confidential Information, without the necessity to post bond or prove actual damages.

2.8.2        Competing Activities. The Members and their respective Affiliates may engage or invest in any activity even if it directly or indirectly competes with the Company, including (i) serving as the manager or controlling Person of any entity which directly competes with the Company, or (ii) rendering services or furnishing advice to any such entity. Neither the Company nor any Member shall have any right in or to such other activities or to the income or proceeds derived therefrom; (B) no Member shall be obligated to present any investment or business opportunity to the Company, even if the opportunity is one that could be taken by the Company; and (C) each Member shall have the right to hold any investment or business opportunity for such Member’s own account or to recommend such opportunity to persons other than the Company.

2.8.3        Non-Solicit. Each Member agrees that, during the Restricted Period, such Member, and any person or entity acting on behalf of, under the control of or otherwise in affiliation with such Member, may not directly or indirectly do any of the following: (i) intentionally solicit, call on, divert, take away, influence or induce any of the other Member’s (the “Other Member”) (a) client, customers, or distributors or prospective customers or distributors (wherever located) with respect to goods, products or services that are competitive with the Other Member’s business, or (b) suppliers or vendors or prospective suppliers or vendors (wherever located) to supply materials, resources or services to be used in connection with goods or services that are competitive with those of the Other Member’s business, or in a manner that would materially and adversely affect the Other Member’s relationship with such persons; (ii) hire, solicit, or take away any person or entity who or which was an employee of or service provider or consultant to the Other Member within the twelve (12) month period prior to the date of such hiring, solicitation, or taking away, or is or becomes at any time during the Restricted Period an employee or service provider or consultant of the Other Member or any of its Affiliates or Related Parties; or (iii) directly or indirectly assist any Person or entity to take or attempt or offer to take any of the foregoing actions described in this Section; provided, however, the foregoing provisions of this Section will not be deemed or construed to restrict general solicitations that may, without specific intent, violate the foregoing terms of this Section.

2.9              Related Party Transactions. Notwithstanding the provisions of the Act, by executing this Agreement, each Member acknowledges and understands that the Company may, in the normal course of business, enter into various transactions and business relationships with Affiliates of the Members.

3.                  MEMBERS.

3.1              Purchase Agreement. Reference is made to PSA by and between Excess Telecom, Inc. (“Buyer” or the “Class A Member”) and KonaTel, Inc. ( “Seller” or the “Class B Member”) with reference to the purchase and sale of the Company’s Membership Interests , that certain Management Services Agreement by any among the Company, the Class A Member, and the Class B Member (the “Management Services Agreement”), and the Distribution Agreement by and among the Company, the Class A Member, and the Class B Member (the “Distribution Agreement” and together with the PSA and the Management Services

Agreement,” the “Other Transaction Documents”). Each Other Transaction Document is hereby incorporated by reference.

3.2              Authorization of Units. The Company shall have authority to issue 490,000 Units designated Class A Membership Interests (the “Class A Units”), and 510,000 Units designated as Class B Membership Interests (the “Class B Units”). The Class A Member is hereby authorized to modify and amend this Agreement to reflect the number of authorized and issued Units under each Subscription Agreements accepted by the Company, and subsequently, pursuant to the terms of this Agreement. The number of authorized Units of each Class shall not be reduced below the number of issued and outstanding Units of each Class.

3.3              No Voluntary Withdrawal, Retirement, Resignation and Dissociation. Notwithstanding any provision of the Act, a Member may not voluntarily withdraw, retire, resign or dissociate (in each instance “Withdraw”) without the Members’ Approval (excluding the vote of the Member seeking to Withdraw). A Member’s Withdrawal shall not release the Member from any obligation or liability to the Company or the other Members arising prior to such Withdrawal, including any guaranty or indemnification obligations of such Member. Any attempted or threatened Withdrawal by a Member without the required consent provided above shall be null and void.

3.4              Restriction on Authority. No Member, acting solely in the capacity as a Member, shall participate in the management or conduct of the Company’s business, operations or affairs, except with respect to those matters requiring the Members’ Approval or any other vote, consent or approval of the Members as expressly set forth in this Agreement or the Act. No Member, acting solely in the capacity of a Member, is an agent of the Company, nor can any Member execute any instrument on behalf of the Company, or act for, or bind the Company in connection with any matter whatsoever.

3.5              Member Meetings. No annual or regular meetings of the Members are required to be held. Any meeting may be held if authorized by one or more Members who or which hold voting Membership Interests of at least a Thirty Percent (30%) Percentage Interest in the aggregate. Any consent, approval or vote of the Members may be obtained by written consent or by noticed meeting. Unless expressly otherwise provided in this Agreement, all other matters relating to meetings of the Members, including notice, voting and other procedural requirements, shall be governed by and shall comply with the applicable provisions of the Act. Members may participate in any meeting of Members by means of telephonic or electronic communication, provided all Persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.6              Vote Required. Notwithstanding anything else to the contrary in the Act, any matter requiring the Members’ vote, consent or approval under this Agreement shall require the Members’ Approval, except where (a) a different voting requirement is expressly set forth this Agreement, or (b) the Act sets forth a different voting requirement and prohibits this Agreement from modifying such voting requirement. No provisions of the Act regarding the presence or absence of a quorum at a meeting of the Members shall affect the determination of whether the proper vote, consent or approval of the Members has been obtained. Any action required to be taken by the Members may be taken without a meeting, without prior notice and without a tallied vote, if a consent in writing, setting forth the action so taken, shall be signed by the Members required to approve such action in accordance with the terms herein. Unless the consent of all Members entitled to vote has been solicited in writing, prompt notice of any action by written consent of the Members constituting Members’ Approval pursuant to this Section 3.6 shall be given to the Members.

3.7              Certification of Membership Interest as a Security.

3.7.1        The Company hereby irrevocably elects that all limited liability company interests and Units in the Company shall constitute a “security” within the meaning of, and governed by, (i) Article 8 of the Uniform Commercial Code as in effect from time to time in the State of Oklahoma (the “UCC”). Notwithstanding any provision of the Operating Agreement to the contrary, to the extent that any provision of this Agreement is inconsistent with any non-waivable provision of Article 8 of the UCC, such provision of Article 8 of the UCC shall control.

3.7.2        Contemporaneous with the execution of this Agreement, the Company shall issue one (1) Membership Interest Certificate (as defined below) in the name of each Member. Such Membership Interest Certificate shall represent and evidence 100% of the Units issued to such Member and shall be signed by all Members. “Membership Interest Certificate” means a certificate issued and endorsed by the Company which evidences the ownership of Units.

3.7.3        In addition to the foregoing, the Class B Member hereby specifically agrees and acknowledges that until the Final Closing under the PSA, the Class B Member shall give the Class A Member possession and control (within the meaning of the UCC) of the Membership Interest Certificate representing the Class B Units, together with its irrevocable proxy to vote the Class B Units during the continuance of a breach or default under any Transaction Document.

4.                  MANAGEMENT AND CONTROL OF THE COMPANY.

4.1              Managed Under Management Agreement. The Company will be managed pursuant to the Management Agreement. Subject to the other provisions of this Agreement the Class A Member may not bind or cause the Company, to do, and shall cause the Company not to do, any of the actions set forth below in this Section 4.1 without the Members’ Approval.

4.1.1        Amend the PSA on the Company’s behalf;

4.1.2        Amend the Management Services Agreement on the Company’s behalf prior to the Final Closing under the PSA; or

4.1.3        Compromise any Claim on the Company’s behalf with respect to the breach of Excess Telecom, Inc. under (i) the PSA, or (ii) for periods prior to the Final Closing, the Management Services Agreement.

4.2              Authority. Notwithstanding anything else in the contrary in the Act, and except where the vote, consent or approval of the Members is required by this Agreement, the Class A Member shall have the unilateral power and authority to act independently on behalf of the Company with respect to all matters relating to the Company’s business, operations and affairs.

4.3              Standard of Care.

4.3.1        In carrying out a Member’s duties in connection therewith, a Member will act in good faith. A Covered Person shall not be personally liable to the Company or to any Member for any loss, liability, claim or damage sustained by the Company or by any Member by reason of a Member’s acts or omissions or such Person’s status as a Related Party or Affiliate of such Member, unless the loss, liability, claim or damage

shall have been the result of such Member’s actual and intentional fraud, gross negligence, or willful misconduct, or in the case of a criminal proceeding, a knowing violation of law (the “Standard of Conduct”).

4.3.2        This Agreement is not intended to, and does not, create or impose any fiduciary duty on any Covered Person. Furthermore, to the fullest extent enforceable under applicable law, each of the Members and the Company hereby waives any and all fiduciary duties that, absent such waiver, may be implied by applicable law, and in doing so, acknowledges and agrees that the duties and obligation of each Covered Person to each other and to the Company are only as expressly set forth in this Agreement. To the extent that the provision of this Agreement restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, such provisions of this Agreement are agreed by the Members to replace such other duties and liabilities of such Covered Person.

4.3.3        Whenever in this Agreement a Covered Person is permitted or required to make a decision (including a decision that is in such Covered Person’s “discretion” or under a grant of similar authority or latitude), the Covered Person shall be entitled to consider only such interests and factors as such Covered Person desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or any other Person. Whenever in this Agreement a Covered Person is permitted or required to make a decision in such Covered Person’s “good faith,” the Covered Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or any other applicable law.

4.4              Devotion of Time. No Member will be obligated to devote all of its time or business efforts to the Company’s affairs, but shall devote whatever time, effort and skill to the Company as is reasonable and appropriate to carry out the such Member’s obligations hereunder.

4.5              Member Ratification. Each Member will vote all voting Membership Interests, or other securities, held by such Member or over which such Member has voting control, and will take all other necessary or desirable actions within his, her or its control (including in his, her or its capacity as a Member or officer of the Company or otherwise), and the Company will take all necessary or desirable actions within its control, to effect the provisions of this Section 4 and the Transaction Agreements.

5.                  ALLOCATIONS AND DISTRIBUTIONS.

5.1              Allocations. Allocations and tax provisions are as set forth in Exhibit A attached to this Agreement.

5.2              Distributable Proceeds. Distributable Proceeds resulting from ordinary operations of the Company will be specifically allocated and Distributed to the Members in proportion to their respective entitlement to the Distributions with respect thereto pursuant to and under the Management Agreement. Unless otherwise determined by the Members’ Approval, all other Distributable Proceeds, including any Distributable Proceeds from any sale or other disposition of the Company or its assets, shall be distributed to the Members in accordance with their respective book Capital Accounts.

5.3              Reserves. The Members shall have the right to establish such reserves and to set aside Company funds as the Members shall determine to be reasonable in connection with the operation of the Company’s administrative and other needs that are not specific to the activities of either the Class A Member or the Class B Member under the Management Agreement. Any funds set aside in such reserves shall not be available for distributions. The Members may, however, elect to make a portion of such funds subsequently available for

distributions to the extent that the Members reasonably determine that such funds are substantially in excess of the amount reasonably necessary to provide an adequate reserve for the operation of the Company’s business.

5.4              Members of Record. Distributions shall be made only to those Members who are owners of record of Membership Interests at the time the Members elect to make such distributions, as reflected on the Company’s books and records. The Percentage Interest of each Member shall be ascertained at such time, excluding any unvested Membership Interests.

5.5              Advances or Drawings. Distributions of money and property may be treated as advances or drawings of money or property against a Member’s distributive share of income and as current distributions made on the last day of the Company’s taxable year with respect to such Member.

5.6              Return of Distributions. Except for distributions made in violation of the Act or this Agreement, or as otherwise required by law, no Member shall be obligated to return any distribution to the Company or pay the amount of any distribution for the account of the Company or to any creditor of the Company.

5.7              Restriction on Distributions. No distribution shall be made if, after giving effect to the distribution, either of the following applies: (i) the Company would not be able to pay its debts as they become due in the ordinary course of the Company’s activities; or (ii) the Company’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of Members whose preferential rights are superior to those of persons receiving the distribution.

5.8              Withholding.

5.8.1        Consent to Withhold. If any law of any federal, foreign or state or local jurisdiction requires the Company to withhold taxes or other amounts with respect to any Member’s allocable share of any portion of Profits, distributions or payments, then the Company shall withhold from distributions or other amounts then due to the Member (or shall pay to the relevant taxing authority with respect to the amounts allocable to the Member) an amount necessary to satisfy the withholding responsibility. In such a case, the Member for whom the Company has paid withholding tax shall be deemed to have received the withheld distribution or other amount so paid and to have paid the withholding tax directly.

5.8.2        Deemed Loan. If the Company anticipates that at the due date of the Company’s withholding obligation, the Member’s distributions or other amounts due is less than the amount of the withholding obligation, the Member to whom the withholding obligation applies shall have the option to pay to the Company the amount of the shortfall. If a Member fails to make such payment and the Company nevertheless pays the full amount of the withholding obligation, then the amount paid by the Company shall be deemed a loan from the Company to the Member bearing interest at the prime rate charged by the primary bank of the Company (or if less the maximum rate permitted by law), and the Company shall apply all distributions or payments that otherwise would be made to such Member toward payment of the loan and accrued interest (applied first to interest) until the loan is paid in full. To the extent such application all distributions or payments that otherwise would be made to such Member are insufficient to pay amounts due and outstanding to the Company, such Member’s Membership Interest shall be deemed to have been pledged as security therefor, and the Company may sell such Member’s Membership Interest.

5.8.3        Cooperation. Each Member agrees to provide the Partnership Representative with any information related to such Member necessary to (i) allow the Company to comply with any Tax reporting,

Tax withholding or Tax payment obligations of the Company, or (ii) establish the Company’s legal entitlement to an exemption from, or reduction of, withholding Tax, including U.S. federal withholding Tax under Sections 1471 and 1472 of the Code. The withholdings referred to in this Section 5.8 shall be made at the maximum applicable statutory rate under applicable Tax Law unless the Company and the Partnership Representative receive documentation, satisfactory to the Partnership Representative, to the effect that a lower rate is applicable, or that no withholding is applicable. Without limiting the generality of the foregoing, if requested by the Partnership Representative, each Member will, if legally entitled to do so, deliver to the Company: (x) an affidavit in form satisfactory to the Partnership Representative that the applicable Member (or its partners or members, as the case may be) is not subject to withholding under the provisions of any U.S. federal, state, or local, foreign or other Law; (y) any certificate that the Company or the Partnership Representative may reasonably request with respect to any such Laws; or (z) any other form, instrument, declaration or other document reasonably requested by the Company or the Partnership Representative relating to any Member’s status under such Law.

6.                  CAPITAL ACCOUNTS.

6.1              [Reserved]

6.2              Capital Accounts. The Company shall establish and maintain an individual Capital Account for each Member in accordance with Exhibit A; provided, that, following the First Closing under the PSA, the parties acknowledge that the effect of PSA will result in the Class A Units having a book Capital Account of $15,000,000, and the Class B Units having a book Capital Account of $0.00.

6.3              No Withdrawals, Interest. Except as expressly provided in this Agreement, no Member may withdraw any part of such Member’s Capital Contribution or Capital Account prior to the Company’s dissolution or liquidation, and no Member shall be entitled to any interest on any Capital Contribution or Capital Account or any share of the Company’s capital.

6.4              No Obligation to Restore. Nothing herein shall be construed to require any Member to restore any negative balance in such Member’s Capital Account, upon a liquidation of the Company within the meaning of § 1.704-1(b)(2)(ii)(g) of the Regulations or otherwise, and the negative balance of any Member’s Capital Account shall not be considered a debt owed by the Member to the Company or to any other Person for any purpose whatsoever.

7.                  TRANSFER OF MEMBERSHIP INTERESTS.

7.1              Transfers Restricted. Unless expressly permitted by this Section 7, no Member may Transfer, for consideration or by way of gift, bequest or otherwise, all or any part of his, her or its Membership Interest, whether or not any change in record or beneficial ownership occurs, nor may all or any part of his, her or its Membership Interest be made subject to execution, attachment or similar process, either voluntarily, involuntarily or by operation of law. Any Transfer prohibited by this Section 7 shall automatically be null and void, and neither the Company nor any Member shall be required to recognize any such Transfer for any purpose whatsoever, nor shall the purported transferee receive any right or benefit in the interest sought to be Transferred; provided, however, that at the discretion of the Members’ Approval, the transferee may be entitled to the Economic Interest of the transferring Member. The transferor and purported transferee of a Membership Interest with respect to a prohibited Transfer shall be jointly and severally liable to the Company for, and shall indemnify, protect, and hold the Company harmless against, any expense, liability, or loss incurred by the Company (including reasonable legal fees and expenses) as a result of such Transfer, the removal of such Member and

liquidation of such Member’s Membership Interest (if applicable), and the efforts to enforce the indemnity granted in this Section 7.1. If the provisions of this Section 7.1 are found to be void or unenforceable by a valid arbitrator or court of competent jurisdiction, or the Company is otherwise compelled by applicable law to recognize a Transfer of a Membership Interest or any portion thereof in a manner which would otherwise violate the foregoing provisions of this Section 7.1 (in each case, a “Compelled Transfer”), then, without further action, notice, or demand by the Company, and without prejudice to the Buyout Rights set forth in this Agreement, in the event of any such Compelled Transfer, only the Economic Interest incident to the Membership Interest subject to the purported Transfer may be subject to the Compelled Transfer. The parties agree and acknowledge that the provisions of this Section 7.1 are the result of good faith negotiations between the parties and form an essential basis of the bargain of this Agreement.

7.2              Permitted Transfers. A Member may Transfer all or any portion of such Member’s Membership Interest without being subject to the restrictions on Transfer as set forth in Section 7.1 above (provided, that, in each case, the transferring Member shall promptly provide written notice of such Transfer to the Company) if the Transfer is expressly permitted pursuant to the terms of the PSA, and the transferor and transferee of the transferred Membership Interest comply with the terms of this Agreement (each, a “Permitted Transfer”).

7.3              Requirements for Valid Transfer; Effect of Transfer.

7.3.1        Without limiting the Company’s authority to reasonably withhold consent to the Transfer of a Membership Interest, in order for any transfer permitted by this Section 7 to be valid, the transferring Member and intended transferee must comply with the following requirements:

(a)               The Transfer complies with all applicable laws, including any applicable securities laws.

(b)               The Transfer will not cause the Company to be treated as other than a partnership for federal income Tax purposes.

(c)               The Transfer will not cause the Company to be subject to regulation under the Investment Company Act of 1940.

(d)               The Transfer will not cause any assets of the Company to be deemed “plan assets” under the Employee Retirement Income Security Act of 1974.

(e)               The Transfer will not cause the application of the Tax-exempt use property rules of Code §§ 168(g)(1)(B) and 168(h) to the Company or its Members, unless the Members determine that such rules will not have an adverse impact on the Members.

(f)                The Transfer will not cause or revoke any of the Company’s elections under the Code.

(g)               The transferor and transferee have delivered to the Company any documents that the Members request in connection with the Transfer, including any required withholding certificates and any documents to confirm that the Transfer satisfies the requirements of this Agreement, to give effect to the Transfer, and to confirm the transferee’s agreement to be bound by this Agreement as an assignee Member.

(h)               If requested by the Members, the Company has received a Transfer fee in an amount determined by the Members to be sufficient to reimburse the Company for the estimated expenses likely to be incurred by the Company in connection with such Transfer.

(i)                 The Transfer does not violate the terms and conditions of any agreement imposing Transfer restrictions on the affected Membership Interest.

7.3.2        If a Membership Interest is validly Transferred in accordance with the above provisions of this Section 7, the transferee of such Membership Interest shall be deemed a Member of the Company in place of the transferring Member, and shall have all the rights and powers and shall be subject to all the restrictions and liabilities of a Member set forth under this Agreement, together with any additional rights and powers conferred on the transferring Member and restrictions and liabilities to which such transferring Member is subject under this Agreement. Any such Transfer shall not, however, release the transferring Member from liability that may have existed prior to such admission.

8.                  DISSOLUTION AND WINDING UP OF COMPANY.

8.1              Causes of Dissolution. The Company shall dissolve upon the occurrence of any of the following events: the election to dissolve the Company by the Members’ Approval or as otherwise provided or authorized in the Transaction Documents. Notwithstanding anything to the contrary in the Act, no other act or event shall cause a dissolution of the Company.

8.2              Waiver of Dissolution, Partition, and Similar Rights. Except as otherwise expressly set forth in this Agreement, and notwithstanding any right or power set forth in the Act, each of Member hereby irrevocably waives any right or power that such Member might have: (i) to cause the Company or any of its assets to be partitioned; (ii) to cause the appointment of a receiver for all or any portion of the assets of the Company; (iii) to compel any sale of all or any portion of the assets of the Company; and (iv) to file a complaint, or to institute any proceeding at law or in equity, to cause the dissolution or liquidation of the Company. Each of the Members have been induced to enter into this Agreement in reliance upon the waivers set forth in this Section 8.2 and without those waivers no Member would have entered into this Agreement. No Member has any interest in specific in any item of Company property. The interests of all Members in the Company are personal property.

8.3              Authority to Wind Up. The Class A Member or liquidator, as applicable, shall have all necessary power and authority required to marshal the Company’s assets, to pay its creditors, to distribute its assets and to otherwise to wind up its business and affairs, all pursuant to the applicable terms of the Act, except as otherwise provided below in this Section 8. In particular, the Class A Member or liquidator, as applicable, shall have the authority to continue to conduct the Company’s business and affairs insofar as such continued operation remains consistent, in such Persons ‘or Person’s judgment, with the orderly winding up of the Company.

8.4              Distribution of Assets; Reserves. Upon dissolution of the Company, the Company’s affairs shall be wound up and the Company liquidated by the Class A Member or liquidator, as applicable, pursuant to the applicable terms of the Act, except as otherwise provided below in this Section 8. In such event, the Company’s assets shall be distributed as follows:

8.4.1        After paying liabilities owing to creditors (including sales commissions and other expenses incident to any sale of the Company’s assets), the Class A Member or liquidator, as applicable, shall set up such reserves as such Persons deem or Person deems reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company. Upon such time as the Class A Member or liquidator deems advisable,

such reserves shall be distributed to the Members or their assigns in the manner set forth in the following paragraph.

8.4.2        After paying such liabilities and providing for such reserves, the Class A Member or liquidator, as applicable, shall cause the Company’s remaining assets to be distributed in compliance with Regulations § 1.704-1(b)(2)(ii)(b)(2) on or before the end of the Taxable year in which the liquidation of the Company occurs (or, if later, within ninety (90) days after such liquidation) to the Members in accordance with Section 5.2 above.

8.5              Winding Up and Certificate of Cancellation. The winding up of the Company shall be completed when all debts, liabilities and obligations of the Company have been paid and discharged or reasonably adequate provision therefor has been made, and all the remaining property of the Company has been distributed to the Members in accordance with the provisions of this Section 8. Upon the completion of winding up of the Company, a Certificate of Cancellation shall be filed with the Oklahoma Secretary of State.

8.6              No Recourse. If distributions made pursuant to the immediately preceding subparagraph are insufficient to return to any Member the full amount of such Member’s Capital Contribution, such Member shall have no recourse against any other Member.

8.7              Form of Distribution. Each Member shall receive such Member’s share of liquidation proceeds in cash or in kind, and the proportion of such share that is received in cash shall be determined as the Class A Member or liquidator, as applicable, may decide. If any part of such distributions consists of assets other than cash, the Class A Member or liquidator, as applicable, shall take whatever steps such Persons deem or Person deems appropriate to convert such assets into cash or into any other form that facilitate the distribution of such assets. If any Company assets are to be distributed in kind, such assets shall be deemed to have been sold for their fair market value and any gain or loss shall be allocated among the Members in the manner in which Profits or Losses would be allocated under Section 5.1. The distributee shall be deemed to have received a distribution equal to the fair market value of the distributed asset.

9.                  ACCOUNTING, RECORDS AND TAX MATTERS.

9.1              Financial and Tax Reporting.

(a)               The Company shall prepare its income Tax information returns using such methods of accounting and Tax year as the Class A Member deems necessary or appropriate. The Company shall cause to be filed, in accordance with the Act, all reports and documents required to be filed with any governmental agency. At least annually, the Company shall cause to be prepared information concerning the Company’s operations necessary for the completion of the Members’ federal and state income Tax returns. Subject to extension of the following period of time due to extension of the Company’s filing obligations to the extent such extension is necessary or proper, the Company shall send or cause to be sent to each Member within ninety (90) days after the end of each Fiscal Year (i) such information as is necessary to complete the Members’ federal and state income Tax or information returns, and (ii) a copy of the Company’s federal, state and local income Tax or information returns for the year; provided, however, that, if due to the Company’s extension of the time for filing such information may not be delivered within the deadlines set forth in this sentence, the Company shall use reasonable efforts to provide each Member with estimated information necessary to pay estimated Tax due in connection with each Member’s required federal and state income Tax obligations.

(b)               Not in limitation of the foregoing, the Company shall prepare (or cause to be

prepared) and furnish to each Member the following reports and information:

9.2              (i) as soon as practicable, but in any event within forty-five (45) days after the end of each fiscal quarter of the Company, an unaudited income statement and statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter; and

9.3              (ii) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an audited income statement and statement of cash flows for such fiscal year and an audited balance sheet as of the end of such fiscal year.

9.4              Supervision; Inspection of Books. The Company shall keep proper and complete books of account and records of its business (including those books and records identified in the Act) at the Company’s principal office. Such books and records shall be open to inspection, audit and copying by any Member in accordance with the Act. Any information so obtained or copied shall be kept and maintained in strict confidence, except as required by law, and the Class A Member may, in its sole discretion, require a separate non-disclosure agreement to be executed in favor the Company by a Member who wishes to access the Company’s books and records.

9.5              Partnership Representative.

9.5.1        Appointment and Empowerment. The Class A Member is hereby designated as the “partnership representative” of the Company within the meaning of § 6223(a) of the Code (the “Partnership Representative”). The Partnership Representative is authorized and required to represent the Company in connection with all examinations, audits and claims in respect of the Company’s affairs by U.S. federal, state or local Tax Authorities, including any resulting administrative and judicial proceedings (each such examination or claim, a “Tax Proceeding”), and to expend funds for professional services and other expenses reasonably incurred in connection therewith. The Partnership Representative shall keep the Members fully apprised of any action required to be taken or which may be taken by the Partnership Representative for the Company with respect to any such Tax Proceeding. The Partnership Representative shall keep the Class A Member and the Members reasonably informed of the progress of any Tax Proceeding with respect to Taxes of the Company .. Except as otherwise provided in this Agreement, all elections by the Company for income and franchise Tax purposes, all determinations for Tax purposes and any other Tax decisions and actions with respect to the Company, including in connection with any Tax Proceeding, and all other matters relating to all Tax returns (including amended returns) filed by the Company, will be made by the Partnership Representative in its reasonable discretion. Each Member will, upon request, promptly supply any information necessary to give proper effect to any election made by the Company.

9.5.2        Cooperation. Each Member shall provide promptly, and update as necessary at any times requested by the Partnership Representative, all information, documents, self-certifications, Tax identification numbers, Tax forms, and verifications thereof, that the Partnership Representative deems necessary in connection with (i) any information required for the Company to determine the application of §§ 6221-6235 of the Code to the Company; (ii) a valid election by the Company under § 6221(b) or 6226 of the Code; (iii) an audit or a final adjustment of the Company by a Taxing Authority; or (iv) any other valid Tax purpose. Each Member shall take any action reasonably requested by the Company in connection with an election by the Company under § 6221(b) or 6226 of the Code, or an audit or a final adjustment of the Company by a Taxing Authority (including

promptly filing amended Tax returns and promptly paying any related Taxes, including penalties and interest).

9.5.3        Tax Underpayment by Company or Members and Member Deficiencies. Any imputed underpayment imposed on the Company pursuant to § 6232 of the Code (and any related interest, penalties or other additions to tax) that the Partnership Representative reasonably determines is attributable to one or more Members shall be promptly paid by such Members to the Company (pro rata in proportion to their respective shares of such underpayment) within fifteen (15) days following its request for payment (any failure to pay such amount being a “Tax Deficiency”) provided, that in making the determination of to which Members (including former Members) any such imputed underpayment is attributable, the Partnership Representative will allocate any imputed underpayment imposed on the Company (and any related interest, penalties, additions to tax and audit costs) among the Members in a reasonable and good faith taking into account each Member’s particular status, including, for the avoidance of doubt, a Member’s tax-exempt status. If a Member fails to pay a Tax Deficiency within ten (10) business days (the “Tax Deficient Member”), the Partnership Representative shall notify all Members of the right to contribute to the Tax Deficiency in writing (a “Tax Deficiency Notice”) of the amount, if any, of the total Tax Deficiency. Within five (5) business days after each Member receives a Tax Deficiency Notice, such Member may, but shall not be required to, deliver to the Partnership Representative, in immediately available funds, all or any portion of the Tax Deficiency. If Members electing to contribute toward the Tax Deficiency (the “Tax Contributing Members”) together contribute more than the total amount of the Tax Deficiency, then the Partnership Representative shall refund the excess amounts contributed to the contributing Members in accordance with their pro rata Percentage Interests, as applied to the Tax Deficiency amount. A Tax Contributing Member’s (or the Company’s) contribution toward the Tax Deficiency shall be treated as a loan payable by the Tax Deficient Member, accruing interest at a rate of the greater of the Prime Rate plus three percent (3%), and ten percent (10%), which loan shall also be secured and offset by, distributions which would otherwise be made to the Tax Deficient Member, which distributions shall be made directly to the Tax Contributing Members or Company as applicable.

9.5.4        Indemnification and Other Matters. The Partnership Representative shall be subject to the same standard of care as that of the Class A Member under Section 4.3 above (or otherwise at law), and shall be entitled to indemnification in accordance with Section 10 below.

9.5.5        Survival. This Section 9.5 shall survive the termination of the Company and the termination of any Member’s interest in the Company and remain binding for a period of time necessary to resolve all Tax matters with applicable Taxing Authorities.

9.6              Tax Classification as a Partnership. The Members and the Class A Member expect and intend applicable Taxing Authorities to treat the Company as a partnership for income Tax purposes. The Members and the Class A Member agree that they shall not (i) take a position, or make any assertion, on any federal, state, local or other Tax return that is inconsistent with such expectation or intent, or (ii) make any election or do any act or thing that could cause the Company to be treated as other than a partnership for income Tax purposes.

9.7              No State Partnership. Nothing herein shall be deemed or construed to constitute the Company as a partnership (including a limited partnership) or joint venture, or any Member a partner or joint venturer of or with any other Member, for any purposes other than federal and state Tax classification purposes.

9.8              Other Tax Elections. The Partnership Representative shall, without any further consent of the Members being required (except as specifically required herein), make any and all elections for federal,

state, local, and foreign Tax purposes including any election, if permitted by applicable law: (i) to adjust the basis of Company assets pursuant to Code §§ 754, 734(b), and 743(b), or comparable provisions of state, local, or foreign law, in connection with transfers of Membership Interests and Company distributions, (ii) to the extent provided in Code §§ 6221 through 6231 and similar provisions of federal, state, local, or foreign law, to represent the Company and the Members before Taxing Authorities or courts of competent jurisdiction in Tax matters affecting the Company or the Members in their capacities as Members, (iii) to file FTB Form 3893 and to make the pass through entity tax election contemplated thereby, and (iv) to file any Tax returns and execute any agreements or other documents relating to or affecting such Tax matters, including agreements or other documents that bind the Members with respect to such tax matters or otherwise affect the rights of the Company and the Members.

10.              INDEMNIFICATION.

10.1          General Indemnification by Right. The Company shall indemnify, defend, protect and hold harmless each Covered Person, Partnership Representative, and officer, and each of their respective Principals, partners, shareholders, members, controlling persons, trustees, directors, officers, managers, heirs, trustees, beneficiaries, administrators, executors, employees, agents, representatives, successors and assigns (each, an “Indemnified Party”), from and against any and all Claims, that each such Indemnified Party may suffer or incur by reason of or in connection with his, her or its management of, ownership in, involvement in or affiliation with the Company’s business or affairs, including by reason of being a Covered Person or representative thereof. Such indemnity shall be permitted, however, only if the Person seeking indemnity (i) acted in good faith and in accordance with the terms of this Agreement and otherwise in a manner he, she or it reasonably believed to be in, or not opposed to, the Company’s best interests and within the scope of such Person’s authority conferred on him, her or it by the Company, and with respect to any criminal proceeding, had no reasonable cause to believe his, her or its conduct was unlawful, and (ii) such Person’s conduct was not the result of gross negligence or fraud. The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that such Indemnified Party did not meet such standards, unless it is finally adjudicated that such Indemnified Party did not meet such standards.

10.2          Advancement of Expenses. The Company will pay Expenses incurred in defending any proceeding under Section 10.1, and may, in the Class A Member’s discretion, pay Expenses incurred in defending any proceeding under Section 10.2 in advance of the final disposition of such proceeding if the Person entitled to indemnification agrees to repay such amount if it is ultimately determined that such Person is not entitled to such indemnification.

10.3          Contribution. Whether or not the indemnification provided in this Section 10 above is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with and Indemnified Party (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee. The Company hereby agrees to fully indemnify and hold an Indemnified Party harmless from any claims of contribution which may be brought by officers, managers or employees of the Company, other than such Indemnified Party, who may be jointly liable with such Indemnified Party. To the fullest extent permissible

under applicable law, if the indemnification provided for in this Agreement is unavailable to an Indemnified Party for any reason whatsoever, the Company, in lieu of indemnifying such Indemnified Party, shall contribute to the amount incurred by such Indemnified Party, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Claim in order to reflect (i) the relative benefits received by the Company and such Indemnified Party as a result of the event(s) and/or transaction(s) giving cause to such Claim; and/or (ii) the relative fault of the Company (and its managers, officers, employees and agents) and such Indemnified Party in connection with such event(s) and/or transaction(s).

10.4          Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation.

10.4.1    Non-Exclusive. The rights of indemnification as provided by this Section 10 shall not be deemed exclusive of any other rights to which an Indemnified Party may at any time be entitled under applicable law, this Agreement, any agreement, a vote of members, a resolution of managers of the Company, or otherwise. No amendment, alteration or repeal of this Section 10 or of any provision hereof shall limit or restrict any right of an Indemnified Party under this Section 10 in respect of any action taken or omitted by such Indemnified Party in such Person’s status or affiliation with the Company or Enterprise prior to such amendment, alteration or repeal. To the extent that a change in applicable law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under this Agreement, it is the intent of the parties hereto that an Indemnified Party shall enjoy by this Section 10 the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

10.4.2    Insurance. The Class A Member shall have power to purchase and maintain insurance, at the Company’s expense, on behalf of the Persons who may be entitled to indemnification under this Section 10. That insurance may cover amounts for which the Company may be liable under this Section 10. To the extent that the Company maintains an insurance policy or policies providing liability insurance for managers, officers, directors, employees, or agents or fiduciaries of the Company or of any other limited liability company, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, an Indemnified Party shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any manager, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnified Party, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

10.5          Savings. In the event any provision of this Section 10 conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict. If this Section 10 or any portion hereof is invalidated on any ground by any court of competent jurisdiction, then the Company must nevertheless indemnify and hold harmless each Covered Person pursuant to this Section 10 to the fullest extent permitted by any applicable portion of this Section 10 that has not

been invalidated and to the fullest extent permitted by applicable law.

10.6          Conflict. In the event any provision of this Section 10 conflicts with the provisions of the PSA or other Transaction Documents (defined therein), the PSA or other Transaction Document will control and supersede the terms of this this Section 10.

11.              AMENDMENT OR MODIFICATION; POWER OF ATTORNEY.

11.1          Amendment. Notwithstanding the provisions of the Act, except as otherwise provided in this Agreement, any amendment, supplement, modification or restatement (an “Amendment”) to this Agreement must be in writing and proposed by the Class A Member, and accepted by the Members Approval.

11.2          Unilateral Amendments. Notwithstanding the foregoing, the Class A Member may unilaterally amend this Agreement without the consent of any Member (i) to reflect valid changes in the Members or their Percentage Interests, (ii) to reflect permitted changes in accordance with the terms of this Agreement, (iii) to clarify any immaterial ambiguity herein or to appropriately adjust any mechanics or procedures set forth in this Agreement, or (iv) if the Amendment does not materially, adversely affect the rights of any Member; provided, that if any of the foregoing matters in clauses (i) through (iv) would have an adverse economic effect on the Class B Member, the consent of the Class B Member shall be required. The effectiveness of an Amendment to this Agreement shall not be negated by the fact that one or more Members have not signed such amendment, supplement, modification or restatement, as long as the conditions to the effectiveness thereof as set forth in this Agreement are met.

11.3          Power of Attorney. By signing this Agreement, each Member constitutes and appoints the Class A Member as its agent, true and lawful representative and attorney-in-fact, in its name, place, and stead to make, execute, sign, acknowledge, deliver or file (i) the Company’s Certificate and any other instruments, deeds, documents and certificates which may from time to time be required by any law to effectuate, implement and continue the valid and subsisting existence of the Company, (ii) all instruments, deeds, documents and certificates that may be required to effectuate the dissolution and termination of the Company in accordance with the provisions herein, (iii) all instruments, deeds, documents, or certificates that may from time to time be required of the Company by the laws of the United States of America or any other jurisdiction in which the Company shall conduct its affairs in order to qualify or otherwise enable the Company to conduct its affairs in such jurisdictions, (iv) all Amendments to this Agreement which do not require such Member’s vote, approval, or consent, and (v) any other instrument, certificate, document, accession agreement or deed of adherence required from time to time to admit a Member, to effect the substitution of a Member, to effect the substitution of a Member’s assignee as a Member, to effect a transfer pursuant to this Agreement or to reflect any action undertaken pursuant to this Agreement. The foregoing grant of authority (1) is irrevocable, coupled with an interest in favor of the Class A Member and deemed to be given to secure the performance of each Members’ obligations under this Agreement and shall survive the death or disability of such Member if such Member is a natural person or the merger, dissolution or other termination of the existence of such Member if such member is an corporation, association, partnership, limited liability company, trust, organization or other entity, and (2) shall survive the assignment by such Member of the whole or any portion of its Units, except that where the assignee of the whole thereof has furnished a power of attorney, this power of attorney shall survive such assignment for the sole purpose of enabling the Class A Member to execute, acknowledge and file any instrument necessary to effect any permitted substitution of the assignee for the assignor as a Member and shall thereafter terminate. Notwithstanding the foregoing, this power of attorney shall expire immediately on the dissolution of the Company. Each Member is aware that the Class A Member and each other Member will rely on the effectiveness of such powers in concluding

that such Member is bound by, and subject to this Agreement. Each Member agrees to execute such other documents as the Class A Member may reasonably request in order to affect the intention and purposes of the power of attorney contemplated by this Section 11.3.

11.4          Protective Provision. If Section 4.3 or Section 10, or any portion thereof is invalidated on any ground by any court of competent jurisdiction, then the Company must nevertheless indemnify and hold harmless each Covered Person pursuant to Section 10 to the fullest extent permitted by this Agreement and by applicable law. The provisions of Section 4.3, Section 10, and this Section 11.4 constitute a contract between the Company, on the one hand, and each Covered Person who serves in such capacity at any time while Section 4.3, Section 10, and this Section 11.4 are in effect, on the other hand, pursuant to which the Company and each such Covered Person intend to be legally bound. No amendment, modification or repeal of Section 4.3, Section 10, or this Section 11.4 that adversely affects the rights of a Covered Person will apply in such a way as to eliminate or reduce such Covered Person’s entitlement to indemnification without the Covered Person’s prior written consent. The provisions of Section 4.3, Section 10, and this Section 11.4 will survive the dissolution, liquidation, winding up and termination of the Company.

12.              MANDATORY BINDING ARBITRATION.

12.1          Disputes Generally.

12.1.1    Except as otherwise set forth in this Section 12, any and all disputes, claims and controversies based on, arising out of, under or in connection with this Agreement or the transactions contemplated hereby (including actions arising in contract or tort and any claims by a party against another party related in any way to this Agreement), or any course of conduct, course of dealing, statement (written or verbal) or action of any party, or any exercise by any party of their respective rights under this Agreement or in any way relating to this Agreement that are brought before a forum in which pre-dispute waivers of the right to trial by jury are invalid under applicable law (each, a “Dispute”) shall be settled and resolved by binding arbitration in Las Vegas, Nevada, before a single arbitrator with the JAMS (“JAMS”) pursuant to the then prevailing JAMS Comprehensive Commercial Arbitration Rules and Procedures except as modified by this Agreement. For the avoidance of doubt, any disagreement among the parties as to whether a dispute, claim or controversy is subject to arbitration under the terms of this Agreement shall constitute a Dispute.

12.1.2    In reaching a decision on any Dispute, the arbitrator shall be bound by the provisions of this Agreement and by the law that the parties have selected to govern the enforcement and interpretation of this Agreement. The arbitrator’s decision on the Dispute shall be a final and binding determination, and such decision may be confirmed and shall be fully enforceable as an arbitration award in any court having jurisdiction and venue over the parties. The arbitrator shall have exclusive jurisdiction to determine any questions of arbitrability and any such question shall be governed by the Federal Arbitration Act. Each party agrees to accept service of process for all arbitration proceedings in accordance with the notice provisions of this Agreement.

12.1.3    Nothing in this Section 12 is intended to restrict or prevent a party from (i) joining any party as a defendant in any action brought by or against a third party; (ii) bringing an action in court to effect any attachment or garnishment; (iii) bringing an action in court to compel arbitration as required by this Section 12, or (iv) seeking equitable or injunctive relief.

12.1.4    If a Dispute includes multiple claims, some of which are found not subject to this

Agreement, the parties shall stay the proceedings of the Disputes or part or parts thereof not subject to this Agreement until all other Disputes or parts thereof are resolved in accordance with this Agreement. If there are Disputes by or against multiple parties, some of which are not subject to this Agreement, the parties shall sever the Disputes subject to this Agreement and resolve them in accordance with this Agreement.

12.1.5    During the pendency of any Dispute which is submitted to arbitration in accordance with this Agreement, each of the parties to such Dispute shall bear equal shares of the fees charged and costs incurred by the arbitrator in performing the services described in this Agreement.

12.1.6    The prevailing party shall be entitled to reasonable costs of arbitration and legal fees, including reasonable attorney fees, expert witness fees, paralegal fees, the fees of the arbitrator and other reasonable costs and disbursements charged to the party by its counsel, in such amount as is determined by the arbitrator.

12.1.7    THE PARTIES UNDERSTAND THAT EACH PARTY IS CONSENTING TO, AND AGREEING TO PARTICIPATE IN REMOTE PROCEEDINGS WITH RESPECT TO THE ARBITRATION OF ANY DISPUTE, AND FURTHER AUTHORIZES AND DIRECTS THE ARBITRATOR TO COMPEL THE REMOTE PROCEEDINGS OF SUCH ARBITRATION.

12.1.8    Notwithstanding JAMS’ rules then in effect, the parties to this Agreement hereby specifically consent to, and agree to participate in, remote arbitration proceedings, using customary videoconferencing software. The arbitrator selected in accordance with this Section 12 is hereby empowered to compel each party to this Agreement to participate in such remote proceedings, and to conduct an arbitration notwithstanding a party’s refusal to participate.

12.2          Waiver of Jury Trial. Because each party is giving up the right to litigate any Dispute, each party herein further confirms that it has read and understands the provisions in this Section 12, and that it has further benefited from the advice of counsel. Additionally, by becoming a party to this Agreement, each party is voluntarily giving up important constitutional rights to trial by judge or jury, as well as rights to appeal. Each party understands that it has the right to have an independent attorney of its choice review this Section 12, as well as this entire Agreement prior to becoming a party to this Agreement.

13.              DISSENTERS’ RIGHTS WAIVED. Each Member acknowledges that he, she or it is familiar with §18-1155 of the Act. Each Member hereby acknowledges that this Agreement is not intended to create or establish, and each Member accordingly waives, any so-called “dissenters’ rights” or “appraisal rights,” or any similar or analogous right or privilege, including as may be established pursuant to any future modification of the Act. Each Member acknowledges that such Member has had the opportunity to consult with legal counsel regarding this Section and the effect of such waiver, and agrees that such waiver is fair and reasonable. Without limiting the generality of the foregoing, each Member waives any rights such Member may have under the Act to have a court determine, or to have a court appoint any appraiser or other Person to determine, the fair market value of the dissenting interest.

14.              MISCELLANEOUS.

14.1          Due Authority. If a Member is a Person other than an individual, each Person executing this Agreement on behalf of said entity represents and warrants that such Person is duly authorized to execute and deliver this Agreement on behalf of such Member.

14.2          Consent of Spouse. Each married Member shall cause his or her spouse to execute a consent of spouse on the signature page to this Agreement.

14.3          Arm’s Length. This Agreement has been negotiated at arm’s length between persons knowledgeable in the matters dealt with herein. In addition, each party to this Agreement has been, or has had an opportunity to be, represented by independent legal counsel of such party’s own choice. Accordingly, any rule of law or any other statute, legal decision or common law principle of similar effect that would require interpretation of any uncertainty or ambiguity in this Agreement against the party that drafted it, is of no application and is hereby expressly waived. This Agreement shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties and this Agreement.

14.4          Incorporation by Reference. The exhibits and schedules attached to this Agreement are incorporated into this Agreement by this reference. Without limitation, the PSA and all Transaction Documents referenced therein, are hereby incorporated by reference.

14.5          Entire Agreement. This Agreement, together with all other documents and instruments incorporated by reference, and all exhibits, schedules, and attachments thereto and hereto, and any side letter agreements entered into by the Company, contains the entire understanding among the parties and supersedes any prior written or oral agreements between them respecting the Company and its business. There are no representations, agreements, arrangements or understandings, oral or written, between and among the parties relating to the Company or its business that are not fully set forth in this Agreement.

14.6          Severability. If any provision of this Agreement as applied to any party or to any circumstance shall be found by a court of competent jurisdiction to be void, invalid or unenforceable, the same shall in no way affect any other provision of this Agreement, the application of any such provision in any other circumstance, or the validity or enforceability of this Agreement, and any provision that is found to be void, invalid or unenforceable shall be curtailed and limited only to the extent necessary to bring such provision within the requirements of the law.

14.7          Governing Law; Jurisdiction, Etc. Oklahoma law, without regard to conflict or choice of law principles, shall govern the construction and interpretation of this Agreement and all claims, controversies and other disputes and proceedings concerning or arising out of this Agreement. The parties to this Agreement agree that all actions or proceedings arising directly or indirectly from this Agreement shall be arbitrated or litigated before arbitrators or in courts having a situs within Las Vegas, Nevada; hereby consent to the jurisdiction of any local, state or federal court in which such an action or proceeding is commenced that is located in Las Vegas, Nevada; agree not to disturb such choice of forum (including waiving any argument that venue in any such forum is not convenient); agree that any litigation initiated by any party hereto in connection with this Agreement may be venued in either the state or federal courts located in Las Vegas, Nevada; agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law; and waive the personal service of any and all process upon them and consent that all such service of process may be made by certified or registered mail, return receipt requested, addressed to the respective parties at the address set forth above.

14.8          Attorneys’ Fees. If an action (including arbitration) is brought to interpret or enforce any of the terms of this Agreement, or because of a party’s breach of any provision of this Agreement, the losing party shall pay the prevailing party’s reasonable attorneys’ fees, costs and expenses, court costs and other costs of action incurred in connection with the prosecution or defense of such action, whether or not the action is prosecuted to

a final judgment. In addition to the foregoing award of attorneys’ fees, the prevailing party shall be entitled to its reasonable attorneys’ fees incurred in any post judgment proceeding to enforce any judgment in connection with this Agreement. This paragraph is separate and several and shall survive the merger of this paragraph into any judgment.

14.9          Binding Effect. Subject to the restrictions on transfer set forth in this Agreement, this Agreement shall be binding on and inure to the benefit of the Members and their respective transferees, successors, assigns and legal representatives.

14.10      Equitable Relief. The Company and each Member agree that it would be difficult to calculate the extent of damages caused by, and to compensate the Company fully for damages for, any violation by a Member of the provisions of this Agreement. Accordingly, the Company and each Member agree that the Company shall be entitled to temporary, preliminary and permanent injunctive relief or other equitable relief (including specific performance), without necessity of posting bond, to enforce the provisions of this this Agreement, and that such relief may be granted without the necessity of proving actual damages. This right to equitable relief shall not, however, diminish the Company’s right to claim and recover damages from a Member in addition to equitable relief. The remedies provided to the Company in this Agreement are cumulative, and not exclusive, of any other remedies that may be available to the Company. Each representation, warranty, covenant, and agreement set forth in this Agreement shall be deemed to be of the essence of the ownership of each Member’s Units.

14.11      Notices. All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given (i) if delivered personally when delivered; (ii) if delivered by overnight carrier, on the first business day following such delivery; (iii) if delivered by registered or certified mail, return receipt requested, on the fifth (5^th) business day after having been mailed; or (iv) if delivered by electronic transmission, at the time when received by the intended recipient’s mail server, if on a business day, or otherwise, on the following business day.

14.12      Waiver or Termination. No waiver or termination of this Agreement, or any part hereof, shall be effective unless made in writing and signed by the party or parties sought to be bound thereby. No failure to pursue or elect any remedy shall constitute a waiver of any default under or breach of any provision of this Agreement, nor shall any waiver of any such default or breach be deemed to be a waiver of any other subsequent default or breach.

14.13      Further Assurances. The parties shall execute and deliver any further instruments or documents and perform any additional acts that are or may become necessary to effectuate and carry on the Company as contemplated by this Agreement.

14.14      Counterparts. This Agreement may be executed in one or more counterparts, including executed counterparts delivered by facsimile or electronic mail, each of which shall constitute an original and together which shall constitute one and the same instrument.

14.15      Headings; Interpretation. The title of and the section and paragraph headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of any of the terms or provisions of this Agreement. The term “this Agreement” or “this agreement” means this Agreement together with all Schedules, Exhibits, Addenda, Annexes, and other attachments hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. The

word “or” shall be interpreted as inclusive (i.e. inclusive of “and”), unless otherwise stated. The word “including” or any variation thereof means “including, without limitation” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. The word “will” shall be construed to have the same meaning and effect as the word “shall.” References in this Agreement to any law shall be deemed also to refer to such law, as amended, and all rules and regulations promulgated thereunder. The words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole, including the Schedules, Exhibits, Addenda, Annexes, and other attachments hereto, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require or permit. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. All references herein to “$” or dollars shall refer to United States dollars. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified, and if so specified, business days shall mean days for which banks are open in the State under which law this Agreement is governed and construed, unless otherwise specified. Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends. Where the last day of any such time period is not a business day, such time period shall be extended to the next business day following the day on which it would otherwise end. References in this Agreement and all Schedules, Exhibits, Addenda, Annexes, and other attachments hereto to any contract (including this Agreement) mean such contract as amended, restated, supplemented or modified from time to time in accordance with the terms thereof.

14.16      Variation of Act. Where any provision of this Agreement modifies, contradicts or is otherwise inconsistent with the Act, the provisions of this Agreement shall govern and control. Without limiting the generality of the immediately preceding sentence, any statement in this Agreement that a particular provision of this Agreement is to apply notwithstanding any provision of the Act to the contrary, does not imply that other provisions of this Agreement do not supersede the Act where such provisions modify, contradict or are otherwise inconsistent with the Act.

14.17      Privacy Notice. The Company collects nonpublic, personal data about each Member from (i) information it receives from subscription agreements and other documents and instruments provided by such Member to the Company, (ii) information disclosed to the Company through conversations or correspondence by or with such Member, and (iii) any additional information the Company may request from such Member. All information regarding the personal identity and other financial information of each Member (such Member’s “personal information”) will be kept strictly confidential. The Company maintains commercially reasonable physical, electronic and operational safeguards to protect this information. Some of these safeguards include firewalls on the Company’s information technology infrastructure, the use of account aliases on physical records and physical security measures taken to secure the Company’s offices. In the normal course of business, it is sometimes necessary for the Company to provide personal information about Members to the Company, attorneys, accountants and auditors in furtherance of the Company’s business, and entities that provide a service on behalf of the Company, such as banks or title companies. The Company will only disclose personal information to these third parties if those parties agree to protect the personal information and use the personal information only for the purposes of providing services to the Company. Other than for the purposes discussed above, the Company does not disclose any nonpublic, personal information of its Members unless the Company is directed by the Member to provide it or the Company is legally required to provide it to a governmental agency.

14.18      Electronic Delivery. The Company may, in its sole discretion, decide to deliver any

documents related to this Agreement or any notices required by applicable law or the Certificate or this Agreement by email or any other electronic means. Each member hereby consents to (i) conduct business electronically (ii) receive such documents and notices by such electronic delivery and (iii) sign documents electronically and agrees to participate through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

14.19      Electronic Records: Each Member hereby consents to the use by the Company of, and acceptability of, electronic records and disclosures, including the Company’s Form 1065, such Member’s Schedule K-1, and other relevant tax documents and filings.

14.20      Limitation of Liability; Exculpation Among Members. Notwithstanding anything to the contrary in this Agreement, but without derogation to the terms of any other agreement (including, without limitation the PSA, Management Services Agreement, and Distribution Agreement) the Company’s debts, obligations and liabilities shall be solely the Company’s debts, obligations and liabilities, and no Member shall be obligated personally for any Company debt, obligation or liability solely by reason of being a Member. If a Member (“Liable Member”) incurs any indebtedness or obligation before the Effective Date which relates to the Company (including in the case of the Class B Member, any liability incurred by the Company prior to the Effective Date), neither the Company nor any other Member will be obligated personally with respect such indebtedness or obligation unless such indebtedness or obligation is assumed by the Company by the Members’ Approval. Neither the Company nor any Member will be responsible or liable for any indebtedness or obligation which is incurred or undertaken by any Member after the Effective Date unless such Member has acted with due authority under this Agreement and with the authorization of the Members’ Approval (in the absence of such authority, such liability or obligation being an “Excluded Liability”). Each Member will indemnify, defend, protect, and hold harmless the Company and each other Member against any Excluded Liability incurred by such Member.

[SIGNATURE PAGE FOLLOWS]

 

 

AMENDED AND RESTATED

OPERATING AGREEMENT

OF

IM TELECOM, LLC

AN OKLAHOMA LIMITED LIABILITY COMPANY

 

SIGNATURE PAGE

 

Accordingly, the Members have executed this Agreement effective as of the date first set forth above.

MEMBERS:
“Class A Member”			“Class B Member”
Excess Telecom, Inc.			KonaTel, Inc.
By:	/s/ Cobby Pourtavosi		By:	/s/ Charles D. Griffin
Name:	Cobby Pourtavosi		Name:	Charles D. Griffin
Its:	President		Its:	President

 

EXHIBIT A

Allocations

This Exhibit A is made with reference to IM TELECOM, LLC, an Oklahoma Limited Liability Company (the “Company”) and is attached to, made a material part of and hereby incorporated into the Amended and Restated Operating Agreement of the Company made effective as of the Initial Closing of the PSA (the “Operating Agreement”). Capitalized terms used in this Exhibit A and not otherwise defined have the meanings ascribed in the Operating Agreement.

1.                  ADDITIONAL DEFINITIONS. The following terms have the definitions set forth below. Capitalized terms used herein and not defined below have the meanings set forth in the Operating Agreement.

1.1              “Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) credit to such Capital Account any amounts that such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations §§ 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) debit to such Capital Account the items described in Regulations §§ 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations § 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently with such provisions.

1.2              “Capital Account” means with respect to each Member, the Capital Account maintained for such Member in accordance with the following provisions:

1.2.1        To each Member’s Capital Account there shall be credited such Member’s Capital Contributions, such Member’s distributive share of Profits, and any items in the nature of income or gain that are specially allocated to such Member’s Units pursuant to this Exhibit A, and the amount of any Company liabilities assumed by such Member or that are secured by any property distributed to such Member;

1.2.2        To each Member’s Capital Account there shall be debited the amount of money and the Gross Asset Value of any property distributed to such Member pursuant to any provision of this Agreement, such Member’s distributive share of Losses and any items in the nature of expenses or losses that are specially allocated to such Member’s Units pursuant to this Exhibit A, and the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company; and

1.2.3        In the event Units are transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Units.

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations § 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Class A Member shall determine that it is prudent to modify the manner in which the aggregate Capital Accounts, or any debits or credits thereto are computed in order to comply with such Regulations, the Class A Member may make such modification. The Class A Member also shall make any adjustments that are necessary or appropriate to maintain equality between the aggregate Capital Accounts of the Members and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations § 1.704-1(b)(2)(iv)(q) and make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations § 1.704-1(b).

1.3              “Company Minimum Gain” has the same meaning as “partnership minimum gain” set forth in Regulations §§ 1.704-2(b)(2) and 1.704-2(d).

1.4              “Depreciation” means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year for federal income Tax purposes, except that, if the Gross Asset Value of an asset differs from its adjusted basis for federal income Tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income Tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted Tax basis, provided, however, that if the adjusted basis for federal income Tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Class A Member.

1.5              “Gross Asset Value” means with respect to any asset, the asset’s adjusted basis for federal income Tax purposes, except as follows:

1.5.1        The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset;

1.5.2        The Gross Asset Values of all items of property shall be adjusted to equal their respective gross fair market values (taking Code § 7701(g) into account) as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of property as consideration for all or a portion of Units in the Company; (C) the liquidation of the Company within the meaning of Regulations § 1.704-1(b)(2)(ii)(g); and (D) in connection with the grant of Units in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in a member capacity, or by a new Member acting in a partner capacity in anticipation of being a Member; provided that an adjustment described in clauses (A),(B), and (D) of this Section 1.5.2 shall be made only if the Class A Member reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Members in the Company;

1.5.3        The Gross Asset Value of any item of property distributed to any Member shall be adjusted to equal the gross fair market value (taking Code § 7701(g) into account) of such item on the date of distribution;

1.5.4        The Gross Asset Value of each item of property shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code § 734(b) or § 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to (A) Regulations § 1.704-1(b)(2)(iv)(m) and (B) Section 2.1 of this Exhibit A, provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section 1.5.4 to the extent that an adjustment pursuant to Section 1.5.2 is required in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 1.5.4.

If the Gross Asset Value of an asset has been determined or adjusted pursuant to Section 1.5.1, Section 1.5.2, or Section 1.5.4, the Gross Asset Value of such asset shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses.

1.6              “Member Nonrecourse Debt” has the same meaning as the term “partner nonrecourse debt” set forth in Regulations § 1.704-2(b)(4).

1.7              “Member Nonrecourse Debt Minimum Gain” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations § 1.704-2(i)(3).

1.8              “Member Nonrecourse Deductions” has the same meaning as the term “partner nonrecourse deductions” set forth in Regulations §§ 1.704-2(i)(1) and 1.704-2(i)(2).

1.9              “Nonrecourse Deductions” has the meaning set forth in Regulations §§ 1.704-2(b)(1) and 1.704-2(c).

1.10          “Nonrecourse Liability” has the meaning set forth in Regulations § 1.704-2(b)(3).

2.                  ALLOCATIONS.

2.1              Profits and Losses Generally. Except as otherwise provided in this Agreement, each item of Profits and Losses shall be allocated among the Capital Accounts of the Members with respect to each Fiscal Year, as of the end of such Fiscal Year, in a manner that as closely as possible gives economic effect to the distributive and other relevant provisions of the Operating Agreement.

2.1.1        Losses. Losses of the Company for each Fiscal Year (or part thereof) shall be allocated to the Members at the end of such Fiscal Year (or part thereof) to the Members pro rata in accordance with their Percentage Interests; provided, however, if the allocation to a Member of any portion of the Losses for a Fiscal Year exceeds such Member’s positive Capital Account balance at the end of such Fiscal Year, then such excess amount shall instead, to the maximum extent possible, be allocated among the other Members having positive Capital Account balances at the end of the Fiscal Year pro rata in accordance with such other Members’ Percentage Interests without causing any Member to have a deficit Capital Account balance at the end of such Fiscal Year.

2.1.2        Profits. Profits of the Company for each fiscal year (or part thereof) shall be allocated as follows:

(a)               First, Profits shall be allocated to the Members in proportion to, and to the extent of, Losses allocated to them under Section 2.1.1 and not previously recouped under this Section 2.1.2(a).

(b)               Second, to the Members based on the preference of Distributions of Distributable Proceeds pursuant to Section 8.4 of the Operating Agreement.

2.2              Timing and Periods. Profits, Losses, and any other items of income, gain, loss, or deduction shall be allocated to the Members pursuant to this Exhibit A as of the last day of each Fiscal Year, provided that Profits, Losses, and such other items shall also be allocated at such times as the Gross Asset Values of property are adjusted pursuant to Section 1.5.2. For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as reasonably determined by the Class A Member using any permissible method under Code § 706 and the Regulations thereunder.

2.3              Special Allocations. The following special allocations shall be made in the following order:

2.3.1        Minimum Gain Chargeback. Except as otherwise provided in Regulations § 1.704-2(f), notwithstanding any other provision of this Exhibit A, if there is a net decrease in Company Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Regulations § 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations §§ 1.704-2(f)(6) and 1.704-2(j)(2). This Section 2.3.1 is intended to comply with the minimum gain chargeback requirement in Regulations § 1.704-2(f) and shall be interpreted consistently therewith.

2.3.2        Member Nonrecourse Debt Minimum Gain Chargeback. Except as otherwise provided in Regulations § 1.704-2(i)(4), notwithstanding any other provision of this Exhibit A, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations § 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations § 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations §§ 1.704-2(i)(4) and 1.704-2(j)(2). This Section 2.3.2 is intended to comply with the minimum gain chargeback requirement in Regulations § 1.704-2(i)(4) and shall be interpreted consistently therewith.

2.3.3        Qualified Income Offset. In the event that any Member unexpectedly receives any adjustments, allocations, or distributions described in Regulation §§ 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) which results in an Adjusted Capital Account Deficit for the Member, items of Company income and gain shall be allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 2.3.3 shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Exhibit A have been tentatively made as if this provision were not in this Exhibit A. This Section 2.3.3 is intended to constitute a “qualified income offset” as provided by Regulations § 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

2.3.4        Gross Income Allocation. In the event that any Member has an Adjusted Capital Account Deficit at the end of any Fiscal Year, each such Member shall be allocated items of Company income and gain in the amount of such deficit as quickly as possible, provided that an allocation pursuant to this Section 2.3.4 shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit in excess of such sum after all other allocations provided for in this Exhibit A have been tentatively made as if Section 2.3.3 and this Section 2.3.4 were not in this Exhibit A.

2.3.5        Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year shall be specially allocated among the Members in proportion to their Percentage Interests.

2.3.6        Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations § 1.704-2(i)(1).

2.3.7        § 743 and 734 Adjustments. To the extent an adjustment to the adjusted Tax basis of any Company asset, pursuant to Code § 734(b) or § 743(b) is required, pursuant to Regulations § 1.704-1(b)(2)(iv)(m)(2) or § 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Member’s Units in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their Units in the Company in the event Regulations § 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Regulations § 1.704-1(b)(2)(iv)(m)(4) applies.

2.3.8        Allocations Relating to Taxable Issuance of Units. Any income, gain, loss, or deduction realized as a direct or indirect result of the issuance of Units by the Company to a Member (the “Issuance Items”) shall be allocated among the Members so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Exhibit A to each Member shall be equal to the net amount that would have been allocated to each such Member if the Issuance Items had not been realized.

2.3.9        Member Services and Interest Payments. If it is finally determined by a Taxing Authority or duly conceded by the Company that any amount paid to a Member for services authorized to be rendered to the Company by such Member or interest authorized to be paid to such Member on any loan or advance to the Company, is not deductible in computing the Taxable income of the Company for income Tax purposes for any Fiscal Year and the income would otherwise be removed from the gross income of the Member, then this Exhibit A shall be deemed to specially allocate such items of Company income to that Member for that Fiscal Year or subsequent Fiscal Years as necessary in the amount of the disallowed payment. Any amounts allocated under this provision shall not affect the aggregate amount of Profits and Losses otherwise allocable to the Member under this Exhibit A but for this provision.

2.4              Regulatory Allocations. The allocations set forth in Sections 2.3.1 through 2.3.7 (the “Regulatory Allocations”) are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, the Regulatory Allocations shall be offset either with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 2.4. Therefore, notwithstanding any other provision of this Exhibit A (other than the Regulatory Allocations), the Class A Member shall make such offsetting special allocations of Company income, gain, loss, or deduction in whatever manner the Class A Member reasonably determines to be appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated under Section 2.1.

2.5              Transferred Units. If any Units are transferred, or is increased or decreased by reason of the admission of a new Member or otherwise, during any Fiscal Year, each item of income, gain, loss, deduction, or credit of the Company for such Fiscal Year shall be allocated among the Members, as reasonably determined by the Class A Member in accordance with any method permitted by Code Section 706(d) and the Treasury Regulations promulgated under that Section to take into account the Members varying interests in the Company

during such Fiscal Year.

2.6              Consistent Reporting. The Members are aware of the income Tax consequences of the allocations made by this Exhibit A and hereby agree to be bound by the provisions of this Exhibit A in reporting their shares of Company income and loss for income Tax purposes, except as otherwise required by law.

2.7              Excess Nonrecourse Liabilities. Solely for purposes of determining a Member’s proportionate share of the “excess nonrecourse liabilities” of the Company within the meaning of Regulations § 1.752-3(a)(3), the Members’ interest in the Company’s Profits are in proportion to their Percentage Interests.

2.8              Distributions of Loan Proceeds. To the extent permitted by Regulations § 1.704-2(h)(3), the Class A Member shall endeavor to treat distributions of Distributable Proceeds as having been made from the proceeds of a Nonrecourse Liability or a Member Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for any Member.

2.9              Recapture Income. In the event that the Company has Taxable income that is characterized as ordinary income under the recapture provisions of the Code, each Member’s distributive share of Taxable gain or loss from the sale of Company assets (to the extent possible) shall include a proportionate share of this recaptured income equal to the Member’s share of prior cumulative depreciation deductions with respect to the assets that gave rise to the recapture income.

2.10          Code § 704(c). Except as otherwise provided in this Section 2.10, each item of income, gain, loss and deduction of the Company for federal income Tax purposes shall be allocated among the Members in the same manner as such items are allocated for book purposes under this Exhibit A. In accordance with Code § 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for Tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income Tax purposes and its initial Gross Asset Value (computed in accordance with the definition of “Gross Asset Value”) using the traditional method pursuant to the Regulations under Code § 704(c). In the event the Gross Asset Value of any Company asset is adjusted pursuant to Section 1.5.2 of this Exhibit A (of the definition of Gross Asset Value), subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income Tax purposes and its Gross Asset Value in the same manner as under Code § 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Class A Member in any manner that reasonably reflects the purpose and intention of this Agreement, provided that any items of loss or deduction attributable to property contributed by a Member shall, to the extent of an amount equal to the excess of (A) the federal income Tax basis of such property at the time of its contribution over (B) the Gross Asset Value of such property at such time, be allocated in its entirety to the such contributing Member and the Tax basis of such property for purposes of computing the amounts of all items allocated to any other Member (including a transferee of the contributing Member) shall be equal to its Gross Asset Value upon its contribution to the Company. Allocations pursuant to this Section 2.10 are solely for purposes of federal, state, and local Taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Exhibit A.

2.11          Proposed Regulations. The Members acknowledge that proposed Regulations are outstanding that may require an agreement of all of the partners of a partnership and/or of the partnership for income Tax purposes to elect to treat Units in part issued in connection with the performance of services as a

“profits” interest with no value under a liquidation valuation safe-harbor. The Members also acknowledge that at this time, it is not possible to determine the type, nature or form of such election or to determine if the Company would ever issue such interests. However, the Members and the Company agree that this Agreement shall be deemed to contain the legally binding agreement of the Members contemplated by Rev. Proc. 2005-43 and the proposed Regulations and hereby authorize and direct the Company to make the necessary election in compliance with the rules and Regulations as finalized.

 

 

 

 

EXHIBIT B

Members

Members	Class and Number of Units	Capital Account	Percentage Interest
KonaTel, Inc.	510,000 Class B Units	$0.00	51%
Excess Telecom, Inc.	490,000 Class A Units	$15,000,000	49%

 

 

 

 

 

 

 

 

 

THE UNITS REPRESENTED BY THIS CERTIFICATE ARE NOT REGISTERED UNDER FEDERAL OR STATE SECURITIES LAWS.

THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE ARE “SECURITIES” AS DEFINED IN AND GOVERNED BY ARTICLE 8 OF OKLAHOMA’S UNIFORM COMMERCIAL CODE.

ANY SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF THE MEMBERSHIP INTEREST REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE TERMS AND PROVISIONS OF THE COMPANY’S AMENDED AND RESTATED OPERATING AGREEMENT DATED JANUARY [10], 2024 (“OPERATING AGREEMENT”). ANY TRANSFEREE, INCLUDING A LENDER TAKING THE MEMBER INTEREST REPRESENTED BY THIS CERTIFICATE AS COLLATERAL, IS SUBJECT TO ALL THE RESTRICTIONS AND DUTIES CONTAINED IN THE OPERATING AGREEMENT. A COPY OF THE OPERATING AGREEMENT IS ON FILE WITH THE BOARD OF DIRECTORS OF THE COMPANY AND THE COMPANY WILL PROVIDE COPIES OF THE OPERATING AGREEMENT, INCLUDING AMENDMENTS, IF ANY, UPON REQUEST. BY ACCEPTANCE OF THIS CERTIFICATE THE HOLDER HEREOF AGREES TO BE BOUND BY THE TERMS OF THE OPERATING AGREEMENT.

CERTIFICATE NO. ___

IM TELECOM, LLC

This certifies that KonaTel, Inc. is the owner of 510,000 Class B Units comprising membership interests in IM TELECOM, LLC, an Oklahoma limited liability company (the “Company”). This Certificate transferable only on the books of the Company by the holder hereof in person or by attorney upon surrender of this certificate properly endorsed.

This certificate and the membership interest represented hereby are subject to the laws of the State of Oklahoma and the Operating Agreement of the Company, in each case as from time to time amended.

IN WITNESS WHEREOF, the Company has caused this certificate to be signed by a duly authorized person effective as of the [10^th] day of January, 2024.

MEMBERS:
“Class A Member”			“Class B Member”
Excess Telecom, Inc.			KonaTel, Inc.
By:	/s/ Cobby Pourtavosi		By:	/s/ Charles D. Griffin
Name:	Cobby Pourtavosi		Name:	Charles D. Griffin
Its:	President		Its:	President

 

v3.24.0.1

Cover	Jan. 22, 2024
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Jan. 22, 2024
Entity File Number	001-10171
Entity Registrant Name	KonaTel, Inc.
Entity Central Index Key	0000845819
Entity Tax Identification Number	80-0973608
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	500 N. Central Expressway
Entity Address, Address Line Two	Suite 202
Entity Address, City or Town	Plano
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75074
City Area Code	(214)
Local Phone Number	323-8410
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false

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