<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM__________ TO__________
COMMISSION FILE NUMBER 0-27046
QUINTEL COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-3322277
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE BLUE HILL PLAZA 10965
PEARL RIVER, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 620-1212
<TABLE>
<CAPTION>
TITLE OF CLASS EXCHANGE ON WHICH REGISTERED
-------------- ----------------------------
<S> <C> <C>
SECURITIES REGISTERED PURSUANT COMMON STOCK NASDAQ NATIONAL MARKET
TO SECTION 12(b) OF THE ACT: $.001 PAR VALUE
SECURITIES REGISTERED PURSUANT COMMON STOCK
TO SECTION 12(g) OF THE ACT: $.001 PAR VALUE
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
------------------------
The number of shares outstanding of the Registrant's common stock is
16,679,746 (as of 3/5/99). The aggregate market value of the voting stock held
by nonaffiliates of the Registrant was approximately $14,225,000 (as of 3/5/99,
based upon a closing price of the Company's Common Stock on the Nasdaq National
Market on such date of $1.8125).
DOCUMENTS INCORPORATED BY REFERENCE
None.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
QUINTEL COMMUNICATIONS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
ITEMS IN FORM 10-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Facing page
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 10
Item 4 Submission of Matters to Vote of Security Holders........... None
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ None
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... None
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 23
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 29
Item 13. Certain Relationships and Related Transactions.............. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 31
Signatures................................................................ 34
</TABLE>
FORWARD LOOKING INFORMATION
MAY PROVE INACCURATE
This Annual Report on Form 10-K contains certain forward-looking statements
and information relating to the Company that are based on the beliefs of
management, as well as assumptions made by and information currently available
to the Company, including the Company's continuing sources of revenue, cost
reduction plans, proposed offerings of new products and services and the
sufficiency of the Company's liquidity and capital. When used in this document,
the words "anticipate," "believe," "estimate," and "expect" and similar
expressions, as they relate to the Company, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including those described in this Annual Report
on Form 10-K. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
<PAGE> 3
PART I
ITEM 1. BUSINESS
Quintel Communications, Inc. (the "Company") is engaged in the direct
marketing and providing of various telecommunications products and services.
Additionally, the Company utilizes its extensive database to further provide
direct marketing services for its residential long distance customer acquisition
programs. The Company's revenues from the foregoing are generated through the
direct sale of products and services to consumers and through revenue sharing
arrangements with its residential long distance customer acquisition clients.
The telecommunications products and services offered by the Company in the
fiscal year ended November 30, 1998 consisted primarily of (i) telephone
entertainment services, such as live conversation horoscopes and psychic
consultations, and memberships in theme-related club 900 products ("Club 900
Products"); (ii) a residential distributor program agreement with LCI
International Telecom Corp., d/b/a Qwest Communications Services, a long
distance telephone service provider ("Qwest"), whereby the Company markets
Qwest's residential long distance products; and (iii) various enhanced telephone
services, including enhanced voice mail services and call-forwarding services.
TELEPHONE ENTERTAINMENT SERVICES
The Company's telephone entertainment services are accessed by dialing
"900" numbers that are billed at either premium per-minute rates (pay-per-call)
or on a periodic basis through club memberships (Club 900 Product).
Entertainment services consist primarily of live psychic consultations designed
to capitalize on the current popularity of "new age" themes. "New age" refers to
astrological and psychic phenomena which can be explained through the use of
horoscopes, tarot card and psychic readings and prognostications. For the years
ended November 30, 1998, 1997 and 1996, the Company's "900" telephone
entertainment services accounted for approximately 43%, 73% and 76%,
respectively, of the Company's net revenues.
Pay-Per-Call
General. The live psychic entertainment services marketed by the Company
permit callers to engage in live one-on-one conversations with psychic operators
and to receive personalized information responsive to the caller's requests.
These live conversation "900" entertainment services are currently billed at the
rate of $4.99 per minute; provided, however, that the first two to five minutes
of some calls to such live conversation lines are provided to the customer
without charge. For the years ended November 30, 1998, 1997 and 1996, the
Company's live conversation "900" entertainment services accounted for
approximately 26%, 67% and 76% of the Company's net revenues, respectively.
The Company solicits customers for the "900" number services it markets by
providing access to toll-free "800" numbers for subjects of general interest and
as an introduction to the "900" services or by calling designated "900" numbers
directly from any telephone, except cellular phones, pay phones or any phone for
which "900 blocking" has been imposed or ordered. The per minute rates on
telephone services marketed by the Company are subject to applicable limitations
imposed by carriers, including the limitation currently imposed by AT&T, the
Company's primary long distance carrier, of $10 per minute.
Discontinuance as Independent Revenue Source. During 1998, the Company
experienced decreasing margins on its "900" entertainment services, attributable
to significant increases in marketing expenditures related thereto and customer
chargebacks. As a result, these services were not providing positive operating
results and cash flow. Consequently, during the quarter ended August 31, 1998,
the Company discontinued marketing such services as an independent revenue
source and began using them in conjunction with marketing the Company's other
products and services, including its residential distributor program agreement
with Qwest. See "-- Residential Long Distance Customer Acquisition Services."
Accordingly, as required by Statement of Financial Standards No. 121 ("FAS
121"), the Company reviewed long-lived assets, including goodwill, for
impairment. The Company evaluated the recoverability of its long-lived assets by
measuring the carrying amount of the assets against projected undiscounted
future cash flows associated with them. The Company determined that the "900"
entertainment services could not be disposed of and there was no
1
<PAGE> 4
predictable estimate of any future cash flows associated with any alternative
uses. Accordingly, the Company concluded that the intangibles, primarily
goodwill, associated with the Company's 1996 acquisition of the remaining 50%
interest in New Lauderdale (the "Acquisition"), were impaired. As such, a
non-cash charge of approximately $18.5 million, representing the remaining
balance of the intangibles, primarily goodwill associated with the Acquisition,
was recorded at May 31, 1998. See "-- New Lauderdale."
During the fourth quarter of the fiscal year ended November 30, 1998, the
Company increased the marketing of its "900" entertainment services, although
not as an independent revenue source, by expanding the marketing of toll-free
"800" numbers that provide access to subjects of general interest and serve as
an introduction to the Company's "900" services. Such marketing was increased to
enhance consumer response to the Company's other products and services on a
cost-effective basis, which is accomplished on a two-fold basis. First, all
callers to the Company's "800" toll-free numbers are automatically entered into
the databases used to market the Company's other products and services,
regardless if such callers actually follow through on the initial "800" call
with a call to the Company's "900" numbers. Second, if a caller elects to call
the Company's "900" number, he is solicited to use the Company's various other
products and services, including participating in its residential distributor
program with Qwest. See "-- Residential Long Distance Customer Acquisition
Services."
Billing Modification. Prior to December 1, 1998, whenever a call was made
to the Company's live conversation "900" entertainment services, the Company
collected the $4.99 billed to the customer directly from the phone company (via
the Company's billing service providers) and would then be responsible to pay
all processing costs related to the transmission of the call and the billing and
collection of the fees generated thereby. The Company would be subject to
further reductions in amounts collected pursuant to customer chargebacks
processed by the customer service centers of the phone companies. These
chargebacks were for the amounts disputed by the customers and ultimately
credited by the phone company to the customer's account. As a partial means of
avoiding the uncertainties of fluctuating chargeback rates, in December 1998,
the Company entered into an agreement with Access Resource Services, Inc.
("Access"), pursuant to which the Company provides advertising for Access' "900"
entertainment services. The principal advertising mediums supplied are broadcast
television media and direct mail solicitations. In consideration of the
provision of such advertising, the Company receives a flat fee per each minute
billed to each of Access' customers. Access is responsible to pay all the
processing costs related to the transmission of the call and the billing and
collection of the fees generated thereby, including customer chargebacks. The
flat fee amount paid to the Company is to be reviewed monthly, with adjustments
permitted to be made thereto for future billing periods based upon changes in
chargeback rate experiences and/or changes in the costs incurred on previously
processed calls. In accordance with the terms of the agreement with Access,
either party has the right to cancel such agreement upon 30 days' prior written
notice. The agreement with Access does not prohibit the Company from marketing
its own "900" entertainment services, which the Company continues to do in
accordance with its marketing strategy of utilizing its "900" entertainment
services as a cost effective lead-in to the Company's other products and
services. See "-- Discontinuance as Independent Revenue Source."
Psychic Readers Network, Inc. Psychic Readers Network, Inc., and its
subsidiaries and affiliates, including Access (collectively, "PRN"), currently
provide the Company with substantially all of its psychic operators. PRN
monitors and supervises the quality of independent psychic operators provided to
the Company. The Company pays PRN a per-minute fee based on caller connection
time. For the years ended November 30, 1998, 1997 and 1996, the Company paid
aggregate fees of approximately $7,600,000, $24,300,000 and $8,560,000,
respectively, to PRN for such services. The Company believes that PRN is
controlled by Messrs. Steven L. Feder and Peter Stolz. Based upon information
provided to the Company by such individuals, the Company believes that Messrs.
Feder and Stolz, along with a third individual, own an aggregate of 2,539,481
shares of the Common Stock of the Company, or 15.2% of the total shares
outstanding. In addition, Mr. Feder is an employee of the Company and was a
member of the Company's Board of Directors until his resignation therefrom on
January 19, 1999. See "Certain Relationships and Related Transactions."
2
<PAGE> 5
Club 900 Product
The Company offers a theme-related membership club ("Club 900 product"),
whereby subscribers prepay a $39.95 fee for a 90-day membership term, in
addition to a free 30-day trial period. Upon members' enrollments, the Company
provides such members with an assortment of new age theme related entertainment
gifts, obtainable through certificate redemption, and 15 free minutes of live
psychic readings per month during the course of their membership and free 30-day
trial period. PRN is contractually responsible for all costs incurred in
connection with such live psychic readings. In the event a member exceeds his or
her 15 free minutes in any given month, such member is billed at the rate of
$4.99 per minute. PRN and the Company share equally in any net profits derived
therefrom. The Company currently has approximately 26,000 members in the Club
900. The Company commenced the marketing and billing of the Club 900 product in
January 1997. This product accounted for 17% and 6% of the Company's net
revenues for the fiscal years ended November 30, 1998 and 1997, respectively.
RESIDENTIAL LONG DISTANCE CUSTOMER ACQUISITION SERVICES
During the fiscal year ended November 30, 1996, the Company entered into an
agreement with AT&T Communications, Inc. ("AT&T"), whereby it marketed AT&T's
long distance products. The Company commenced significant marketing efforts
under this agreement in the first quarter of fiscal 1997, and continued
marketing for the entire fiscal year ended November 30, 1997. During the third
quarter of fiscal 1997, AT&T modified its contact and customer acquisition
strategies. These modifications severely limited the Company's ability to
successfully market AT&T's long distance products to its customer database. As a
result of the AT&T modifications, the Company significantly reduced its
marketing efforts under this arrangement in the fourth quarter of fiscal 1997.
The Company terminated its strategic corporate partnership with AT&T late in the
first quarter of fiscal 1998.
The Company concluded an agreement with the long distance carrier LCI
International Telecom Corp., d/b/a Qwest Communications Services ("Qwest"), in
the first quarter of fiscal 1998. The Company currently provides marketing
services to Qwest, primarily through outbound telemarketing and broadcast media,
directed at the acquisition of residential long distance customers for Qwest. In
addition to commissions paid to the Company for its successful customer
acquisitions on behalf of Qwest, the agreement also calls for the Company to
participate in Qwest's net revenues earned from such acquired customers'
residential long distance usage.
From the time a customer authorizes the Company to switch its long distance
telephone carrier to Qwest, the Company, Qwest and the local exchange carriers
(the "LECs") conduct extensive screening processes to ensure such authorizations
are clear and unambiguous. This is done to prevent claims of "slamming," the
process whereby a customer's telephone company is switched without that
customer's authorization. As a result of this heavy screening process, revenues
generated from these residential long distance customer acquisition services are
virtually unencumbered by chargebacks.
During the fiscal year ended November 30, 1998, the net revenues generated
as a result of the Company's agreement with Qwest (which commenced in February
1998) and AT&T (which terminated in January 1998) were approximately $18,700,000
and $5,400,000, respectively, aggregating approximately $24 million for the
entire fiscal year ended November 30, 1998, or approximately 26% of the
Company's total net revenues during such period. During the fiscal year ended
November 30, 1997, the net revenues generated by the Company's strategic
corporate partnership with AT&T were approximately $26,300,000, or 14% of the
Company's total net revenues during such period.
ENHANCED TELEPHONE SERVICES
The Company offered during the fiscal year ended November 30, 1998, various
enhanced telephone services ("enhanced services"), including voice mail and
call-forwarding services, which enhanced services, when aggregated, accounted
for approximately 24% of the Company's net revenues during such period. See
"-- Service Bureaus and Local Exchange Carriers."
3
<PAGE> 6
Voice Mail Services. During the fiscal year ended November 30, 1996, the
Company began offering basic voice mail services, billed at $9.95 per month.
Such basic voice mail services include call answering and messaging accessed
through toll free "800" phone numbers. As an inducement to enroll potential
subscribers, the Company offered certain of its new age entertainment services
and products free of charge. During the second quarter of fiscal 1997, the
Company increased the monthly rate for all new subscribers to $14.95. Currently,
the Company bills approximately 130,000 customers for its voice mail services,
with substantially all being billed at $9.95 per month. For the fiscal years
ended November 30, 1998, 1997 and 1996, voice mail services collectively
accounted for approximately 21%, 12% and 17%, respectively, of the Company's net
revenues.
Call Forwarding Services. During the fiscal year ended November 30, 1998,
the Company commenced billing a call-forwarding product under the brand name "EZ
Page." This product allowed a subscriber to pre-program his own personalized
"800" number, so that incoming calls to that "800" number would be redirected in
accordance with such pre-programmed instructions. The subscriber would pay a fee
of $9.95 per month for the EZ Page service and would pay an additional
per-minute fee based upon usage. During the fiscal year ended November 30, 1998,
the Company expended approximately $1 million to enable the Company to bill EZ
Page on such per usage basis throughout most of the country. As a result of a
cessation of billing for certain of the Company's services by the Company's
billing service provider (as discussed below in the "Service Bureaus and Local
Exchange Carriers" section), the Company switched to a new billing service
provider for such services. This new billing service provider did not have the
necessary authorizations from the LECs to bill for such services upon a per
usage basis. Accordingly, the Company converted its EZ Page records to Voice
Mail records (which are billed on a flat rate basis) and all subscribers for EZ
Page are now billed as Voice Mail subscribers. The 130,000 subscribers referred
to in the preceding "Voice Mail Services" section includes those subscribers
formerly enrolled in the EZ Page service.
OTHER PRODUCTS AND SERVICES
The Company offered other various products and services during the fiscal
year ended November 30, 1998, including telephone security equipment, cellular
telephone products and services and financial information services. The Company
was also involved in a co-venture agreement with Paradigm Direct, Inc., whereby
such venture acquired conventional cellular phone customers, primarily through
outbound telemarketing, for the operating regions of both AT&T Wireless Services
of Florida and AT&T Wireless Services of Paramus, New Jersey. All of the
foregoing other products and services, when aggregated, accounted for
approximately 7.0% of the Company's net revenues during the fiscal year ended
November 30, 1998. The Company will not be offering any of the foregoing
products or services in 1999, and as of November 30, 1998, the Company sold its
interest in the Paradigm venture to its co-venturer.
SERVICE BUREAUS AND LOCAL EXCHANGE CARRIERS
The Company has engaged West TeleServices Corporation ("West"), Federal
Transtel, Inc. ("Transtel") and VRS Billing Systems, a division of Integretel,
Inc., to provide billing and collection services in connection with the
Company's telephone entertainment products and services, including the "900"
number services, voice mail services and Club 900 products. These billing
service providers are the conduits between the Company and the LECs. West also
provides accounts receivable financing relating to "900" entertainment services
billed through West. Though the facility is available, the Company is not
currently financing any of its accounts receivable. In addition, West provides
other services, including call processing, inbound and outbound telemarketing
and production of pre-recorded programs.
In November 1998, three of the LECs, Ameritech Corp., Bell Atlantic Corp.
and SEC Communications, Inc., refused to bill customers for enhanced services
provided by the Company. This was a result of what the LECs claim was excessive
complaints by customers for "cramming" (unauthorized charges billed to a
customer's phone bill) against the Company and its affiliates. This billing
cessation effectively prevents the Company from selling its enhanced services in
those areas serviced by such LECs. The remaining LECs have not altered their
billing practices for the Company's services and the Company continues to offer
its enhanced services in those areas.
4
<PAGE> 7
As a result of such LEC imposed billing cessation, in November 1998, the
primary billing service provider for the Company's enhanced services, Billing
Information Concepts Corporation ("BIC"), terminated its arrangement with the
Company for providing billing for the Company's enhanced services. BIC continues
to service all data relating to post-billing adjustments to records billed prior
to BIC's self-imposed billing cessation. In December 1998, the Company entered
into an agreement with Transtel, whereby Transtel provides the billing services
previously provided by BIC. In effect, between the termination of the BIC
billing service arrangement and the commencement of billing under the agreement
with Transtel (approximately two months), the Company was unable to bill for any
enhanced services provided.
The Company is dependent on its service bureaus to provide quality services
on a timely basis on favorable terms. While the Company believes its service
bureau needs could be transferred to alternate providers, if necessary, no
contracts to cover such a contingency are currently in effect. Accordingly,
failure by any existing bureaus to provide services, such as that experienced at
the end of the fourth quarter of fiscal 1998, would result in material
interruptions in the Company's operations. See "Forward Looking Information May
Prove to Be Inaccurate."
NEW LAUDERDALE
In March 1995, the Company and PRN formed New Lauderdale, L.C. ("New
Lauderdale"), a Florida limited liability company, the successor to a joint
venture established in December 1994, for the purpose of creating, developing
and marketing theme-related membership clubs and related telephone entertainment
services.
Pursuant to the terms of an acquisition agreement entered into between the
Company and PRN (the "Acquisition Agreement"), on September 10, 1996, the
Company acquired PRN's interest in New Lauderdale (the "Acquisition"). A portion
of the consideration paid by the Company therefor was 3,200,000 shares (the "PRN
Shares") of the Company's Common Stock. The PRN Shares delivered at the closing
of the Acquisition were issued to the shareholders of PRN, Steven L. Feder,
Thomas H. Lindsey and Peter Stolz (the "PRN Principals"). Based upon information
provided to the Company by such individuals, the Company believes that as of
March 5, 1999, such individuals own, in the aggregate, 2,539,481 shares, or
15.2% of the outstanding Common Stock of the Company. A registration statement
including the PRN Shares was declared effective by the Securities and Exchange
Commission (the "Commission") on December 19, 1996. The following is a summary
of the relevant and material items related to the Acquisition:
Impairment of Goodwill. During 1998, the Company experienced
decreasing margins on its "900" entertainment services, attributable to
significant increases in marketing expenditures related thereto and
customer chargebacks. As a result, these services were not providing
positive operating results and cash flow. Consequently, during the quarter
ended August 31, 1998, the Company discontinued marketing such services as
an independent revenue source and began using them in conjunction with
marketing the Company's other products and services, including its
residential distributor program agreement with Qwest. See "-- Residential
Long Distance Customer Acquisition Services." Accordingly, as required by
Statement of Financial Standards No. 121 ("FAS 121"), the Company reviewed
long-lived assets, including goodwill, for impairment. The Company
evaluated the recoverability of its long-lived assets by measuring the
carrying amount of the assets against projected undiscounted future cash
flows associated with them. The Company determined that the "900"
entertainment services could not be disposed of and there was no
predictable estimate of any future cash flows associated with any
alternative uses. Accordingly, the Company concluded that the intangibles,
primarily goodwill, associated with the Company's 1996 acquisition of the
remaining 50% interest in New Lauderdale (the "Acquisition"), were
impaired. As such, a non-cash charge of approximately $18.5 million,
representing the remaining balance of the intangibles, primarily goodwill
associated with the Acquisition, was recorded at May 31, 1998.
Restriction on Resale of Shares. Pursuant to the Acquisition
Agreement, for as long as the PRN Principals as a group own 5% or more of
Quintel's outstanding shares of Common Stock, as promulgated under Rule
144(e) of the Securities Act of 1933, as amended (the "Securities Act"),
the PRN Principals will not sell during any three-month period that number
of shares which, in the aggregate,
5
<PAGE> 8
exceeds the greater of (a) 1% of the then outstanding shares of Common
Stock of the Company, or (b) the average weekly trading volume of the
Common Stock as listed on Nasdaq during the four calendar weeks preceding
the sale of such shares of Common Stock, notwithstanding the fact that the
shares owned by the PRN Principals have been registered for resale under
the Securities Act or that each of the PRN Principals may not be an
"affiliate" as defined under such Rule 144(e).
Related Agreements
The following are summaries of certain of the agreements which were
executed in connection with the Acquisition:
Non-Competition and Right of First Refusal Agreement. The Company, PRN and
the PRN Principals entered into a Non-Competition and Right of First Refusal
Agreement, whereby PRN, which is a direct competitor of the Company, and each of
the PRN Principals, agreed, for a period of five years from the closing of the
Acquisition, (i) not to engage in any activities competitive with the Company,
except for such business already conducted by PRN as of the consummation of the
Acquisition, and (ii) provide the Company with a right of first refusal with
respect to any future business developed by them. In June 1998, the Company
granted PRN the limited right to market its own club, in consideration for which
PRN provides the Company with all data relating to the billing for such club and
pays the Company a flat fee for each record billed for such club.
Employment Agreement. Upon the effective date of the Acquisition, the
Company entered into an employment agreement with Mr. Feder. Pursuant to the
terms of such employment agreement, Mr. Feder agreed to serve as the General
Manager of the business operated by New Lauderdale until April 30, 2001. Mr.
Feder agreed to devote at least 50% of his time to this employment and be
responsible for performing those services provided by him to New Lauderdale
prior to the consummation of the Acquisition. The Company obtained the rights to
any venture, new business idea, product, technology, or item of intellectual
property developed by Mr. Feder in the course of his employment with the
Company, as well as a right of first refusal with respect to any new business
venture developed by Mr. Feder with any third parties. See "Certain
Relationships and Related Transactions."
Service Agreement. The Company and PRN are parties to an agreement
pursuant to which PRN provides the Company with live psychic operator services
in connection with the operation of the Company's telephone entertainment
programs (the "Service Agreement"). In connection with the Acquisition, the
Service Agreement was amended to provide for an extension of its term for five
(5) years following the date of the closing of the Acquisition and to establish
a set fee schedule during the extended five (5) year term. In addition, the PRN
Principals agreed that Mr. Feder will continue to maintain control of PRN and
manage its operations, including the operation of the live psychic operator
network used by the Company in connection with its telephone entertainment
programs, and in order to secure the obligations of PRN, Feder and the other PRN
Principals under the Service Agreement, PRN granted the Company a security
interest in PRN's computer system hardware and software operating PRN's caller
distribution and psychic operators' scheduling and all agreements, arrangements
or understandings between PRN and its live psychic operators.
Other Issues Related to the Acquisition. Certain media, creative, computer
and production operations and personnel, formerly provided by PRN and/or New
Lauderdale, for the benefit of PRN, New Lauderdale and the Company, were
transferred to the Company and are now performed exclusively by the Company for
the benefit of such parties. During the fiscal year ended November 30, 1998, PRN
paid approximately $685,000 to the Company for media services. In addition to
payments for psychic operators as described above, PRN provides certain
non-psychic services and facilities to the Company presently billed at an
approximate rate of $14,000 per month.
STRATEGY
The Company intends to actively pursue a strategy of (i) reducing its
overhead; (ii) continuing to operate those lines of its business which the
Company believes can be profitably maintained subsequent to such reduction of
overhead; (iii) seeking alternative methods of direct telemarketing to replace
the Company's
6
<PAGE> 9
reduced marketing of its "900" entertainment services; and (iv) expanding the
servicing of existing corporate clientele and developing relationships with new
strategic partners. No assurance can be given that the Company will be able to
implement such strategy. The failure to do so may have a material adverse impact
on the operations of the Company. See "Forward Looking Information May Prove
Inaccurate".
TELEMARKETING
The Company currently retains West to perform inbound telemarketing
activities. West provides telephone operators and voice response units on an
ongoing basis to respond to incoming telephone calls from recipients of mail
promotions or viewers of the Company's media advertising who respond to the
advertised product or services. The Company believes that an integral part of
inbound telemarketing is the opportunity to increase revenues by offering or
introducing additional products and services.
The Company currently engages Millennium Teleservices and others to perform
the majority of the Company's outbound telemarketing activities which the
Company utilizes to fulfill marketing services for Qwest. These agencies provide
telephone operators on an ongoing basis to place calls to prospective customers
using consumer information and data obtained from the Company's inbound
telemarketing activities, mailing lists, data base and customer lists obtained
from its marketing activities.
DIRECT MAIL
The Company engages in direct mail campaigns designed to promote its
entertainment services and residential long distance acquisition services. These
direct mail pieces consist of notifications, promotions, periodicals and
subscription kits.
COMPETITION
The Company faces intense competition in the marketing of its products and
services. The Company competes primarily on the basis of media placements on
television and through direct mail solicitations. Many of the Company's
competitors are well established, have reputations for success in the
development and marketing of services and have significant financial, marketing,
distribution, personnel and other resources. These financial and other
capabilities permit such companies to implement extensive advertising and
promotional campaigns, both generally and in response to efforts by additional
competitors to enter into new markets and introduce new services.
In addition, because these industries have no substantial barriers to
entry, competition from smaller competitors in the Company's target markets and
from direct response marketing companies not currently offering services similar
to the Company's services are expected to continue to increase significantly.
The Company expects that direct marketing companies that have developed or are
developing new marketing strategies, as well as other companies that have the
expertise to allow the development of direct marketing capabilities, may attempt
to provide the products or services similar to those provided by the Company. It
is also possible for a small company to introduce a service or program with
limited financial and other resources through the use of third-party agencies.
The Company's long-distance customer acquisition programs compete with all
other long-distance telephone companies and the telemarketers therefor. The
Company's new age products and services used in conjunction with the Company's
other products and services also compete with numerous other services and
products which provide similar entertainment value, such as in-person psychic
consultation and tarot card readings, newspapers, magazines, books and audio and
video cassettes featuring "new age" themes, internet access and various other
forms of entertainment which may be less expensive or provide other advantages
to consumers.
INSURANCE
The Company may be subject to substantial liability as a result of claims
made by consumers arising out of services provided by the Company's servicing
contractors and their employees. The Company maintains a general liability
insurance policy that is subject to a per occurrence limit of $1,000,000, with a
$2,000,000 aggregate limit and an umbrella policy covering an additional
$10,000,000 of liability. In addition, the
7
<PAGE> 10
Company has errors and omissions insurance with a limit of $5,000,000. The
Company also maintains Directors and Officers liability insurance policies
providing aggregate coverage of $10,000,000 for legal costs and claims. Such
insurance may not be sufficient to cover all potential future claims and
additional insurance may not be available in the future at reasonable costs. The
Company seeks to limit any potential liability by (i) providing disclaimers in
connection with its telephone entertainment services by identifying its "900"
services and the services provided pursuant to its voice mail services and Club
900 product as "entertainment;" and (ii) continue the extensive screening
process used by the Company, Qwest and the LECs before switching a customer's
long distance provider.
GOVERNMENT REGULATION
All of the Company's entertainment services and advertisements are reviewed
by the Company's regulatory counsel, and management believes that the Company is
in substantial compliance with all material federal and state laws and
regulations governing its provision of "800" and "900" number entertainment
services, all of its billing and collection practices and the advertising of its
services and has obtained or is in the process of obtaining all licenses and
permits necessary to engage in telemarketing activities. Nevertheless, on or
about September 30, 1998, the Company was notified by the Federal Trade
Commission ("FTC") that the FTC was conducting an inquiry into the past and
present marketing practices of the Company to determine if the Company was
engaging in unfair or deceptive practices. In connection with such inquiry, the
Company was requested to submit certain materials and information to the FTC
relating to the operations of the Company from January 1, 1994 to the present.
The Company is cooperating fully with the FTC in connection with its inquiry. To
date, the Company has not been subject to any enforcement actions by any
regulatory authority and Management believes that the FTC inquiry will not
result in any enforcement actions or claims which would have a material adverse
effect on the Company. However, in the event the Company is found to have failed
to comply with applicable laws and regulations, the Company could be subject to
civil remedies, including substantial fines, penalties and injunctions, as well
as possible criminal sanctions, which would have a material adverse effect on
the Company. See "Forward Looking Information May Prove Inaccurate."
At the request of the Federal Communications Commission, a group of the
largest Local Exchange Carriers (the "LECs") have developed a set of voluntary
Best Practices Guidelines (the "Guidelines") with regard to the problem of
"cramming" -- unauthorized, deceptive or ambiguous charges included on end-user
customers' monthly local telephone bills. The cramming problem has increasingly
been receiving a great deal of attention from federal and state legislators,
regulatory agencies, and law enforcement agencies throughout the country.
Legislation is pending to combat the cramming problem. The Guidelines and
legislation, if enacted, require that service providers obtain detailed and
documented authorization from end users prior to billing for miscellaneous
products or services. Advertising for products and services to be billed through
a certain type of billing mechanism known as the "4250 billing mechanism" will
need to be pre-approved by the LECs and clearinghouses prior to their billing.
Moreover, each LEC is in the process of revising its individual billing and
collection agreements to implement the Guidelines and further restrict the types
of services for which it will provide billing services. Consequently, the LECs
will have broad discretionary powers to restrict services for which the Company
may bill through the customer's telephone bill and assess administrative charges
to service providers when a charge for a product or service not pre-approved by
the LEC and/or authorized by the end user, is placed on the customer's bill. As
the Company employs the 4250 billing mechanism to bill for products and
services, the Guidelines (and possible legislation) and LEC restrictions will
impact on, and need to be taken into account in, formulating the Company's
business practices.
EMPLOYEES
The Company currently employs 71 full-time employees, including four
executive officers, all of whom are located at the Company's principal executive
offices in Pearl River, New York and Fort Lauderdale, Florida. The Company
believes that its relations with its employees are satisfactory. None of the
Company's employees are represented by a union.
8
<PAGE> 11
THE YEAR 2000 PROBLEM
At the time computer programs were first being written, two digits were
used instead of four to define years on such programs. For example, the year
"1998" was written within such computer programs as "98." As a result, at the
onset of the new millennium, any programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. This potential
difficulty is commonly referred to as the "Y2K Problem."
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Y2K Problem. The Company
presently believes that all of its internal computer programs, software
packages, systems and networks are Y2K compliant. Within the past 12 months, the
Company has replaced all personal computers that were not Y2K compliant and
rewritten its entire billing system to become compliant. The Company also
recently acquired a new main database server that is compliant and that runs on
a commercially available software package that is compliant.
Notwithstanding the foregoing, the Company is reliant on third parties for
the operation of the Company's day-to-day business. The Company cannot provide
any assurances that the steps being taken by such third parties, if any, will be
sufficient to eliminate the Y2K Problem from the computer systems used by such
third parties and relied upon by the Company. The Company has corresponded with
all its vendors, informing them that the Company will only conduct business with
those entities that are "Y2K" compliant. In addition, the Company only accepts
inbound files from outside sources that define years with four digit codes,
ensuring compliance. Lastly, the Company's customer service department operates
via the Company's computer network, which is compliant. However, in the event
modifications and conversions to computer systems are required by such third
parties and are not completed on a timely basis, the Y2K Problem may have a
material impact on the operations of the Company.
TRANSACTIONS WITH MAJOR CUSTOMERS
The Company's "Residential Distributor Program Agreement" with Qwest
accounted for approximately 20% of the Company's net revenues in fiscal 1998. It
is anticipated that in fiscal 1999 the Qwest arrangement will account for a much
greater percentage of the Company's revenues in such year. If this proves to be
accurate, the Company would be subject to significant economic dependence on the
Qwest relationship. If the Qwest relationship were to be terminated, and the
Company was not able to replace such relationship within an acceptable period of
time, the Company would suffer a materially significant adverse impact on its
operations and its liquidity and capital resources. See "Forward Looking
Information May Prove Inaccurate."
POTENTIAL LEC ACTIVITY
The Company's enhanced services accounted for approximately 24%, 12% and
17% of the Company's net revenues in fiscal 1998, 1997 and 1996, respectively.
At the request of the Federal Communications Commission, a group of the largest
LECs have developed a set of voluntary Best Practices Guidelines (the
"Guidelines") with regard to the problem of "cramming" -- unauthorized,
deceptive or ambiguous charges included on end-user customers' monthly local
telephone bills -- for services which include the Company's enhanced services.
The cramming problem has increasingly been receiving a great deal of attention
from federal and state legislators, regulatory agencies, and law enforcement
agencies throughout the country. Legislation is pending to combat the cramming
problem. The Guidelines and legislation, if enacted, require that service
providers obtain detailed and documented authorization from end users prior to
billing for miscellaneous products or services. Advertising for products and
services to be billed through a certain type of billing mechanism known as the
"4250 billing mechanism" will need to be pre-approved by the LECs and
clearinghouses prior to their billing. Moreover, each LEC is in the process of
revising its individual billing and collection agreements to implement the
Guidelines and further restrict the types of services for which it will provide
billing services. Consequently, the LECs will have broad discretionary powers to
restrict services for which the Company may bill through the customer's
telephone bill and assess administrative charges to service providers when a
charge for a product or service not pre-approved by the LEC, and/or authorized
by the end user, is placed on the customer's bill. As the Company employs the
4250 billing mechanism to bill for
9
<PAGE> 12
products and services, particularly its enhanced services, the Guidelines (and
possible legislation) and LEC restrictions will impact on, and need to be taken
into account in, formulating the Company's business practices.
ITEM 2. PROPERTIES
The Company leases approximately 15,000 square feet of space at One Blue
Hill Plaza, Pearl River, New York, all of which is currently used for the
Company's principal executive offices. The lease for such premises expires on
July 31, 2006. The current monthly base rent is $21,875 per month which amount
will be increased to $26,875 per month commencing on August 1, 2001, for the
remainder of the term of the lease.
The Company's wholly owned subsidiary, Calling Card Co., Inc., leases
approximately 11,800 square feet of space at 2455 East Sunrise Boulevard, Fort
Lauderdale, Florida, all of which is used for general office space. The lease
for such space expires on June 30, 2004. The current monthly rent is $15,921.28,
with such rent increasing by approximately three (3%) percent per year for the
remainder of the term of the lease.
ITEM 3. LEGAL PROCEEDINGS
On or about May 4, 1998, a complaint entitled "Joseph Chalverus, on behalf
of himself and all others similarly situated v. Quintel Entertainment, Inc.,
Jeffrey L. Schwartz and Daniel Harvey" was filed in the United States District
Court for the Southern District of New York; subsequently, a complaint entitled
"Richard M. Woodward, on behalf of himself and all others similarly situated v.
Quintel Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed in
that same court, as was a complaint entitled "Dr. Michael Title, on behalf of
himself and all others similarly situated v. Jeffrey L. Schwartz, Jay Greenwald,
Claudia Newman Hirsch, Andrew Stollman, Mark Gutterman, Steven L. Feder, Michael
G. Miller, Daniel Harvey and Quintel Entertainment, Inc." (collectively, the
"Complaints"). In addition to the Company, the defendants named in the
Complaints are present and former officers and directors of the Company (the
"Individual Defendants"). The plaintiffs seek to bring the actions on behalf of
a purported class of all persons or entities who purchased shares of the
Company's Common Stock from July 15, 1997 through October 15, 1997 and who were
damaged thereby, with certain exclusions. The Complaints allege violations of
Sections 10(b) and 20 of the Securities Exchange Act of 1934, and allege that
the defendants made misrepresentations and omissions concerning the Company's
financial results, operations and future prospects, in particular relating to
the Company's reserves for customer chargebacks and its business relationship
with AT&T. The Complaints allege that the alleged misrepresentations and
omissions caused the Company's Common Stock to trade at inflated prices, thereby
damaging plaintiffs and the members of the purported class. The amount of
damages sought by plaintiffs and the purported class has not been specified.
On September 18, 1998, the District Court ordered that the three actions be
consolidated, appointed a group of lead plaintiffs in the consolidated actions,
approved the lead plaintiffs' selection of counsel for the purported class in
the consolidated actions, and directed the lead plaintiffs to file a
consolidated complaint. The consolidated and amended class action complaint
("Consolidated Complaint") which has been filed asserts the same legal claims
based on essentially the same factual allegations as did the Complaints. On
February 19, 1999, the Company and the Individual Defendants filed a motion to
dismiss the Consolidated Complaint. Plaintiffs have served papers in opposition
to the motion to dismiss. The District Court has not yet ruled on the motion to
dismiss. The Company believes that the allegations in the Complaints are without
merit, and intends to vigorously defend the consolidated actions. No assurance
can be given, however, that the outcome of the consolidated actions will not
have a materially adverse impact upon the results of operations and financial
condition of the Company. See "Forward Looking Information May Prove
Inaccurate."
10
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information. Since December 1995, the Company's Common Stock has
traded on the Nasdaq National Market System under the symbol "QTEL". The
following table sets forth the high and low sales prices of the Common Stock as
reported by NASDAQ for each full quarterly period since such date.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Fiscal Year Ended November 30, 1998
First Quarter......................................... $ 7.00 $ 3.8125
Second Quarter........................................ 6.50 5.25
Third Quarter......................................... 5.6875 1.50
Fourth Quarter........................................ 3.25 1.5625
Fiscal Year Ended November 30, 1997
First Quarter......................................... $13.00 $ 6.75
Second Quarter........................................ 12.625 8.6875
Third Quarter......................................... 17.00 9.50
Fourth Quarter........................................ 14.8125 5.50
Fiscal Year Ended November 30, 1996
First Quarter......................................... $11.50 $ 4.375
Second Quarter........................................ 13.375 8.125
Third Quarter......................................... 12.625 5.75
Fourth Quarter........................................ 10.125 5.875
</TABLE>
Security Holders. To the best knowledge of the Company, at March 5, 1999,
there were 40 record holders of the Company's Common Stock. The Company believes
there are numerous beneficial owners of the Company's Common Stock whose shares
are held in "street name."
Dividends. Except for S corporation distributions made to the Company's
stockholders prior to December 5, 1995 (the effective date of the initial public
offering of the Company's Common Stock), the Company has not paid, and has no
current plans to pay, dividends on its Common Stock. The Company currently
intends to retain all earnings for use in its business.
Option Exchange. In September 1998, the Stock Option Committee of the
Board of Directors resolved that each officer and employee of the Company who
had been granted options under the Company's Amended and Restated 1996 Stock
Option Plan (the "Plan") be offered, in recognition of their past and present
services performed on behalf of the Company and as an incentive for their
continued services in the future, the opportunity to surrender to the Company
any options previously granted them under the Plan in exchange for new options
(the "Option Exchange"), in accordance with the following formula:
The number of shares of the Company's Common Stock underlying the new
option will equal the quotient of (a) the product of (i) the number of
shares underlying the option surrendered for exchange and (ii) the
closing price of the Common Stock on the NASDAQ National Market System
on the date such option is surrendered for exchange, divided by (b) the
exercise price of the surrendered option.
Simultaneously therewith, an identical resolution was passed by the Board
of Directors (with any interested directors abstaining from voting thereon)
offering the directors who were not employees of the Company the opportunity to
participate in the Option Exchange.
The Company received notification on September 14, 1998 from the holders of
options to purchase 818,079 shares of Common Stock that such holders were
participating in the Option Exchange. The holders of the remaining options to
purchase 172,500 shares of Common Stock eligible to participate in the Option
Exchange did not elect to participate. The closing price of the Company's Common
Stock on September 14,
11
<PAGE> 14
1998 was $1.75 per share. The number of shares underlying the options issued in
exchange for those surrendered for exchange was 230,140 shares.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Company for each of the five fiscal years ending November 30, 1998. The year
ended November 30, 1996 includes the results of operations of New Lauderdale,
L.C. from its acquisition date of September 10, 1996. The financial data set
forth should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
of the Company.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................. $ 94,690,251 $191,374,936 $86,666,768 $50,501,266 $22,771,465
Costs of sales.............................. 80,037,115 149,821,363 64,661,256 36,732,610 17,521,985
Gross profit................................ 14,653,136 41,553,573 22,005,512 13,768,656 5,249,480
Selling, general and administrative
expenses.................................. 14,356,892 18,880,769 10,159,226 3,467,008 3,012,588
Special Charges............................. 19,692,543
------------ ------------ ----------- ----------- -----------
(Loss) income from operations............... (19,396,299) 22,672,804 11,846,286 10,301,648 2,236,892
Interest expense............................ (186,218) (80,763) (473,289) (334,318) (759,211)
Other income, primarily interest............ 2,212,435 1,841,356 760,413 485,250
Equity in earnings of joint venture......... 4,939,653 2,860,304
------------ ------------ ----------- ----------- -----------
(Loss) income before provision for income
tax....................................... (17,370,082) 24,433,397 17,073,063 13,312,884 1,477,681
Provision (benefit) for income taxes........ (417,464) 10,069,616 4,898,633 220,335 54,842
------------ ------------ ----------- ----------- -----------
Net (loss) income........................... $(16,952,618) $ 14,363,781 $12,174,430 $13,092,549 $ 1,422,839
============ ============ =========== =========== ===========
Income before pro forma tax provision....... $13,312,884 $ 1,477,681
Pro forma income tax provision.............. 5,633,116 835,144
----------- -----------
Pro forma net income........................ $ 7,679,768 $ 642,537
=========== ===========
Basic net (loss) income per share........... $ (1.00) $ .77 $ .76
============ ============ ===========
Diluted net (loss) income per share......... (1.00) .76 .76
============ ============ ===========
Pro forma net income per share.............. $ .64 $ .05
=========== ===========
Common shares outstanding
Basic..................................... 17,034,531 18,560,064 16,145,445 12,000,000 12,000,000
Diluted................................... 17,034,531 18,878,790 16,124,743 12,000,000 12,000,000
BALANCE SHEET DATA:
Working capital............................. $ 35,538,243 $ 43,674,688 $25,423,442 $ 3,217,627 $ 494,738
Total assets................................ 64,413,144 115,998,775 79,029,547 16,969,956 3,976,881
Total liabilities........................... 27,731,000 52,292,478 31,294,614 10,938,881 3,432,355
Stockholders' equity........................ 36,682,144 63,706,297 47,734,933 6,031,075 544,526
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Quintel Communications, Inc. (the "Company") is engaged in the direct
marketing and providing of various telecommunications products and services.
Additionally, the Company utilizes its extensive database to further provide
direct marketing services for its residential long distance customer acquisition
programs. The Company's revenues from the foregoing are generated through the
direct sale of products and services to consumers and through revenue sharing
arrangements with its residential long distance customer acquisition clients.
The telecommunications products and services offered by the Company in the
fiscal year ended November 30, 1998 consisted primarily of (i) telephone
entertainment services, such as live conversation
12
<PAGE> 15
horoscopes and psychic consultations, and memberships in theme-related club 900
products ("Club 900 Products"); (ii) a residential distributor program agreement
with LCI International Telecom Corp., d/b/a Qwest Communications Services, a
long distance telephone service provider ("Qwest"), whereby the Company marketed
Qwest's residential long distance products; and (iii) various enhanced telephone
services, including enhanced voice mail and call-forwarding services.
The Company anticipates that the percentage of the Company's revenues
generated from telephone entertainment services will comprise a smaller portion
of the Company's entire revenues from operations in future fiscal years, based
upon management's plans for the repositioning of the Company. Management intends
to primarily focus on direct marketing efforts on behalf of its clients,
utilizing its extensive database for customer procurement and by participating
in the revenue generated therefrom. To that end, the Company (i) entered into
the agreement with Qwest for the marketing of Qwest's long distance products,
and (ii) ceased marketing its "900" entertainment services as an independent
revenue source, now using such services in conjunction with the marketing of its
other products and services.
The Company's telephone entertainment services, enhanced services and Club
900 Products, are billed and collected through the use of service bureaus, which
act as conduits for the Local and Long Distance Exchange Carriers. The balance
of the Company's activities, principally residential long distance customer
acquisition services, are billed and collected directly from the parties to the
agreements and do not require service bureau intervention. Historically, the
services offered by the Company have evolved based on changing consumer tastes
as well as the impact of telephone company billing practices and governmental
regulations.
Revenues for the Company's telephone entertainment services are recognized
at the time a customer initiates a billable transaction, except for customer
fees for Club 900 Products and voice-mail services. New customer Club 900
Products and voice-mail service fees are recognized when the service is
rendered. Recurring monthly voice-mail service fees are recognized as customers
renew their subscription each month. All revenues are recognized net of an
estimated provision for customer chargebacks, which include refunds and credits.
The Company continually revises its reserves for chargebacks on a monthly basis,
in accordance with actual chargeback experience. Chargebacks for new products
and services without a performance history, are reserved for based on chargeback
experience gained from similar products and services. These initial estimates
for new product and service chargebacks are revised according to the products'
and services' actual chargeback experience accumulated in the accounting periods
subsequent to the product's or service's initial billing period. Since reserves
are established prior to the periods in which the chargebacks are actually
incurred, the Company's net revenues may be adjusted in later periods in the
event that the Company's experienced chargebacks vary from the amounts
previously reserved. See "-- Recent Developments."
Revenues earned under the long distance customer acquisition program are
recorded upon the achievement of events particular to the program offering.
Subsequent to the delivery of the initial sales record to the respective long
distance carrier, specifically Qwest, the Company may be required to provide to
the customer certain fulfillment products and services, such as prepaid cellular
phones and complimentary airline tickets. All material costs applicable to the
provision of such fulfillment products and services are estimated and accrued in
marketing expenses at the time the associated revenues are recorded. This
estimation is adjusted to actual amounts in subsequent periods.
During the year ended November 30, 1998, the Company commenced marketing
residential long distance products under its residential distribution program
agreement with Qwest. Additionally, the Company terminated the strategic
corporate partnership with AT&T in January 1998. Prior to such termination, the
Company marketed AT&T's residential long distance products.
The Company offered other various products and services during the fiscal
year ended November 30, 1998, including telephone security equipment, cellular
telephone products and services and financial information services. The Company
was also involved in a co-venture agreement with Paradigm Direct, Inc., whereby
such venture acquired conventional cellular phone customers, primarily through
outbound telemarketing, for the operating regions of both AT&T Wireless Services
of Florida and AT&T Wireless Services of Paramus, New Jersey. All of the
foregoing other products and services, when aggregated, accounted for
approximately 7% of the Company's net revenues during the fiscal year ended
November 30,
13
<PAGE> 16
1998. The Company will not be offering any of the foregoing products or services
in 1999, and as of November 30, 1998, the Company sold its interest in the
Paradigm venture to its co-venturer.
RECENT DEVELOPMENTS
During 1998, the Company experienced decreasing margins on its "900"
entertainment services, attributable to significant increases in marketing
expenditures related thereto and customer chargebacks. As a result, these
services were not providing positive operating results and cash flow.
Consequently, during the quarter ended August 31, 1998, the Company discontinued
marketing such services as an independent revenue source and began using them in
conjunction with marketing the Company's other products and services, including
the residential long distance customer acquisition services agreement with
Qwest. Accordingly, as required by Statement of Financial Standards No. 121
("FAS 121"), the Company reviewed long-lived assets, including goodwill, for
impairment. The Company evaluated the recoverability of its long-lived assets by
measuring the carrying amount of the assets against projected undiscounted
future cash flows associated with them. The Company determined that the "900"
entertainment services could not be disposed of and there was no predictable
estimate of any future cash flows associated with any alternative uses.
Accordingly, the Company concluded that the intangibles, primarily goodwill,
associated with the Company's 1996 acquisition of the remaining 50% of New
Lauderdale, L.C. were impaired. As such, a non-cash charge of approximately
$18.5 million, representing the remaining balance of the intangibles associated
with such acquisition, was recorded at May 31, 1998.
The Company's "Residential Distributor Program Agreement" with Qwest
accounted for approximately 20% of the Company's net revenues in fiscal 1998. It
is anticipated that in fiscal 1999 the Qwest arrangement will account for a much
greater percentage of the Company's revenues in such year. If this proves to be
accurate, the Company would be subject to significant economic dependence on the
Qwest relationship. If the Qwest relationship were to be terminated, and the
Company was not able to replace such relationship within an acceptable period of
time, the Company would suffer a materially significant adverse impact on its
operations and its liquidity and capital resources. See "Forward Looking
Information May Prove Inaccurate."
RESULTS OF OPERATIONS
The Company's net revenues for its telecommunications products and services
for the three years ended November 30, 1998 consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Net Revenues:
"900" Entertainment Services............. $24,505,994 $128,925,620 $71,159,083
Club 900 Products........................ 16,418,901 11,305,734
Enhanced Services........................ 23,077,470 21,694,753 14,629,410
Long Distance Acquisitions............... 24,104,551 26,489,559 164,010
Other.................................... 6,583,355 2,959,270 714,265
----------- ------------ -----------
$94,690,251 $191,374,936 $86,666,768
=========== ============ ===========
</TABLE>
14
<PAGE> 17
The following table sets forth for the periods indicated the percentage of
net revenues represented by certain items reflected in the Company's statement
of income.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net Revenue................................................. 100.0% 100.0% 100.0%
----- ----- -----
Cost of Sales............................................... 84.5 78.3 74.6
Gross Profits............................................... 15.5 21.7 25.4
Selling, general and administrative expenses................ 15.2 9.9 11.7
Special charges............................................. 20.8 0 0
Interest Expense.......................................... 0.2 0.0 0.5
Other Income, principally interest........................ 2.3 1.0 0.9
Equity in earnings of joint revenue....................... 0.0 0.0 5.7
Net (loss) Income........................................... (17.9) 7.5 14.0
</TABLE>
The following is a discussion of the financial condition and results of
operations of the Company for the years ended November 30, 1998, 1997 and 1996.
It should be read in conjunction with the consolidated financial statements of
the Company, the notes thereto and other financial information included
elsewhere in this report.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Net Revenue for the year ended November 30, 1998 was $94,690,251, a
decrease of $96,684,685, or 51%, as compared to $191,374,936, for the year ended
November 30, 1997. The decrease was attributable to decreases in net revenues
from the Company's "900" entertainment services of $104,419,626, or 81%, and
decreases in net revenues of $21,052,460, or 80%, resulting from the
discontinuance of the AT&T strategic corporate relationship. See "-- Recent
Developments" and "-- Residential Long Distance Customer Acquisition Services."
Such net revenue decreases were partially offset by increases in net revenues
from the Company's residential long distance customer acquisition services under
the Qwest agreement of $18,667,452. See "-- Residential Long Distance Customer
Acquisition Services." Additionally, decreases were offset by increases in net
revenues from the Company's Club 900 Products of $5,113,167, or 45%, and
increases in net revenues from the Company's enhanced voice mail networks and
other enhanced services ("enhanced services") of $1,382,717, or 6%. See
"Business -- Telephone Entertainment Services". Further offsetting increases
were realized from the Company's net revenues from cellular phone related
activities, both on a conventional and prepaid basis, of $3,624,065, or 122%.
These activities commenced, at significant levels, during the fourth quarter of
fiscal 1997 and such activities were discontinued during the fiscal year ended
November 30, 1998. For the year ended November 30, 1998, "900" entertainment
services, enhanced services, residential long distance customer acquisition
services (as provided to Qwest), Club 900 Product memberships, the AT&T
strategic corporate partnership and cellular phone activities and other products
approximated 26%, 24%, 20%, 17%, 6% and 7% of net revenues, respectively. For
the year ended November 30, 1997, "900" entertainment services, enhanced
services, Club 900 Product memberships, the AT&T strategic corporate partnership
and cellular phone activities and other products approximated 67%, 12%, 6%, 14%
and 1% of net revenues, respectively.
The provisions for chargebacks, recorded as a direct reduction to revenues,
for the year ended November 30, 1998 were $56,496,612, a decrease of
$47,101,191, or 45%, as compared to $103,597,803 for the year ended November 30,
1997. The decrease is primarily attributable to a decrease in chargebacks from
the Company's "900" entertainment services of $53,463,756, or 67%, when compared
to the prior year. This decrease in chargebacks resulted from the Company's
efforts to reduce marketing the Company's "900" entertainment services. See
"-- Recent Developments." Additionally, during the year ended November 30, 1998,
the Company's Club 900 Product chargebacks decreased by $4,008,277, or 29%, when
compared to the prior comparable year. This decrease was the result of improved
chargeback rate experiences realized on the Club 900 Product during the year
ended November 30, 1998. The Company does not believe such improved chargeback
rate experiences will continue in the future. See "Forward Looking Information
May Prove Inaccurate".
The Company's enhanced services' actual chargeback rate experience
increased during the year ended November 30, 1998 (45% of related gross sales)
when compared to the year ended November 30, 1997 (32%
15
<PAGE> 18
of related gross sales). This increase in enhanced service chargebacks is
attributable to significant increases in customer service refunds and credits
(chargebacks) being issued by the Local Exchange Carriers, primarily in the
nine-month period from March 1, 1998 to November 30, 1998, as compared to the
prior year's comparable period. The Company believes that the increase in such
refunds and credits resulted from changes in Local Exchange Carriers' customer
refund policies. The Local Exchange Carriers made such changes in response to
concerns expressed by governmental regulatory authorities regarding the
necessity to make it easier for customers to have charges which they claim were
unauthorized removed from their telephone bills. See "-- Government Regulation"
and "Business -- Service Bureaus and Local Exchange Carriers." The Company
believes that the customer service policy changes implemented by the Local
Exchange Carriers also contributed to the increased chargebacks recognized on
the Company's "900" entertainment services during the fiscal year ended November
30, 1998.
The impact of certain items on the operations of the Company, namely, cost
of revenues, chargebacks and marketing expenses, can be better understood in
relation to gross revenues, as opposed to net revenues. Accordingly, such
information is provided in the paragraphs that follow.
During the year ended November 30, 1998, gross revenues from "900"
entertainment services were $50,270,718, with corresponding chargeback
allowances of $25,764,724, resulting in an approximate chargeback rate of 51%.
During the year ended November 30, 1997, gross revenues from the "900"
entertainment services were $208,154,100, with corresponding chargeback
allowances of $79,228,480, resulting in an approximate chargeback rate of 38%.
This chargeback rate increase of 13% was one of the primary factors contributing
to the Company's decision to discontinue marketing its "900" entertainment
services as an independent revenue source and use such services in conjunction
with the marketing of the Company's other products and services. See "-- Recent
Developments."
During the year ended November 30, 1998, gross revenues from enhanced
services and Club 900 Product memberships were approximately $41,892,878 and
$26,067,730, respectively, as compared to approximately $32,110,085 and
$24,962,840, respectively, for the year ended November 30, 1997, an increase of
$9,782,793, or 30.4%, and $1,104,890, or 4.4%, respectively. The chargeback
allowances recognized during the year ended November 30, 1998 for the Company's
enhanced services and Club 900 Product memberships were $18,815,409 (45% of
related revenues) and $9,648,829 (37% of related revenues), respectively, as
compared to $10,415,332 (32% of related revenues) and $13,657,106 (55% of
related revenues), respectively, for the year ended November 30, 1997. During
the year ended November 30, 1998, gross revenues from the Company's combined
prepaid and conventional cellular activity were approximately $8,860,000, with
chargebacks of approximately $2,275,000, representing a chargeback rate of 26%.
The Company's other products and services contributed an immaterial amount to
chargebacks during the years ended November 30, 1998, 1997 and 1996. The
Company's residential long distance customer acquisition service revenues and
the AT&T strategic corporate partnership revenues are not encumbered by
chargebacks.
Cost of revenues for the year ended November 30, 1998 was $80,037,115, a
decrease of $69,784,248, or 47%, as compared to $149,821,363 for the year ended
November 30, 1997. The decrease is directly attributable to reductions in
service bureau fees related to the decrease in revenues generated from the
Company's "900" entertainment services and decreases in advertising costs
expended in procuring such revenues. The service bureau fees, including the cost
of "psychic operators" related to the "900" entertainment services, were
approximately $26,800,000 and $69,200,000 for the years ended November 30, 1998
and 1997, respectively, accounting for approximately $42,400,000, or 61%, of the
total decrease in cost of revenues. In addition, the "900" entertainment
services advertising costs, principally from television broadcast media and
related commercial production costs, were approximately $17,700,000 and
$30,000,000 for the years ended November 30, 1998 and 1997, respectively,
accounting for approximately $12,300,000, or 18%, of the total decrease in the
cost of revenues. $11,300,000 of the decrease in cost of revenues was
attributable to the Company's implementation, during the quarter ended August
31, 1998, of its strategy to reposition the marketing emphasis of the "900"
entertainment services, in response to decreasing margins, increasing marketing
costs and increasing chargebacks. The cost of revenues in fiscal year ended
November 30, 1997 did not have a comparable reduction. The "900" entertainment
services are now used in conjunction with the marketing of the Company's other
products and services (as opposed to an independent revenue source). In
16
<PAGE> 19
accordance with this repositioning, any amounts received by the Company in
providing "900" entertainment services, net of estimated chargebacks, are now
accounted for as a reduction to the cost of revenues for the Company's other
products and services. The effect recognized under such repositioning during the
year ended November 30, 1998 amounted to gross "900" entertainment service
revenues of approximately $20,900,000, net of corresponding chargebacks of
$9,600,000, being offset to cost of revenues for the reduction of approximately
$11,300,000 referenced above. The foregoing decreases to cost of revenues were
offset by increases in service bureau fees and marketing costs related to
increased gross revenues recognized from the Company's enhanced services, Club
900 Product and residential long distance and conventional cellular phone
customer acquisition services. Additionally, the decrease in cost of revenues
was further offset by cost increases incurred in the Company's test marketing of
its prepaid cellular phone business, which approximated $4,300,000 during the
year ended November 30, 1998. The Company discontinued the marketing for new
prepaid cellular phone customers during the third quarter of the year ended
November 30, 1998 and has subsequently disposed of such portion of its
operations and liquidated the related inventories.
Cost of revenues as a percentage of net revenues increased to approximately
85% for the year ended November 30, 1998, from approximately 78% for the year
ended November 30, 1997. This gross margin deterioration is specifically
attributable to the Company's decreasing margins recognized on the Company's
"900" entertainment services. In response to the increased costs per unit of
sale generated for its "900" entertainment services, coupled with the
significant chargeback rate increases, as previously discussed, the Company has
discontinued marketing the "900" entertainment services as an independent
revenue source. Commencing in the quarter ended August 31, 1998, the "900"
entertainment services were repositioned and offered solely (1) for purposes of
acquiring marketing information for future marketing campaigns and (2) as a
premium offering, given in conjunction with the Company's other products and
services. See "-- Recent Developments."
Gross revenues for the year ended November 30, 1998 were approximately
$151,200,000, with total marketing costs of approximately $58,100,000, or 38% of
such gross revenues. Gross revenues for the year ended November 30, 1997 were
approximately $295,000,000, with marketing costs of approximately $81,600,000,
or 28% of such gross revenues. Such increase in marketing costs, when measured
as a percentage of gross revenues, was 7%, or an increase of 25% in comparative
percentage terms. This increase is primarily due to the decreasing returns
realized on the marketing expenditures of the Company in generating "900"
entertainment services gross revenues prior to its discontinuance as an
independent revenue source and to the customer acquisition costs incurred by the
Company in the conduct of its residential long distance customer acquisition
programs. These "front end" acquisition costs are expected to be mitigated over
time, through recapture, by the future realization of revenues earned under the
usage/revenue sharing agreements attached to such programs. See "-- Residential
Long Distance Customer Acquisition Services."
The remaining significant component of the cost of revenue is service
bureau fees. For the years ended November 30, 1998 and 1997, such service bureau
fees were approximately $27,800,000 and $53,200,000, respectively. This decrease
of approximately $25,400,000, or 48%, was primarily attributable to the
Company's decrease in "900" entertainment services revenues and its
corresponding reduction in service bureau usage. This decrease was partially
offset by increased service bureau fees relating to the Company's increase in
gross revenue activity from enhanced services, Club 900 Product memberships and
residential long distance customer acquisitions.
Selling, general and administrative expenses (SG&A) for the year ended
November 30, 1998 were $14,356,892, a decrease of $4,523,877, or 24%, as
compared to $18,880,769 for the year ended November 30, 1997. The reduction is
primarily attributable to a decrease in amortization expense of approximately
$1,535,000, pursuant to an impairment write-off of intangibles, primarily
goodwill, during the quarter ended May 31, 1998. See "-- Recent Developments."
The portion of intangibles expensed by such impairment charge in the fiscal year
ended November 30, 1998 is separately classified under the financial statement
account heading "Special Charges", with the amount of such write-off
approximating $18,500,000. The decrease further resulted from net reductions in
officers' compensation of approximately $1,260,000 and decreases in customer
service costs of approximately $733,000. Increases in professional fees
($531,000), personnel costs ($216,000) and occupancy costs ($139,000) offset the
aforementioned decreases.
17
<PAGE> 20
During the year ended November 30, 1998, the Company recorded special
charges amounting to $19,692,543. The Company had no such special charges in the
year ended November 30, 1997. Included in these charges are (1) the non-cash
impairment charge of approximately $18,500,000, which represented the remaining
balance of the goodwill associated with the Acquisition (see "-- Recent
Developments") and (2) a charge for the write-down of assets of approximately
$1,178,000, relating to the Company's developing and test marketing of an
Internet telephony program, which commenced and was discontinued within the year
ended November 30, 1998.
Other income for the year ended November 30, 1998 and 1997 consisted
primarily of interest income. For the year ended November 30, 1998, other income
was $2,212,435, an increase of $371,079, or 20%, as compared to $1,841,356 for
the year ended November 30, 1997. The increase is attributable to interest
earned on the Company's marketable securities, consisting primarily of direct
U.S. government obligations and interest earned on funds held in reserve for
future chargebacks by the Company's primary "900" entertainment service bureau.
See "-- Liquidity and Capital Resources."
The Company's (benefit) provision for income taxes is the result of the
combination of federal statutory rates and required state statutory rates
applied to pre-tax income (loss). This combined effective rate was (2%) and 41%
for the years ended November 30, 1998 and 1997, respectively. Income tax benefit
for the year ended November 30, 1998 totaled $417,464 as compared to income tax
expense of $10,069,616 for the year ended November 30, 1997. The Company's
effective tax rate is higher than the federal statutory rate due to the addition
of state income taxes and certain expenses, principally goodwill amortization,
that are recognized for financial reporting purposes and are not deductible for
federal income tax purposes. In the year ended November 30, 1998, the Company
recorded an intangible impairment charge of approximately $18.5 million. See "--
Recent Developments". As of November 30, 1998, the Company had a net operating
loss carryback of approximately $21,000,000. Also at November 30, 1998, the
Company had approximately $14,100,000 of future tax deductible amounts,
principally arising from the future deductibility of net chargeback reserves and
the 1998 goodwill impairment charge. Due to the uncertain realization, through
carryforward, regarding the state deferred tax assets, the Company has recorded
a full valuation allowance against such state deferred tax assets at November
30, 1998. The remaining federal deferred tax assets were further reduced for a
valuation allowance. The federal valuation allowance reduces the federal
deferred tax assets to their realizable carryback value at November 30, 1998.
YEAR ENDED NOVEMBER 30, 1997 COMPARED TO YEAR ENDED NOVEMBER 30, 1996
Net revenue for the year ended November 30, 1997 was $191,374,936, a net
increase of $104,708,168 or 121%, as compared to $86,666,768 for the year ended
November 30, 1996. Approximately $94,844,032, or 90.6% of such net increase was
attributable to the Acquisition. The Company's strategic corporate partnership
with AT&T accounted for approximately $26,325,549 or 25.1% of such net increase.
During fiscal 1997, the company marketed AT&T's long distance products under the
terms of the strategic corporate partnership. See "Business -- Residential Long
Distance Customer Acquisition Services." Net revenues from the Company's
enhanced voice mail networks comprised approximately $4,614,099, or 4.4% of such
net increase. Net revenues from the Company's Club 900 Product comprised
approximately $11,305,734, or 10.8% of such net increase. These increases were
partially offset by decreases to net revenues earned by one of the Company's
subsidiaries from its "900" entertainment services, resulting from the Company
shifting the billing and collection services for the subsidiary's "900" number
telephone calls to New Lauderdale's service contract. The related net revenue
reductions approximated $33,541,715. Such consolidation of service contracts
allowed the Company to reduce processing and administration costs associated
with its "900" number business. During the year ended November 30, 1997, the
Company completed the transition of changing all "900" number entertainment
lines from $3.99 to $4.99 per minute. For the year ended November 30, 1997, the
Company recorded approximately 23 million billable "900" minutes, at the $4.99
price point, and approximately 24 million billable minutes, at the $3.99 price
point, as compared to approximately 25 million minutes, primarily billed at the
$3.99 price point, in the prior year.
For the year ended November 30, 1997, "900" entertainment services, VM
services, the AT&T strategic corporate partnership, Club 900 Product memberships
and other products approximated 67%, 12%, 14%, 6%
18
<PAGE> 21
and 1% of net revenues, respectively. For the year ended November 30, 1996,
"900" number entertainment services, VM Products and other products approximated
82%, 17% and 1% of net revenues, respectively. The provisions for chargebacks
for the year ended November 30, 1997 were $103,597,803, an increase of
$57,245,165, or 123%, as compared to $46,352,638 for the year ended November 30,
1996. The increase is primarily attributable to increased chargebacks on the
Company's "900" number entertainment services and, to a lesser extent,
chargebacks on the Company's Club 900 Product memberships, which commenced
billing in the first quarter of fiscal 1997. The provisions for chargebacks as a
percentage of gross revenues increased from approximately 34.9% for the year
ended November 30, 1996 to approximately 38.7% for the year ended November 30,
1997. These percentages exclude the AT&T strategic corporate partnership
revenues, which are not encumbered by chargebacks.
Cost of sales for the year ended November 30, 1997 was $149,821,363, an
increase of $85,106,107, or 132%, as compared to $64,661,256 for the year ended
November 30, 1996. The increase in the cost of sales is directly attributable to
the consolidation of New Lauderdale's operations subsequent to the Acquisition,
increases in service bureau fees, marketing costs associated with the AT&T
strategic corporate partnership and increases in advertising cost associated
with the Company's "900" entertainment services. Cost of sales as a percentage
of gross revenue is principally due to decreased returns from the Company's
marketing expenditures. The increase was partially offset through the Company's
ability to renegotiate certain contract terms with its primary "900" number
service provider during fiscal 1997, pursuant to increased call volume as a
result of the Acquisition. Gross revenues for the year ended November 30, 1997
were $294,976,042, with marketing costs of approximately $81,576,000, or 27.7%
of such gross revenues. Gross revenues for the year ended November 30, 1996 were
$133,040,851, with marketing costs of approximately $31,795,000, or 23.9% of
such gross revenues.
Selling, general and administration expenses (SG&A) for the year ended
November 30, 1997 were $18,880,769, an increase of $8,721,543, or 86%, as
compared to $10,159,226 for the year ended November 30, 1996. The increase in
SG&A is principally attributable to the consolidation of New Lauderdale's
operations subsequent to the Acquisition, increases in goodwill amortization of
$1,251,900 and increases in personnel costs of approximately $1,636,000
associated with the Company's growth. SG&A as a percentage of the Company's
gross revenue decreased from 7.6% during the year ended November 30, 1996, to
6.4% for the year ended November 30, 1997.
Interest expense for the year ended November 30, 1997 was $80,763, a
decrease of $392,526, or 83% as compared to $473,289 for the year ended November
30, 1996. This decrease is directly attributable to the Company's discontinuance
of its accounts receivable financing during the prior fiscal year. See
"Liquidity and Capital Resources."
Other income for the years ended November 30, 1997 and 1996 consisted
primarily of interest income. For the year ended November 30, 1997, interest
income was $1,841,356, and increase of $1,080,943, or 142%, as compared to
$760,413, for the year ended November 30, 1996. The increase is attributable to
interest earned on the Company's marketable securities, consisting primarily of
direct U.S. government obligations.
For the year ended November 30, 1996, the Company recognized equity in
earnings of joint venture of $4,939,653, of which $4,432,000 was distributed to
the Company during such year. This was comprised entirely of the Company's 50%
interest in the net income of New Lauderdale's operations for the year then
ended. On September 10, 1996, the Company acquired the remaining 50% interest in
New Lauderdale. After the Acquisition, the Company commenced treating New
Lauderdale as a subsidiary and including its results of operations on a
consolidated basis in the Company's consolidated financial statements.
The Company's effective tax rate was 41% for the year ended November 30,
1997, as compared with 29% for the year ended November 30, 1996. The year ended
November 30, 1996 included a tax benefit of approximately $1,782,000 relating to
the Company's conversion to the accrual basis of accounting in connection with
the termination of its S Corporation status. The Company's effective rate is
higher than the federal statutory rate due to the addition of state income taxes
and certain deductions taken for financial reporting purposes that are not
deductible for federal income tax purposes. The primary factor contributing to
19
<PAGE> 22
the increase in the effective rate during the year ended November 30, 1997, as
compared with the prior comparable period, is nondeductible amortization
relating to the Acquisition.
Net income increased to $14,363,781 for the year ended November 30, 1997,
as compared to net income of $12,174,430 for the prior comparable period, an
increase of $2,189,351, or 18%. This increase was primarily due to an increase
of $10,826,518 in the Company's income from operations, growth in the Company's
core business, the addition of new business lines and an increase of $1,080,943
in interest income. Such increases were offset, in part, by an increase in
goodwill amortization of $1,251,900, total salary increases of approximately
$2,894,000 and increases in income taxes of $5,170,983.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1998, the Company had cash of $2,123,630. During the year
ended November 30, 1998, the Company used $7,940,087 in cash, which consisted of
$6,209,682 of net cash used in operating activities, $8,334,625 in net cash
provided by investing activities and $10,065,030 of net cash used in financing
activities. The Company's net loss of $16,952,618 was offset by non-cash items,
consisting principally of goodwill amortization, including the intangible
impairment charge of approximately $18,500,000.
During the year ended November 30, 1998, the Company used $6,209,682 for
operating activities, primarily to fund its working capital requirements, the
significant components being the costs of advertising, promotion and service
bureau fees.
The $8,334,625 in net cash provided by investing activities consisted of
$9,700,632 in cash provided from the net proceeds of marketable securities
transactions, offset by $1,366,007 in cash paid for the purchase of property and
equipment.
The $10,065,030 of cash used in investing activities was expended
exclusively for the repurchase of the Company's Common Stock. On March 13, 1998,
the Company had purchased from Claudia Hirsch, a former director and officer,
1,969,601 shares of the Company's Common Stock for an aggregate purchase price
of $8,165,000, of which $8,110,000 was paid within the year ended November 30,
1998. The balance of $137,500 was to be paid in 10 consecutive monthly
installments of $13,750 in accordance with the terms of the purchase agreement.
As at November 30, 1998, $55,000 remained payable under such agreement. In July
1998, the Board of Directors of the Company authorized the repurchase, at
management's discretion, of up to 2 million shares of the Company's Common Stock
during the period July 15, 1998 through July 15, 1999. Pursuant thereto, as of
March 5, 1999, the Company has repurchased 949,153 common shares for an
aggregate repurchase price of $2,211,622, representing an average repurchase
price of $2.33 per share. During the previous seventeen months (August 1, 1997
to November 30, 1998), the Company incurred substantial increases in chargebacks
experienced on its "900" entertainment services. Pursuant to such increased
chargebacks, two of the Company's service providers instituted a cash reserve
policy. Under this cash reserve policy, the service providers withhold cash
flows from carrier collections in amounts that approximate the Company's future
expected chargebacks, as they relate to each service provider. As of November
30, 1998, the reserves withheld approximated $ 8,080,000 and are included in the
Company's accounts receivable. Historically, the Company has financed its
working capital requirements principally through cash flow from operations and
receivables financing. Although the Company is not currently dependent on cash
flow from receivables financing, credit lines for this purpose are being
maintained and the Company may avail itself of such financing in the future. See
"Forward Looking Information May Prove Inaccurate."
The Company's primary cash requirements have been to fund the cost of
advertising and promotion. Additional funds may be used in the purchasing of
equipment and services in connection with the commencement of several new
business lines and further development of businesses currently being test
marketed. The Company currently has no material plans or commitments for capital
expenditures or significant working capital demands. Under currently proposed
operating plans and assumptions (including the substantial costs associated with
the Company's advertising and marketing activities), management believes that
projected cash flows from operations and available cash resources, including
expected federal tax carryback refunds and an available financing arrangement
with a service bureau, will be sufficient to satisfy the Company's anticipated
cash requirements for the next twelve months. The Company does not have any
long-
20
<PAGE> 23
term obligations and does not intend to incur any such obligations in the
future. As the Company seeks to diversify with new telecommunication products
and services, the Company may use existing cash reserves, long-term financing,
or other means to finance such diversification. See "Forward Looking Information
May Prove Inaccurate."
RESIDENTIAL LONG DISTANCE CUSTOMER ACQUISITION SERVICES
During the fiscal year ended November 30, 1996, the Company entered into an
agreement with AT&T Communications, Inc. ("AT&T"), whereby it marketed AT&T's
long distance products. The Company commenced significant marketing efforts
under this agreement in the first quarter of fiscal 1997, and continued
marketing for the entire fiscal year ended November 30, 1997. During the third
quarter of fiscal 1997, AT&T modified its contact and customer acquisition
strategies. These modifications severely limited the Company's ability to
successfully market AT&T's long distance products to its customer database. As a
result of the AT&T modifications, the Company significantly reduced its
marketing efforts under this arrangement in the fourth quarter of fiscal 1997.
The Company terminated its strategic corporate partnership with AT&T late in the
first quarter of fiscal 1998.
The Company concluded the Qwest agreement in the first quarter of fiscal
1998, pursuant to which the Company provides marketing services to Qwest,
primarily through outbound telemarketing and broadcast media, directed at the
acquisition of residential long distance customers for Qwest. In addition to
commissions paid to the Company for its successful customer acquisitions on
behalf of Qwest, the agreement also calls for the Company to participate in
Qwest's net revenues earned from such acquired customers' residential long
distance usage.
Net revenues from the strategic corporate partnership with AT&T for the
year ended November 30, 1998 and 1997 were $5,437,099 and $26,489,559,
respectively.
During the year ended November 30, 1998, the Company recorded revenues of
approximately $18,667,452 under the Qwest agreement. To date, the results of the
Qwest program have not met management's expectations.
GOVERNMENT REGULATION
All of the Company's entertainment services and advertisements are reviewed
by the Company's regulatory counsel, and management believes that the Company is
in substantial compliance with all material federal and state laws and
regulations governing its provision of "800" and "900" number entertainment
services, all of its billing and collection practices and the advertising of its
services and has obtained or is in the process of obtaining all licenses and
permits necessary to engage in telemarketing activities. Nevertheless, on or
about September 30, 1998, the Company was notified by the Federal Trade
Commission ("FTC") that the FTC was conducting an inquiry into the past and
present marketing practices of the Company to determine if the Company was
engaging in unfair or deceptive practices. In connection with such inquiry, the
Company was requested to submit certain materials and information to the FTC
relating to the operations of the Company from January 1, 1994 to the present.
The Company is cooperating fully with the FTC in connection with its inquiry. To
date, the Company has not been subject to any enforcement actions by any
regulatory authority and Management believes that the FTC inquiry will not
result in any enforcement actions or claims which would have a material adverse
effect on the Company. However, in the event the Company is found to have failed
to comply with applicable laws and regulations, the Company could be subject to
civil remedies, including substantial fines, penalties and injunctions, as well
as possible criminal sanctions, which would have a material adverse effect on
the Company. See "Forward Looking Information May Prove Inaccurate."
At the request of the Federal Communications Commission, a group of the
largest Local Exchange Carriers (the "LECs") have developed a set of voluntary
Best Practices Guidelines (the "Guidelines") with regard to the problem of
"cramming" -- unauthorized, deceptive or ambiguous charges included on end-user
customers' monthly local telephone bills. The cramming problem has increasingly
been receiving a great deal of attention from federal and state legislators,
regulatory agencies, and law enforcement agencies throughout the country.
Legislation is pending to combat the cramming problem. The Guidelines and
legislation, if
21
<PAGE> 24
enacted, require that service providers obtain detailed and documented
authorization from end users prior to billing for miscellaneous products or
services. Advertising for products and services to be billed through a certain
type of billing mechanism known as the "4250 billing mechanism" will need to be
pre-approved by the LECs and clearinghouses prior to their billing. Moreover,
each LEC is in the process of revising its individual billing and collection
agreements to implement the Guidelines and further restrict the types of
services for which it will provide billing services. Consequently, the LECs will
have broad discretionary powers to restrict services for which the Company may
bill through the customer's telephone bill and assess administrative charges to
service providers when a charge for a product or service not pre-approved by the
LEC, and/or authorized by the end user, is placed on the customer's bill. As the
Company employs the 4250 billing mechanism to bill for products and services,
the Guidelines (and possible legislation) and LEC restrictions will impact on,
and need to be taken into account in, formulating the Company's business
practices.
THE YEAR 2000 PROBLEM
At the time computer programs were first being written, two digits were
used instead of four to define years on such programs. For example, the year
"1998" was written within such computer programs as "98". As a result, at the
onset of the new millennium, any programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. This potential
difficulty is commonly referred to as the "Y2K Problem".
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be effected by the "Y2K" Problem. The Company
presently believes that its entire internal computer programs, software
packages, systems and networks are Y2K compliant. Within the past 12 months, the
Company has replaced all personal computers that were not Y2K compliant and
rewritten its entire billing system to become compliant. The Company also
recently acquired a new main database server that is compliant and that runs on
a commercially available software package that is compliant. The cost of all of
the foregoing did not have a material impact on the operations of the Company.
See "Forward Looking Information May Prove Inaccurate".
Notwithstanding the foregoing, the Company is reliant on third parties for
the operation of the Company's day-to-day business. The Company can not provide
any assurances that the steps being taken by such third parties, if any, will be
sufficient to eliminate the Y2K problem from the computer systems used by such
third parties and relied upon by the Company. The Company has corresponded with
all its vendors, informing them that the Company will only conduct business with
those entities that are "Y2K" compliant. In addition, the Company only accepts
inbound files from outside sources that define years with four digit codes,
ensuring compliance. Lastly, the Company's customer service department operates
via the Company's computer network, which is compliant. However, in the event
modifications and conversions to computer systems are required by such third
parties and are not completed on a timely basis, the Y2K Problem may have a
material impact on the operations of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Financial Statements referred to in the
accompanying Index, setting forth the consolidated financial statements of
Quintel Communications, Inc. and subsidiaries, together with the report of
PricewaterhouseCoopers LLP dated March 10, 1999.
22
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the directors and executive officers of the Company,
their respective names and ages, positions with the Company, principal
occupations and business experiences during the past five years and the dates of
the commencement of each individual's term as a director and/or officer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey L. Schwartz...................... 50 Chairman of the Board and Chief Executive
Officer
Jay Greenwald............................ 34 President, Chief Operating Officer and
Director
Andrew Stollman.......................... 33 Senior Vice President, Secretary and
Director
Daniel Harvey............................ 40 Chief Financial Officer
Michael G. Miller........................ 50 Director
Murray L. Skala.......................... 51 Director
Mark Gutterman........................... 42 Director
Edwin A. Levy............................ 60 Director
Paul Novelly............................. 55 Director
</TABLE>
DIRECTORS
Jeffrey L. Schwartz has been Chairman and Chief Executive Officer of the
Company since January 1995, Secretary/Treasurer from September 1993 to December
1994 and a director since inception of the Company in 1993. From January 1979
until May 1998, Mr. Schwartz was also Co-President and a director of Jami
Marketing Services, Inc. ("Jami Marketing"), a list brokerage and list
management consulting firm, Jami Data Services, Inc. ("Jami Data"), a database
management consulting firm, and Jami Direct, Inc. ("Jami Direct"), a direct mail
graphic and creative design firm (collectively, the "Jami Companies"). The JAMI
Companies were sold by the principals thereof in May 1998.
Jay Greenwald has been President and Chief Operating Officer of the Company
since January 1995, Vice President from August 1992 to December 1994 and a
director since inception. From January 1991 to August 1992, Mr. Greenwald was
Vice President of Newald Direct, Inc. ("Newald Direct") and, from July 1990 to
January 1991, President of Newald Marketing, Inc. ("Newald Marketing"),
companies engaged in direct response marketing.
Andrew Stollman has been Senior Vice President, Secretary and a director of
the Company since January 1995 and was President from September 1993 to December
1994. From August 1992 to June 1993, Mr. Stollman was a consultant to Cas-El,
Inc., from November 1992 to June 1993, manager at Media Management Group, Inc.,
and from December 1990 to August 1992, national marketing manager for Infotrax
Communications, Inc. and Advanced Marketing & Promotions, Inc., companies
engaged in providing telephone entertainment services.
Michael G. Miller has been a director of the Company since inception. From
1979 until May 1998, Mr. Miller was Co-President and a director of each of the
Jami Companies, which were sold by the principals thereof in May 1998. Mr.
Miller is currently an independent consultant. Mr. Miller is also a director of
JAKKS Pacific, Inc., a publicly-held company which develops, markets and
distributes children's toys.
Murray L. Skala has been a director of the Company since October 1995. Mr.
Skala has been a partner in the law firm of Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass LLP since 1976. Mr. Skala is also a director of JAKKS Pacific,
Inc., a publicly-held company which develops, markets and distributes children's
toys.
Mark Gutterman has been a director of the Company since October 1995. Since
January 1, 1999, Mr. Gutterman has been the Chief Financial Officer of
Transaction Information Systems, Inc., a computer consulting and staffing
company. From 1980 through 1998, Mr. Gutterman was a partner in the accounting
23
<PAGE> 26
firm of Feldman, Gutterman, Meinberg & Co. and its predecessor, Weiss & Feldman.
Mr. Gutterman is a Certified Public Accountant.
Edwin A. Levy has been a director of the Company since November 1995. Mr.
Levy has been the Chairman of the Board of Levy, Harkins & Co., Inc., an
investment advisor, since 1979, and is also a director of Coastcast Corp., a
publicly-held company in the business of manufacturing golf club heads.
Paul Novelly has been a director of the Company since May 1998. Since 1978,
Mr. Novelly has been the President and Chief Executive Officer of Apex Oil
Company, Inc., a company which, together with its subsidiaries, is engaged in
oil and gas exploration, transportation, trading and storage and coal mining.
Mr. Novelly also serves on the Board of Directors of several publicly-held
companies, including Coastcast Corp., Vista 2000, Inc., a marketer of personal
safety and home security devices, Imperial Bank, Imperial Bancorp, a bank
holding corporation, and Intrawest Corporation, a foreign company based in the
Bahamas.
The Company has agreed, if so requested by the underwriter of the initial
public offering of the Company's securities, Whale Securities Co., L.P.
("Whale"), to nominate and use its best efforts to elect a designee of Whale as
a director of the Company or, at Whale's option, as a non-voting adviser to the
Company's Board of Directors. The Company's officers, directors and four of its
existing principal stockholders have agreed to vote their shares of Common Stock
in favor of such designee. Whale has not yet exercised its right to designate
such a person. Such right of designation of Whale is in effect until December 5,
2000.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors receive no cash
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. Non-employee Directors of
the Company are compensated for their services and attendance at meetings
through the grant of options pursuant to the Company's Amended and Restated 1996
Stock Option Plan.
EXECUTIVE OFFICERS
Officers are elected annually by the Board of Directors and serve at the
direction of the Board of Directors. Three of the Company's four executive
officers, Jeffrey L. Schwartz, Jay Greenwald and Andrew Stollman, are also
directors of the Company. Information with regard to such persons is set forth
above under the heading "Directors."
The remaining executive officer is Mr. Daniel Harvey, the Company's Chief
Financial Officer. Mr. Harvey has held such position since January 1997. He
joined the Company in September 1996. From November 1991 to August 1996, Mr.
Harvey was a Senior Manager with the accounting firm of Feldman, Gutterman,
Meinberg & Co. Mr. Harvey is a Certified Public Accountant.
The Company has obtained "key man" life insurance in the amount of
$1,000,000 on each of the lives of Jeffrey L. Schwartz, Jay Greenwald and Andrew
Stollman.
Resignation of Directors and Executive Officers
In February 1998, Mr. Vincent Tese resigned as a director of the Company.
Mr. Tese had held such position since March 1996. In March 1998, Claudia Newman
Hirsch resigned as a director and as Executive Vice President of the Company.
Ms. Newman Hirsch had been a director since the inception of the Company. She
had been Executive Vice President since January 1995 and a Vice President from
August 1992 through December 1994. In January 1999, Mr. Steven Feder resigned as
a director of the Company. Mr. Feder had held such position since October 1996.
The Company believes that all of such individuals resigned for personal reasons
and not as a result of any disagreement with the Company on any matter relating
to the Company's operations, policies or practices.
24
<PAGE> 27
THE COMMITTEES
The Board has an Audit Committee, a Compensation Committee and a Stock
Option Committee. The Board of Directors does not have a Nominating Committee,
and the usual functions of such a committee are performed by the entire Board of
Directors.
Audit Committee. The functions of the Audit Committee include
recommendations to the Board of Directors with respect to the engagement of the
Company's independent certified public accountants and the review of the scope
and effect of the audit engagement. The current members of the Audit Committee
are Messrs. Levy, Novelly and Skala.
Compensation Committee. The function of the Compensation Committee is to
make recommendations to the Board with respect to compensation of management. In
addition, the Compensation Committee administers plans and programs, with the
exception of the Company's stock option plans, relating to employee benefits,
incentives and compensation. The current members of the Compensation Committee
are Messrs. Skala and Gutterman.
Stock Option Committee. The Stock Option Committee determines the persons
to whom options are granted under the Company's stock option plans and the
number of options to be granted to each person. The current members of the Stock
Option Committee are Messrs. Novelly and Levy.
ATTENDANCE AT MEETINGS
From December 1, 1997 through November 30, 1998, the Board of Directors,
Stock Option Committee, Audit Committee and Compensation Committee each met or
acted without a meeting pursuant to unanimous written consent nine times, five
times, one time and one time, respectively.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the best of the Company's knowledge, during the fiscal year ended
November 30, 1998, (i) Steven Feder, Thomas H. Lindsey, Michael Miller, Paul
Novelly, Peter Stolz and Vincent Tese each untimely filed one report on Form 4,
reporting one late transaction; (ii) Daniel Harvey, Jeffrey Schwartz and Andrew
Stollman each untimely filed two late reports on Form 4, reporting two late
transactions; (iii) Mark Gutterman untimely filed two late reports on Form 4,
reporting three late transactions; (iv) Jay Greenwald untimely filed three late
reports on Form 4, reporting three late transactions; (v) Mr. Novelly untimely
filed a Form 3 and Form 5, each reporting one late transaction; and (vi) Claudia
Newman Hirsch failed to file a Form 5. All of such individuals were executive
officers, directors and/or beneficial owners of more than 10% of the Company's
Common Stock during the fiscal year ended November 30, 1998. To the best of the
Company's knowledge, all other Forms 3, 4 or 5 required to be filed during the
fiscal year ended November 30, 1998 were done so on a timely basis.
25
<PAGE> 28
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the Company's executive compensation paid
during the three fiscal years ended November 30, 1998, 1997 and 1996 for the
Chief Executive Officer and the Company's four most highly compensated executive
officers of the Company (other than the Chief Executive Officer) whose cash
compensation for the fiscal year ended November 30, 1998 exceeded $100,000 (the
"Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- -------------------------------------------------------------- ----------------------- -------------------
(a) (b) (c) (d) (e) (f) (g) (i)
OTHER RESTRICTED SECURITIES (h) ALL
ANNUAL STOCK UNDERLYING PLAN OTHER
NAME AND SALARY BONUS COMPENSA- AWARDS OPTIONS PAYOUTS COMPENSA-
PRINCIPAL POSITION YEAR ($) ($) TION($) ($) (#) ($) TION($)
------------------ ---- -------- -------- --------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey Schwartz..... 1998 $453,750 0 0 0 8,750(2) 0 0
Chairman and 128,495
Chief Executive 1997 $412,500 $418,347 0 0 0 0 0
Officer 1996 $375,000 $269,573 0 0 0 0 0
Jay Greenwald........ 1998 $453,750 0 0 0 8,750(2) 0 0
President and 128,495
Chief Operating 1997 $412,500 $418,346 0 0 0 0 0
Officer 1996 $375,000 $269,573 0 0 0 0 0
Andrew Stollman...... 1998 $302,500 0 0 8,750(2) 0 0
Senior Vice 96,260
President and 1997 $243,750 $418,346 0 0 0 0 0
Secretary 1996 $175,000 $269,573 0 0 0 0 0
Daniel Harvey(1)..... 1998 $127,500 $ 50,000 0 0 7,729(3) 0 0
Chief Financial 1997 $111,000 $ 25,000 0 0 0 0 0
Officer
</TABLE>
- ---------------
(1) Mr. Harvey was first appointed the Company's Chief Financial Officer in
January 1997. Prior to that time, Mr. Harvey was not employed as an
executive officer of the Company.
(2) Represents shares underlying options issued in exchange for the surrender of
options to purchase 25,000 shares pursuant to the Option Exchange. See
"Market for the Registrant's Common Equity and Related Stockholder
Matters -- Option Exchange."
(3) Represents shares underlying options issued in exchange for the surrender of
options to purchase 26,000 shares pursuant to the Option Exchange. See
"Market for the Registrant's Common Equity and Related Stockholder
Matters -- Option Exchange."
26
<PAGE> 29
The following table sets forth certain information regarding the granting
of options to the Named Officers during the fiscal year ended November 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSESSED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM
- ----------------------------------------------------------------------------------- ------------------------
(a) (b) (c) (e) (f) (g)
NUMBER OF % OF TOTAL (d)
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR(1) ($/SHARE) DATE 5%($) 10%($)
---- ------------ -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Schwartz..... 8,750(2) 0.81% $ 1.75 9/30/05 $ 21,546 $ 29,840
128,495(3) 12.01 2.13125 10/8/03 349,516 441,046
Jay Greenwald........ 8,750(2) 0.81 1.75 9/30/05 21,546 29,840
128,495(3) 12.01 2.13125 10/8/03 349,516 441,046
Andrew Stollman...... 8,750(2) 0.81 1.75 9/30/05 21,546 29,840
96,260(3) 8.99 1.9375 10/8/03 298,031 300,366
Daniel Harvey........ 7,292(2) 6.80 1.75 9/4/01 14,772 16,985
437(2)(4) 0.04 1.75 12/26/02 930 1,120
</TABLE>
- ---------------
(1) Options to purchase a total of 1,069,580 shares of Common Stock were granted
to the Company's employees, including the Named Officers, during the fiscal
year ended November 30, 1998. Includes 181,940 shares issuable upon the
exercise of options granted pursuant to the Option Exchange. See "Market for
the Registrant's Common Equity and Related Stockholder Matters -- Option
Exchange."
(2) Represents shares issuable upon the exercise of options granted pursuant to
the Option Exchange.
(3) One-third of this option vested or vests on each of October 8, 1998, 1999
and 2000.
(4) One-third of this option vested or vests on each of December 26, 1997, 1998
and 1999.
27
<PAGE> 30
The following table sets forth certain information regarding options
exercised and exercisable during the fiscal year ended November 30, 1998 and the
value of the options held as of November 30, 1998 by the Named Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT FISCAL
YEAR-END(1)
------------------------------
NAME EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------
<S> <C> <C>
Jeffrey L. Schwartz......................................... 8,750(2) 0
42,832 85,663
Jay Greenwald............................................... 8,750(2) 0
42,832 85,663
Andrew Stollman............................................. 8,750(2) 0
32,087 64,173
Daniel Harvey............................................... 4,861(2) 2,431(2)
146(2)(3) 291(2)(3)
</TABLE>
- ---------------
(1) None of the options held by the Named Officers were in-the-money at November
30, 1998.
(2) Represents shares underlying options issued in exchange for options
surrendered pursuant to the Exchange Plan. See "Market for the Registrant's
Common Equity and Related Stockholder Matters -- Option Exchange."
(3) Such option was issued in the Option Exchange pursuant to Mr. Harvey's
surrender of an option to purchase 1,000 shares of common stock, which
option was granted to Mr. Harvey on December 26, 1997.
EMPLOYMENT AGREEMENTS
The employment agreements between the Company and each of Jeffrey Schwartz,
Jay Greenwald and Andrew Stollman expired on November 30, 1998. Each of such
individuals have agreed to continue to work for the Company as employees-at-will
until such time as the Board of Directors has had an opportunity to discuss and
approve a compensation package for inclusion in written employment agreements
between the Company and such individuals. The Company and Messrs. Schwartz and
Greenwald have agreed that the compensation to be paid to each of them for their
services rendered would be $400,000 per annum until such time as written
employment agreements between the Company and such individuals have been
executed. Such amount is a reduction of $53,750 per annum from each of their
1998 salaries of $453,750. The Company and Mr. Stollman have agreed that the
compensation to be paid to such individual for his services rendered would
continue to be $302,500 per annum, the amount of Mr. Stollman's 1998 annual
salary, until such time as a written employment agreement between the Company
and Mr. Stollman has been executed.
BOARD COMPENSATION
As a result of the Company's policy to compensate non-employee directors
for their services, the Company's Amended and Restated 1996 Stock Option Plan
(the "Plan") provides for an automatic one-time grant to all non-employee
directors of options to purchase 25,000 shares of Common Stock and for
additional automatic quarterly grants of options to purchase 6,250 shares of
Common Stock. The exercise prices for all of such non-employee director options
are the market value of the Common Stock on their date of grant.
28
<PAGE> 31
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors during the
fiscal year ended November 30, 1998 consisted of Mark Gutterman and Murray L.
Skala. See "Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 5, 1999, based upon
information obtained from the persons named below, regarding beneficial
ownership of the Company's Common Stock by (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding shares of its Common
Stock, (ii) each director of the Company, (iii) each of the Named Officers, and
(iv) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OF CLASS(2)
- ------------------- --------------------- -----------
<S> <C> <C>
Jay Greenwald............................................... 2,815,984(3) 16.8%
Steven L. Feder, Thomas H. Lindsey and Peter Stolz.......... 2,539,481(4) 15.2
2455 East Sunrise Blvd.
Ft. Lauderdale, FL 33304
Jeffrey L. Schwartz......................................... 2,503,584(5) 14.9
Michael G. Miller........................................... 2,475,617(6) 14.8
Andrew Stollman............................................. 1,135,280(7) 6.6
Murray L. Skala............................................. 90,250(8) *
750 Lexington Avenue
New York, NY 10022
Edwin A. Levy............................................... 86,250(9) *
767 Third Avenue
New York, NY 10017
Mark Gutterman.............................................. 30,205(10) *
280 Plandome Road
Manhasset, NY 11030
Paul Novelly................................................ 22,816(11) *
8182 Maryland Avenue
St. Louis, MO 63105
All executive officers and directors as a group (9
persons).................................................. 9,167,570(12)(13) 53.6%
</TABLE>
- ---------------
* Less than 1% of the Company's outstanding shares.
(1) Unless otherwise provided, such person's address is c/o the Company, One
Blue Hill Plaza, Pearl River, New York 10965.
(2) The number of Shares of Common Stock beneficially owned by each person or
entity is determined under the rules promulgated by the Securities and
Exchange Commission (the "Commission"). Under such rules, beneficial
ownership includes any shares as to which the person or entity has sole or
shared voting power or investment power. The percentage of the Company's
outstanding shares is calculated by including among the shares owned by
such person any shares which such person or entity has the right to acquire
within 60 days after March 5, 1999. The inclusion herein of any shares
deemed beneficially owned does not constitute an admission of beneficial
ownership of such shares.
(3) Includes 51,582 shares of Common Stock issuable upon the exercise of an
option held by Mr. Greenwald. Does not include 180,000 shares of Common
Stock transferred in February 1998 by Mr. Greenwald to a limited
partnership of which Mr. Greenwald is a partner.
(4) Steven L. Feder, Thomas H. Lindsey and Peter Stolz have filed Forms 13D
with the Commission classifying themselves collectively as a "group", as
that term is defined in Section 13(d) of the Exchange Act. Such
individuals, as a "group", are the beneficial owners of more than 5% of the
outstanding Common Stock of the Company.
29
<PAGE> 32
(5) Includes 51,582 shares of Common Stock issuable upon exercise of an option
held by Mr. Schwartz.
(6) Includes 33,615 shares of Common Stock issuable upon exercise of options
held by Mr. Miller.
(7) Includes 10,837 shares of Common Stock issuable upon exercise of an option
held by Mr. Stollman.
(8) Includes 86,250 shares of Common Stock issuable upon exercise of options
held by Mr. Skala.
(9) Represents shares of Common Stock issuable upon exercise of options held by
Mr. Levy.
(10) Includes 26,615 shares of Common Stock issuable upon exercise of options
held by Mr. Gutterman. Also includes 3,590 shares of Common Stock issuable
upon the exercise of an option held by Feldman, Gutterman, Meinberg & Co.,
a firm in which Mr. Gutterman was a partner until his resignation therefrom
in December 1998.
(11) Represents shares of Common Stock issuable upon exercise of options held by
Mr. Novelly.
(12) Includes 7,584 shares of Common Stock issuable upon the exercise of options
held by Mr. Daniel Harvey, Chief Financial Officer of the Company.
(13) Includes 410,721 shares of Common Stock issuable upon the exercise of
options held by the executive officers and directors of the Company. See
footnote (3) and footnotes (5) through (12), above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company obtains a substantial number of psychics for its live psychic
and other services from PRN. The Company believes that PRN is principally owned
and controlled by Steven L. Feder and Peter Stolz. Based upon information
provided to the Company by counsel to such individuals, the Company believes
that Messrs. Feder and Stolz, along with a third individual, own an aggregate of
2,539,481 shares of Common Stock, representing approximately 15.2% of the
outstanding Common Stock of the Company. In addition, Mr. Feder is an employee
of the Company and, until January 1999, was a director of the Company.
In December 1998, the Company entered into an agreement with Access
Resource Services, Inc., an affiliate of PRN ("Access"), pursuant to which the
Company provides advertising for Access' "900" entertainment services. The
principal advertising mediums supplied are broadcast television media and direct
mail solicitations. In consideration of the provision of such advertising, the
Company receives a flat fee per each minute billed to each of Access' customers.
Access is responsible to pay all the processing costs related to the
transmission of the call and the billing and collection of the fees generated
thereby, including customer chargebacks. The flat fee amount paid to the Company
is to be reviewed monthly with adjustments permitted to be made thereto for
future billing periods based upon changes in chargeback rate experiences and/or
changes in the costs incurred on previously processed calls. In accordance with
the terms of the agreement with Access, either party has the right to cancel
such agreement upon 30 days' prior written notice.
The Company believes that all of the foregoing transactions and agreements
were advantageous to the Company and were on terms no less favorable to the
Company than could have been obtained from unaffiliated third parties.
Mark Gutterman, a director of the Company, was a partner in the firm of
Feldman, Gutterman, Meinberg & Co. ("FGM"), one of the Company's accountants
during the fiscal year ended November 30, 1998, until his resignation therefrom
in December 1998. Burton Feldman, a partner in FGM, is the father-in-law of
Jeffrey L. Schwartz, the Chairman and Chief Executive Officer of the Company.
For the fiscal year ended November 30, 1998, the Company incurred charges of
approximately $91,000 for services rendered by FGM. Its fees were based
primarily on hourly rates. The Company believes that its relationship with FGM
was on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.
Murray L. Skala, a director of the Company, is a partner in the law firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, the Company's attorneys
("Feder Kaszovitz"). The Company incurred charges of approximately $431,000
during the fiscal year ended November 30, 1998. Feder Kaszovitz continues to
provide services to the Company during its current fiscal year. Its fees are
based primarily on hourly rates. The Company believes that its relationship with
such firm is on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.
30
<PAGE> 33
The Company had entered into a consulting agreement, effective October 1,
1995, with Michael Miller, a director and principal stockholder of the Company,
which expired on November 30, 1998. Under the terms of such consulting
agreement, Mr. Miller provided services in connection with identification and
engagement of celebrities to endorse the Company's services, the Company's
engagement of independent producers to produce commercials and infomercials and
the development of new entertainment services. The agreement provided that Mr.
Miller's services were subject to his availability and recognized his commitment
to other non-competitive business activities. The Company has paid Mr. Miller
consulting fees of $10,416, $11,458 and $12,604 per month for the fiscal years
ended November 30, 1996, 1997 and 1998, respectively. The agreement provided
that Mr. Miller was precluded from involvement in any other business which
competes with the Company during the term of the consulting agreement and for a
period of two years thereafter. Although the consulting agreement w/Mr. Miller
has expired, he continues to provide the consulting services enumerated therein
to the Company and the Company has been compensating Mr. Miller for such
services at the rate of $10,417 per month. Such arrangement has not been
formally agreed to and may be terminated by either party at-will.
FORWARD LOOKING INFORMATION
MAY PROVE INACCURATE
This Annual Report on Form 10-K contains certain forward-looking statements
and information relating to the Company that are based on the beliefs of
management, as well as assumptions made by and information currently available
to the Company, including the Company's continuing sources of revenue, cost
reduction plans, proposed offerings of new products and services and the
sufficiency of the Company's liquidity and capital. When used in this document,
the words "anticipate," "believe," "estimate," and "expect" and similar
expressions, as they relate to the Company, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including those described in this Annual Report
on Form 10-K. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
(i) Financial Statements:
See Index to Financial Statements.
(ii) Financial Statement Schedules
Schedule of Valuation and Qualifying Accounts and Reserves
All other financial statement schedules have been omitted since either (i)
the schedule or condition requiring a schedule is not applicable or (ii) the
information required by such schedule is contained in the Consolidated Financial
Statements and Notes thereto or in Management's Discussion and Analysis of
Financial Condition and Results of Operation.
(b) REPORTS ON FORM 8-K.
The Company filed no Current Reports on Form 8-K during the fourth quarter
of the fiscal year ended November 30, 1998.
31
<PAGE> 34
(c) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
3.1.1 Articles of Incorporation of the Company, as amended(1)
3.1.2 Amendment to the Articles of Incorporation of the
Registrant(2)
3.2 By-Laws of the Company(3)
10.1 Employment Agreement by and between the Company and Steven
L. Feder(4)
10.2.1 Definitive Form of Non-Competition and Right of First
Refusal Agreement between the Company and Steven L. Feder,
Thomas H. Lindsey and Peter Stolz(4)
10.2.2 Definitive Form of Non-Competition and Right of First
Refusal Agreement between the Company and Psychic Readers
Network, Inc.(4)
10.2.3*+ Agreement Regarding 900 Number Telecommunications Programs
and Modification of Noncompetition Agreement and Media
Agreement between Access Resource Services, Inc. and the
Company
10.2.4*+ Marketing Agreement between Access Resource Services, Inc.
and the Company
10.2.5*+ Club Operating Agreement among Access Resource Services,
Inc., Real Communication Services, Inc., Bahia Encounters,
Inc., Steven L. Feder and the Company
10.3 Amended and Restated 1996 Stock Option Plan(5)
10.4.1 Lease of the Company's offices at One Blue Hill Plaza, Pearl
River, New York(6)
10.4.2 Lease of office space for Calling Card Co., Inc. at 2455
East Sunrise Boulevard, Fort Lauderdale, Florida(7)(P)
10.5* Purchase and Sale Agreement among Paradigm Direct, Inc.,
Paradigm Cellular, LLC and the Company
10.6*+ Servicing Agreement between West Interactive Corporation and
the Company
10.7 Collateral Note and Security Agreement between West
Interactive Corporation and the Company(3)
10.8 Collateral Note and Security Agreement between West
Interactive Corporation and New Lauderdale(3)
10.9 Telemarketing Services Agreement between West Telemarketing
Corporation Outbound and the Company(3)
10.10+ Billing and Information Management Services Agreement and
Advanced Payment Agreement between Enhanced Services
Billing, Inc. and the Company(3)
10.11 Amended and Restated Psychic Readers Network Live Operator
Service Agreement between Psychic Readers Network, Inc. and
the Company(4)
10.12+ Telemarketing Services Agreement between Advanced Access,
Inc. and the Company(6)(P)
10.13+ Telemarketing Services Agreement between APAC TeleServices,
Inc. and the Company(6)(P)
10.14+ Telemarketing Services Agreement between AT&T Wireless
Services and the Company(6)(P)
10.15.1+ Telemarketing Services Agreement between AT&T Wireless
Services and Paradigm Direct, Inc.(7)(P)
10.15.2* Telemarketing Services Agreement between Paradigm Direct,
Inc. and the Company
10.15.3* Termination Agreement between Paradigm Direct, Inc. and the
Company
10.16+ Telemarketing Services Agreement between Optima Direct, Inc.
and the Company(6)(P)
10.17.1* Marketing Services Agreement between Delta Three Direct LLC
and the Company
10.17.2* Operating Agreement of Delta Three Direct LLC
10.17.3* Network Services Agreement between Delta Three, Inc. and
Delta Three Direct LLC
10.17.4*+ Network Services Agreement between RSL Com U.S.A., Inc. and
Delta Three Direct LLC
10.18+ Telemarketing Services Agreements between New Media
Telecommunications, Inc. and the Company(6)(P)
10.19.1+ Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company(6)(P)
10.19.2+ Letter Agreement, dated November 12, 1997, amending the
Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company(7)(P)
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
10.19.3+ Letter Agreement, dated January 19, 1998, amending the
Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company(7)
10.20+ Billing and Collection Services Agreement between Federal
Transtel, Inc. and the Company(6)(P)
10.21* Billing and Information Management Services Agreement
between Billing Concepts, Inc. and the Company
10.22+ Ownership Agreement between the Company, Calling Card Co.,
Inc., Access Resource Services, Inc. and Real Communication
Services, Inc.(7)
10.23.1+ Telecommunications Services Agreement between LCI
International Telecom Corp. and the Company(7)(P)
10.23.2*+ Amendment to the Telecommunications Services Agreement
between LCI International Telecom Corp. and the Company
10.23.3*+ Amended and Restated Telecommunications Services Agreement
between LCI International Telecom Corp., d/b/a Qwest
Communications Services, and the Company
10.24.1 Limited Liability Company Agreement between the Company and
Paragon Cellular Services, Inc.(7)
10.24.2 Amendment No. 1 to Limited Liability Company Agreement
between the Company and Paragon Cellular Services, Inc.(7)
10.25*+ Cellular Telephone Product and Service Agreement between
U.S. Mobile Services, Inc. and the Company
10.26.1*+ Settlement and Release of New Lauderdale
10.26.2*+ Settlement and Release of Calling Card Co., Inc.
10.27*+ Media Agreement between Access Resource Services, Inc. and
the Company
10.28* Software License Agreement between US/Intelicom, Inc. and
the Company
10.29.1*+ License Agreement between the Company and a Confidential
Third Party
10.29.2*+ Escrow Agreement between the Company, the Law Firm of
Swidler Berlin Shereff Friedman, LLP and a Confidential
Third Party
21* Subsidiaries of the Company
27* Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
+ Confidential treatment requested as to portions of this Exhibit.
(1) Filed as an Exhibit to the Company's Registration Statement on Form 8-A,
dated October 23, 1995, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1998, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-1 (the
"S-1 Registration Statement"), dated September 6, 1995 (File No. 33-96632),
and incorporated herein by reference.
(4) Filed as an Exhibit to a Definitive Information Statement filed with the
Commission, dated August 20, 1996, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Proxy Statement filed with the
Commission, dated July 21, 1997 and incorporated herein by reference.
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1996, and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1997, and incorporated herein by reference.
(P) Filed by paper with the Commission pursuant to a continuing hardship
exemption.
33
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: March 16, 1999
QUINTEL COMMUNICATIONS, INC.
By: /s/ JEFFREY L. SCHWARTZ
------------------------------------
Jeffrey L. Schwartz
Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFREY L. SCHWARTZ Chairman and Chief March 16, 1999
- ----------------------------------------------------- Executive Officer
Jeffrey L. Schwartz (Principal Executive
Officer)
/s/ JAY GREENWALD President, Chief Operating March 16, 1999
- ----------------------------------------------------- Officer and Director
Jay Greenwald
/s/ DANIEL HARVEY Chief Financial Officer March 16, 1999
- ----------------------------------------------------- (Principal Financial and
Daniel Harvey Accounting Officer)
/s/ ANDREW STOLLMAN Senior Vice President and March 16, 1999
- ----------------------------------------------------- Director
Andrew Stollman
/s/ MICHAEL G. MILLER Director March 16, 1999
- -----------------------------------------------------
Michael G. Miller
/s/ MURRAY L. SKALA Director March 16, 1999
- -----------------------------------------------------
Murray L. Skala
/s/ EDWIN A. LEVY Director March 16, 1999
- -----------------------------------------------------
Edwin A. Levy
/s/ MARK GUTTERMAN Director March 16, 1999
- -----------------------------------------------------
Mark Gutterman
Director
- -----------------------------------------------------
Paul Novelly
</TABLE>
34
<PAGE> 37
QUINTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1998 AND 1997 AND
FOR EACH OF THE YEARS IN THE
THREE YEAR PERIOD ENDED NOVEMBER 30, 1998
35
<PAGE> 38
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Accountants........................... F-1
Consolidated Balance Sheets as of November 30, 1998 and
1997...................................................... F-2
Consolidated Statements of Operations for the years ended
November 30, 1998, 1997 and 1996.......................... F-3
Consolidated Statements of Shareholders' Equity for the
years ended November 30, 1998, 1997 and 1996.............. F-4
Consolidated Statements of Cash Flows for the years ended
November 30, 1998, 1997 and 1996.......................... F-5 - F-6
Notes to Consolidated Financial Statements.................. F-7 - F-20
Schedule II -- Valuation and Qualifying Accounts and
Reserves.................................................. S-1
</TABLE>
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Quintel Communications, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Quintel Communications, Inc. and Subsidiaries (the "Company,")
previously known as Quintel Entertainment, Inc. at November 30, 1998 and 1997
and the consolidated results of their operations and their cash flows for each
of the years in the three year period ended November 30, 1998 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers, LLP
Melville, New York
March 10, 1999
F-1
<PAGE> 40
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 2,123,630 $ 10,063,717
Marketable securities..................................... 15,019,233 24,730,706
Accounts receivable, trade................................ 31,230,579 46,310,960
Deferred income taxes..................................... 11,990,442 10,021,057
Due from related parties.................................. 754,089 237,485
Prepaid expenses and other current assets................. 2,151,270 4,096,452
----------- ------------
Total current assets.............................. 63,269,243 95,460,377
Property and equipment, at cost, net of accumulated
depreciation.............................................. 1,143,901 1,041,790
Intangible assets, net...................................... 19,496,608
----------- ------------
Total assets...................................... $64,413,144 $115,998,775
=========== ============
LIABILITIES:
Current liabilities:
Accounts payable.......................................... $ 4,453,663 $ 4,653,862
Accrued expenses.......................................... 6,897,246 7,956,308
Reserve for customer chargebacks.......................... 15,494,138 38,196,114
Due to related parties.................................... 140,756 979,405
Income taxes payable...................................... 745,197
----------- ------------
Total current liabilities......................... 27,731,000 51,785,689
Deferred income taxes....................................... 506,789
----------- ------------
Total liabilities................................. 27,731,000 52,292,478
----------- ------------
Commitments and contingencies (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock -- $.001 par value; 1,000,000 shares
authorized; none issued and outstanding
Common stock -- $.001 par value; authorized 50,000,000
shares; issued and outstanding 16,679,746 shares and
18,649,347 shares, respectively........................... 16,679 18,649
Additional paid-in capital.................................. 38,955,275 39,027,700
Retained earnings (deficit)................................. (379,292) 24,663,931
Unrealized loss on marketable securities.................... (10,488) (3,983)
Common stock held in Treasury, at cost, 773,066 shares...... (1,900,030)
----------- ------------
Total shareholders' equity........................ 36,682,144 63,706,297
----------- ------------
Total liabilities and shareholders' equity........ $64,413,144 $115,998,775
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 41
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net revenue....................................... $ 94,690,251 $191,374,936 $86,666,768
Cost of sales..................................... 80,037,115 149,821,363 64,661,256
------------ ------------ -----------
Gross profit............................ 14,653,136 41,553,573 22,005,512
Selling, general and administrative expenses...... 14,356,892 18,880,769 10,159,226
Special charges................................... 19,692,543
------------ ------------ -----------
(Loss) income from operations........... (19,396,299) 22,672,804 11,846,286
Interest expense.................................. (186,218) (80,763) (473,289)
Other income, primarily interest.................. 2,212,435 1,841,356 760,413
Equity in earnings of joint venture............... 4,939,653
------------ ------------ -----------
(Loss) income before provision for
income taxes.......................... (17,370,082) 24,433,397 17,073,063
(Benefit) provision for income taxes.............. (417,464) 10,069,616 4,898,633
------------ ------------ -----------
Net (loss) income....................... $(16,952,618) $ 14,363,781 $12,174,430
============ ============ ===========
Basic (loss) income per share:
Net (loss) income............................... $ (1.00) $ .77 $ .76
------------ ------------ -----------
Weighted average shares outstanding............. 17,034,531 18,560,064 15,918,881
============ ============ ===========
Diluted (loss) income per share
Net (loss) income............................... $ (1.00) $ .76 $ .76
------------ ------------ -----------
Weighted average shares outstanding............. 17,034,531 18,878,790 16,124,743
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 42
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
-------------------- PAID-IN EARNINGS -------------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
---------- ------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1995............ 12,000,000 $12,000 $ 441,258 $ 5,597,817
Collections on subscriptions
receivable..........................
Distributions to S corporation
shareholders........................ (6,897,097)
Common stock issued:
Common stock offering............... 3,225,000 3,225 13,398,850
Common stock issued in connection
with acquisition.................. 3,200,000 3,200 22,796,800
Stock option exercises.............. 27,368 27 136,812
Tax benefit from exercise of stock
options............................. 57,330
Contributed capital................... 575,000 (575,000)
Unrealized gains on available for sale
securities..........................
Net income for the year............... 12,174,430
---------- ------- ----------- ------------
Balance, November 30, 1996............ 18,452,368 18,452 37,406,050 10,300,150
Common stock issued:
Stock option exercises.............. 152,797 153 837,597
Warrant exercises................... 44,182 44 364,458
Tax benefit from exercise of stock
options............................. 419,595
Unrealized (losses) on available for
sale securities.....................
Net income for the year............... 14,363,781
---------- ------- ----------- ------------
Balance, November 30, 1997............ 18,649,347 18,649 39,027,700 24,663,931
Unrealized (losses) on available for
sale securities.....................
Purchase of common stock held in
treasury, at cost................... 2,742,667 $(10,065,030)
Retirement of stock held in
treasury............................ (1,969,601) (1,970) (72,425) (8,090,605) (1,969,601) 8,165,000
Net (loss) for the year............... (16,952,618)
---------- ------- ----------- ------------ ---------- ------------
Balance, November 30, 1998............ 16,679,746 $16,679 $38,955,275 $ (379,292) 773,066 $ (1,900,030)
========== ======= =========== ============ ========== ============
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ON TOTAL
MARKETABLE SUBSCRIPTIONS SHAREHOLDERS'
SECURITIES RECEIVABLE EQUITY
-------------- ------------- -------------
<S> <C> <C> <C>
Balance, November 30, 1995............ $(20,000) $ 6,031,075
Collections on subscriptions
receivable.......................... 20,000 20,000
Distributions to S corporation
shareholders........................ (6,897,097)
Common stock issued:
Common stock offering............... 13,402,075
Common stock issued in connection
with acquisition.................. 22,800,000
Stock option exercises.............. 136,839
Tax benefit from exercise of stock
options............................. 57,330
Contributed capital...................
Unrealized gains on available for sale
securities.......................... $ 10,281 10,281
Net income for the year............... 12,174,430
-------- -------- ------------
Balance, November 30, 1996............ 10,281 -- 47,734,933
Common stock issued:
Stock option exercises.............. 837,750
Warrant exercises................... 364,502
Tax benefit from exercise of stock
options............................. 419,595
Unrealized (losses) on available for
sale securities..................... (14,264) (14,264)
Net income for the year............... 14,363,781
-------- -------- ------------
Balance, November 30, 1997............ (3,983) -- 63,706,297
Unrealized (losses) on available for
sale securities..................... (6,505) (6,505)
Purchase of common stock held in
treasury, at cost................... (10,065,030)
Retirement of stock held in
treasury............................
Net (loss) for the year............... (16,952,618)
-------- -------- ------------
Balance, November 30, 1998............ $(10,488) $ -- $ 36,682,144
======== ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 43
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.............................. $(16,952,618) $ 14,363,781 $ 12,174,430
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Depreciation and amortization............... 1,284,039 2,620,146 1,268,166
Reserve for customer chargebacks............ (22,701,976) 18,115,211 6,719,018
Deferred income taxes....................... (2,471,838) (2,552,328) (6,431,212)
Other....................................... (384,250)
Special charges............................. 19,692,543
............................................
Equity in net earnings of joint venture, net
of dividends received..................... (507,653)
Changes in assets and liabilities, net of
effects from acquisition of business:
Accounts receivable....................... 15,080,381 (28,280,877) (1,582,937)
Due from related parties.................. (516,604) 406,683 3,102,976
Prepaid expenses and other current
assets................................. 1,729,104 (1,331,703) (893,712)
Other assets.............................. 1,299,169
Accounts payable.......................... (200,199) 2,088,479 511,786
Income tax payable........................ 745,197 (4,131,303) 3,894,446
Accrued expenses.......................... (1,059,062) 4,917,798 362,118
Due to related parties.................... (838,649) (499,110) 565,806
------------ ------------ ------------
Net cash (used in) provided by
operating activities................. (6,209,682) 5,716,777 20,098,151
------------ ------------ ------------
Cash flows from investing activities
Purchases of securities........................ (72,275,879) (65,649,246) (37,434,414)
Proceeds from sales of securities.............. 81,976,511 55,500,000 23,240,075
Acquisition, net of cash acquired.............. 900,040
Capital expenditures........................... (1,366,007) (847,053) (251,628)
------------ ------------ ------------
Net cash provided by (used in)
investing activities................. 8,334,625 (10,996,299) (13,545,927)
------------ ------------ ------------
Cash flows from financing activities:
Loans payable, net............................. (2,643,522)
Proceeds from public offering, less expenses... 13,402,075
Proceeds from collections on common stock
subscriptions............................... 20,000
Distributions to S corporation shareholders.... (6,897,097)
Proceeds from stock options exercised.......... 837,750 136,839
Proceeds from warrants exercised............... 364,502
Repurchase of common stock..................... (10,065,030)
------------ ------------ ------------
Net cash (used in) provided by
financing activities................. (10,065,030) 1,202,252 4,018,295
------------ ------------ ------------
</TABLE>
F-5
<PAGE> 44
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net (decrease) increase in cash and cash
equivalents.................................... (7,940,087) (4,077,270) 10,570,519
Cash and cash equivalents, beginning of year..... 10,063,717 14,140,987 3,570,468
------------ ------------ ------------
Cash and cash equivalents, end of year........... $ 2,123,630 $ 10,063,717 $ 14,140,987
============ ============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest.................................... $ 186,218 $ 80,763 $ 473,289
Income taxes................................ 910,000 13,613,887 6,627,866
Details of acquisition:
Fair value of assets acquired.................. $ 36,031,621
Liabilities assumed............................ (11,731,621)
Stock issued................................... (22,800,000)
------------
Cash paid.............................. 1,500,000...
Less: cash acquired............................ (2,400,040)
------------
Net cash received from acquisition..... $ (900,040)
============
</TABLE>
During fiscal 1997 and 1996, options and warrants for shares of common
stock were exercised by certain employees, directors and an underwriter. A tax
benefit of $419,595 and $57,330 in fiscal 1997 and 1996, respectively, was
recorded as an increase in additional paid-in capital and a reduction to income
taxes currently payable.
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 45
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of Quintel Communications, Inc. (the
"Company"), previously known as Quintel Entertainment, Inc. include the accounts
of its wholly-owned subsidiaries and its majority-owned and controlled joint
ventures. On September 10, 1996, the Company acquired the remaining interest in
New Lauderdale, L.C. ("New Lauderdale") (see Note 6). The consolidated financial
statements of the Company include the accounts of New Lauderdale subsequent to
this date. New Lauderdale had previously been accounted for by the equity method
as a 50% owned joint venture. All significant intercompany transactions and
balances have been eliminated in consolidation.
Nature of Business
The Company is engaged in the direct marketing and providing of various
telecommunications products and services. Additionally, the Company utilizes its
database to further provide direct marketing services under its residential long
distance customer acquisition programs. The Company's revenues from the
aforementioned are generated through the direct sale of products and services to
consumers and through revenue sharing arrangements with its residential long
distance customer acquisition clients. The telecommunications products and
services offered by the Company in the fiscal year ended November 30, 1998
consisted primarily of (i) telephone entertainment services, such as live
conversation horoscopes and psychic consultations, and memberships in
theme-related club 900 products ("Club 900 Products"); (ii) a residential
distributor program agreement with a long distance telephone service provider,
whereby the Company markets their residential long distance products; and (iii)
various enhanced telephone services, including enhanced voice mail services and
call-forwarding services.
Consumers are solicited by the Company through a variety of marketing
techniques including television commercials and infomercials, print advertising,
direct mail, telemarketing, and premium gift offerings. Customers are also
obtained through solicitation by Psychic Readers Network, Inc. and Subsidiaries
("PRN") (see Note 6). The Company has contracts with a limited number of service
bureaus for the purpose of call processing, billing and collection. Under these
contracts, the bureaus process and accumulate call data, summarize the
information, and forward the data to the local telephone companies and/or long
distance carriers for the ultimate billing to and collection from the Company's
customers.
The Company also contracts with numerous organizations, to provide live
operator services, computer services, telemarketing and other services necessary
to establish, fulfill and maintain the Company's programs. PRN currently
provides substantially all of the Company's live psychic operations. Certain
non-psychic services previously provided by PRN came under the direct control of
the Company in connection with the acquisition of New Lauderdale (see Note 6).
Revenue recognition
Revenues from all billable platforms are recorded at the time the customer
initiates a billable transaction, except for customer fees for club and Voice
Mail and EZ Page products and services ("VM"). New customer club and VM product
fees are recognized upon approved enrollment and when the service is rendered.
Continuing club and VM product fees are recognized as customers automatically
renew each month. These revenues are recognized net of an estimated provision
for customer chargebacks, which include refunds and credits.
The Company, where applicable, estimates the reserve for customer
chargebacks monthly based on updated chargeback history. Chargebacks and other
provisions for new products and platforms without a history are based on
experience with similar products and platforms and adjusted as further
information becomes available. Since reserves are established prior to the
periods in which chargebacks are actually
F-7
<PAGE> 46
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expended, the Company's revenues may be adjusted in later periods in the event
that the Company's incurred chargebacks vary from the estimated amounts. For the
years ended November 30, 1998, 1997 and 1996, provisions for chargebacks were
$56,496,612, $103,597,803 and $46,352,638, respectively.
Revenues earned under the residential long distance customer acquisition
program (approximately $24,100,000 in 1998 and $26,500,000 in 1997) are recorded
upon the achievement of events particular to the program offering. Subsequent to
the delivery of the initial sales record to the respective long distance
carrier, the Company may be required to provide to the customer certain
fulfillment products and services, such as prepaid cellular phones and
complimentary airline tickets. All material costs applicable to the provision of
such fulfillment products and services are estimated and accrued in marketing
expenses at the time the associated revenues are recorded. This estimation is
adjusted to actual amounts in subsequent periods. Such programs revenues are not
encumbered by chargebacks.
Accounts receivable
The Company has maintained agreements with service bureaus that provide
advances against accounts receivable collections. Under the Company's current
agreement, interest is calculated at prime plus 3%. Amounts advanced under the
agreement is on a revolving basis and are primarily limited to 50% of a defined
borrowing base, net of related service fees and costs, as applicable. Certain
advances under the agreement are due on demand and all are collateralized by the
accounts receivable collected by the service bureaus. The Company did not use
any advances during fiscal 1998 and 1997. During fiscal 1996, the gross advances
and weighted average interest rate on the advances received were approximately
$9,156,355 and 13.17%.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents, marketable
securities and accounts receivable.
The Company invests a portion of its excess cash in debt instruments and
has established guidelines relative to diversification that maintain safety and
liquidity.
The Company's collections are received primarily through three unrelated,
unaffiliated service bureaus which process and collect all of the Company's
billings. In conjunction with servicing the accounts receivable, the service
bureaus remit amounts based on eligible accounts receivable and withhold certain
cash receipts as a reserve. As a result, the Company's exposure to the
concentration of credit risk primarily relates to all collections on behalf of
the Company by these service bureaus.
Cash balances are held principally at three financial institution and may,
at times, exceed insurable amounts. The Company believes it mitigates its risks
by investing in or through major financial institutions. Recoverability is
dependent upon the performance of the institutions.
Transactions With Major Customers
Revenues from one long distance carrier amounted to 20% during fiscal 1998.
It is anticipated that in fiscal 1999 this arrangement will account for a much
greater percentage of the Company's revenues. If this occurs, the Company would
be subject to significant economic dependence on such relationship.
Cash and cash equivalents
All short-term investments with an original maturity of three months or
less are considered to be cash equivalents.
F-8
<PAGE> 47
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marketable securities
The Company accounts for its investments using Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company's marketable securities consist of government
obligations which they intend to hold only for an indefinite period of time. At
November 30, 1998 and 1997, all securities covered by SFAS No. 115 were
designated as available for sale. Accordingly, such securities are stated at
fair value, with unrealized gains and losses, net of estimated tax effects,
reported as a separate component of shareholders' equity, until realized. The
contractual maturities of all available for sale debt securities at November 30,
1998 and 1997 are within one year. The amortized cost of available for sale debt
securities are $15,036,713 and $24,737,345 at November 30, 1998 and 1997,
respectively.
Gross unrealized holding losses were $10,488 and $3,983, respectively, net
of deferred taxes of $6,992 and $2,656, at November 30, 1998 and 1997,
respectively. Proceeds from the sale of securities classified as available for
sale for the year ended November 30, 1998 and 1997 were approximately
$81,977,000 and $55,500,000, respectively.
Property, plant and equipment
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over a five to seven year useful life depending on the
nature of the asset. Leasehold improvements are amortized over the life of the
improvement or the term of the lease, whichever is shorter. Expenditures for
maintenance and repairs are expensed as incurred while renewals and betterments
are capitalized.
Upon retirement or disposal, the asset cost and related accumulated
depreciation and amortization are eliminated from the respective accounts and
the resulting gain or loss, if any, is included in the results of operations for
the period.
Long-lived assets
If events or changes in circumstances indicate that the carrying amount of
a long-lived asset may not be recoverable, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the long-lived asset, an impairment
loss is recognized. (See Note 8.)
Income taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are provided against
assets which are not likely to be realized.
Advertising expenses
The Company expenses advertising costs, which consist primarily of print,
media, production, telemarketing and direct mail related charges, when the
related advertising occurs. Total advertising expense for fiscal 1998, 1997, and
1996 were approximately $57,759,000, $81,576,000 and $31,795,000, respectively.
Included in prepaid expenses and other current assets is approximately $207,000
and $488,000 relating to prepaid advertising at November 30, 1998 and 1997,
respectively.
F-9
<PAGE> 48
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings per share
In December 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Earnings per share amounts for all periods have been
restated to conform to the SFAS No. 128 requirements.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
Newly Issued Accounting Standards
In June 1997, the FASB issued Statement of Accounting Standard No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130"), which requires that changes
in comprehensive income be shown in a financial statement that is displayed in
the same prominence as other financial statements. SFAS No. 130 becomes
effective in fiscal 1999. Management will comply with the additional disclosure
provisions of the statement.
In June 1997, the FASB issued Statement of Accounting Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), which changes the way public companies report information about segments.
SFAS 131, which is based on the management approach to segment reporting,
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds and reports revenues. SFAS 131
becomes effective in fiscal 1999. The implementation of this new statement will
not affect the Company's results of operations and financial position, but will
have an impact on future financial statement disclosure.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
Company's most significant estimates relate to the reserve for customer
chargebacks, recoverability of long-lived assets, the realizability of the
deferred tax asset and fulfillment accrual for customer acquisition costs.
2. RELATED PARTY TRANSACTIONS:
The Company purchased various mailing lists and design, copyrighting and
artistic development services from related entities owned by certain of the
Company's officers/shareholders. The agreements require the Company to pay fees
equal to 20% of rental revenues and a management fee of 10%, plus any fees in
connection with processing and mailing lists. During fiscal 1998, 1997 and 1996,
costs of approximately $10,000, $267,000 and $535,000, respectively, were
incurred by the Company for such services. During fiscal 1998, the related
entities were sold dissolving the related party relationship as of November 30,
1998.
The Company incurred approximately $90,800, $107,000 and $242,000,
respectively, during fiscal 1998, 1997 and 1996, in accounting fees to a firm
having a member who is also a director of the Company. In addition, the Company
incurred approximately $431,000, $372,000 and $334,000, respectively, during
fiscal 1998, 1997 and 1996, in legal fees to a firm having a member who is also
a director of the Company.
In connection with the acquisition of PRN's interest in New Lauderdale (see
Note 6), a principal shareholder of PRN was elected a director of the Company
and entered into an employment agreement with
F-10
<PAGE> 49
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company (see Note 7). The Company incurred approximately $227,000, $206,000
and $39,000 in expense relating to this employment agreement in fiscal 1998,
1997 and 1996, respectively. Such principle shareholder resigned from his
position of director in January 1999.
For the years ended November 30, 1998, 1997 and 1996, the Company paid
aggregate fees of approximately $7,023,000, $24,300,000 and $8,560,000,
respectively, to PRN for psychic operator services under an agreement that
extends to fiscal 2001. Since February 1996, PRN also provided certain
non-psychic services and facilities to the Company for approximately $14,000 per
month.
During fiscal 1998 and 1997, the Company received commissions of
approximately $685,000 and $830,000, respectively, from PRN for purchasing
television media time on their behalf. In addition, receivables existed for such
commissions of approximately $578,000 and $73,000 at November 30, 1998 and 1997,
respectively.
During the fourth quarter of fiscal 1997, the Company introduced a new club
membership program offering premium telephone services to its members for a one
time payment. In conjunction with the new program, the Company executed a
contract with PRN who has assumed the responsibility and obligation for the
fulfillment of all the recurring club services under the program. Under certain
circumstances, the Company is entitled to share in certain revenues, net of
expenses generated from additional services sold by PRN to the club members.
Such amounts were not material for fiscal 1998.
On March 13, 1998, the Company purchased from a director of the Company,
1,969,601 shares of the Company's common stock for an aggregate purchase price
of $8,165,000. At the same time, the seller's employment by the Company was
terminated and she resigned from all directorships and offices she had held at
the Company or any affiliate thereof. The shares reacquired were subsequently
retired.
3. PROPERTY AND EQUIPMENT:
Property and equipment for the years ended November 30, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Furniture and fixtures.............................. $ 314,536 $ 297,445
Computers and equipment............................. 1,238,165 861,870
Telephone and facsimile............................. 57,582 46,992
Leasehold improvements.............................. 51,146 51,145
---------- ----------
1,661,429 1,257,452
Less, accumulated depreciation and amortization..... 517,528 215,662
---------- ----------
$1,143,901 $1,041,790
========== ==========
</TABLE>
Depreciation and amortization expense for the years ended November 30,
1998, 1997 and 1996 was approximately $304,000, $150,000 and $50,000,
respectively. (See Note 8.)
F-11
<PAGE> 50
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES:
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current........................... $10,201,378 $ 8,852,749
Deferred.......................... $(2,593,444) (1,761,002) (4,723,850)
----------- ----------- -----------
(2,593,444) 8,440,376 4,128,899
----------- ----------- -----------
State:
Current........................... 525,000 2,152,177 1,661,946
Deferred.......................... 1,650,980 (522,937) (892,212)
----------- ----------- -----------
2,175,980 1,629,240 769,734
----------- ----------- -----------
Total provision........... $ (417,464) $10,069,616 $ 4,898,633
=========== =========== ===========
</TABLE>
The following is a reconciliation of the income tax expense computed using
the statutory federal income tax rate to the actual income tax expense and its
effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income tax (benefit) expense at
federal statutory rate............ $(6,079,529) $ 8,551,689 $ 5,975,572
State income taxes, net of federal
income tax benefit................ 341,250 1,059,006 500,327
Deferred benefit arising from
conversion to C corporation....... (1,781,700)
Goodwill amortization............... 3,623,519 179,636
Valuation allowance................. 1,679,082
Other, individually less than 5%.... 18,214 279,285 204,434
----------- ----------- -----------
$ (417,464) $10,069,616 $ 4,898,633
=========== =========== ===========
</TABLE>
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Current:
Accrued expenses and reserves not currently
deductible................................. $ 3,401,790 $10,219,454
Fixed assets and intangibles................. 2,006,164
Net operating loss........................... 8,261,570
Valuation allowance.......................... (1,679,082)
----------- -----------
Total current assets.................... 11,990,442 10,219,454
Deferred tax liabilities:
Current:
Other........................................ (198,397)
</TABLE>
F-12
<PAGE> 51
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Noncurrent:
Intangibles.................................. (506,789)
----------- -----------
Net deferred tax asset.................. $11,990,442 $ 9,514,268
=========== ===========
</TABLE>
A $1,679,082 valuation allowance has reduced the deferred tax assets at
November 30, 1998 to an amount which the Company believes is more likely than
not to be realized. The deferred tax asset expected to be realized will be
through the execution of tax planning strategies and the recapture of taxes paid
on prior taxable income.
The Company has approximately $21 million of Net Operating Losses expiring
through 2018 for Federal purposes which will be carried back in the Company's
1998 tax return. The Company's tax year is December 31.
5. REGULATORY ISSUES AND OTHER RISK CONSIDERATIONS:
The Company's primary contact with its customers is over the telephone
lines and services of numerous local telephone companies and long distance
carriers. The Company cannot predict the impact, if any, of changes in various
regulations affecting the Company, directly, or through one of the telephone
companies.
There can be no assurance that the Company will be able, for financial or
other reasons, to comply with applicable laws and regulations or that regulatory
authorities will not take action to limit or prevent the Company from
advertising, marketing or promoting its services and club and VM products and
services or otherwise require the Company to discontinue or substantially modify
the content of its services.
The Company has received requests for information from regulatory
authorities, regarding investigations of certain of its telemarketing
activities. Management believes, based on advice from counsel, that their
investigations will not result in enforcement actions or claims which would have
a material adverse effect on the financial statements.
The Company is dependent on service bureaus to process its calls, billings
and collections. In November 1998, three of the LECs refused to bill customers
for enhanced services provided by the Company. This was a result of what the
LECs' claim was excessive complaints by customers for "cramming" (unauthorized
charges billed to a customer's phone bill) against the Company and its
affiliates. This billing cessation effectively prevented the Company from
selling its enhanced services in those areas serviced by such LECs. The
remaining LECs have not altered their billing practices for the Company's
services and the Company continues to offer its enhanced services in those
areas.
As a result of such LEC imposed billing cessation, in November 1998, the
primary billing service provider for the Company's enhanced services terminated
its arrangement with the Company for providing billing for the Company's
enhanced services. Such service bureau continues to service all data relating to
post-billing adjustments to records billed prior to the billing cessation. In
December 1998, the Company entered into an agreement with an alternate service
bureau whereby such service bureau provides the billing services previously
provided by the Company's primary enhanced service billing provider. In effect,
between the termination of the primary billing service arrangement and the
commencement of billing under the agreement with the alternate provider
(approximately two months), the Company was unable to bill for any enhanced
services provided.
The Company is dependent on its service bureaus to provide quality services
on a timely basis on favorable terms. While the Company believes its service
bureau needs could be transferred to alternate providers, if necessary, no
contracts to cover such a contingency are currently in effect. Accordingly,
failure by
F-13
<PAGE> 52
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
any existing bureaus to provide services, such as that experienced at the end of
the fourth quarter of fiscal 1998, would result in material interruptions in the
Company's operations.
6. NEW LAUDERDALE:
In December 1994, the Company entered into an agreement with PRN, an
unrelated entity at that time, to establish a joint venture known as New
Lauderdale, L.C. New Lauderdale operated "900" entertainment services. On
September 10, 1996, the Company acquired the remaining 50% interest in New
Lauderdale for 3,200,000 common shares. PRN subsequently distributed such shares
to its shareholders. In addition to receiving its share of New Lauderdale's
earnings through the closing date, PRN received approximately $1,500,000 in cash
for the deferred tax benefit to New Lauderdale resulting from the transaction.
The common shares were valued at the market price on the date of the letter of
intent ($7.125 per share). The acquisition was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated to the
assets purchased based upon the fair values at the date of acquisition. As a
result, approximately $23,159,000 of the purchase price was allocated to
goodwill, customer lists and other intangibles which were being amortized on a
straight line basis over a period from 1 to 15 years. The operating results of
the acquisition have been included in the consolidated statement of income from
the date of the acquisition.
The following pro forma information prepared assuming that this acquisition
had taken place on December 1, 1995 is not necessarily indicative of the results
of operations as they would have been had the transaction been effected on such
date. The pro forma information includes adjustments for amortization of
intangibles arising from the transaction and an adjustment of the tax provision
for fiscal 1995 representing the statutory federal rate assuming the Company had
always been a C corporation.
<TABLE>
<CAPTION>
NOVEMBER 30,
1996
------------
<S> <C>
Net revenues................................................ $150,284,451
Net income.................................................. 12,351,385
Earnings per share.......................................... .66
</TABLE>
As of November 30, 1997, the net book value of the intangibles, primarily
goodwill, was $19,496,608, net of accumulated amortization of $3,695,704.
Amortization expense was $982,173, $2,470,476 and $1,218,576 for the years ended
November 30, 1998, 1997 and 1996. During fiscal 1998, the Company determined
that the intangibles were impaired. See Note 8 -- Special Charges.
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Company is obligated under two noncancelable real property operating
lease agreements that expire in fiscal 2004 and 2006. Future minimum rents
consist of the following at November 30, 1998:
<TABLE>
<S> <C>
1999............................................. $ 500,246
2000............................................. 504,912
2001............................................. 542,145
2002............................................. 548,432
2003............................................. 554,927
Thereafter....................................... 989,245
----------
$3,639,907
==========
</TABLE>
F-14
<PAGE> 53
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The leases contain escalation clauses with respect to real estate taxes and
related operating costs. The accompanying financial statements reflect rent
expense on a straight-line basis over the term of the lease as required by
generally accepted accounting principles. Rent expense was $522,422, $383,867
and $210,153 for fiscal 1998, 1997 and 1996, respectively.
EMPLOYMENT AGREEMENTS AND CONSULTING
The Company had executed employment agreements, which expired on November
30, 1998, with certain executive officers of the Company. In the event the
Company achieved pre-tax earnings of $10,000,000 or more for any such fiscal
year, the Company may have granted bonuses to such persons, subject to approval
of the Compensation Committee of the Board of Directors, in an aggregate amount
not to exceed 5% of pre-tax earnings for such year. Such bonuses amounted to
approximately $1,305,000 at November 30, 1997. No bonuses were granted during
fiscal 1998. Each of the individuals have agreed to continue to work as
employees-at-will until new agreements are approved by the Board of Directors.
The Company had a consulting agreement with a director/shareholder, which
expired on November 30, 1998. Under the terms of such agreement, the
director/shareholder provided services in connection with identification and
engagement of celebrities to endorse the Company's services, engagement of
independent producers to produce commercials and infomercials and the
development of new entertainment services. The Company incurred approximately
$151,000, $137,000 and $125,000 in expense relating to this agreement in 1998,
1997 and 1996, respectively. Although the consulting agreement has expired, the
director/shareholder continues to provide the consulting services to the Company
and the Company compensates the director/ shareholder at a rate of $10,417 per
month. Such arrangements have not been formally agreed to and may be terminated
by either party at will.
In connection with the acquisition of PRN's interest in New Lauderdale (see
Note 6), a principal shareholder of PRN was elected a director of the Company
and entered into an employment agreement with the Company. Minimum future
payments under this agreement are as follows:
<TABLE>
<S> <C>
1999........................................................ $249,562
2000........................................................ 274,518
2001........................................................ 100,657
--------
$624,737
========
</TABLE>
Other
As a result of the acquisition of New Lauderdale (see Note 6), the Company
has agreements with various celebrities to promote its telephone entertainment
services. These agreements are generally for a term of one year, which may be
extended under certain circumstances, and grant worldwide rights to use an
individual's name and likeness in connection with services promoted by
advertisements. Compensation varies by individual and generally consists of an
advance payment and royalties based on defined revenues earned by the Company.
Total royalty expenses incurred for fiscal 1998, 1997 and 1996 were $124,837,
$399,395 and $261,566, respectively.
Litigation
On or about May 4, 1998, a complaint entitled "Joseph Chalverus, on behalf
of himself and all others similarly situated v. Quintel Entertainment, Inc.,
Jeffrey L. Schwartz and Daniel Harvey" was filed in the United States District
Court for the Southern District of New York; subsequently, a complaint entitled
"Richard M. Woodward, on behalf of himself and all others similarly situated v.
Quintel Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed in
that same court, as was a complaint entitled
F-15
<PAGE> 54
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Dr. Michael Title, on behalf of himself and all others similarly situated v.
Jeffrey L. Schwartz, Jay Greenwald, Claudia Newman Hirsch, Andrew Stollman, Mark
Gutterman, Steven L. Feder, Michael G. Miller, Daniel Harvey and Quintel
Entertainment, Inc. (collectively, the "Complaints"). In addition to the
Company, the defendants named in the Complaints are present and former officers
and directors of the Company (the "Individual Defendants"). The plaintiffs seek
to bring the actions on behalf of a purported class of all persons or entities
who purchased shares of the Company's Common Stock from July 15, 1997 through
October 15, 1997 and who were damaged thereby, with certain exclusions. The
Complaints allege violations of Sections 10(b) and 20 of the Securities Exchange
Act of 1934, and allege that the defendants made misrepresentations and
omissions concerning the Company's financial results, operations and future
prospects, in particular relating to the Company's reserves for customer
chargebacks and its business relationship with AT&T. The Complaints allege that
the alleged misrepresentations and omissions caused the Company's Common Stock
to trade at inflated prices, thereby damaging plaintiffs and the members of the
purported class. The amount of damages sought by plaintiffs and the purported
class has not been specified.
On September 18, 1998, the District Court ordered that the three actions be
consolidated, appointed a group of lead plaintiffs in the consolidated actions,
approved the lead plaintiffs' selection of counsel for the purported class in
the consolidated actions, and directed the lead plaintiffs to file a
consolidated complaint. The consolidated and amended class action complaint
("Consolidated Complaint") which has been filed asserts the same legal claims
based on essentially the same factual allegations as did the Complaints. On
February 19, 1999, the Company and the Individual Defendants filed a motion to
dismiss the Consolidated Complaint. Plaintiffs have served papers in opposition
to the motion to dismiss. The District Court has not yet rules on the motion to
dismiss. The Company believes that the allegations in the Complaints are without
merit, and intends to vigorously defend the consolidated actions. The Company is
unable at this time to assess the outcome of the Consolidated Complaint or the
materiality of the risk of loss in connection therewith, given the preliminary
stage of the Consolidated Complaint and the fact that the Consolidated Complaint
does not allege damages with specificity.
An action was brought by Paramount Advertiser Services on August 13, 1998
against Access Resource Services, Inc. ("Access") and Quintel Media Management,
a subsidiary of the Company. The action alleges breach of a contract to purchase
advertising time as well as breach of a settlement agreement resolving earlier
disputes, and alleges resulting damages of approximately $3,300,000. Access has
agreed to indemnify the Company the total sum of $2,300,000, of which, as of
February 24, 1999, $1,050,000 has been placed in escrow. The Company believes
the claim is without merit and intends to vigorously defend against the action.
A counterclaim action was brought against the Company by a supplier of
cellular phones alleging damages of $1,030,000 relating to a cancelled purchase
order. The Company had previously commenced an action against the supplier
seeking to recover approximately $480,000 from such supplier alleging breach of
the contract. The Company intends to pursue its claim against the supplier and
believes the counterclaim is without merit.
Due to the early stage of the matters referred to in the preceding two
paragraphs, it is not possible to determine the amount of liability, if any,
that may result and exceed amounts recoverable under the guarantee.
8. SPECIAL CHARGES:
During 1998, the Company experienced increased chargebacks and marketing
expenditures on its "900" entertainment services. As a result, this service was
not providing positive operating results and cash flow and the Company abandoned
marketing such services as an independent revenue source. Accordingly, as
required by Statement of Financial Accounting Standards No. 121, the Company
reviewed its long-lived assets, including goodwill, for impairment. The Company
determined that the "900" entertainment service could not be disposed of nor was
there a predictable estimate of any future cash flows associated with any
alternative use. The Company concluded that the intangibles, primarily goodwill,
arising from the acquisition
F-16
<PAGE> 55
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the remaining 50% interest in New Lauderdale, L.C. were entirely impaired. As
such, a non-cash charge of $18,514,435, representing the remaining balance of
the intangibles, was recorded in the second quarter of fiscal 1998.
In addition, the Company recorded a non cash charge of approximately
$1,178,000 associated with the writedown of assets relating to the decision to
abort an Internet telephony program.
9. EARNINGS PER SHARE:
The following table sets forth the reconciliation of the weighted average
shares used for basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Denominator:
Denominator for basic earnings per share --
weighted-average shares................... 17,034,531 18,560,064 15,918,881
Effect of dilutive securities:
Stock options................................ 257,984 186,033
Warrants..................................... 60,742 19,829
---------- ---------- ----------
Denominator for diluted earnings per share --
adjusted weighted-average shares.......... 17,034,531 18,878,790 16,124,743
========== ========== ==========
</TABLE>
Options and warrants to purchase 1,579,796, 90,000 and 340,000, shares of
common stock were outstanding for the year end November 30, 1998, 1997 and 1996
respectively, but were not included in the computation of diluted earnings per
share because their effect would be anti-dilutive.
10. STOCK OPTION PLAN AND WARRANTS:
During fiscal 1995, the Company implemented the 1995 Stock Option Plan (the
"Stock Option Plan") effective as of October 1995. The Stock Option Plan
provides for the grant of options to purchase up to 750,000 shares of the
Company's common stock either as incentive stock options ("Incentive Stock
Options") within the meaning of Section 422 of the United States Internal
Revenue Code or as options that are not intended to meet the requirements of
such section ("Nonstatutory Stock Options"). Options to purchase shares may be
granted under the Stock Option Plan to persons who, in the case of Incentive
Stock Options, are employees (including officers) of the Company, or, in the
case of Nonstatutory Stock Options, are employees (including officers),
consultants or nonemployee directors of the Company to the Company. The Stock
Option Plan was amended in September 1996 and in June 1997 to provide for the
granting of options to purchase an additional 500,000 and 600,000 shares,
respectively, of the Company's common stock. After these amendments, grants are
available under the Stock Option Plan to purchase a total of 1,850,000 shares of
the Company's common stock.
The exercise price of options granted under the Stock Option Plan must be
at least equal to the fair market value of such shares on the date of grant, or,
in the case of Incentive Stock Options granted to a holder of 10% or more of the
Company's Common Stock, at least 110% of the fair market value of such shares on
the date of grant. The maximum exercise period for which Incentive Stock Options
may be granted is ten years from the date of grant (five years in the case of an
individual owning more than 10% of the Company's common stock). The aggregate
fair market value (determined at the date the option is granted) of shares with
respect to which Incentive Stock Options are exercisable for the first time by
the holder of the option during any calendar year shall not exceed $100,000. If
such amount exceeds $100,000, the Board of Directors or the Committee may, when
the Options are exercised and the shares transferred to an employee, designate
those
F-17
<PAGE> 56
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares that will be treated as Incentive Stock Options and those that will be
treated as Nonstatutory Stock Options.
In addition, the Company's Stock Option Plan provides for certain automatic
grants of options to the Company's non-employee directors in consideration for
their services performed as directors of the Company and for attendance at
meetings. It provides for a one-time automatic grant of an option to purchase
25,000 shares of common stock at market value to those directors who were
serving on the Board of Directors at the inception of the Stock Option Plan and
also to those persons who become nonemployee directors of the Company in the
future, upon their appointment or election as directors of the Company. In
addition, the amended Stock Option Plan provides for quarterly grants to each
non-employee director of the Company of options to purchase 6,250 shares of the
Company's common stock at the market value on the date of each grant. During
fiscal 1998, the Company granted 143,750 options to the non-employee directors.
The Company's stock option committee approved the granting of an additional
626,390 options to certain employees.
The stock option committee offered all option holders the right to have
their options repriced at $1.75 effective September 10, 1998. The repricing was
calculated based on the percentage of the new option price of $1.75 over the
original exercise price, applied to the number of options elected for repricing.
Total options available and elected for repricing were 1,415,078 and 878,078,
respectively. Total options surrendered as a result of the repricing amounted to
587,949. The repricing of the options is in compliance with the provisions of
the Stock Option Plan.
A summary of the Company's stock options is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- -------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------------- --------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year..................... 938,691 $4.75 to 15.56 653,850 $ 4.75 to 8.25 394,000 $ 5.00
Granted....................... 1,129,374 1.75 to 6.75 470,500 7.31 to 15.56 297,250 4.75 to 8.25
Exercised..................... (152,797) 5.00 to 6.00 (27,368) 5.00
Cancelled or lapsed*.......... (764,087) 2.69 to 15.56 (32,862) 5.00 to 6.00 (10,032) 5.00
---------- -------------- --------- -------------- -------- -------------
Options outstanding, end of
year........................ 1,303,978 $1.75 to 15.56 938,691 $4.75 to 15.56 653,850 $4.75 to 8.25
========== ============== ========= ============== ======== =============
Options exercisable, end of
year........................ 666,563 645,952 653,850
========== ========= ========
Options available for grant,
end of year................. 365,857 731,144 568,782
========== ========= ========
Weighted-average fair value of
options granted during the
year........................ $ 1.20 $ 5.82 $ 3.93
========== ========= ========
</TABLE>
- ------------
*Includes 587,949 shares surrended upon repricing
The Company has elected to adopt the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized with regard
to options granted under the Plan in the accompanying financial statements. If
stock-based compensation costs had been recognized based on the estimated fair
values at the dates of grant
F-18
<PAGE> 57
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for options awarded during the years ended November 30, 1998, 1997 and 1996. The
Company's net income (loss) and earnings (loss) per share would have been as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net (loss) income as reported.............. $(16,952,618) $14,363,781 $12,174,430
============ =========== ===========
Net (loss) income -- pro forma............. $(18,369,678 $13,158,826 $11,760,015
============ =========== ===========
Basic EPS -- as reported................... $ (1.00) $ .77 $ .76
============ =========== ===========
Diluted EPS -- as reported................. $ (1.00) $ .76 $ .76
============ =========== ===========
Basic EPS-Pro forma........................ $ (1.08) $ .71 $ .73
============ =========== ===========
Diluted EPS-Pro forma...................... $ (1.08) $ .70 $ .73
============ =========== ===========
</TABLE>
The weighted average fair value of each option has been estimated on the
date of grant using the Black Scholes options pricing model with the following
weighted average assumptions used for all grants of 65.4% in 1998 and 58.5% in
1997 and 1996; risk-free interest rate ranging from 4.67% to 4.80% in 1998 and
6.17% to 6.50% in 1997 and 1996; and expected lives of approximately 4.8 years.
Weighted averages are used because of varying assumed exercise dates.
The following table summarizes information about stock options outstanding
at November 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISABLE SHARES EXERCISABLE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.75-$2.63....................... 1,131,478 9.8 $ 1.90 510,729 $ 1.90
$2.69-$3.81....................... 37,500 9.7 3.06 20,834 3.36
$4.75-$6.00....................... 85,000 7.6 5.18 85,000 5.18
$9.38-$11.31...................... 37,500 8.4 10.60 37,500 10.60
$15.56-$15.56..................... 12,500 8.6 15.56 12,500 15.56
--------- --- ------ ------- ------
$1.75-$15.56...................... 1,303,978 9.6 $ 2.53 666,563 $ 3.11
========= === ====== ======= ======
</TABLE>
As of November 30, 1998 and 1997, the Company had 275,818 warrants to
purchase common stock at an exercise price of $8.25 per share. The warrants are
exercisable through 2000.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following is a summary of the unaudited quarterly results of operations
for fiscal 1998, 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
NOVEMBER 30, AUGUST 31, MAY 31, FEBRUARY 28,
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
1998:
Net revenues............................. $20,285,085 $16,509,577 $ 21,259,988 $36,635,601
Gross profit............................. (2,296,938) 5,070,872 1,380,175 10,499,027
(Loss) income before income taxes........ (5,068,084) 2,055,824 (20,505,128) 6,147,306
Net (loss) income........................ (6,591,590) 1,460,902 (15,510,314) 3,688,384
Basic (loss) earnings per share.......... (.43) .09 (.91) .20
Diluted (loss) earnings per share........ (.43) .09 (.91) .20
</TABLE>
F-19
<PAGE> 58
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
NOVEMBER 30, AUGUST 31, MAY 31, FEBRUARY 28,
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
1997:
Net revenues............................. $49,302,822 $44,688,568 $ 53,323,734 $44,059,812
Gross profit............................. 10,072,085 4,152,170 13,786,298 13,543,020
Income before income taxes............... 5,420,442.. 307,049 9,660,751 9,045,155
Net income............................... 2,911,615 184,229 5,832,540 5,435,397
Basic earnings per share................. 0.15 0.01 0.31 0.29
Diluted earnings per share............... 0.16 0.01 0.31 0.29
1996:
Net revenues............................. $39,389,333.. $17,493,179 $ 13,765,685 $16,018,571
Gross profit............................. 11,288,981 5,737,501 1,638,439 3,340,591
Income before income taxes............... 7,080,889 4,918,871 1,142,807 3,930,396
Net income............................... 4,165,501 3,111,288 595,452 4,302,189
Basic earnings per share................. 0.23 0.20 0.04 0.29
Diluted earnings per share............... 0.23 0.20 0.04 0.28
</TABLE>
During the fourth quarter of fiscal 1996, the Company recorded an accrual
of approximately $1,070,000 relating to compensation.
The fourth quarter of fiscal 1997 included an increase of approximately
$200,000 for state income taxes. This increase was attributable to increased
revenues in the states where the Company is subject to higher tax rates.
During the fourth quarter of fiscal 1998, the Company reduced the benefit
for income taxes by approximately $2,550,000 due to a change in the estimate of
the amount of permanent differences, primarily goodwill, due to its accelerated
write-off, and deferred tax asset valuation reserves .
F-20
<PAGE> 59
QUINTEL ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------- ----------- ---------------------------- ------------- -----------
ADDITIONS
----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DESCRIBE(3) PERIOD
- ----------- ----------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30, 1998
Reserve for customer
chargebacks............. $38,196,114 $ -- $ 56,496,612 $79,198,588 $15,494,138
=========== ============ ============ =========== ===========
YEAR ENDED NOVEMBER 30, 1997
Reserve for customer
chargebacks............. $20,080,903 $ -- $103,597,803 $85,482,592 $38,196,114
=========== ============ ============ =========== ===========
YEAR ENDED NOVEMBER 30, 1996
Reserve for customer
chargebacks............. $ 4,025,130 $ -- $ 55,689,393(2) $39,633,620 $20,080,903
=========== ============ ============ =========== ===========
</TABLE>
- ---------------
(1) Charged against revenues.
(2) Includes assumed liability in connection with New Lauderdale acquisition of
$9,336,755 (see Note 6).
(3) Chargebacks refunded during the year.
S-1
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C> <C>
3.1.1 Articles of Incorporation of the Company, as amended(1)
3.1.2 Amendment to the Articles of Incorporation of the
Registrant(2)
3.2 By-Laws of the Company(3)
10.1 Employment Agreement by and between the Company and Steven
L. Feder(4)
10.2.1 Definitive Form of Non-Competition and Right of First
Refusal Agreement between the Company and Steven L. Feder,
Thomas H. Lindsey and Peter Stolz(4)
10.2.2 Definitive Form of Non-Competition and Right of First
Refusal Agreement between the Company and Psychic Readers
Network, Inc.(4)
10.2.3*+ Agreement Regarding 900 Number Telecommunications Programs
and Modification of Noncompetition Agreement and Media
Agreement between Access Resource Services, Inc. and the
Company
10.2.4*+ Marketing Agreement between Access Resource Services, Inc.
and the Company
10.2.5*+ Club Operating Agreement among Access Resource Services,
Inc., Real Communication Services, Inc., Bahia Encounters,
Inc., Steven L. Feder and the Company
10.3 Amended and Restated 1996 Stock Option Plan(5)
10.4.1 Lease of the Company's offices at One Blue Hill Plaza, Pearl
River, New York(6)
10.4.2 Lease of office space for Calling Card Co., Inc. at 2455
East Sunrise Boulevard, Fort Lauderdale, Florida(7)(P)
10.5* Purchase and Sale Agreement among Paradigm Direct, Inc.,
Paradigm Cellular, LLC and the Company
10.6*+ Servicing Agreement between West Interactive Corporation and
the Company
10.7 Collateral Note and Security Agreement between West
Interactive Corporation and the Company(3)
10.8 Collateral Note and Security Agreement between West
Interactive Corporation and New Lauderdale(3)
10.9 Telemarketing Services Agreement between West Telemarketing
Corporation Outbound and the Company(3)
10.10+ Billing and Information Management Services Agreement and
Advanced Payment Agreement between Enhanced Services
Billing, Inc. and the Company(3)
10.11 Amended and Restated Psychic Readers Network Live Operator
Service Agreement between Psychic Readers Network, Inc. and
the Company(4)
10.12+ Telemarketing Services Agreement between Advanced Access,
Inc. and the Company(6)(P)
10.13+ Telemarketing Services Agreement between APAC TeleServices,
Inc. and the Company(6)(P)
10.14+ Telemarketing Services Agreement between AT&T Wireless
Services and the Company(6)(P)
10.15.1+ Telemarketing Services Agreement between AT&T Wireless
Services and Paradigm Direct, Inc.(7)(P)
10.15.2* Telemarketing Services Agreement between Paradigm Direct,
Inc. and the Company
10.15.3* Termination Agreement between Paradigm Direct, Inc. and the
Company
10.16+ Telemarketing Services Agreement between Optima Direct, Inc.
and the Company(6)(P)
10.17.1* Marketing Services Agreement between Delta Three Direct LLC
and the Company
10.17.2* Operating Agreement of Delta Three Direct LLC
10.17.3* Network Services Agreement between Delta Three, Inc. and
Delta Three Direct LLC
10.17.4*+ Network Services Agreement between RSL Com U.S.A., Inc. and
Delta Three Direct LLC
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C> <C>
10.19+ Telemarketing Services Agreements between New Media
Telecommunications, Inc. and the Company(6)(P)
10.19.1+ Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company(6)(P)
10.19.2+ Letter Agreement, dated November 12, 1997, amending the
Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company(7)(P)
10.19.3+ Letter Agreement, dated January 19, 1998, amending the
Telecommunications Services Agreement between AT&T
Communications, Inc. and the Company(7)
10.20+ Billing and Collection Services Agreement between Federal
Transtel, Inc. and the Company(6)(P)
10.21* Billing and Information Management Services Agreement
between Billing Concepts, Inc. and the Company
10.22+ Ownership Agreement between the Company, Calling Card Co.,
Inc., Access Resource Services, Inc. and Real Communication
Services, Inc.(7)
10.23.1+ Telecommunications Services Agreement between LCI
International Telecom Corp. and the Company(7)(P)
10.23.2*+ Amendment to the Telecommunications Services Agreement
between LCI International Telecom Corp. and the Company
10.23.3*+ Amended and Restated Telecommunications Services Agreement
between LCI International Telecom Corp., d/b/a Qwest
Communications Services, and the Company
10.24.1 Limited Liability Company Agreement between the Company and
Paragon Cellular Services, Inc.(7)
10.24.2 Amendment No. 1 to Limited Liability Company Agreement
between the Company and Paragon Cellular Services, Inc.(7)
10.25*+ Cellular Telephone Product and Service Agreement between
U.S. Mobile Services, Inc. and the Company
10.26.1*+ Settlement and Release of New Lauderdale
10.26.2*+ Settlement and Release of Calling Card Co., Inc.
10.27*+ Media Agreement between Access Resource Services, Inc. and
the Company
10.28* Software License Agreement between US/Intelicom, Inc. and
the Company
10.29.1*+ License Agreement between the Company and a Confidential
Third Party
10.29.2*+ Escrow Agreement between the Company, the Law Firm of
Swidler Berlin Shereff Friedman, LLP and a Confidential
Third Party
21* Subsidiaries of the Company
27* Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
+ Confidential treatment requested as to portions of this Exhibit.
(1) Filed as an Exhibit to the Company's Registration Statement on Form 8-A,
dated October 23, 1995, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1998, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-1 (the
"S-1 Registration Statement"), dated September 6, 1995 (File No. 33-96632),
and incorporated herein by reference.
(4) Filed as an Exhibit to a Definitive Information Statement filed with the
Commission, dated August 20, 1996, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Proxy Statement filed with the
Commission, dated July 21, 1997 and incorporated herein by reference.
<PAGE> 62
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1996, and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1997, and incorporated herein by reference.
(P) Filed by paper with the Commission pursuant to a continuing hardship
exemption.
<PAGE> 1
EXHIBIT 10.2.3
AGREEMENT REGARDING
900 NUMBER TELECOMMUNICATIONS PROGRAMS AND MODIFICATION OF
NONCOMPETITION AGREEMENT AND MEDIA AGREEMENT
AGREEMENT entered into as of the 3rd day of December, 1998 by and among QUINTEL
COMMUNICATIONS, INC., a corporation organized under the laws of Delaware with
offices at One Blue Hill Plaza, Fifth Floor, Pearl River, New York 10965
(hereafter referred to as "Quintel"; Quintel and its subsidiaries and
affiliates, and entities controlling, controlled by or under common control with
Quintel are collectively referred to as the "Quintel Companies"), ACCESS
RESOURCE SERVICES, INC., a Delaware corporation with offices at 2455 E. Sunrise
Boulevard, Fort Lauderdale, Florida 33304 (hereafter referred to as "Access").
Access and its subsidiaries and affiliates, and entities controlling, controlled
by or under common control with Access or Steven L. Feder, an individual
residing at 14 Isla Bahia Drive, Fort Lauderdale, Florida 33314 ("Feder"),
including Real Communication Services, Inc., a Delaware corporation, Bahia
Encounters, Inc., a Florida corporation, and Psychic Readers Network, Inc., a
Florida corporation ("PRN"), are collectively referred to as the "PRN
Companies".
RECITALS:
A. Quintel, Feder and other principals of the PRN Companies (the "PRN
Principals") are parties to Noncompetition and Right of First Refusal Agreements
dated September 10, 1996 (the "Noncompetition Agreements"), which, among other
things, prohibit PRN and the PRN Principals from engaging in any business
activity competitive with the businesses conducted by the Quintel Companies,
including theme related telephone service programs or membership clubs.
B. The PRN Companies have been engaged in the business of offering telephone
entertainment services on a pay-per-call basis using 800 and 900 Numbers (the
"PRN Pay-per-Call Business").
C. The Quintel Companies market membership clubs ("Clubs") offering enhanced
telecommunications products and services, including voice-mail and other
telecommunications services (the "Telco Services"),which are billed to customers
as 900 number telephone services (the "Quintel 900 Number Club Business"), and
have also been engaged in the business of offering telephone entertainment
services on a pay-per-call basis using 900 numbers (the "Quintel 900 Number
Pay-Per-Call Business").
D. Certain of the PRN Companies also market Clubs offering Telco Services
which are billed to customers as 900 number telephone services, which business
has been consented to by Quintel pursuant to agreements dated as of February 1,
1998 and September 1, 1998 among Quintel and the PRN Companies (the "PRN-Quintel
Club Agreements").
<PAGE> 2
E. Quintel and PRN are parties to a letter agreement dated January 16, 1996,
which provides, among other things, that Quintel or its affiliate would act as
the advertising agency for the PRN Pay-Per-Call Business and Quintel 900 Number
Business, and that media acquired by Quintel would be allocated between Quintel
and PRN in the proportions provided for in such agreement (the "Media
Agreement").
F. Access wishes to market new 900 Number programs offering pay-per-call
products and services, which will be billed to customers as 900 number telephone
services (the "New Access 900 Number Pay-Per-Call Programs").
G. Quintel has decided to discontinue the current Quintel 900 Number
Pay-Per-Call Business, and Quintel has agreed, on the terms set forth in this
Agreement, to allocate media to the PRN Companies for the advertising of the New
Access 900 Number Pay-Per-Call Programs which would otherwise have been
allocated under the Media Agreement to the Quintel Companies in the conduct of
the Quintel 900 Number Pay-Per-Call Business.
H. The PRN Companies are parties to an agreement with West Interactive
Corporation ("West") under which telecommunications services furnished by
telecommunications carriers ("Carriers") are provided to the PRN Companies for
use in providing telephone entertainment services to their customers (the
"PRN-West Agreement"). West and any other billing company or service bureau
providing such telecommunications services for the telephone programs described
in this Agreement are referred to as "Service Bureaus".
I. Quintel is also party to an agreement with West under which Carrier
services are provided to the Quintel Companies for use in conducting their
telephone service programs (the "Quintel-West Agreement").
J. By separate agreement, a copy of which is annexed hereto as Exhibit 1,
West has agreed that all charges for the New Access 900 Number Pay-Per-Call
Programs shall be for the account of Access, and that Quintel shall have no
responsibility for any charges, charge-backs, reserves or other fees due in
connection with such programs and has agreed to remit to Quintel certain amounts
due to Quintel from Access under this Agreement (the "West Undertaking").
NOW, THEREFORE, for good and valuable consideration, receipt of which is
acknowledged by the parties, it is hereby agreed as follows:
1 OPERATION OF THE PRN 800 NUMBER TELCO CLUBS.
1.1 Quintel hereby consents to the operation of the New Access 900
Number Pay-Per-Call Programs by the PRN Companies.
2
<PAGE> 3
1.2 Quintel shall be responsible for the marketing of the New Access 900
Number Pay-Per-Call Programs, and the expenses associated therewith. Quintel
shall determine in its discretion the terms on which to market the New Access
900 Number Pay-Per-Call Programs, including the pricing of such Programs, except
that Quintel shall not reduce the price per minute offered in such programs
below $4.99 per minute.
(a) Quintel shall allocate media under the Media Agreement for the
advertising of the New Access 900 Number Pay-Per-Call Programs which
would otherwise have been allocated to the Quintel Companies in the
conduct of the Quintel 900 Number Pay-Per-Call Business under the
Media Agreement. The cost of the media used for the advertising of
the New Access 900 Number Pay-Per-Call Programs shall be paid by
Quintel. [INSERT 1]
(b) As part of the marketing expenses for the New Access 900
Number Pay-Per-Call Programs for which Quintel is responsible,
Quintel shall also be responsible for payment of all costs incurred
in connection with any 800 number telephone lines used in marketing
the New Access 900 Number Pay-per-Call Programs.
1.3 In consideration for Quintel's consent to the operation of the New
Access 900 Number Pay-Per-Call Programs and Quintel's agreement to allocate
media to Access as provided in Paragraph 1.2 above, and as a condition to the
continuation of such consent and agreement, Access agrees to all of the
provisions of this Paragraph 1.3.
(a) The use of any Service Bureau other than West in connection
with the operation of the New Access 900 Number Pay-Per-Call
Programs shall require Quintel's prior approval.
(b) Access agrees that Access will pay Quintel on a monthly basis
in the manner provided for in this Agreement, within thirty (30)
days after the end of each calendar month during which the New
Access 900 Number Pay-Per-Call Programs operate, an amount equal to
the product of {Confidential portion omitted and filed separately
with the Commission} multiplied by the number of Billable 900
Minutes billed during such month (hereafter such amount payable to
Quintel is referred to as the "Quintel 900 Number Fee").
i) The term "Billable 900 Number Minutes" shall mean the
minutes (or portions thereof) of service provided by Carriers
and billed by the Service Bureau to customers of the New
Access 900 Number Pay-Per-Call Programs, excluding "free"
minutes or portions thereof which are offered without charge
to customers by Access in promoting the New Access 900 Number
Pay-Per-Call Programs.
3
<PAGE> 4
ii) The Quintel 900 Number Fee shall be paid when due
without set-off or deduction of any kind.
iii) In the event that the aggregate payments collected by
Access or any of the other PRN Companies from the Service
Bureau for the New Access 900 Number Pay-Per-Call Program
billings is less than the aggregate Quintel 900 Number Fee
(the amount by which such collections are less than the
aggregate Quintel 900 Number Fee is referred to as the
"Shortfall"), and the Shortfall occurs because of the
insolvency or bankruptcy of the Service Bureau, then, provided
that the PRN Companies use diligent efforts to collect the
Shortfall (including, without limitation commencement of
actions to collect the Shortfall and filing and prosecution of
proofs of claim), that portion of the Quintel 900 Number Fees
equal to the Shortfall shall not be payable to Quintel until
such time as and only to the extent that any of the PRN
Companies collect the Shortfall.
iv) Pursuant to the West Undertaking, West has agreed to pay
the Quintel 900 Number Fee to Quintel by deducting such amount
from the amounts due to Access for the New Access 900 Number
Pay-Per-Call Programs, and to pay the amount of the Quintel
900 Number Fee so deducted directly to Quintel or for its
account prior to making any payment to Access for such
Programs other than the Access Base Payment. Such a direction
shall be delivered by Access or any of the PRN Companies to
any other Service Bureau with which any of them arrange for
the provision of telecommunications Carrier services for the
New Access 900 Number Pay-Per-Call Programs.
1.4 Access and the other PRN Companies represent and warrant to the
Quintel Companies that the operations of the New Access 900 Number Pay-Per-Call
Programs will be conducted in accordance with all applicable laws and
regulations.
1.5 The Quintel Companies shall have the right in their discretion to
modify the terms of their consent to the operation of the New Access 900 Number
Pay-Per-Call Programs and/or the allocation of media to Access under this
Agreement, for any reason or no reason, and if Quintel and Access are unable for
any reason to reach agreement upon such modifications, Access may within thirty
(30) days after receipt of notice to such effect from Quintel cease the
solicitation of customers for the New Access 900 Number Pay-Per-Call Programs
using the media which would otherwise have been available to Access under the
Media Agreement. The Quintel Companies shall also have the right in their
discretion to terminate their consent to the operation of the New Access 900
Number Pay-Per-Call Programs, and/or to cease the allocation of media to Access
provided for under this Agreement, for any reason or no reason, and the PRN
Companies may within thirty (30) days after receipt of notice to such effect
from Quintel cease the solicitation of customers for the New Access 900 Number
Pay-Per-Call Programs
4
<PAGE> 5
using the media which would otherwise have been available to Access under the
Media Agreement. [INSERT 2]
1.6 In the event of termination of (i) New Access 900 Number
Pay-Per-Call Programs, (ii) Access' use of the media which Quintel has agreed to
provide under this Agreement, or (iii) this Agreement for any reason whatsoever,
Quintel will continue to be entitled to receive the Quintel 900 Number Fee with
respect to all collections made on account of the New Access 900 Number
Pay-Per-Call Programs during the sixty (60) day period following such
termination.
1.7 Nothing herein shall prohibit or restrict the Quintel Companies from
conducting any pay-per-call, Club or other business offering telecommunications
services or products, or from conducting any business competitive with the
business conducted by Access or any of the other PRN Companies.
2 INDEMNIFICATION.
2.1 Access and the other PRN Companies shall indemnify the Quintel
Companies against any claims made by any customers of the New Access 900 Number
Pay-Per-Call Programs, West, or any other Service Bureau providing services to
the New Access 900 Number Pay-Per-Call Programs, any governmental or regulatory
body, or any other party, arising out of the operation of the New Access 900
Number Pay-Per-Call Programs and shall hold the Quintel Companies harmless from
any liability, cost or expense arising in connection therewith, including, but
without limitation thereto, all fees, reserves, charge-backs or other charges of
West or any Carrier arising out of the New Access 900 Number Pay-Per-Call
Programs. In the event that Quintel is billed for any such charges by West under
the West-Quintel Agreement, Access shall immediately make payment of such
charges to West on demand by Quintel, and such obligation of Access is
guaranteed by each of the PRN Companies. Such indemnification by the PRN
Companies shall not include the cost of media acquired by Quintel for the New
Access 900 Number Pay-Per-Call Programs pursuant to this Agreement, which shall
remain the responsibility of Quintel, and Quintel shall hold Access harmless
from any liability, cost or expense for such media.
2.2 Promptly after receipt by any party hereto (the "Indemnitee") of
notice of any demand, claim or circumstances which, with the lapse of time,
would or might give rise to a claim or the commencement (or threatened
commencement) of any action, proceeding or investigation (an "Asserted
Liability") that may result in any claim for which a party is entitled to
indemnification under this Agreement (a "Claim"), the party entitled to
indemnification (the "Indemnitee") shall promptly give notice thereof (the
"Claims Notice") to the party obligated to provide indemnification pursuant to
this Agreement (the "Indemnifying Party"); provided, however, that the failure
of any Indemnitee to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2, except to the extent
that the Indemnifying Party is actually prejudiced by such failure to give
notice. The Claims Notice shall describe the Asserted Liability in reasonable
detail, and shall indicate the amount
5
<PAGE> 6
(estimated, if necessary and to the extent feasible) of the Claim that has been
or may be suffered by the Indemnitee.
2.3 The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability. If the Indemnifying
Party elects to compromise or defend such Asserted Liability, it shall within
thirty (30) days (or sooner, if the nature of the Asserted Liability so
requires) notify the Indemnitee of its intent to do so, and the Indemnitee shall
cooperate, at the expense of the Indemnifying Party, in the compromise of, or
defense against, such Asserted Liability.
(a) If the Indemnifying Party elects not to compromise or defend
the Asserted Liability, fails to notify the Indemnitee of its
election as herein provided or contests its obligation to indemnify
under this Agreement, the Indemnitee may pay, compromise or defend
such Asserted Liability at the expense of the Indemnifying Party (if
the Indemnifying Party is found obligated to indemnify the
Indemnitee with respect to the Claim).
(b) Subject to the limitations contained in Paragraph 2.4 on the
obligations of the Indemnifying Party in respect of proposed
settlements, the Indemnitee shall have the right to employ its own
counsel with respect to any Asserted Liability, but the fees and
expenses of such counsel shall be at the expense of such Indemnitee
unless (1) the employment of such counsel shall have been authorized
in writing by the Indemnifying Party in connection with the defense
of such action, or (2) such Indemnifying Party shall not have, as
provided above, promptly employed counsel reasonably satisfactory to
the Indemnitee to take charge of the defense of such action, or (3)
the Indemnitee shall have reasonably concluded based on an opinion
of counsel that there may be one or more legal defenses available to
it which are different from or additional to those available to such
Indemnifying Party, in any of which events such reasonable fees and
expenses shall be borne by the Indemnifying Party and the
Indemnifying Party shall not have the right to direct the defense of
such action on behalf of the Indemnitee in respect of such different
or additional defenses.
(c) If the Indemnifying Party chooses to defend any claim, the
Indemnitee shall make available to the Indemnifying Party any books,
records or other documents within its control that are necessary or
appropriate for such defense. If the Indemnifying Party elects not
to assume the defense of a Claim, it will not be obligated to pay
the fees and expenses of more than one counsel for all Indemnitees
with respect to such claim, unless in the reasonable judgment of an
Indemnitee, and in the opinion of such Indemnitee's counsel, a
conflict of interest may exist between such Indemnitee and any other
of such Indemnitees with respect to such claim, in which event the
Indemnifying Party shall be obligated to pay the fees and expenses
of such additional counsel or counsels.
2.4 Notwithstanding the provisions of Paragraph 2.3, neither the
Indemnifying Party nor the Indemnitee may settle or compromise any claim for
which indemnification has been sought and is available hereunder, over the
objection of the other; provided, however, that consent to settlement or
compromise shall not be unreasonably withheld or delayed. If, however, the
Indemnitee refuses to consent to a bona fide offer of settlement which the
6
<PAGE> 7
Indemnifying Party wishes to accept, the Indemnitee may continue to pursue such
matter, free of any participation by the Indemnifying Party, at the sole expense
of the Indemnitee. In such event, the obligation of the Indemnifying Party to
the Indemnitee shall be equal to the lesser of (i) the amount of the offer of
settlement which the Indemnitee refused to accept plus the costs and expenses of
the Indemnitee prior to the date the Indemnifying Party notified the Indemnitee
of the offer of settlement, or (ii) the actual out-of-pocket amount the
Indemnitee is obligated to pay as a result of the Indemnitee's continuing to
pursue such matter. No party will be required to consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such party of a release
from all liability in respect to the Claim.
3 MISCELLANEOUS.
3.1 Neither PRN nor any of the PRN Companies may assign its rights and
obligations under this Agreement without the consent of Quintel, except that
assignment to any subsidiary or affiliate controlling, controlled by or under
common control with the PRN Companies shall not require such consent, but only
prior written notice to Quintel. Any of the Quintel Companies may assign its
rights and obligations under this Agreement to any subsidiary or affiliate
controlling, controlled by or under common control with the Quintel Companies,
or in connection with the sale of all or substantially all of the assets of any
of the Quintel Companies or a merger or consolidation of any of the Quintel
Companies with another entity, provided prior written notice of such assignment
is given to Access.
3.2 The Noncompetition Agreements and the PRN-Quintel Club Agreements
remain in full force and effect. This Agreement shall not be deemed to be a
waiver of any of the rights and obligations of the parties to the Noncompetition
Agreements or the PRN-Quintel Club Agreements. Any other exceptions to the
provisions of the Noncompetition Agreements shall require the written consent of
Quintel.
3.3 Any notice or other communications required or permitted hereunder
shall be in writing and shall be deemed effective (a) upon personal delivery, if
delivered by hand and followed by notice by mail or facsimile transmission; (b)
one day after the date of delivery by Federal Express or other nationally
recognized courier service, if delivered by priority overnight delivery between
any two points within the United States; or (c) five days after deposit in the
mails, if mailed by certified or registered mail (return receipt requested)
between any two points within the United States, and in each case of mailing,
postage prepaid, addressed to a party at its address first set forth above, or
such other address as shall be furnished in writing by like notice by any such
party.
3.4 No waiver by a party of any breach of this Agreement by the other
shall be deemed to be a waiver of any preceding or subsequent breach.
7
<PAGE> 8
3.5 This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter contained herein.
3.6 Each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than the
parties hereto and the other persons executing this Agreement.
3.7 This Agreement may not be changed orally, but only by an agreement
in writing signed by the party or parties to be charged thereby.
3.8 This Agreement shall be governed by and construed in accordance with
the law of New York, including its choice of law rules. Any judicial proceeding
brought against any of the parties to this Agreement on any dispute arising out
of this Agreement or any matter related hereto shall be brought in the courts of
the State of New York in New York County or in the United States District Court
for the Southern District of New York, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts for itself the
jurisdiction of the aforesaid courts, irrevocably consents to the service of any
and all process in any action or proceeding by the mailing of copies of such
process to such party at its address provided for the giving of notices under
Paragraph 3.3 above, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Each party hereto irrevocably waives
to the fullest extent permitted by law any objection that it may now or
hereafter have to the laying of the venue of any judicial proceeding brought in
such courts and any claim that any such judicial proceeding has been brought in
an inconvenient forum.
3.9 This agreement does not constitute a joint venture or partnership by
the parties, and each party is entering into this Agreement as a principal and
not as an agent of the other.
3.10 This Agreement is intended to be performed in accordance with, and
only to the extent permitted by, all applicable laws, ordinances, rules and
regulations. In case any one or more of the provisions contained in this
Agreement or any application thereof shall be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein and any other application thereof shall not in any
way be affected or impaired thereby, and the extent of such invalidity or
unenforceability shall not be deemed to destroy the basis of the bargain among
the parties as expressed herein, and the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected thereby, but rather shall be enforced to the greatest extent permitted
by law.
3.11 The section headings appearing in this Agreement are for convenience
of reference only and are not intended, to any extent or for any purpose, to
limit or define the text of any section, paragraph or clause.
3.12 This Agreement may be executed in several counterparts and all
counterparts so executed shall constitute one agreement binding on all the
parties hereto, notwithstanding that all the parties are not signatory to the
original or the same counterpart.
8
<PAGE> 9
Insert 1:
Quintel shall give Access notice of the media available to Access under the
Media Agreement on a reasonably timely basis, and Access shall give notice to
Quintel on a reasonably timely basis and with reasonable specificity as to the
amount and nature of the media which Access wishes to use for the New Access 900
Number Pay-Per-Call Programs.
Insert 2:
Access may, for any reason, including receipt of either of the aforementioned
notices from Quintel, or for no reason, upon thirty (30) days prior written
notice to Quintel, cease the solicitation of customers for the New Access 900
Number Pay-Per-Call Programs using the media which would otherwise have been
available to Access under the Media Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
QUINTEL COMMUNICATIONS, INC. ACCESS RESOURCE SERVICES, INC
By: /s/ Jeffrey L. Schwartz By: /s/ Steven L. Feder
----------------------------- -----------------------------
The provisions of the foregoing agreement are consented and agreed to:
PSYCHIC READER'S NETWORK, INC.
/s/ Steven L. Feder
-----------------------------
By: Steven L. Feder
-----------------------------
9
<PAGE> 1
Exhibit 10.2.4
AGREEMENT REGARDING MARKETING OF ASTROLOGY CLUB
AGREEMENT entered into as of the 1st day of February 1998 by and between QUINTEL
ENTERTAINMENT, INC., a corporation organized under the laws of Delaware with
offices at One Blue Hill Plaza, Fifth Floor, Pearl River, New York 10965
(hereafter referred to as "Quintel") and ACCESS RESOURCE SERVICES, INC., a
Delaware corporation with offices at 2455 E. Sunrise Boulevard, Fort Lauderdale,
Florida 33304 (hereafter referred to as "Access").
RECITALS:
A. Quintel and each of Psychic Readers Network, Inc., a Florida
corporation ("PRN") and Steven L. Feder, Thomas H. Lindsey, Peter Stolz (PRN and
the foregoing individuals are referred to as the "PRN Parties") are parties to
certain Non-Competition and Right of First Refusal Agreements dated September
10, 1996 (collectively referred to as the "Non-Compete Agreements"),
restricting, among other things, the right of the PRN Parties to engage in
certain businesses which compete with Quintel's business, including, but not
limited to, membership clubs relating to astrology.
B. Access is controlled by one or more of the PRN Parties, and Access
and the PRN Parties have requested Quintel's consent to Access marketing a
premium telephone psychic astrology club service billed on a monthly recurring
format.
C. Quintel is willing to consent to Access's marketing and providing to
its customers the Astrology Club using a 4250 Bill Record on the terms described
in this Agreement.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
acknowledged by the parties, it is hereby agreed as follows:
1. DEFINITIONS. The following terms shall have the meanings set forth below
when used in this Agreement:
i. The term "active member" means an Astrology Club customer
which is eligible for billing on a 4250 Record as a club
member.
ii. The term "Astrology Club" refers to a premium billed telephone
psychic astrology club service billed on a 4250 Bill Record.
iii. The term "4250 Bill Record" means a monthly recurring bill
format used to bill premium telephone services.
iv. The term "Quintel Fee" refers to the amounts due to Quintel
under this Section 2.
<PAGE> 2
2. CONSENT BY QUINTEL. Quintel consents to Access marketing an Astrology Club
or Clubs and providing the services of such Astrology Clubs to Access's
customers using a 4250 Bill Record. Quintel shall have the right to terminate
this Agreement on thirty (30) days prior written notice to Access, and Access
shall cease the marketing of the Astrology Clubs on the date of termination
stated in Quintel's notice (the "Termination Date"), provided, however, that
after the Termination Date, Access may continue to bill all 4250 Bill Records
generated by the Astrology Club on or prior to the Termination Date for amounts
due from customers of the Access Astrology Club as of the Termination Date, and
Access will continue to pay the Quintel Fee due with respect to active members
of the Astrology Club obtained by Access prior to the Termination Date.
3. QUINTEL FEE. In consideration for Quintel's consent, Access will pay
Quintel {Confidential portion omitted and filed separately with the Commission}
per month (commencing with February 1998) for each other active member of an
Astrology Club.
a. Access will pay the Quintel Fee to Quintel on a monthly basis,
within ten (10) business days after the end of each month in which
its Astrology Clubs have one or more active members. The first
monthly payment, which shall be due on June 15, 1998, shall cover
the months of February-May, 1998. Access will provide Quintel with a
monthly statement setting forth the calculation of the Quintel Fee,
and with copies of such billing records and other documents
reasonably requested by Quintel as supporting documentation for the
calculation of the Quintel Fee.
4. MISCELLANEOUS.
a. Access may not assign its rights and obligations under this
Agreement without the consent of Quintel.
b. Access represents and warrants to Quintel that Access is a
corporation, duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation, and has the
corporate power and authority to execute and deliver this Agreement,
to consummate the transactions hereby contemplated and to take all
other actions required to be taken by its pursuant to the provisions
hereof, and is not subject to, or a party to, any contract,
agreement, instrument, order, judgment or decree, or any other
restriction of any kind or character, which would prevent its entry
into the performance under this Agreement, and no consent of or
other action by or notice to any third party is required in
connection with Access's entering into and performing under this
Agreement.
c. Any notice or other communications required or permitted hereunder
shall be in writing and shall be deemed effective (a) upon personal
delivery, if delivered by hand and followed by notice by mail or
facsimile transmission; (b) one day after the date of delivery by
Federal Express or other nationally recognized courier service, if
delivered by priority overnight delivery between any two points
within
2
<PAGE> 3
the United States; or (c) five days after deposit in the mails, if
mailed by certified or registered mail (return receipt requested)
between any two points within the United States, and in each case of
mailing, postage prepaid, addressed to a party at its address first
set forth above, or such other address as shall be furnished in
writing by like notice by any such party.
d. No waiver by a party of any breach of this Agreement by the other
shall be deemed to be a waiver of any preceding or subsequent
breach.
e. This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter contained herein.
f. Each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person
other than the parties hereto and the other persons executing this
Agreement.
g. This Agreement may not be changed orally, but only by an agreement
in writing signed by the party or parties to be charged thereby.
h. This Agreement shall be governed by and construed in accordance with
the law of New York, including its choice of law rules. Any judicial
proceeding brought against any of the parties to this Agreement on
any dispute arising out of this Agreement or any matter related
hereto shall be brought in the courts of the State of New York in
New York County or in the United States District Court for the
Southern District of New York, and, by execution and delivery of
this Agreement, each of the parties to this Agreement accepts for
itself the jurisdiction of the aforesaid courts, irrevocably
consents to the service of any and all process in any action or
proceeding by the mailing of copies of such process to such party at
its address provided for the giving of notices under Section 6(b)
above, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Each party hereto
irrevocably waives to the fullest extent permitted by law any
objection that it may now or hereafter have to the laying of the
venue of any judicial proceeding brought in such courts and any
claim that any such judicial proceeding has been brought in an
inconvenient forum.
i. This agreement does not constitute a joint venture or partnership by
the parties, and each party is entering into this Agreement as a
principal and not as an agent of the other.
j. This Agreement is intended to be performed in accordance with, and
only to the extent permitted by, all applicable laws, ordinances,
rules and regulations. In case any one or more of the provisions
contained in this Agreement or any application thereof shall be
invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
herein
3
<PAGE> 4
and any other application thereof shall not in any way be affected
or impaired thereby, and the extent of such invalidity or
unenforceability shall not be deemed to destroy the basis of the
bargain among the parties as expressed herein, and the remainder of
this Agreement and the application of such provision to other
Persons or circumstances shall not be affected thereby, but rather
shall be enforced to the greatest extent permitted by law.
k. The section headings appearing in this Agreement are for convenience
of reference only and are not intended, to any extent or for any
purpose, to limit or define the text of any section.
l. This Agreement may be executed in several counterparts and all
counterparts so executed shall constitute one agreement binding on
all the parties hereto, notwithstanding that all the parties are not
signatory to the original or the same counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
QUINTEL ENTERTAINMENT, INC.
By: /s/ Jeffrey Schwartz, Chairman 6/14/98
---------------------------------------
ACCESS RESOURCE SERVICES, INC.
By: /s/ Steven L. Feder
---------------------------------------
4
<PAGE> 1
Exhibit 10.2.5
AGREEMENT REGARDING CERTAIN
TELECOMMUNICATIONS "CLUB" OPERATIONS
AND EXCEPTION TO NONCOMPETITION AGREEMENT
AGREEMENT entered into as of the 1st day of September, 1998 by and among QUINTEL
COMMUNICATIONS, INC., a corporation organized under the laws of Delaware with
offices at One Blue Hill Plaza, Fifth Floor, Pearl River, New York 10965
(hereafter referred to as "Quintel"; Quintel and its subsidiaries and
affiliates, and entities controlling, controlled by or under common control with
Quintel are collectively referred to as the "Quintel Companies"), ACCESS
RESOURCE SERVICES, INC., a Delaware corporation with offices at 2455 E. Sunrise
Boulevard, Fort Lauderdale, Florida 33304 (hereafter referred to as "Access"),
REAL COMMUNICATION SERVICES, INC., a Delaware corporation with offices at 2455
E. Sunrise Boulevard, Fort Lauderdale, Florida 33304 (hereafter referred to as
"RCI") and BAHIA ENCOUNTERS INC., a Florida corporation with offices at 2455 E.
Sunrise Boulevard, Fort Lauderdale, Florida 33304 (hereafter referred to as
"Bahia")], and STEVEN L. FEDER, an individual residing at 14 Isla Bahia Drive,
Fort Lauderdale, Florida 33314 ("Feder"). Access, RCI, and Bahia and their
respective subsidiaries and affiliates, and entities controlling, controlled by
or under common control with Access, RCI, Bahia or Feder, including Psychic
Readers Network, Inc., a Florida corporation ("PRN"), are collectively referred
to as the "PRN Companies".
RECITALS:
1. Quintel, Feder and other principals of the PRN Companies (the "PRN
Principals") are parties to Noncompetition and Right of First Refusal Agreements
dated September 10, 1996 (the "Noncompetition Agreements"), which, among other
things, prohibit PRN and the PRN Principals from engaging in any business
activity competitive with the businesses conducted by the Quintel Companies,
including theme related telephone service programs or membership clubs.
2. The PRN Companies have been engaged in the business of offering telephone
entertainment services on a pay-per-call basis (the "800 Number Pay-per-Call
Business").
3. The Quintel Companies market membership clubs ("Clubs") offering enhanced
telecommunications products and services, including voice-mail and other
telecommunications services (the "Telco Services"), entitling the club member
("Club Member") to utilize the Telco Services offered by the Clubs for a certain
number of free minutes of telephone time during a specified period, and which
have been billed to the customers as 900 number telephone services.
4. In addition to the 800 Number Pay-per-Call Business, the PRN Companies,
with the consent of Quintel pursuant to an agreement dated as of February 1,
1998, have marketed Clubs offering telephone psychic and "new-age" entertainment
services which have been billed to their customers as 800 number telephone
services (the "PRN 800 Number Psychic Clubs").
<PAGE> 2
5. The Quintel Companies have agreed, on the terms set forth in this
Agreement, to permit the PRN Companies to market to their customers Clubs
offering Telco Services, which will be billed to customers as 800 Number
voice-mail or other telecommunication services (the "PRN 800 Number Telco
Clubs"), and which may include offerings of psychic, new age and astrological
services (the services to be offered by the PRN 800 Number Telco Clubs are
referred to as the "PRN Club Services").
6. The PRN Companies are parties to an agreement with VRS Billing Systems, a
division of Integretel, Incorporated ("VRS"), a telecommunications billing
company, under which telecommunications services furnished by telecommunications
carriers ("Carriers") are provided to the PRN Companies for use in providing
telephone entertainment services to their customers, as well as to customers of
the Quintel Companies (VRS and any other billing company or service bureau
providing such telecommunications services are referred to as "Service
Bureaus").
NOW, THEREFORE, for good and valuable consideration, receipt of which is
acknowledged by the parties, it is hereby agreed as follows:
1. CESSATION OF PRN'S 800 NUMBER PSYCHIC CLUB BUSINESS.
a. The PRN Companies and Feder represent, warrant and covenant that
they have ceased the operation of the PRN 800 Number Psychic Club
business, and shall not engage in any other telecommunications
service Club business offering voice-mail or other
telecommunications services or psychic, astrology, personals or
other similar services using either 800 or 900 telephone numbers,
except in connection with the operation of PRN 800 Number Telco
Clubs pursuant to the terms of this Agreement.
b. It is acknowledged that certain of the PRN Companies provide the
Quintel Companies with live psychic operator services pursuant to
another agreement with certain Quintel Companies, and will continue
to provide such services to the Quintel Companies, and will also
provide such services to the PRN Companies in connection with the
operation of the PRN 800 Number Telco Clubs.
2. OPERATION OF THE PRN 800 NUMBER TELCO CLUBS.
a. Quintel hereby consents to the operation of the PRN 800 Number Telco
Clubs by the PRN Companies.
b. In consideration for Quintel's consent, and as a condition to the
continuation of Quintel's consent to the operation of the PRN 800
Number Telco Clubs, the PRN Companies agree to all of the provisions
of this Paragraph 2(b).
i. All of the following matters shall require Quintel's prior
approval:
(1) the type of services offered by the PRN 800 Number Telco
Clubs,
2
<PAGE> 3
(2) the terms upon which the PRN Club Services are offered
by the PRN 800 Number Telco Clubs,
(3) the form and content of the Club's marketing materials,
including without limitation, telemarketing scripts,
infomercials and commercials in all media, and
(4) the use of any Service Bureau other than VRS in
connection with the operation of the PRN 800 Number
Telco Clubs.
ii. On all telephone calls to the PRN 800 Number Telco Club 800
telephone number in which new customers are enrolled or in
which existing customers are offered new or additional PRN
Club Services, a VRU preamble will offer the caller the
opportunity to join a Quintel Club selected by Quintel (the
"VRU Preamble"). The contents of the VRU Preamble shall be
approved in advance by Quintel. Use of the VRU Preamble may be
discontinued by PRN in the offering of PRN 800 Number Telco
Clubs on thirty (30) days prior written notice to Quintel, and
upon such discontinuance, the PRN Companies shall immediately,
without the requirement of any notice or demand from Quintel,
cease the solicitation of new customers for the PRN 800 Number
Telco Clubs, but may continue the operation of the PRN 800
Number Telco Clubs for their existing Club customers, subject
to all of the other provisions of this Agreement, including
the payment of the Quintel Fee referred to below. Quintel may
give thirty (30) days prior written notice to Access that use
of the VRU Preamble by the PRN Companies in the offering of
PRN 800 Number Telco Clubs be discontinued, and upon such
discontinuance, the PRN Companies shall immediately, without
the requirement of any further notice or demand from Quintel,
cease the solicitation of new customers for the PRN 800 Number
Telco Clubs, but may continue the operation of the PRN 800
Number Telco Clubs for their existing Club customers, subject
to all of the other provisions of this Agreement, including
the payment of the Quintel Fee referred to below.
iii. The PRN Companies, jointly and severally, agree that Quintel
will be paid on a monthly basis, within thirty (30) days after
the end of each calendar month during which the PRN 800 Number
Telco Clubs operate, an amount equal to the product of
{$ Confidential portion omitted and filed separately with the
Commission} multiplied by the number of PRN 800 Number Telco
Club customers billed during such month (hereafter such amount
payable to Quintel is referred to as the "Quintel Fee"). The
Quintel Fee shall be paid when due without set-off or
deduction of any kind. In the event that the aggregate
payments collected by the PRN Companies from the Service
Bureau for the PRN 800 Number Telco Club
3
<PAGE> 4
billings is less than the aggregate Quintel Fee (the amount by
which such collections are less than the aggregate Quintel Fee
is referred to as the "Shortfall"), and the Shortfall occurs
because of the insolvency or bankruptcy of the Service Bureau,
then, provided that the PRN Companies use diligent efforts to
collect the Shortfall (including, without limitation
commencement of actions to collect the Shortfall and filing
and prosecution of proofs of claim), that portion of the
Quintel Fees equal to the Shortfall shall not be payable to
Quintel until such time as and only to the extent that any of
the PRN Companies collect the Shortfall.
(1) Concurrently herewith, the PRN Companies which have a
contractual relationship with VRS have issued a letter
of direction to VRS authorizing VRS to deduct the
Quintel Fee from any amounts due from VRS to the PRN
Companies prior to making any payment to the PRN
Companies, and to pay the amount of the Quintel Fee so
deducted directly to Quintel or for its account. Such a
letter of direction shall be delivered by the PRN
Companies to any other Service Bureau with which any of
them arrange for the provision of telecommunications
Carrier services for the PRN 800 Number Telco Clubs. The
PRN Companies hereby agree that a copy of this Agreement
may be delivered by Quintel to any such Service Bureau
which does not receive a letter of direction as evidence
of such direction, and further agree that delivery of
such a copy shall constitute authorization by the PRN
Companies to the Service Bureau to deduct the Quintel
Fee and pay or credit same to Quintel's account.
(2) By his signature at the end of this Agreement, Feder
personally guarantees to Quintel the payment of the
Quintel Fee when due.
c. The PRN Companies represent and warrant to the Quintel Companies
that they will conduct the operations of the PRN 800 Number Telco
Clubs in accordance with all applicable laws and regulations.
d. The Quintel Companies shall have the right in their discretion to
cease the operation of any or all of the Quintel Clubs for any
reason or no reason, in which event the PRN Companies shall upon
notice from Quintel immediately discontinue any reference to such
discontinued Quintel Club in the VRU Preamble.
e. The Quintel Companies shall have the right in their discretion to
modify the terms of their consent to the operation of the PRN 800
Number Telco Clubs, for any reason or no reason, and if Quintel and
the PRN Companies are unable for any reason to reach agreement upon
such modifications, the PRN Companies shall within thirty (30) days
after receipt of notice to such effect from Quintel cease the
4
<PAGE> 5
solicitation of new customers for the PRN 800 Number Telco Clubs,
but may continue the operation of the PRN 800 Number Telco Clubs for
their existing Club customers subject to all of the other provisions
of this Agreement, including the payment of the Quintel Fee. The
Quintel Companies shall also have the right in their discretion to
terminate their consent to the operation of the PRN 800 Number Telco
Clubs, for any reason or no reason, and the PRN Companies shall
within thirty (30) days after receipt of notice to such effect from
Quintel cease the operation of the PRN 800 Number Telco Clubs the
solicitation of new customers for the PRN 800 Number Telco Clubs,
but may continue the operation of the PRN 800 Number Telco Clubs for
their existing Club customers, subject to all of the other
provisions of this Agreement, including the payment of the Quintel
Fee.
3. INDEMNIFICATIONs.
a. The PRN Companies jointly and severally agree to indemnify the
Quintel Companies against any claims made by PRN 800 Number Telco
Club Members, VRS or any other Service Bureau providing services to
the PRN 800 Number Telco Clubs, any governmental or regulatory body,
or any other party, arising out of the operation of the PRN 800
Number Telco Clubs and shall hold the Quintel Companies harmless
from any liability, cost or expense arising in connection therewith.
b. The Quintel Companies jointly and severally agree to indemnify the
PRN Companies against any claims made by Quintel Club Members, any
Service Bureau providing services to the Quintel Clubs, any
governmental or regulatory body, or any other party, arising out of
the operation of the Quintel Clubs advertised as part of the PRN 800
Number Telco Clubs in accordance with this Agreement, and shall hold
the PRN Companies harmless from any liability, cost or expense
arising in connection therewith.
c. Promptly after receipt by any party hereto (the "Indemnitee") of
notice of any demand, claim or circumstances which, with the lapse
of time, would or might give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or investigation
(an "Asserted Liability") that may result in any claim for which a
party is entitled to indemnification under this Agreement (a
"Claim"), the party entitled to indemnification (the "Indemnitee")
shall promptly give notice thereof (the "Claims Notice") to the
party obligated to provide indemnification pursuant to this
Agreement (the "Indemnifying Party"); provided, however, that the
failure of any Indemnitee to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under
paragraph (a) or (b) of this Section, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give
notice. The Claims Notice shall describe the Asserted Liability in
reasonable detail, and shall indicate the amount (estimated,
5
<PAGE> 6
if necessary and to the extent feasible) of the Claim that has been
or may be suffered by the Indemnitee.
d. The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability. If the
Indemnifying Party elects to compromise or defend such Asserted
Liability, it shall within thirty (30) days (or sooner, if the
nature of the Asserted Liability so requires) notify the Indemnitee
of its intent to do so, and the Indemnitee shall cooperate, at the
expense of the Indemnifying Party, in the compromise of, or defense
against, such Asserted Liability.
i. If the Indemnifying Party elects not to compromise or defend
the Asserted Liability, fails to notify the Indemnitee of its
election as herein provided or contests its obligation to
indemnify under this Agreement, the Indemnitee may pay,
compromise or defend such Asserted Liability at the expense of
the Indemnifying Party (if the Indemnifying Party is found
obligated to indemnify the Indemnitee with respect to the
Claim).
ii. Subject to the limitations contained in Paragraph 3(e)( on the
obligations of the Indemnifying Party in respect of proposed
settlements, the Indemnitee shall have the right to employ its
own counsel with respect to any Asserted Liability, but the
fees and expenses of such counsel shall be at the expense of
such Indemnitee unless (1) the employment of such counsel
shall have been authorized in writing by the Indemnifying
Party in connection with the defense of such action, or (2)
such Indemnifying Party shall not have, as provided above,
promptly employed counsel reasonably satisfactory to the
Indemnitee to take charge of the defense of such action, or
(3) the Indemnitee shall have reasonably concluded based on an
opinion of counsel that there may be one or more legal
defenses available to it which are different from or
additional to those available to such Indemnifying Party, in
any of which events such reasonable fees and expenses shall be
borne by the Indemnifying Party and the Indemnifying Party
shall not have the right to direct the defense of such action
on behalf of the Indemnitee in respect of such different or
additional defenses.
iii. If the Indemnifying Party chooses to defend any claim, the
Indemnitee shall make available to the Indemnifying Party any
books, records or other documents within its control that are
necessary or appropriate for such defense. If the Indemnifying
Party elects not to assume the defense of a Claim, it will not
be obligated to pay the fees and expenses of more than one
counsel for all Indemnitees with respect to such claim, unless
in the reasonable judgment of an Indemnitee, and in the
opinion of such Indemnitee's counsel, a conflict of interest
may exist between such Indemnitee and any other of such
Indemnitees with respect to such claim, in which event the
Indemnifying Party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
e. Notwithstanding the provisions of paragraph 3(c) neither the
Indemnifying Party nor the Indemnitee may settle or compromise any
claim for which indemnification
6
<PAGE> 7
has been sought and is available hereunder, over the objection of
the other; provided, however, that consent to settlement or
compromise shall not be unreasonably withheld or delayed. If,
however, the Indemnitee refuses to consent to a bona fide offer of
settlement which the Indemnifying Party wishes to accept, the
Indemnitee may continue to pursue such matter, free of any
participation by the Indemnifying Party, at the sole expense of the
Indemnitee. In such event, the obligation of the Indemnifying Party
to the Indemnitee shall be equal to the lesser of (i) the amount of
the offer of settlement which the Indemnitee refused to accept plus
the costs and expenses of the Indemnitee prior to the date the
Indemnifying Party notified the Indemnitee of the offer of
settlement, or (ii) the actual out-of-pocket amount the Indemnitee
is obligated to pay as a result of the Indemnitee's continuing to
pursue such matter. No party will be required to consent to entry of
any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or
plaintiff to such party of a release from all liability in respect
to the Claim.
4. MISCELLANEOUS.
a. Neither PRN nor any of the PRN Companies may assign its rights and
obligations under this Agreement without the consent of Quintel,
except that assignment to any subsidiary or affiliate controlling,
controlled by or under common control with the PRN Companies shall
not require such consent, but only prior written notice to Quintel.
Any of the Quintel Companies may assign its rights and obligations
under this Agreement to any subsidiary or affiliate controlling,
controlled by or under common control with the Quintel Companies, or
in connection with the sale of all or substantially all of the
assets of any of the Quintel Companies or a merger or consolidation
of any of the Quintel Companies with another entity, provided prior
written notice of such assignment is given to Access.
b. The Noncompetition Agreements remain in full force and effect. The
consent given by Quintel to the operation of the PRN 800 Number
Telco Clubs shall not be deemed to be a waiver of any of the rights
and obligations of the parties to the Noncompetition Agreements. Any
other exceptions to the provisions of the Noncompetition Agreements
shall require the written consent of Quintel.
c. Any notice or other communications required or permitted hereunder
shall be in writing and shall be deemed effective (a) upon personal
delivery, if delivered by hand and followed by notice by mail or
facsimile transmission; (b) one day after the date of delivery by
Federal Express or other nationally recognized courier service, if
delivered by priority overnight delivery between any two points
within the United States; or (c) five days after deposit in the
mails, if mailed by certified or registered mail (return receipt
requested) between any two points within the United States, and in
each case of mailing, postage prepaid, addressed to a party
7
<PAGE> 8
at its address first set forth above, or such other address as shall
be furnished in writing by like notice by any such party.
d. No waiver by a party of any breach of this Agreement by the other
shall be deemed to be a waiver of any preceding or subsequent
breach.
e. This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter contained herein.
f. Each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person
other than the parties hereto and the other persons executing this
Agreement.
g. This Agreement may not be changed orally, but only by an agreement
in writing signed by the party or parties to be charged thereby.
h. This Agreement shall be governed by and construed in accordance with
the law of New York, including its choice of law rules. Any judicial
proceeding brought against any of the parties to this Agreement on
any dispute arising out of this Agreement or any matter related
hereto shall be brought in the courts of the State of New York in
New York County or in the United States District Court for the
Southern District of New York, and, by execution and delivery of
this Agreement, each of the parties to this Agreement accepts for
itself the jurisdiction of the aforesaid courts, irrevocably
consents to the service of any and all process in any action or
proceeding by the mailing of copies of such process to such party at
its address provided for the giving of notices under Section 6(b)
above, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Each party hereto
irrevocably waives to the fullest extent permitted by law any
objection that it may now or hereafter have to the laying of the
venue of any judicial proceeding brought in such courts and any
claim that any such judicial proceeding has been brought in an
inconvenient forum.
i. This agreement does not constitute a joint venture or partnership by
the parties, and each party is entering into this Agreement as a
principal and not as an agent of the other.
j. This Agreement is intended to be performed in accordance with, and
only to the extent permitted by, all applicable laws, ordinances,
rules and regulations. In case any one or more of the provisions
contained in this Agreement or any application thereof shall be
invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
herein and any other application thereof shall not in any way be
affected or impaired thereby, and the extent of such invalidity or
unenforceability shall not be deemed to destroy the basis of the
bargain among the parties as expressed herein, and the
8
<PAGE> 9
remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
k. The section headings appearing in this Agreement are for convenience
of reference only and are not intended, to any extent or for any
purpose, to limit or define the text of any section.
l. This Agreement may be executed in several counterparts and all
counterparts so executed shall constitute one agreement binding on
all the parties hereto, notwithstanding that all the parties are not
signatory to the original or the same counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
QUINTEL COMMUNICATIONS, INC. BAHIA ENCOUNTERS, INC.
By: /s/ Jeffrey Schwartz By: /s/ Steven L. Feder
---------------------------- ----------------------------
PSYCHIC READERS NETWORK, INC. REAL COMMUNICATION SERVICES, INC.
By: /s/ Steven L. Feder By: /s/ Steven L. Feder
---------------------------- ----------------------------
ACCESS RESOURCE SERVICES, INC.
By: /s/ Steven L. Feder /s/ Steven L. Feder
---------------------------- --------------------------------
Steven L. Feder
9
<PAGE> 1
EXHIBIT 10.5
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT is dated as of the 30th day of November,
1998 (the "Effective Date"), but has been executed by the parties on the dates
written below the parties' signatures at the end of this Agreement, by and
between PARADIGM DIRECT, INC., a Delaware corporation, with offices located at 2
Executive Drive, Fort Lee, New Jersey 07024 ("Paradigm"), QUINTEL
COMMUNICATIONS, INC. formerly known as QUINTEL ENTERTAINMENT, INC., a Delaware
corporation, with offices at One Blue Hill Plaza, Pearl River, New York
("Quintel") and PARADIGM CELLULAR, L.L.C., a Delaware limited liability company
(the "Company").
W I T N E S S E T H :
WHEREAS, Paradigm owns a forty-nine percent (49%) membership interest
and Quintel owns a fifty-one percent (51%) membership interest in the Company.
WHEREAS, Paradigm desires to acquire all of Quintel's 51% membership
interest in the Company (to include, all of Quintel's interest in the assets and
liabilities of the Company) (the "Interest"), and Quintel is willing to sell the
Interest pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF INTEREST
1.1 TRANSFER OF INTEREST. On the terms and subject to the conditions of
this Agreement, Quintel sells, conveys, transfers and assigns and delivers to
Paradigm, and Paradigm hereby purchases and acquires from Quintel, all of
Quintel's right, title and interest of Quintel, legal or equitable, in and to
the Interest, free and clear of all security interests, liens, pledges, charges,
escrow, options, rights, rights of first refusal, encumbrances, agreements,
arrangements, commitments or other claims of any kind or character
(collectively, "Claims").
ARTICLE II
PAYMENTS
2.1 AMOUNT. The price to be paid for the Interest (the "Purchase
Price") shall be two hundred thousand ($200,000) Dollars paid by wire transfer
concurrently with the Closing.
<PAGE> 2
2.2 In addition to the Purchase Price, Paradigm shall also pay to
Quintel the following by wire transfer concurrently with the Closing:
(a) $281,000 representing one-half the Company's total
undistributed net equity from inception to the Effective Date.
(b) $13,563.82 representing amounts due to Quintel pursuant to the
company's balance sheet dated as of the Effective Date and which is annexed
hereto as Exhibit 5.4.
ARTICLE III
CLOSING
3.1 CLOSING DATE. The Closing under this Agreement shall take place
concurrently with the execution and delivery of this Agreement.
3.2 QUINTEL CLOSING DOCUMENTS. At the Closing, Quintel has executed and
delivered or caused to be executed and delivered to Paradigm the following:
(a) An assignment of the Interest, in the form attached hereto as
Exhibit 3.2(a);
(b) The resignation of Jeffrey Schwartz and Jay Greenwald as
managers of the Company and each and every officer or agent of Quintel who is an
authorized signatory of the Company in the form attached hereto as Exhibit
3.2(b);
(c) The mutual release (the "Release") between Paradigm and Quintel
in the form attached hereto as Exhibit 3.2(c);
(d) A letter of instruction from Quintel regarding the AT&T
Contract (as defined below) in the form attached hereto as Exhibit 3.3(d).
(e) Such other instruments of transfer, agreements, certificates
and other documents as Paradigm shall reasonably request.
3.3 PARADIGM CLOSING DOCUMENTS. At the Closing, Paradigm has executed
and delivered or caused to be delivered to Quintel the following:
(a) The Purchase Price;
(b) The Release; and
2
<PAGE> 3
(c) Such other instruments of transfer, accounts, certificates and
other documents as Paradigm shall reasonably request.
3.4 PROCEEDINGS. All proceedings taken and all documents executed and
delivered by the parties at the Closing shall be deemed to have been taken and
executed simultaneously, and no proceeding shall be deemed taken nor any
documents executed or delivered until all have been taken, executed and
delivered.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF QUINTEL
Quintel represents and warrants to Paradigm as follows:
4.1 ORGANIZATION AND GOOD STANDING. Quintel is a corporation duly
organized, validity existing and in good standing when the laws of the State of
Delaware, and has all requisite corporate power to own, operate and lease its
properties and carry on its business as the same is now being conducted.
4.2 CORPORATE AUTHORITY. Quintel has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and each agreement, document or instrument contemplated hereby. The execution,
delivery and performance by Quintel of this Agreement and each such agreement,
document or instrument, and the consummation of the transactions contemplated
hereby and thereby, have been authorized by all necessary action and (i) do not
require the consent, waiver, approval, license or authorization of any person,
entity, or public authority, (ii) do not violate, with or without the giving of
notice and/or the passage of time, any provision of law, and (iii) will not
conflict with or result in a breach or termination of any provision of, or
constitute a default or give rise to a right of termination or acceleration
under, any corporate charter, by-law, mortgage, deed of trust, indenture or
other agreement or instrument, or any order, judgment, decree, statute,
regulation or any other restriction of any kind or character, to which Quintel
is a party or by which any of its assets or properties may be bound, or result
in the creation of any lien, charge or encumbrance upon any of the assets of the
Company.
4.3 EFFECT OF AGREEMENT. This Agreement has been duly executed and
delivered by Quintel and constitutes, and each other agreement, document,
certificate or instrument contemplated by this Agreement when executed and
delivered shall constitute, a legal, valid and binding obligation of Quintel
enforceable against it in accordance with its terms.
4.4 BALANCE SHEET. To Quintel's actual knowledge and subject to the
truth of representations and warranties made by Paradigm in sections 5.4 through
5.8 hereof, the balance sheet of the Company dated as of November 30, 1998
attached as Exhibit 5.4 fairly
3
<PAGE> 4
and accurately presents the assets and liabilities of the Company as of the date
thereof in all material respects, all in accordance with generally accepted
accounting principles.
4.5 UNDISCLOSED LIABILITIES. As at the Effective Date, and as at the
time of Closing, Quintel did not cause the Company to incur, and has no actual
knowledge that the Company has any liabilities or obligations of any kind,
whether accrued, absolute, contingent or otherwise, other than those reflected
in the balance sheet of the Company dated as of January 18, 1999, a copy of
which is attached hereto as Exhibit 5.5. Except for liabilities and obligations
incurred since the Effective Date in the ordinary course of business consistent
with past practices, to the actual knowledge of Quintel, there is no basis for
the assertion of any claim, liability, offset or defense against the Company or
under the Existing AT&T Contract (defined herein) in any amount not fully
disclosed in this Agreement or the Exhibits hereto.
4.6 BANK ACCOUNTS. To the actual knowledge of Quintel, the list of bank
accounts annexed as Exhibit 4.6 is true and correct, and Quintel has no actual
knowledge of or information pertaining to, and is not authorized to draw on or
have access to, any other account, deposit or safe deposit box in which the
Company has an interest, direct or indirect.
4.7 DISCLOSURE. Neither this Agreement, nor any exhibit annexed to this
Agreement contains any untrue statement of any material fact, or omits to state
a material fact (i) necessary to make the statements herein or therein not
misleading, or (ii) necessary to provide the Company and Paradigm with
materially accurate and substantially complete information with respect to the
matters covered thereby.
4.8 LITIGATION. To Quintel's actual knowledge, without having made any
independent investigation (i) there are no claims, actions, suits, proceedings
(public or private) or governmental investigations threatened or pending against
or commenced by the Company at law or in equity, before or by any Federal,
state, municipal or other governmental or non-governmental department,
commission, board, bureau, agency, court or other instrumentality, or by any
private person or entity, (ii) there is no ground on which any threatened
action, suit or proceeding would have a material adverse effect on the financial
condition or results of operations of the Company and (iii) there are no
existing orders, judgments or decrees of any court or governmental agency
affecting any of the properties or assets of the Company which materially
adversely affect the Company's financial condition or its operations as
presently conducted.
4.9 CONTRACTS. Attached as Exhibit 4.9 is a list of all material
contracts to which the Company is a party or by which its assets are bound (the
"Contracts"), which list includes the Existing AT&T Contract (defined below), to
which the Company is not a party. To Quintel's actual knowledge: (i) all of the
Contracts and the Existing AT&T Contract are in full force and effect in
accordance with their respective terms, (ii) there is no event of default or
state of facts which with the passage of time and/or giving of notice would
become an
4
<PAGE> 5
event of default under such Contracts, and (iii) there are no other material
contracts, agreements, obligations or undertakings of which the Company is a
party.
4.10 POWERS OF ATTORNEY. Quintel has not given any power of attorney
that is currently in effect, whether limited or general, to any person, firm,
company or otherwise, relating to the Company.
4.11 OWNERSHIP. Quintel owns the Interest unencumbered by any Claim.
4.12 LIMITATION OF LIABILITY. The liability of Quintel under this
Agreement arising out of any claims whatsoever, including but not limited to
claims for indemnification under Section 6.1, shall not exceed the Purchase
Price and the amounts paid to Quintel under Section 2.2 of this Agreement. In no
event shall Quintel be liable for consequential, special, or punitive damages
with respect to any claim arising under this Agreement, including under Section
6.2.
The foregoing representations and warranties shall survive the Closing
for a period two (2) years.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARADIGM
Paradigm hereby represents and warrants to Quintel as follows:
5.1 ORGANIZATION AND GOOD STANDING. Paradigm is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power to own, operate and lease its
properties and carry on its business as the same is now being conducted.
5.2 CORPORATE AUTHORITY. Paradigm has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
and each agreement, document or instrument required to be delivered hereby. The
execution, delivery and performance by the Paradigm of this Agreement and each
such agreement, document or instrument, and the consummation of the transactions
contemplated hereby and thereby, have been authorized by all necessary action
and, (i) do not require the consent, waiver, approval, license or authorization
of any person, entity, or public authority, (ii) do not violate, with or without
the giving of notice and/or the passage of time, any provision of law, and (iii)
will not conflict with or result in a breach or termination of any provision of,
or constitute a default or give rise to a right of termination or acceleration
under, any corporate charter, by-law, mortgage, deed of trust, indenture or
other agreement or instrument or any order, judgment, decree, statute,
regulation or any other restriction of any kind or character, to which Paradigm
or The Company is a party or by which any of their assets or properties may be
5
<PAGE> 6
bound, or result in the creation of any lien, charge or encumbrance upon any of
the properties or assets of Paradigm.
5.3 EFFECT OF AGREEMENT. This Agreement has been duly executed and
delivered by Paradigm and constitutes, and each other document contemplated by
this Agreement when executed and delivered in accordance with the provisions
hereof shall constitute, a legal, valid and binding obligation of Paradigm
enforceable against it in accordance with its terms.
5.4 BALANCE SHEET. To Paradigm's actual knowledge and subject to the
truth of representations and warranties made by Quintel in sections 4.4 through
4.8 hereof, the balance sheet of the Company dated as of November 30, 1998
attached as Exhibit 5.4 fairly and accurately presents the assets and
liabilities of the Company as of the date thereof in all material respects, all
in accordance with generally accepted accounting principles.
5.5 UNDISCLOSED LIABILITIES. As at the Effective Date, and at the time
of Closing, Paradigm did not cause the Company to incur, and has no actual
knowledge that the Company has any liabilities or obligations of any kind,
whether accrued, absolute, contingent or otherwise, other than those recorded on
the balance sheet of the Company dated as of January 18, 1999, a copy of which
is attached hereto as Exhibit 5.5. Except for liabilities and obligations
incurred since the Effective Date in the ordinary course of business consistent
with past practices, to the actual knowledge of Paradigm, there is no basis for
the assertion of any claim, liability, offset or defense against the Company or
under the Existing AT&T Contract (defined herein) in any amount not fully
disclosed in this Agreement or the Exhibits hereto.
5.6 BANK ACCOUNTS. To the actual knowledge of Paradigm, the list of
bank accounts annexed as Exhibit 4.6 is true and correct, and Paradigm has no
actual knowledge of or information pertaining to, and is not authorized to draw
on or have access to, any other account, deposit or safe deposit box in which
the Company has an interest, direct or indirect.
5.7 DISCLOSURE. Neither this Agreement nor any exhibit annexed to this
Agreement contains any untrue statement of any material fact, or omits to state
a material fact (i) necessary to make the statements herein or therein not
misleading, or (ii) necessary to provide Quintel with materially accurate and
substantially complete information with respect to the matters covered thereby.
5.8 LITIGATION. To Paradigm's actual knowledge, without having made any
independent investigation (i) there are no claims, actions, suits, proceedings
(public or private) or governmental investigations threatened or pending against
or commenced by the Company at law or in equity, before or by any Federal,
state, municipal or other governmental or non-governmental department,
commission, board, bureau, agency, court or other instrumentality, or by any
private person or entity, (ii) there is no ground on which any threatened
action, suit or proceeding would have a material adverse effect on the financial
condition or results of
6
<PAGE> 7
operations of the Company and (iii) there are no existing orders, judgments or
decrees of any court or governmental agency affecting any of the properties or
assets of the Company which materially adversely affect the Company's financial
condition or its operations as presently conducted.
5.9 CONTRACTS. Attached as Exhibit 4.9 is a list of all material
contracts to which the Company is a party or by which its assets are bound (the
"Contracts"), which list includes the Existing AT&T Contract (defined below), to
which the Company is not a party. To Paradigm's actual knowledge: (i) all of the
Contracts and the Existing AT&T Contract are in full force and effect in
accordance with their respective terms, (ii) there is no event of default or
state of facts which with the passage of time and/or giving of notice would
become an event of default under such Contracts, and (iii) there are no other
material contracts, agreements, obligations or undertakings of which the Company
is a party.
5.10 LIMITATION OF LIABILITY. In no event shall Paradigm be liable for
consequential, special, or punitive damages with respect to any claim arising
under this Agreement, including under Section 6.2.
The foregoing representations and warranties shall survive the Closing
for a period of two (2) years.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION BY QUINTEL. Quintel shall indemnify and hold
Paradigm and the Company, and their respective officers, directors,
shareholders, members, managers, agents, employees, attorneys, and their
respective successors and assigns harmless from, and will reimburse them for,
any and all claims, liabilities, losses, damages and expenses (including without
limitation reasonable attorneys fees) incurred by any one or more of them after
the Effective Date to the extent that they arise from or relate to the
untruthfulness in any material respect of any representation or warranty made by
Quintel in this Agreement.
6.2 INDEMNIFICATION BY PARADIGM. Paradigm shall indemnify and hold
Quintel, and its officers, directors, shareholders, agents, employees,
attorneys, and their respective successors and assigns harmless from, and will
reimburse Quintel for, any and all claims, liabilities, losses, damages and
expenses (including without limitation reasonable attorneys fees) incurred by
any one or more of them after the Effective Date to the extent they arise from
or relate to the untruthfulness in any material respect of any representation or
warranty made by Paradigm in this Agreement.
6.3 INDEMNIFICATION PROCEDURES. Promptly after receipt by any party
entitled to indemnification under this Article VI (hereafter referred to as an
"Indemnified
7
<PAGE> 8
Party") of notice of any demand, claim or circumstance which, with the lapse of
time, would or might give rise to a Claim or the commencement (or threatened
commencement) of any action, proceeding or investigation (an "Asserted
Liability") that may result in any claim for which the Indemnified Party is
entitled to indemnification under Article VI (hereafter referred to as a
"Claim"), the Indemnified Party shall promptly give notice thereof (the "Claims
Notice") to the party obligated to provide indemnification pursuant to Section
6.1 or 6.2 of this Article VI (the "Indemnifying Party"). The Claims Notice
shall describe the Asserted Liability in reasonable detail, shall contain
supporting documentation (if applicable), and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Claims that have
been or may be suffered by the Indemnified Party. No indemnification obligation
shall be imposed upon an Indemnifying Party unless a proper Claims Notice is
given to that Indemnifying Party on or before the last day of the survival
period for the representation, warranty, or covenant, the alleged breach of
which forms the basis for the Claim. Failure of an Indemnified Party to give
prompt notice of an Claim shall not release, waive or otherwise affect an
Indemnifying Party's obligations with respect thereto except to the extent that
the Indemnifying Party suffers actual loss or prejudice as a result of such
failure.
(a) The Indemnifying Party may elect to compromise or defend, at
its own expense and by its own counsel, any Asserted Liability. If the
Indemnifying Party elects to compromise or defend such Asserted Liability, it
shall within thirty (30) days (or sooner, if the nature of the Asserted
Liability so requires) notify the Indemnifying Party of its intent to do so, and
the Indemnified Party shall cooperate with the Indemnifying Party and shall
provide the Indemnifying Party access to its records and personnel relating to
any such Asserted Liability, in each case, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability or
fails to notify the Indemnified Party of its election as herein provided, the
Indemnified Party may pay, compromise or defend such Asserted Liability at the
expense of the Indemnifying Party. Subject to the limitations contained in
Section 6.3(b) on the obligations of the Indemnifying Party in respect of
proposed settlements, the Indemnified Party shall have the right to employ its
own counsel with respect to any Asserted Liability, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless (i) the
employment of such counsel at the expense of the Indemnifying Party shall have
been authorized in writing by the Indemnifying Party in connection with the
defense of such action, or (ii) such Indemnifying Party shall not have, as
provided above, promptly employed counsel reasonably satisfactory to the
Indemnified Party to take charge of the defense of such action. The Indemnified
Party, at its own cost, may employ separate counsel to assert, based on an
opinion of counsel, one or more legal defenses available to it which are
different from or additional to those available to such Indemnifying Party; the
Indemnifying Party shall not have the right to direct the defense of such action
on behalf of the Indemnified Party in respect of such different or additional
defenses. If the Indemnifying Party chooses to defend any claim, the Indemnified
Party shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
8
<PAGE> 9
(b) Notwithstanding the provisions of Section 6.3(a), neither
Indemnifying Party nor the Indemnified Party may settle or compromise any claim
for which indemnification has been sought and is available hereunder, over the
reasonable objection of the other; provided, however, that consent to settlement
or compromise shall not be unreasonably withheld or delayed. If, however, the
Indemnified Party refuses to consent to a bona fide offer of settlement which
the Indemnifying Party wishes to accept, the Indemnified Party may continue to
pursue such matter, free of any participation by the Indemnifying Party, at the
sole expense of the Indemnified Party. In such event, the obligation of the
Indemnifying Party to the Indemnified Party shall be equal to the lesser of (i)
the amount of the offer of settlement which the Indemnified Party refused to
accept plus the costs and expenses of the Indemnified Party prior to the date
the Indemnifying Party notified the Indemnified Party of the offer of
settlement, and (ii) the actual out-of-pocket amount the Indemnified Party is
obligated to pay as a result of the Indemnified Party's continuing to pursue
such matter.
6.4 INDEMNIFICATION BY THE COMPANY.
(a) The obligation of the Company to indemnify its members as set
forth in Section 5.10 of the Company's Operating Agreement dated as of June 30,
1998 shall survive the execution of this Agreement the and Closing for two
years, subject, however, to any defenses, offsets and counterclaims arising from
Quintel's obligations under this Agreement.
(b) The Company shall indemnify, defend and hold Quintel harmless
with respect to any claims arising out of any action or failure to act by
Paradigm or the Company relating to the business of the Company (including but
not limited to, under the Existing AT&T Agreement) after the date of the Closing
except for claims arising out of (i) a breach of a warranty, representation or
covenant of Quintel contained in this Agreement or any action by Quintel which
would constitute a breach under the Existing AT&T Agreement or (ii) any
negligent or wilful misconduct of Quintel or its employees, agents, affiliates
or contractors.
ARTICLE VII
POST-CLOSING OBLIGATIONS
7.1 THE AT&T CONTRACT. One of the Contracts is the Dealer Agreement
between AT&T Wireless Services of Florida, Inc., d/b/a AT&T Wireless Services
("AT&T") and Quintel Entertainment, Inc. dated as of July 1, 1997 (the "Existing
AT&T Contract"). Quintel acknowledges that it has been advised by Paradigm that
AT&T and the Company intend to enter into a new contract on or around January
, 1999 (the "New AT&T Contract"). Quintel agrees that if it receives any
payment of any type whatsoever relating to the Existing AT&T Contract it will
within one (1) business day endorse the check payable to
9
<PAGE> 10
the order of Paradigm and forward the instrument to Paradigm. Quintel agrees
that it will take no action to interfere with the negotiations and execution of
the New AT&T Contract. Subject to the performance by the Company of Quintel's
obligations to AT&T under the Existing AT&T Contract , Quintel will take all
commercially reasonable measures to assist Paradigm and the Company in
maintaining the Existing AT&T Contract in full force and effect until the
effective date of the New AT&T Contract and once the New AT&T Contract is ready
to become effective, Quintel will take all actions necessary to terminate the
Existing AT&T Contract immediately.
7.2 FURTHER ASSURANCES. If, at any time after the date hereof, either
party shall consider or be advised that any further assignments, conveyances,
certificates, filings, instruments or documents or any other things are
necessary or desirable to consummate any of the transactions contemplated by
this Agreement, the other party shall, upon request, promptly execute and
deliver all such proper instruments and do all things reasonably necessary and
proper to otherwise carry out the purposes of this Agreement.
7.3 TAX RETURNS. Paradigm shall prepare all necessary tax and
information returns required by any governmental entity. Paradigm shall forward
to Quintel all such returns prior to filing for Quintel's approval, at least
thirty (30) days prior to the due date for the filing thereof as it may be
lawfully extended which shall not be unreasonably withheld or delayed.
7.4 RETURN OF CERTAIN INFORMATION TO QUINTEL.
(a) Paradigm and the Company acknowledge that in the course of
conducting the Company's business Quintel has made a computer-generated database
available to the Company and Paradigm containing names and/or telephone numbers
regarding potential customers (collectively referred to as the "Quintel
Information") for the Company's products and services, all of which Quintel
Information Paradigm and the Company acknowledge is confidential and proprietary
information belonging to Quintel. The term "Quintel Information" does not
include the names and telephone numbers of any actual or potential customers
obtained by Paradigm from any other source without knowingly breaching any
obligation of confidentiality owing to Quintel by such other party, which or
whose name may also be included within the Quintel Information. Paradigm and the
Company agree that all of the Quintel Information which is in tangible form
shall be returned to Quintel not later than thirty days after the date of this
Agreement. Neither Paradigm nor the Company will use, publish or disclose any of
the Quintel Information or authorize any other person or entity to make use,
publish or disclose any of the Quintel Information for any purpose whatsoever;
provided, however, that to the extent that the current customers of the Company
are persons disclosed as part of the Quintel Information, the Company shall
continue to have the right to use the name and telephone number of the customer
in the conduct of the Company's business, but for no other purpose.
10
<PAGE> 11
(b) The Company and Paradigm each acknowledges and agrees that
Quintel will be irreparably damaged if the provisions of Section 7.4(a) are not
specifically enforced. Accordingly, Quintel shall be entitled to an injunction
restraining any breach of Section 7.4(a) by the Company or Paradigm (without
being required to prove irreparable injury), or any other appropriate decree of
specific performance. As a condition precedent for the application for any such
injunction or any other form of equitable or extraordinary relief, Quintel shall
first notify the Company and Paradigm in writing of any such alleged breach.
Such notice shall contain the names and addresses of the persons for whom such a
breach is alleged to have occurred. Paradigm and the Company shall have five
business days to respond to such notice of an alleged breach by providing to
Quintel written documentation demonstrating that Quintel and the Company have
not breached the provisions of Section 7.4(a). Quintel agrees to give Paradigm
and the Company two (2) days' advanced notice of any application for injunctive
or other extraordinary relief. The foregoing shall not constitute a waiver of
Paradigm's or the Company's right to an undertaking or bond in connection with
such injunction or decree as provided under applicable law.
ARTICLE VIII
MISCELLANEOUS
8.1 WAIVERS AND AMENDMENTS.
(a) This Agreement may be amended, modified or supplemented only by
a written instrument executed by the parties hereto. The provisions of this
Agreement may be waived only by an instrument in writing executed by the party
granting the waiver. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a further or continuing
waiver of such breach or as a waiver of any other or subsequent breach.
(b) No failure on the part of any party to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operated as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
8.2 FEES AND EXPENSES. Quintel and Paradigm shall each be responsible
for all of their respective fees and expenses incurred in connection with this
transaction.
8.3 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given or made: if by hand, immediately upon
delivery; if by telex, telecopier, or similar electronic device, immediately
upon sending, provided it is sent on a business day, but if not, then
immediately upon the beginning of the first business day after
11
<PAGE> 12
being sent; if by Federal Express, Express Mail or any other overnight delivery
service, on the first business day after dispatch; and if mailed by certified
mail, return receipt requested, three (3) business days after delivery or the
return of the notice to render marked "unclaimed". All notices, requests and
demands are to be given or made to the parties at the following addresses (or to
such other address as either party may designate by notice in accordance with
the provisions of this paragraph):
IF TO QUINTEL: QUINTEL COMMUNICATIONS, INC.
---------------
ONE BLUE HILL PLAZA
P.O. BOX 1662
PEARL RIVER, NEW YORK 10965
ATTN: J. SCHWARTZ
TELEPHONE: (914)620-1212
TELECOPIER: (914) 620-0991
WITH A COPY TO: FEDER, KASZOVITZ, ISAACSON, WEBER, SKALA & BASS LLP
--------------
750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022-1200
ATTENTION: GEOFFREY BASS
TELEPHONE: (212) 888-8200
TELECOPIER: (212) 888-7776
IF TO PARADIGM: PARADIGM DIRECT, INC.
2 EXECUTIVE DRIVE
FORT LEE, N.J. 07024
ATTN: DAVID BYRON
TELEPHONE: (201) 461-5665
TELECOPIER: (201) 461-1963
WITH A COPY TO: ROBINSON BROG LEINWAND GREENE
GENOVESE & GLUCK P.C.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
ATTENTION: ALLEN J. ROTHMAN, ESQ.
TELEPHONE: (212) 586-4050
TELECOPIER: (212) 956-2164
8.4 ENTIRE AGREEMENT. This Agreement and the exhibits hereto set forth
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersede any prior negotiations, agreements,
letters of intent, understandings or arrangements between the parties hereto
with respect to the subject matter hereof.
12
<PAGE> 13
8.5 BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors.
Nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto, or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
8.6 NON-ASSIGNABILITY. This Agreement and any rights pursuant hereto
shall not be assignable by any party hereto without the prior written consent of
the other party.
8.7 PARTIAL INVALIDITY. In the event any provision of this Agreement or
the application thereof to any person or circumstances shall be adjudged to be
invalid or unenforceable according to any applicable laws, the remaining
provisions of this Agreement and the application thereof to any person or
circumstances shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
8.8 GRAMMATICAL CONVENTIONS; DEFINITION OF "KNOWLEDGE". Unless some
meaning and intent is apparent from the context of the Agreement, the plurals
shall include the singular and vice versa, and masculine, feminine and neuter
words shall be used interchangeably. "Knowledge" of any matter means with
respect to an individual, the actual knowledge, but not constructive or imputed
knowledge, after due inquiry of such person's books and records, of such matter
of such person and, with respect to any person that is not an individual, such
actual knowledge of each individual that is a director or executive officer, in
the case of a corporation, or a manager, in the case of a limited liability
company, of such entity in each case after due investigation of the relevant
employees and books and records of such entity.
8.9 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date and year first above written.
PARADIGM DIRECT, INC.
13
<PAGE> 14
BY:
---------------------------------------
ITS:
---------------------------------------
DATE: JANUARY , 1999
---------------------------------------
QUINTEL COMMUNICATIONS, INC.
BY:
---------------------------------------
ITS:
---------------------------------------
DATE: JANUARY , 1999
---------------------------------------
PARADIGM CELLULAR, LLC
BY:
---------------------------------------
ITS:
---------------------------------------
DATE: JANUARY , 1999
---------------------------------------
14
<PAGE> 15
LIST OF EXHIBITS
3.2(a) Assignment of Membership Interest
3.2(b) Resignation
3.2(c) Release
3.2(d) Quintel letter re: AT&T Contract
4.6 List of Bank Accounts
4.9 List of Contracts
5.4 Balance Sheet as of Effective Date
5.5 Balance Sheet as of January 18, 1999
<PAGE> 16
ASSIGNMENT OF MEMBERSHIP INTEREST
FOR VALUE RECEIVED, QUINTEL COMMUNICATIONS, INC., a Delaware
corporation, formerly known as QUINTEL ENTERTAINMENT, INC. ("Assignor"), has
assigned and by these presents does hereby assign to PARADIGM DIRECT, INC., a
Delaware corporation ("Assignee") all of the Assignor's rights, title and
interest in and to its 51% membership interest in PARADIGM CELLULAR, L.L.C., a
Delaware limited liability company, (the "Interest") free and clear of all
security interests, liens, pledges, charges, escrows, options, rights, rights of
first refusal, encumbrances, agreements, arrangements, commitments or claims of
any kind or character, to have and to hold the same onto the Assignee, its
successors and assigns from and after the date hereof.
IN WITNESS WHEREOF, the Assignor has executed this Assignment this 25th
day of January, 1999.
QUINTEL COMMUNICATIONS, INC.
By: /s/ Jeffrey A. Schwartz
------------------------------
<PAGE> 17
RESIGNATION
We hereby resign as Managers of PARADIGM CELLULAR, L.L.C., a Delaware
limited liability company effective this _____ day of January, 1999
/s/ Jeffrey Schwartz
--------------------------
JEFFREY SCHWARTZ
/s/ Jay Greenwald
--------------------------
JAY GREENWALD
<PAGE> 18
QUINTEL COMMUNICATIONS, INC.
One Blue Hill Plaza, 5th Floor, P.O. Box 1665, Pearl River, NY 10965
Phone (914) 620-1212 -Fax (914) 620-1717
Date: January 20, 1999
Mr. Tony Mylonakis
AT&T Wireless Services of
Florida, Inc.
901 N. Lake Destiny Drive
Suite 192
Maitland, FL 32751
Re: Dealer Agreement between AT&T Wireless Services of Florida, Inc., d/b/a
AT&T Wireless Services and Quintel Communications, Inc., formerly known
as Quintel Entertainment, Inc., effective as of July 1, 1997 (the
"Dealer Agreements")
Dear Mr. Mylonakis:
This is to advise you that Quintel Communications, Inc., formerly known
as Quintel Entertainment, Inc. has on this day sold to Paradigm Direct, Inc. its
membership interest in Paradigm Cellular, L.L.C. Accordingly, this letter is
intended to document our request to terminate the Dealer Agreement. Our Dealer
Code is 8C914. We would like the termination to take effect within 30 days
pursuant to the Agreement. Please call our controller, Vinod Khare, at
914-620-1212 with any questions. Thank you.
Sincerely yours,
QUINTEL COMMUNICATIONS, INC.
By: /s/ Vinod Khare
------------------------------
VINOD KHARE
Its: Controller
------------------------------
cc: AT&T Wireless Services of Florida
11760 North U.S. Highway One
North Palm Beach, Florida 33408
<PAGE> 19
EXHIBIT 4.6
LIST OF BANK ACCOUNTS
1. CITIBANK, NA. ACCOUNT NUMBER 95314618, IN THE NAME OF PARADIGM
CELLULAR, LLC, ONE BLUE HILL PLAZA, SUITE 1665, PEARL RIVER, NEW YORK
10965-3104.
<PAGE> 20
EXHIBIT 4.9
LIST OF CONTRACTS
1. Agreement dated September 26, 1997 between Cellular Telephone Company
d/b/a AT&T Wireless Services and Paradigm Direct, Inc.
2. Dealer Agreement effective as of July 1, 1997 between AT&T Wireless
Services of Florida, Inc., d/b/a AT&T Wireless Services and Quintel
Entertainment, Inc.
<PAGE> 21
EXHIBIT 5.4
PDI & QUINTEL JV
BALANCE SHEET
AS OF NOVEMBER 30, 1998
Nov. 30, '98
<TABLE>
<S> <C> <C> <C>
ASSETS
Current Assets
Checking/Savings
Cash - Citibank Checking 592,298.69
Cash - In Transit, Clearing 297,055.00
------------
Total Checking/Savings 889,353.89
Other Current Assets
A/R Att - Cost Adjustment for P 185,607.61
Inventory - Florida (Old Deal) 3,750.00
A/R Wireless Sales
Philadelphia
A/R Phila Reserve -19,430.00
Philadelphia - Other 44,700.00
---------
Total Philadelphia 25,270.00
Florida (New Deal) 542,700.00
A/R FL Reserve (New Deal) -540,083.00
NY/NJ 316,500.00
----------
Total A/R Wireless Sales 344,387.00
------------
Total Other Current Assets 533,744.61
------------
Total Current Assets 1,423,098.30
Other Assets
Organization Costs 6,470.85
Accumulated Amortization -1,185.95
------------
Total Other Assets 5,284.90
------------
TOTAL ASSETS 1,428,383.20
============
LIABILITIES AND EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable 363,669.70
------------
Total Accounts Payable 363,669.70
Other Current Liabilities
Accrued Direct Mail 700.00
A/P - ATT Phones Not Ret FL New 43,680.00
</TABLE>
1
<PAGE> 22
<TABLE>
<S> <C>
A/P - ATT Phones (New Deal) 1,032,183.40
A/P - ATT Phones (Credits) -764,313.30
Accrued - Customer Lists 1,500.00
Accrued Data Mgmt Exp 9,060.00
Accrued Professional Fees 4,200.00
Due to PDI 164,370.65
Due to Quintel 13,563.82
------------
Total Other Current Liabilities 504,944.57
------------
Total Current Liabilities 868,614.27
------------
Total Liabilities 868,614.27
------------
Equity
Retained Earnings -365,085.96
Net Income 924,854.89
------------
Total Equity 559,768.93
------------
TOTAL LIABILITIES AND EQUITY 1,428,383.20
============
</TABLE>
2
<PAGE> 23
EXHIBIT 5.5
PDI & QUINTEL JV
BALANCE SHEET
AS OF NOVEMBER 30, 1998
Jan. 18, '99
<TABLE>
<S> <C> <C> <C>
ASSETS
Current Assets
Checking/Savings
Cash - Citibank Checking 426,403.11
Cash - In Transit, Clearing 297,055.00
------------
Total Checking/Savings 723,458.11
Other Current Assets
A/R Att - Cost Adjustment for P 185,607.61
Inventory - Florida (Old Deal) 3,750.00
A/R Wireless Sales
Philadelphia
A/R Phila Reserve -19,430.00
Philadelphia - Other 44,700.00
---------
Total Philadelphia 25,270.00
Florida (New Deal) 542,700.00
A/R FL Reserve (New Deal) -540,083.00
NY/NJ 208,500.00
----------
Total A/R Wireless Sales 236,387.00
------------
Total Other Current Assets 425,744.61
------------
Total Current Assets 1,149,202.72
Other Assets
Organization Costs 6,470.85
Accumulated Amortization -1,185.95
------------
Total Other Assets 5,284.90
------------
TOTAL ASSETS 1,154,487.62
============
LIABILITIES AND EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable 89,774.12
------------
Total Accounts Payable 89,774.12
Other Current Liabilities
Accrued Direct Mail 700.00
A/P - ATT Phones Not Ret FL New 43,680.00
A/P - ATT Phones (New Deal) 1,032,183.40
</TABLE>
1
<PAGE> 24
<TABLE>
<S> <C>
A/P - ATT Phones (Credits) -764,313.30
Accrued - Customer Lists 1,500.00
Accrued Data Mgmt Exp 9,060.00
Accrued Professional Fees 4,200.00
Due to PDI 164,370.65
Due to Quintel 13,563.82
------------
Total Other Current Liabilities 504,944.57
------------
Total Current Liabilities 594,718.69
------------
Total Liabilities 594,718.69
Equity
Retained Earnings 559,768.93
------------
Total Equity 559,768.93
------------
TOTAL LIABILITIES AND EQUITY 1,164,487.62
============
</TABLE>
2
<PAGE> 25
MUTUAL RELEASE
This Mutual Release is entered into this __ day of January, 1999 by and
between PARADIGM DIRECT, INC., a Delaware corporation, with offices located at 2
Executive Drive, Fort Lee, New Jersey ("PDI") and PARADIGM CELLULAR, L.L.C., a
Delaware limited liability company (the "Company") (together PDI and the Company
are referred to as "the Paradigm Entities") and QUINTEL COMMUNICATIONS, INC., a
Delaware corporation, formerly known as, QUINTEL ENTERTAINMENT, INC., with
offices at One Blue Hill Plaza, Pearl River, New York ("Quintel").
W I T N E S S E T H:
WHEREAS, PDI owns a 49% interest and Quintel owns a 51% interest in
Paradigm Cellular, L.L.C., a Delaware limited liability company (the "Company");
WHEREAS, PDI and Quintel have entered into that certain Purchase and
Sale Agreement dated as of the 30th day of November, 1998 (the "Sale Agreement")
wherein Paradigm is purchasing from Quintel and Quintel is selling to PDI all of
rights, title and interest of Quintel's membership interest in the Company;
WHEREAS, Section Section 3.2(c) of the Sale Agreement requires each
party to release the other in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree:
3. Release. The Paradigm Entities on the one part and Quintel on the
other part hereby release and discharge each other, and their respective
shareholders, directors, managers, members, officers, employees,
<PAGE> 26
agents, attorneys, and their respective successors and assigns, from all
actions, causes of action, suits, debts, dues, accounts, bonds, covenants,
contracts, agreements, damages, judgments, claims, and demands whatsoever, in
law or in equity, which either party ever had, now has, or hereafter can, shall
or may have, for, upon, or by reason of any matter, causes or things whatsoever
from the beginning of the world to the date of this Mutual Release arising out
of the Operating Agreement dated as of June 30, 1998 regarding the Company
between Paradigm and Quintel. Nothing herein shall constitute a release of any
obligation of the Paradigm Entities or Quintel under the Sale Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day near first above written:
QUINTEL COMMUNICATIONS, INC.
By: _________________________________
Its: _________________________________
PARADIGM DIRECT, INC.
By: _________________________________
Its: _________________________________
PARADIGM CELLULAR, L.L.C..
By: _________________________________
Its: _________________________________
1
<PAGE> 27
EXECUTION COPY
OPERATING AGREEMENT
OF
PARADIGM CELLULAR, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
2
<PAGE> 28
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. ORGANIZATION........................................................................ 1
1.1 Formation.................................................................... 1
1.2 Organization Filings......................................................... 1
1.3 Name......................................................................... 2
1.4 Principal and Registered Office.............................................. 2
1.5 Registered Agent and Agent for Service of Process............................ 2
1.6 Purpose...................................................................... 2
1.7 Term......................................................................... 2
1.8 Names and Addresses of Members............................................... 2
1.9 Additional Members........................................................... 2
2. DEFINITIONS AND INTERPRETATION...................................................... 2
2.1 Definitions.................................................................. 2
2.2 Terms Defined Elsewhere...................................................... 5
2.3 Table of Contents and Captions............................................... 7
2.4 Construction................................................................. 7
3. CAPITAL; CAPITAL ACCOUNTS........................................................... 7
3.1 Initial Capital Contributions................................................ 7
3.2 Member Loans................................................................. 7
3.3 No Withdrawal of Capital Contributions....................................... 7
3.4 Return of Capital Contributions.............................................. 8
3.5 Liability of Members, Managers and Their Affiliates.......................... 8
3.6 No Priority.................................................................. 8
3.7 No Interest.................................................................. 8
3.8 No Obligation to Restore Negative Balances in Capital Accounts............... 8
3.9 Capital Accounts............................................................. 8
3.10 Investment Capital........................................................... 10
4. PROFITS, LOSSES AND DISTRIBUTIONS................................................... 10
4.1 Profits and Losses........................................................... 10
4.2 Distributions of Available Cash.............................................. 14
4.3 Incorrect Distributions...................................................... 14
4.4 Distributions in Kind........................................................ 14
5. MANAGEMENT OF THE COMPANY........................................................... 15
5.1 Management Powers of the Managers............................................ 15
5.2 Managers..................................................................... 15
5.3 Power of Members............................................................. 17
5.4 Meetings of Members.......................................................... 17
5.5 Delegation of Authority by Managers.......................................... 18
</TABLE>
i
<PAGE> 29
<TABLE>
<S> <C>
5.6 Managers' Duty to Devote Time................................................ 19
5.7 Managers' Compensation....................................................... 19
5.8 Competition; Outside Interests............................................... 19
5.9 Conduct of Managers; Limited Liability of the Managers....................... 21
5.10 Indemnification.............................................................. 21
5.11 Business with Affiliates..................................................... 22
5.12 Obligations of the Members................................................... 22
6. RESTRICTIONS ON THE DISPOSITION OF AN INTEREST...................................... 22
6.1 Generally.................................................................... 22
6.2 Permitted Transfers.......................................................... 22
6.3 Right of First Refusal....................................................... 23
6.4 Transfer Upon Repurchase Events.............................................. 24
6.5 Mandatory Transfer........................................................... 26
6.6 General Conditions to Transfer............................................... 26
6.7 Withdrawal................................................................... 28
6.8 Collateral Assignment of Interests........................................... 28
7. BOOKS, RECORDS AND REPORTS.......................................................... 28
7.1 Company Documents............................................................ 28
7.2 Financial Books.............................................................. 29
7.3 Bank Accounts................................................................ 29
7.4 Reports...................................................................... 29
7.5 Tax Returns.................................................................. 29
7.6 Tax Matters Person........................................................... 30
7.7 Fiscal Year and Accounting Method............................................ 30
7.8 Tax Elections................................................................ 30
7.9 Title to Company Assets...................................................... 30
8. DISSOLUTION AND TERMINATION OF THE COMPANY.......................................... 30
8.1 Dissolution.................................................................. 30
8.2 Liquidation.................................................................. 31
8.3 Termination.................................................................. 31
9. APPLICABLE LAW...................................................................... 32
9.1 Applicable Law............................................................... 32
9.2 Dispute Resolution........................................................... 32
10. MISCELLANEOUS PROVISIONS............................................................ 32
10.1 No Third Party Beneficiary................................................... 32
10.2 Power of Attorney to each Manager............................................ 32
10.3 Notices...................................................................... 33
10.4 Severability................................................................. 34
10.5 Counterparts............................................................... 34
10.6 Entire Agreement; Amendments............................................... 34
10.7 Further Assurances......................................................... 34
10.8 Successors and Assigns..................................................... 34
</TABLE>
ii
<PAGE> 30
<TABLE>
<S> <C>
10.9 Waiver of Action for Partition............................................. 34
10.10 Insurance.................................................................. 34
10.11 Representations of the Members............................................. 34
Schedule 1.8 Members
Exhibit A Initial Operating Budget
</TABLE>
iii
<PAGE> 31
OPERATING AGREEMENT
OF
PARADIGM CELLULAR, L.L.C.
This Limited Liability Company Operating Agreement dated as of June 10,
1998 (the "Operating Agreement") by and among the persons whose names and
addresses appear on Schedule 1.8 annexed hereto (individually a "Member" and
collectively the "Members") has been executed for the purpose of forming a
limited liability company (the "Company") pursuant to the provisions of the
Delaware Limited Liability Company Act, 6 Del, C. Section 18-101 et seq. (the
"Act") and setting forth the rights and obligations of the Members and Managers
thereof and the manner in which the Company shall be operated, and the Members
do hereby agree as follows:
1. ORGANIZATION
1.1 Formation. The Company has been organized as a limited
liability Company under the Act on June 9, 1998. Except as otherwise expressly
provided for by this Operating Agreement, the rights and obligations of the
Members and Managers, the management of the affairs of the Company and the
conduct of its business shall be governed by the Act.
1.2 Organization Filings. (a) The Members hereby consent to the
filing of the Certificate of Formation with the Delaware Secretary of State on
June 9, 1998. The Managers shall file or cause to be filed such amendments to
the Certificate of Formation as may from time to time be authorized in
accordance with this Operating Agreement and the Act.
(b) The Managers are authorized to execute, file and publish,
or cause to be filed and published, with the proper authorities in each
jurisdiction (or subdivision thereof) where the Company conducts business, such
certificates or documents as may be required by such jurisdiction (or
subdivision thereof) in connection with the conduct of its business pursuant to
a fictitious name.
(c) The Members from time to time shall execute, acknowledge,
verify, file, record and publish, or cause to be executed, acknowledged,
verified, filed, recorded and published, all such applications, certificates and
other documents, and do or cause to be done all such other acts, as the Managers
may reasonably deem necessary or appropriate to comply with the requirements of
law for the formation, qualification and operation of the Company as a limited
liability company in all jurisdictions in which the Company shall desire to
conduct business.
1
<PAGE> 32
1.3 Name. The name of the Company shall be Paradigm Cellular,
L.L.C. or such other name as the Managers shall from time to time determine upon
written notice to the Members.
1.4 Principal and Registered Office. The principal and registered
office of the Company shall be Two Executive Drive, Fort Lee, New Jersey 07024
or such other place as may be designated by the Managers upon written notice to
the Members. The Managers may provide additional offices for the Company within
or outside of the State of New Jersey if the same are deemed advisable for the
conduct of the Company's business.
1.5 Registered Agent and Agent for Service of Process. The address
of the Company's registered office and the name and address of the registered
agent of the Company required to be maintained by Section 18-104 of the Act are
Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805.
1.6 Purpose. The purposes of the Company shall be to engage in the
sale and marketing of Conventional Wireless Services (as defined herein).
1.7 Term. The term of the Company shall commence upon the filing of
the Certificate of Formation with the Secretary of State of the State of
Delaware.
1.8 Names and Addresses of Members. (a) The name, address,
telephone number, or employer identification number, Capital Contribution and
Percentage Interest of each of the Initial Members of the Company are set forth
in Schedule 1.8 annexed hereto.
(b) If necessary, Schedule 1.8 shall from time to time be
amended to reflect any changes to the information set forth thereon.
1.9 Additional Members. The Members, acting unanimously, shall have
the right to admit additional Members to the Company upon such terms and
conditions, at such time or times, and for such Capital Contributions as shall
be determined by the Managers. In addition, additional Members shall be admitted
to the Company in accordance with the provisions set forth in Section 6 hereof.
In connection with any such admission, the Managers shall amend Schedule 1.8
hereof to reflect the name, address, Capital Contribution and other data
required thereby of the additional Members and any agreed upon changes in the
Interests and Percentage Interests.
2. DEFINITIONS AND INTERPRETATION
2.1 Definitions. (a) In addition to terms otherwise defined herein,
the following terms shall have the following meanings:
2
<PAGE> 33
(i) "Affiliate" or "affiliate" of a Person shall
mean: (A) any officer, partner, director, manager, trustee, member, general
partner, or controlling shareholder of such Person; (B) any Person controlling,
controlled by or under common control with such Person; and (C) any officer,
director, trustee, member, manager, controlling shareholder or partner of any
Person described in (B) above. For purposes of this definition, the term
"control" shall mean the power to direct the management and policies of such
Person, directly or indirectly, by or through stock ownership, agency or
otherwise, or pursuant to or in connection with an agreement, arrangement or
understanding (written or oral) with one or more other Persons by or through
stock ownership, agency or otherwise; and the terms "affiliated," "controlling"
and "controlled" shall have meanings correlative to the foregoing.
(ii) "AT&T Wireless Agreements" means the following
agreements: (A) Dealer Agreement dated as of July 1, 1997 between AT&T Wireless
Services of Florida, Inc. d/b/a AT&T Wireless Services and Quintel
Entertainment, Inc., and (B) Agreement dated __________, 1997 between Cellular
Telephone Company d/b/a AT&T Wireless Services, Paramus, New Jersey and
Paradigm.
(iii) "Available Cash" shall mean all Gross Receipts
actually received by the Company, less the sum of the following:
(A) All principal, interest and other
payments due and owing with respect to loans, mortgages and other indebtedness
of the Company;
(B) All cash expenditures then required to
be made in connection with the operation of the business of the Company; and
(C) Such cash reserves as are necessary for
the operation of the business of the Company which shall be determined in
accordance with the Operating Budgets (as defined herein) of the Company.
(iv) "Bankruptcy" of a Person or a "Bankruptcy
Action" of a Person shall mean (A) the filing by that Person of a voluntary
petition seeking liquidation, reorganization, arrangement or readjustment, in
any form, of its debts under Title 11 of the United States Code or any other
federal or state insolvency law, or a Person's filing an answer or otherwise
consenting to or acquiescing in any such petition, (B) the making by a Person of
any assignment for the benefit of its creditors with respect to substantially
all of the assets of such Person or (C) the expiration of 90 days after the
filing of an involuntary petition under Title 11 of the United States Code, an
application for the appointment of a receiver for substantially all of the
assets of a Person, or any involuntary petition seeking liquidation,
reorganization, arrangement or readjustment of its debts under any other federal
or state insolvency law, provided that the same shall not have been dismissed,
vacated, set aside, stayed or otherwise disposed of within such 90-day period. A
"Bankrupt" Person shall mean a Person who has entered into Bankruptcy within the
meaning of this Section.
3
<PAGE> 34
(v) "Capital Contribution" shall mean, with respect
to any Member, the amount of capital actually contributed by such Member to the
Company in accordance with Article 3 hereof.
(vi) "Code" shall mean the Internal Revenue Code of
1986, as the same has been or may be amended from time to time.
(vii) "Conventional Wireless Services" shall mean the
marketing, promotion and sale of wireless cellular telephone services, both
digital and analog, which are paid for by the end user after the services are
provided to the end user, as such wireless cellular telephone services are being
offered as of the date hereof in the continental United States by companies such
as AT&T Wireless and its competitors. Without limitation to the foregoing, the
term "Conventional Wireless Services" does not include (A) Pre-Paid Wireless
Services (as defined in this Agreement), (B) voice-mail services separate from
the sale of wireless cellular telephone services, or (C) any form of telephone
services which are provided using the "Internet". The parties agree that the
wireless cellular telephone services being sold under the AT&T Wireless
Agreements constitute "Conventional Wireless Services" within the meaning of
this Agreement.
(viii) "Gross Receipts" with respect to any period
shall mean all gross cash receipts of the Company from any source whatsoever
received by the Company during such period less contractual allowances, returns,
allowances, credits and discounts, but excluding (A) Capital Contributions, (B)
the proceeds of Company borrowings including Member Loans and (C) any amounts
received by the Company which constitute segregated escrow or similar accounts
(until the same are released or forfeited to the Company).
(ix) "Initial Members" shall mean and include the
Members of the Company on the date hereof set forth on Schedule 1.8 annexed
hereto.
(x) "Interest" shall mean the ownership interest of a
Member in the Company as reflected on Schedule 1.8 annexed hereto as the same
may, from time to time, be required to be amended (which shall be considered
personal property for all purposes), consisting of (A) such Member's Percentage
Interest in profits, losses, allocations and distributions and (B) such Member's
right to vote or grant or withhold consents with respect to Company matters as
provided herein or in the Act.
(xi) "Managers" shall mean the Managers designated
in, or selected pursuant to, Article 5 hereof so long as they remain Managers.
Unless the context requires otherwise, reference to a "Manager" means any of the
Managers.
(xii) "Members" shall mean the Initial Members and
all other Persons admitted as additional or substituted Members pursuant to this
Operating Agreement, so long as they remain Members. Unless the context requires
otherwise, reference to a "Member" means any one of the Members.
4
<PAGE> 35
(xiii) "Net Losses" shall mean, with respect to any
fiscal period of the Company, the net losses of the Company for such period for
federal income tax purposes including as appropriate each item of income, loss,
deduction or credit entering into such determination, as determined by the
regular accountants of the Company.
(xiv) "Net Profits" shall mean, with respect to any
fiscal period of the Company, the net profits of the Company for such period for
federal income tax purposes including, as appropriate, each item of income,
loss, deduction or credit entering into such determination, as determined by the
regular accountants of the Company.
(xv) "Operating Budgets" of the Company shall mean
the operating budgets for the Company which shall be prepared by the Managers
with respect to the business plan and operating budget for the Company for each
succeeding fiscal quarter. The initial Operating Budget for the Company is
annexed hereto as Exhibit A.
(xvi) "Paradigm" shall mean Paradigm Direct, Inc., an
Initial Member.
(xvii) "Percentage Interest" shall mean the
percentage set forth opposite such Member's name on Schedule 1.8 hereto, as such
percentage shall be adjusted from time to time in accordance with the provisions
hereof. The combined Percentage Interests of all Members shall at all times
equal 100%.
(xviii) "Person" shall means an individual,
corporation, limited liability company, limited partnership, general
partnership, joint venture, custodian, company trust, bank or other entity.
(xix) "Pre-Paid Wireless Services" shall mean the
provision of wireless cellular telephone services which are paid for prior to
the provision of such services.
(xx) "Quintel" shall mean Quintel Entertainment,
Inc., an Initial Member.
(xxi) "Regulations" shall mean the Treasury
Regulations promulgated under the Code as such regulations may be amended from
time to time (including the corresponding provisions of succeeding regulations).
2.2 Terms Defined Elsewhere. The following terms have been defined in
the locations set forth below:
5
<PAGE> 36
Defined Term Location
------------ --------
Act Preamble
Bona Fide Offer Section 6.3(a)
Capital Account Section 3.8(a)
Closing Date Section 6.3(e)
Company Preamble
Damages Section 5.7
Declining Member Section 3.10
Disposing Member Section 6.4(b)
Effective Date Section 4.1(b)
Encumber Section 6.1
First Refusal Election Notice Section 6.3(a)
First Refusal Offer Section 6.3(a)
First Refusal Right Section 6.3(b)
First Repurchase Event Option Section 6.4(c)(ii)
First Repurchase Event Option Period Section 6.4(c)(ii)
Gross Asset Value Section 3.8(d)
Identifying Member Section 5.8(b)
Initial Capital Contributions Section 1.1(xvii)
Investment Capital Section 3.10
Loan Request Section 3.2(a)
Maker Section 6.3(c)
Member Nonrecourse Deductions Section 4.2(c)(iii)
Member Preamble
Member Loan Section 3.2(a)
Offered Interests Section 6.4(a)
Offeree Section 6.4(a)
Offering Member Section 6.3(a)
Operating Agreement Preamble
Option Termination Date Section 6.3(d)
Permitted Transferee Section 6.2(d)
Purchase Price Section 6.4(d)
Repurchase Event Option Notice Section 6.4(c)(i)
Repurchaser Event Election Notice Section 6.4(c)(ii)
Repurchase Event Options Section 6.4(c)(iii)
Second Repurchase Event Option Section 6.4(c)(iii)
Second Repurchase Event Options Period Section 6.4(c)(iii)
Selling Member Section 6.4(a)
Terms Section 5.8(b)
TMP Section 7.6
Transfer Section 6.i
Transferring Members Section 6.4(a)
6
<PAGE> 37
2.3 Table of Contents and Captions. The table of contents and captions
used in this Operating Agreement are inserted for convenience and identification
only and are in no way intended to define or limit the scope, extent or intent
of this Operating Agreement or any of the provisions hereof.
2.4 Construction. Whenever the singular number is used herein, the same
shall include the plural, and the masculine, feminine and neuter genders shall
include each other. Unless the context clearly requires otherwise, the words
"hereof," "herein" and "hereunder" and words of similar import shall refer to
this Operating Agreement as a whole and not to any particular provision hereof.
3. CAPITAL; CAPITAL ACCOUNTS
3.1 Initial Capital Contributions
(a) Initial Capital Contributions. Schedule 1.8 hereto sets
forth the amount of capital contributed to the Company by each of the Members as
of the date hereof (the "Initial Capital Contributions") and the amount of
capital which has been returned to each of the Members as of the date hereof,
(b) Percentage Interests. Each Initial Member initially shall
have the Percentage Interest set forth on Schedule 1.8 annexed hereto which
shall be adjusted, from time to time, in accordance with the terms of this
Operating Agreement.
(c) Additional Contributions. The Members shall be required to
contribute additional capital to the Company in accordance with the provisions
of Section 3.10 hereof.
3.2 Member Loans.
(a) Loan Request. The Managers may at any time and from time
to time request loans ("Loan Request") of additional funds from one or more
Members (a "Member Loan"). However, no Member shall be obligated to make any
such loan to the Company and any Member which elects not to make loans to the
Company in response to a Loan Request shall not be deemed to be in default of
this Agreement and the Capital Account and Percentage Interest of such Member
shall not be adjusted, and such Member shall not otherwise be penalized, as a
result thereof.
3.3 No Withdrawal of Capital Contributions. Except upon dissolution
and liquidation of the Company, no Member shall have the right to withdraw,
reduce or demand the return of its Capital Contributions, or any part thereof,
or any distribution thereon. Except as otherwise provided herein, no Member
shall have the right to receive assets other than cash in connection with a
distribution or return of capital.
7
<PAGE> 38
3.4 Return of Capital Contributions.
(a) No Fixed Time. Except upon dissolution and liquidation of
the Company and as set forth in Section 4.2 hereof, there is no agreement, nor
time set, for the return of any Capital Contribution to any Member. To the
extent funds are available therefor, the Managers may return such capital, after
reserving sufficient funds for payment of debts, working capital, contingencies
and replacements and, to the extent of available funds, the Managers shall
return such capital as set forth in Section 4.2 and at the dissolution and
termination of the Company, as hereinafter set forth.
(b) No Personal Liability of Managers. Except as otherwise
required by the Act, the Managers shall not be personally liable for the return
or repayment of any Capital Contribution.
3.5 Liability of Members, Managers and Their Affiliates. Except as
otherwise provided by applicable law, the debts, obligations and liabilities of
the Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company and no Member, Manager or
Person Affiliated with a Member or Manager shall be obligated personally for any
such debt, obligation or liability of the Company solely by reason of being a
Member, a Manager or being Affiliated with either of them.
3.6 No Priority. Except as expressly provided for in this Operating
Agreement, no Member shall have priority over another Member as to return of
Capital Contributions or allocations of income, gain, profits, losses, credits
or deductions or as to distributions.
3.7 No Interest. Except as expressly provided for by this Operating
Agreement, no interest shall be paid on all or any part of a Member's Capital
Contribution or Capital Account.
3.8 No Obligation to Restore Negative Balances in Capital Accounts.
No Member shall have an obligation, at any time during the term of the Company
or upon its liquidation, to pay to the Company or any other Member or third
party an amount equal to the negative balance in such Member's Capital Account.
3.9 Capital Accounts. (a) The Company shall maintain a separate
capital account ("Capital Account") for each Member and its legal
representatives, successors and permitted assigns.
(b) The Capital Account of each Member shall be maintained in
accordance with Section 1.704-1(b) of the Regulations as in effect on the date
of this Operating Agreement and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Managers shall determine that
it is prudent to modify the manner in which the Capital Accounts, or any debits
or credits thereto, are computed in order to comply with Regulation Section
1.704-1(b), the Managers acting unanimously may make such modifications.
8
<PAGE> 39
(c) The Capital Account of each Member shall consist of the
amount of cash and the fair market value of the property (as determined in good
faith by the Managers acting unanimously) contributed by such Member to the
Company (net of liabilities securing such contributed property assumed by the
Company or subject to which the Company takes the contributed property)
increased by allocations of Net Profits pursuant to Section 4.2 hereof, and of
tax-exempt income, if any, and decreased by allocations of Net Losses pursuant
to Section 4.2 hereof, by distributions and withdrawals of cash and property (to
the extent of the fair market value thereof, net of liabilities securing such
property assumed by the Member or subject to which the Member takes the
property) and by expenditures defined in Section 705(a)(2)(B) of the Code (or
which are treated as Section 705(a)(2)(B) expenditures under Regulation
1.704-1(b)(2)(iv)(i)).
(d) In the event the Gross Asset Value of a Company asset is
adjusted pursuant to Section 3.9(e) hereof, the Capital Accounts of all Members
shall be adjusted simultaneously to reflect the allocation of gain or loss that
would be recognized by the Company if it disposed of such asset in an amount
equal to the Gross Asset Value. For purposes of this Agreement, "Gross Asset
Value" means with respect to any asset, the asset's adjusted basis for federal
income tax purposes adjusted from time to time pursuant to section (e) below,
except that (i) 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, as
determined by the Manager, and (ii) the Gross Asset Value shall be adjusted for
gain, loss, depreciation and amortization, all as calculated based on the Gross
Asset Value of such asset in accordance with Regulation Section
1.704-1(b)(2)(iv)(g).
(e) If the Managers make an election pursuant to Regulation
Section 1.704-1(b)(2)(f), the Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as determined by
the Managers as of the following times: (i) the acquisition of an additional
Member interest by any new or existing Member in exchange for a Capital
Contribution (other than a de minimis contribution); (ii) the distribution by
the Company to a Member of Company assets, unless all Members receive
simultaneous distributions of undivided interests in the distributed assets in
proportion to their respective interests; and (iii) the liquidation of the
Company within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g).
(f) For purposes of computing the amount of any item of Net
Profit or Net Loss to be reflected in Capital Accounts, the determination,
recognition and classification of each such item shall be the same as its
determination, recognition and classification for federal income tax purposes
except that:
(i) any deductions for depreciation, amortization or
similar expense attributable to property which has a Gross Asset Value different
from its adjusted basis for federal income tax purposes, shall be based on the
Gross Asset Value of such property as determined pursuant to Section 3.9(d).
9
<PAGE> 40
(ii) Net Profit or Net Loss resulting from any disposition
of Company property 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.
(g) In the event of a transfer of an Interest or any portion
thereof in accordance with the terms of this Operating Agreement, whether or not
the purchaser, assignee or successor-in-interest is then a Member, the Person so
acquiring such Interest or any portion thereof shall acquire the Capital Account
or portion thereof of the Member formerly owning such Interest, adjusted for
distributions of Available Cash made pursuant to Section 4.3 hereof and
allocations of Net Profits and Net Losses made pursuant to Section 4.2 hereof.
The cost of computing such adjustment shall be borne by the Member disposing of
such Interest.
3.10 Investment Capital. (a) To the extent that the Managers at any
time determine that additional capital is needed to fund the Company's business
("Investment Capital"), the Managers may make a request for such Investment
Capital to the Members, and the Members shall be obligated to make contributions
of Investment Capital as follows:
(i) First, Quintel shall be required to contribute that amount
of capital to the Company which, together with the existing Investment Capital
of the Company, equals $500,000; and
(ii) Quintel and Paradigm shall then each be required to
contribute 50% of any additional required Investment Capital.
(b) The Managers shall keep separate account records which shall
reflect Investment Capital contributed by and distributed to the Members.
4. PROFITS, LOSSES AND DISTRIBUTIONS
4.1 Profits and Losses
(a) Generally. (i) The Net Profits and Net Losses of the
Company shall be determined for each fiscal year in accordance with the
accounting method followed by the Company for federal income tax purposes.
Except as otherwise provided herein, whenever a proportionate part of the Net
Profits or Net Losses is credited or charged to a Member's Capital Account,
every item of income, gain, loss, deduction or credit entering into the
computation of such Net Profits or Net Losses shall be considered either
credited or charged, as the case may be, in the same proportion to such Member's
Capital Account, and every item of credit or tax preference related to such Net
Profits or Net Losses and applicable to the period during which such Net Profits
or Net Losses was realized shall be allocated to such Member in the same
proportion.
10
<PAGE> 41
(ii) Net Profits and Net Losses shall be allocated to the
Members as set forth below in accordance with their respective Interests in the
Company, as adjusted from time to time, and for this purpose, at the end of the
month (the "Effective Date") that includes the date on which there occurs the
admission of a new Member into the Company or a valid transfer of all or part of
a Member's Interest, the books of the Company shall be closed in accordance with
Section 706(d) of the Code, and consistent therewith: (X) items of income,
deduction, gain, loss and/or credit of the Company that are recognized prior to
the Effective Date shall be allocated among those Persons who were Members in
the Company prior to the Effective Date in accordance with their respective
Interests prior to the Effective Date; and (Y) items of income, deduction, gain,
loss and/or credit of the Company that are recognized after the Effective Date
shall be allocated among the persons or entities who were Members after the
Effective Date in accordance with their respective Interests after the Effective
Date.
(b) Allocation of Net Profits and Net Losses. (i) Subject to any
allocations required under Section 4. 1 (c), Net Profits shall be allocated to
the Members as follows:
(A) First, to the Members in the amounts and proportions
necessary to reverse, on a cumulative basis without duplication, all allocations
of Net Losses to the Members pursuant to subsection Section 4.1(b)(ii)(B) below;
(B) Second, to the Members in the amounts and proportions
necessary to reverse, on a cumulative basis and without duplication, all
allocations of Net Losses to the Members pursuant to Section 4.1(b)(ii)(A)
below;
(C) Thereafter, to the Members, pro rata in accordance with
their Percentage Interests.
(ii) Subject to any allocations required under Section
4.1(c), Net Losses shall be allocated to the Members as follows;
(A) First, to the Members, in proportion to the balance in
their respective Capital Accounts, until the Capital Accounts of all Members
have reached a zero balance; and
(B) Thereafter, to the Members, pro rata in accordance with
their Percentage Interests.
(c) Special Allocation Provisions.
(i) General Limitation. Notwithstanding anything to the
contrary contained in Section 4.1, no allocation shall be made to a Member which
would cause such Member to have a deficit balance in its Capital Account which
exceeds the sum of such Member's share of Company Minimum Gain (as defined in
Section 4.1 (c)(iv)(A) hereof) and such Member's share of Member Nonrecourse
Debt Minimum Gain (as defined in Section 4.1(c)(iv)(B) hereof). If the
limitation contained in the preceding
11
<PAGE> 42
sentence would apply to cause an item of loss or deduction to be unavailable for
allocation to all Members, then such item of loss or deduction shall be
allocated between or among the Members in accordance with the Members'
respective "interests in the Company" within the meaning of Section
1.704-1(b)(3) of the Regulations.
(ii) Qualified Income Offset. In the event any Member
unexpectedly receives an adjustment, allocation or distribution described in
clauses (4), (5) and (6) of Regulation Section 1.704-1(b)(2)(ii)(d) that results
in such Member having a negative balance in its Capital Account in excess of the
amount it is required to restore on a liquidation of the Company (or of the
Member's interest in the Company), then, after any allocations required by
Section 4.1(c)(iv) hereof, such Member shall be allocated income and gain in an
amount and manner sufficient to eliminate such excess as quickly as possible. To
the extent permitted by the Code and the Regulations, any special items of
income or gain allocated pursuant to this Section 4.1(c)(ii) shall be taken into
account in computing subsequent allocations of Net Profits and Net Losses
pursuant to this Section 4.1, so that the net amount of any items so allocated
and the subsequent Net Profits and Net Losses allocated to the Members pursuant
to this Section 4.1(c)(ii) shall to the extent possible, be equal to the net
amounts that would have been allocated to each such Member pursuant to the
provisions of this Section 4.1(c)(ii) if such unexpected adjustments,
allocations or distributions had not occurred.
(iii) Member Nonrecourse Deductions. Notwithstanding
anything to the contrary contained in Section 4.1 hereof, any and all items of
loss and deduction and any and all expenditures described in Section
705(a)(2)(B) of the Code (or treated as expenditures so described pursuant to
Section 1.704-1(b)(2)(iv)(i) of the Regulations) (collectively, "Member
Nonrecourse Deductions") that are (in accordance with the principles set forth
in Section 1.704-2(i)(2) of the Regulations) attributable to Member Nonrecourse
Debt (as such term is defined in Section 1.704-2(b)(4) of the Regulations) shall
be allocated to the Member that bears the economic risk of loss pursuant to
Section 1.752-2(b)-(j) of the Regulations for such Member Nonrecourse Debt. If
more than one Member bears such economic risk of loss, such Member Nonrecourse
Deductions shall be allocated between or among such Members in accordance with
the ratios in which they share such economic risk of loss. If more than one
Member bears such economic risk of loss for different portions of a Member
Nonrecourse Debt, each such portion shall be treated as a separate Member
Nonrecourse Debt.
(iv) (A) Company Minimum Gain. Except to the extent provided
in Sections 1.704-2(e)(2), (3), (4) and (5) of the Regulations, if there is, for
any Fiscal Year of the Company, a net decrease in Company Minimum Gain (as such
term is defined in Sections 1.704-2(b)(2) and (d) of the Regulations), there
shall be allocated to each Member, before any other allocation pursuant to
Section 4.1 hereof is made under Section 704(b) of the Code of Company items for
such Fiscal Year, items of income and gain for such Year (and, if necessary, for
subsequent years) equal to such Member's share of the net decrease in Company
Minimum Gain. A Member's share of the net decrease in Company Minimum Gain is
the amount of such total net decrease multiplied by the Member's percentage
share of the Company's Minimum Gain at the end of the immediately preceding
taxable year, determined in accordance with Section 1.704-2(g)(1)
12
<PAGE> 43
of the Regulations. Items of income and gain to be allocated pursuant to the
foregoing provisions of this Section 4.1(c)(iv)(A) shall consist first of gains
recognized from the disposition of items of Company property subject to one or
more Nonrecourse Liabilities (as defined in Section 1.704-2(b)(3) of the
Regulations) of the Company, and then of a pro rata portion of the other items
of Company income and gain for that year.
(B) Member Nonrecourse Debt Minimum Gain. Except to the
extent provided in Section 1.704-2(i)(4) of the Regulations, if there is, for
any Fiscal Year of the Company, a net decrease in Member Nonrecourse Debt
Minimum Gain (as defined in Section 1.704-2(i)(2) of the Regulations), there
shall be allocated to each Member that has a share of Member Nonrecourse Debt
Minimum Gain at the beginning of such Fiscal Year before any other allocation
pursuant to Section 4.1 hereof (other than an allocation required pursuant to
Section 4.1(c)(iv)(A)) is made under Section 704(b) of the Code of Company items
for such fiscal year, items of income and gain for such year (and, if necessary,
for subsequent years) equal to such Member's share of the net decrease in the
Member Nonrecourse Debt Minimum Gain. The determination of a Member's share of
the net decrease in Member Nonrecourse Debt Minimum Gain shall be made in a
manner consistent with the principles contained in Section 1.704-2(g)(1) of the
Regulations. The determination of which items of income and gain to be allocated
pursuant to the foregoing provisions of this Section 4.1(c)(iv)(B) shall be made
in a manner that is consistent with the principles contained in Section
1.704-2(f)(6) of the Regulations.
(v) (A) Any item of Company income, gain, loss, deduction or
credit attributable to property contributed to the Company, solely for tax
purposes, shall be allocated among the Members in accordance with the principles
set forth in Section 704(c) of the Code and the Regulations promulgated
thereunder 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.
(B) In the event the Gross Asset Value of any Company asset
is adjusted (pursuant to Section 3.9 hereof), subsequent allocations of income,
gain, loss, deduction and credit 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 Section
704(c) and the Regulations promulgated thereunder as in effect at the time such
Gross Asset Value is adjusted.
(C) Any elections or other decisions relating to allocations
pursuant to this Section 4.1(v) shall be made by the Managers in any manner that
reasonably reflects the purpose and intention of this Agreement.
13
<PAGE> 44
(vi) Members' Interest In Company Profits For Purposes Of
Section 752. As permitted by Section 1.752-3(a)(3) of the Regulations, the
Members hereby specify that solely for purposes of determining their respective
interests in the Nonrecourse Liabilities of the Company for purposes of Section
752 of the Code, such interests shall be equal to their respective Percentages
Interests.
4.2 Distributions of Available Cash. (a) Distributions of
Available Cash shall be made once each fiscal quarter. Such distributions shall
be made to the Members in the following amounts and order of priority:
(i) First, to the Members in proportion to their respective
contributions of Investment Capital made pursuant to Section 3.10(a)(ii) hereof
as of such date until each Member has received an amount equal to the total of
such Member's Investment Capital contributed pursuant to Section 3.10(a)(ii)
hereof (reduced by the amount of all prior distributions made pursuant to this
Section 4.2(a)(i));
(ii) Second, to Quintel until Quintel has received an amount
equal to the total of Quintel's contributions of Investment Capital made
pursuant to Section 3.10(a)(i) hereof (reduced by the amount of all prior
distributions made pursuant to this Section 4.2(a)(ii); and
(iii) Then, the balance to the Members in accordance with
their Percentage Interests.
4.3 Incorrect Distributions. To the extent distributions
pursuant to this Section 4 were incorrectly made, as determined by financial
statements of the Company, the recipients shall promptly repay all incorrect
payments and/or the Company shall have the right to set off any current or
future amounts owing to such recipients against any such incorrectly paid
amounts.
4.4 Distributions in Kind. In the event any proceeds available
for distribution consist of items other than cash (including, but not limited to
notes, mortgages and payments in kind), the Members shall be entitled to their
pro rata shares of each such asset, in accordance with the aggregate amounts of
proceeds due them, respectively. In determining the Capital Accounts of the
Members for purposes of Section 3.9, the amount by which the fair market value
of any property to be distributed in kind to the Members exceeds or is less than
the tax basis of such assets, to the extent not otherwise recognized by the
Company shall be taken into account as if such gain or loss were recognized by
the Company.
14
<PAGE> 45
5. MANAGEMENT OF THE COMPANY
5.1 Management Powers of the Managers. Except as expressly limited
or otherwise provided by the provisions of this Operating Agreement or by the
Act, the Managers shall have the full, exclusive and absolute right, power and
authority to manage and control each and every aspect of the business of the
Company and its property, assets and affairs.
5.2 Managers.
(a) Number. There shall be four Managers, two of which shall be
designated by Quintel (the "Quintel Designees") and two of which shall be
designated by Paradigm (the "Paradigm Designee"). The number of Managers may be
increased by the Members, acting unanimously. The initial Quintel Designees
shall be Jeffrey Schwartz and Jay Greenwald, and the initial Paradigm Designees
shall be Marc Byron and David Graf.
(b) Term. The Managers shall continue to serve in such capacity
until they resign, die, become incapacitated, or are removed.
(c) Replacement of Managers. At any time and upon written notice
to all of the other Managers, (i) the Quintel Designee may be replaced by
Quintel, and (ii) the Paradigm Designee may be replaced by Paradigm.
(d) Removal of Managers. Any of the Managers may be removed as a
manager at any time for Cause by the remaining Managers, acting unanimously;
provided that such Manager may be replaced as provided in Section 5.2(i).
"Cause" shall mean (i) gross negligence or wilful misconduct; (ii) such
Manager's continued and repeated failure or refusal to perform his duties
hereunder, or (iii) indictment of such Manager for any crime involving moral
turpitude.
(e) Vacancy. In the event of the vacancy of a Manager, the
Member which designated such Manager may designate a successor to such position.
(f) Voting for Managers. Each Member shall vote its Interest and
take any and all other action at any meeting of Members or otherwise as is
necessary to ensure that the Managers are elected in accordance with the
provisions of this Section 5.2.
(g) Actions of the Managers. Unless otherwise required by the
Act or specifically provided for in this Operating Agreement, all matters
requiring the vote, consent or approval of the Managers shall be determined by
the affirmative vote or written consent of the Managers, acting unanimously.
15
<PAGE> 46
(h) Meetings of Managers.
(i) Meetings. Meetings of the Managers may be called at any
time by two or more of the Managers. Notice of any meeting of the Managers shall
provide information as to time, place and agenda of the meeting.
(ii) Place of Meeting. The Managers may designate any place,
either within or without the State of Delaware, as the place for any meeting of
the Managers. If no designation is made the place of meeting shall be the
principal executive office of the Company.
(iii) Notice of Meetings. Except as provided in Section
5.2(b)(iv), written notice stating the place, day and hour of the meeting and
the purpose or purposes for which the meeting is called shall be delivered not
less than five days nor more than thirty days before the date of the meeting,
either personally or by mail, to each Manager. If mailed, such notice shall be
deemed to be delivered two calendar days after being deposited in the United
States mail, addressed to the Manager at his address as it appears on the books
of the Company, with postage thereon prepaid.
(iv) Meeting of all Managers. If all of the Managers shall
meet at any time and place and all consent to the holding of a meeting at such,
time and place, either in writing or by failing to object, such meeting shall be
valid without call or notice, and at such meeting any lawful action may be
taken.
(v) Quorum. All of the Managers shall constitute a quorum at
any meeting of Managers.
(vi) Action by Managers Without a Meeting. Action required
or permitted to be taken at a meeting of Managers may be taken without a meeting
by written consents signed by each Manager and delivered to the Company for
inclusion in the minutes or for filing with the Company records. Furthermore,
any or all Managers may participate in a meeting by telephone conference or any
other means of communication by which all Managers participating may
simultaneously hear each other during the meeting.
(i) Manager May Exercise Authority. If the Managers or Members
have approved or have been deemed to have approved of any action requiring their
respective approval in accordance with the provisions of this Operating
Agreement, each Manager (acting alone or together with one or more Managers)
shall be authorized to execute, deliver and file any document, or take any other
action necessary or desirable, to effectuate such approved action (unless such
approval of the Managers or Members specifically provides otherwise).
16
<PAGE> 47
5.3 Power of Members.
(a) General. Except as expressly provided in this Operating
Agreement or as otherwise required by the Act, the Members (as members) shall
have no voice or participation in the management of the Company's business, and
no power to bind the Company or to act on behalf of the Company in any manner
whatsoever.
(b) Member Vote. Unless otherwise provided in the Operating
Agreement or in the Act, any action or consent of the Members shall require the
affirmative vote of all of the Members.
(c) Consent to Managers' Powers. Subject to the provisions of
this Operating Agreement, the Members hereby expressly acknowledge and agree
that by the execution of this Operating Agreement they consent to all of the
rights, power and authority of the Managers under this Operating Agreement, to
the free and unrestricted exercise thereof and to the doing of any act that the
Managers have the right, power or authority to do under this Operating
Agreement.
5.4 Meetings of Members.
(a) Meetings. Meetings of the Members may be called at any time
by the Managers, and shall be called by the Managers upon the unanimous request
of the Members. Notice of any meeting of the Members shall provide information
as to time, place and agenda of the meeting.
(b) Place of Meeting. The Managers may designate any place,
either within or without the State of Delaware, as the place for any meeting of
the Members. If no designation is made the place of meeting shall be the
principal executive office of the Company.
(c) Notice of Meetings. Except as provided in Section 5.4(d),
written notice stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than five
days nor more than thirty days before the date of the meeting, either personally
or by mail, by or at the direction of the person calling the meeting, to each
Member entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered two calendar days after being deposited in the United States
mail, addressed to the Member at his address as it appears on the books of the
Company, with postage thereon prepaid.
(d) Meeting of all Members. If all of the Members shall meet at
any time and place and all consent to the holding of a meeting at such, time and
place, either in writing or by failing to object, such meeting shall be valid
without call or notice, and at such meeting any lawful action may be taken.
17
<PAGE> 48
(e) Quorum. Members holding two-thirds (2/3) of the Percentage
Interests held by the Members, represented in person or by proxy, shall
constitute a quorum at any meeting of Members.
(f) Action by Members Without a Meeting. Action required or
permitted to be taken at a meeting of Members may be taken without a meeting by
written consents signed by each Member entitled to vote and delivered to the
Managers of the Company for inclusion in the minutes or for filing with the
Company records, and the action is approved by the consent of the Members
holding the Percentage Interest required if the action had been approved at a
meeting at which all Members were present. Furthermore, any or all Members may
participate in a regular or special meeting by telephone conference or any other
means of communication by which all Members participating may simultaneously
hear each other during the meeting.
5.5 Delegation of Authority by Managers. (a) General. The
Managers shall have the right to delegate any portion of their duties as they
may determine to other Persons, subject in each case to the provisions of this
Article 5; provided, however, that no such delegation of authority shall relieve
the Managers of their obligations hereunder.
(b) Officers. (i) The Managers may appoint one or more officers
of the Company who shall have the duties, rights and obligations as may be
determined by the Managers, from time to time, subject in each case, to the
provisions of this Article 5 and to the supervision and authority of the
Managers and the other terms and conditions of this Operating Agreement. Each
officer shall serve at the pleasure of the Managers and may be removed by the
Managers with or without cause at any time. Each officer shall serve until his
successor is duly appointed and qualified or his earlier death, incompetence,
resignation or removal.
(ii) President - Unless the Managers shall otherwise
determine, the President shall serve as the chief operating officer of the
Company and shall be responsible for the day to day operations of the Company
reporting to and under the supervision of the Managers and shall have such other
duties as may from time to time be designated by the Managers.
Vice President - The Vice Presidents, including any
Executive Vice President, shall perform such duties and have such powers as may
from time to time be assigned to them by the Managers. In the absence of the
President, the Executive Vice Presidents may perform the duties of the
President.
Secretary - The Secretary shall attend to the giving
of notice of each, meeting of Members, if any, and each meeting of Managers, and
shall act as secretary at each such meeting. He shall keep minutes of all
proceedings at such meetings as well as of all proceedings at all meetings of
such other committees of Managers as any such committee shall direct him to so
keep. The Secretary shall keep and account for all books, documents, papers and
records of the Company except those for which some other officer or agent is
properly accountable. In addition, the Secretary shall have such other duties as
may from time to time be designated by the Managers.
18
<PAGE> 49
Assistant Secretary - The Assistant Secretaries shall
general assist the Secretary in performing all of his duties and, in the absence
of the Secretary, may perform the functions of the Secretary. In addition, the
Assistant Secretaries shall have such other duties as may from time to time be
designated by the Managers.
Treasurer - The Treasurer shall have the care and
custody of all the funds of the Company and shall deposit such funds in such
banks or other depositories as the Managers or any officer thereunto duly
authorized by the Managers shall from time to time direct or approve. In
addition, the Treasurer shall have such other duties as may from time to time be
designated by the Managers.
(iii) The initial Officers shall be:
President - David Graf
(c) Notwithstanding the authority of the officers contained
herein, the approval of a majority of the Managers shall be required for an
officer to take any action outside of the ordinary course of business of the
Company.
5.6 Managers' Duty to Devote Time. The Managers shall be
responsible for the conduct of the business of the Company as set forth in this
Operating Agreement and they shall devote such time to Company business as is
necessary, desirable and appropriate to manage and supervise Company business
and affairs in an efficient manner.
5.7 Managers' Compensation. The Managers shall serve without
compensation as such, but they shall be reimbursed for all reasonable expenses
which they may incur in connection with the business of the Company.
5.8 Competition, Outside Interests.
(a) (i) Subject to the provisions of Section 5.8(b), from the
date hereof until the termination of this Agreement and the dissolution of the
Company, no Member of the Company or any Affiliate of any Member of the Company
shall directly or indirectly, be engaged in the provision of Conventional
Wireless Services (except that ownership of less than 5% of the equity
securities of a public corporation shall not be considered engagement in the
provision of Conventional Wireless Services).
(ii) Simultaneously with the execution of this Agreement,
both of the Initial Members are assigning all of their respective right, title
and interest in and to the AT&T Wireless Agreements to the Company, and the
Company hereby assumes and agrees to be bound by all of the terms and provisions
of such agreements.
19
<PAGE> 50
(b) If any Member (the "Identifying Member") becomes aware of
any business opportunity with respect to the provision of Conventional Wireless
Services, such Member shall promptly notify the other Members and the Managers
in writing Of the material terms (the "Terms") of such opportunity (an
"Opportunity"). The Managers shall then consider the Terms of the Opportunity,
including the amount, if any, of additional capital contributions necessary for
the Company to pursue such opportunity and shall, within seven days after
receipt of such notice, determine whether the Company shall pursue such
Opportunity and whether to make a capital call with respect thereto. If the
Managers determine that the Company shall pursue such Opportunity and determine
to make a capital call in connection therewith, the Members shall make any such
additional capital contributions in accordance with the provisions of Section
3.10 hereof. If the Managers determine that the Company shall not pursue such
Opportunity, the Identifying Member shall be free to pursue such Opportunity
outside of the Company on substantially the same terms as the Terms; provided,
however, that if either of the Manager Designees of the Identifying Member
determines not to pursue such Opportunity, or if the Identifying Member does not
make the capital contributions required pursuant to Section 3.10 hereof, neither
the Identifying Member nor the Manager Designees of the Identifying Member shall
be permitted, directly or indirectly, to pursue such Opportunity, and provided
further that if the terms of such Opportunity shall materially vary from the
Terms, the Initiating Member shall again be required to present such revised
Terms to the other Members and the Managers for consideration as provided
herein.
(c) Subject to the other provisions of this Section 5.8, any
Member, Manager or Affiliate of any Member or Manager shall have the right to
engage in and/or possess an interest in any other business of every kind, nature
and description, independently or with other Persons. Neither the Company nor
any Member shall have or be entitled to any rights, solely by virtue of this
Operating Agreement, in and to such independent ventures or to the income and
profits derived therefrom, nor shall any such Member, Manager or such Affiliated
Person have any obligation whatsoever to offer, share or offer to share any
business opportunity of any kind to or with the Company or any other Member. The
Members hereby waive any and all rights and claims which they may otherwise have
against such other Members, Managers and their Affiliated Persons.
(d) Each Member acknowledges that during the term of this
Agreement it will have access to confidential information, including, without
limitation, (i) pricing information and information concerning the Company's
marketing techniques and methods, (ii) the terms of the Company's existing
contracts, (iii) information pertaining to the Company's customers and their
requirements, and (iv) any other of the Company's trade secrets (all of the
foregoing is referred to as "Confidential Information") which is not in the
public domain and which has been or will be acquired, developed or assembled by
the Company at its expense. Each Member agrees, for so long as the Company
continues to engage in the active conduct of business, that is shall not reveal,
divulge or make known Confidential Information (other than in the conduct of the
Company's business) to any person, firm, corporation or other business
organization, and shall not directly or indirectly use for its own benefits, or
for the benefit of anyone else, any Confidential Information, except as
permitted under any other provision of this Agreement.
20
<PAGE> 51
5.9 Conduct of Managers: Limited Liability of the Managers.
(a) Each Manager shall perform his or her duties as a Manager
in accordance with the provisions of the Act.
(b) Except in the case of bad faith, gross negligence or wilful
misconduct, the liability of the Managers shall be eliminated and limited to the
maximum extent permitted by the Act.
(c) All obligations or liabilities of the Managers under this
Operating Agreement shall (to the extent permitted by law) be several and not
joint or joint and several.
(d) The Managers shall have fiduciary responsibility for the
safekeeping and use of all funds, property and assets of the Company, whether or
not in their control, and shall not employ, or permit another to employ, such
funds, property or assets in any manner except as otherwise expressly set forth
herein or for the benefit of the Company.
5.10 Indemnification. (a) Except in the case of bad faith, gross
negligence or wilful misconduct, the Company, its receiver or its trustee (but
not the Members personally) shall indemnify and defend the Members, Managers and
their respective agents and Affiliates and any other Persons whom it shall have
the power to indemnify under the Act against and hold them harmless to the
maximum extent permitted by the Act from any and all losses, judgments, costs,
damages, liabilities, fines, claims and expenses (including, but not limited to,
reasonable attorneys' fees and court costs and other disbursements related
thereto, which shall be paid by the Company as incurred) and other matters
covered or referred to in the Act. The rights to indemnification and advancement
of expenses set forth above shall be contract rights, shall continue as to an
indemnitee who has ceased to be Affiliated with the Company, Member or a Manager
and shall inure to the benefit of the personal representative, successors and
assigns of an indemnitee. The indemnifications provided for herein shall not be
deemed exclusive of any other rights to which any Person may be entitled by
resolution, agreement or otherwise, as to any action in any capacity in which
such Person served at the request of the Company.
(b) The Company shall pay all expenses incurred by a Person
covered by the provisions of this Section 5. 10 in connection with the defense
of any matter which is the subject of this Section 5. 10 in advance of the final
disposition of the action or proceeding; provided, that such Person has agreed
in writing to repay such amount to the extent that such Person is ultimately
found not to be entitled to indemnification or, where indemnification is
granted, to the extent the expenses so advanced by the Company or allowed by the
court exceed the indemnification to which such Person is entitled.
(c) Subject to the other provisions contained herein, the
Company at its expense may maintain insurance to protect itself and any Members,
Managers, agents or Affiliate, against liability, loss or expense whether or not
the Company would have the power to indemnify such Person under the Act.
21
<PAGE> 52
5.11 Business with Affiliates. The Company may transact business
with any Member, Manager or any Affiliate thereof for goods or services
reasonably required in the conduct of the Company's business, provided that any
such transaction shall be effected only if the transaction is on terms
competitive with those which may be obtained from unaffiliated Persons.
5.12 Obligations of the Members. The Members shall have the
following obligations with respect to the business of the Company:
(a) Paradigm shall be responsible for (i) providing the Company
with resources in order to secure business for the Company, and (ii) providing
resources to manage the telemarketing operations of the Company.
(b) Quintel shall be responsible for (i) providing customer
lists, and (ii) providing resources to manage the mail and DRTV.
6. RESTRICTIONS ON THE DISPOSITION OF AN INTEREST.
6.1 Generally. Except as otherwise expressly provided for in this
Operating Agreement or as otherwise required under the Act, no Member may sell,
transfer, assign, or otherwise dispose of all or any part of its Interest in the
Company and may not withdraw from the Company (collectively, a "Transfer"), or
pledge, hypothecate or otherwise encumber (collectively, "Encumber"), all or any
part of its Interest in the Company, without in the case of each of the
foregoing, the prior written consent of a majority of the Managers. Any attempt
to Transfer or Encumber a right or Interest of a Member in violation of this
Operating Agreement shall be of no force or effect and shall not be recognized
by the Company.
6.2 Permitted Transfers. (a) Permitted Transfers. Notwithstanding
anything herein to the contrary, a Member may Transfer its Interest to a
Permitted Transferee (as defined below) at any time, without prior consent.
(b) A "Permitted Transferee" means:
(i) with respect to a Member which is a partnership,
corporation or limited liability company, such Member's partners, shareholders,
members, directors, executive officers or managers, as the case may be; or
(ii) with respect to any Member, to another Member.
22
<PAGE> 53
6.3 Right of First Refusal. (a) If a Member (the "Offering
Member") wishes to Transfer all or part of its Interest (other than to a
Permitted Transferee or in the case of a Repurchase Event, which shall not be
subject to the provisions of this Section 6.3) pursuant to a bona-fide, arms'
length offer (a "Bona-Fide Offer") from a non-affiliated third party (an
"Offeror") such Member shall, within ten days of receipt of the Bona Fide Offer,
provide the other Members and the Managers written notice of such intention (the
"First Refusal Offer"), which shall include the material terms of the Bona Fide
Offer, including, without limitation, the identity of the Offeror.
(b) The other Members shall then have the first right (the
"First Refusal Right") to purchase its pro rata portion of the offered Interest
(which pro rata portion shall be based on such Member's Percentage Interest
relative to the aggregate Percentage Interest of all Members electing to
exercise their First Refusal Right) upon the terms, including at the price,
contained in the Bona-Fide Offer, which right is exercisable by written notice
to the Offering Member, the other Members and the Managers of its intention to
do so (the "First Refusal Election Notice"), which notice shall be delivered
within fifteen days of delivery of the First Refusal Offer.
(c) A Member which desires to exercise its First Refusal Right
(a "Purchasing Member") shall be required to deposit into escrow 10% of the
purchase price payable by such Member for its pro rata portion of the offered
Interest (the "Escrowed Amount") simultaneously with or prior to its delivery of
the First Refusal Election Notice. The Escrowed Amount shall be deposited with
an unaffiliated third party and shall be held pursuant to the terms of an escrow
agreement to be entered into with respect thereto. If the Purchasing Member has
not purchased its pro rata portion of the offered Interest prior to the Option
Termination Date, and the Offering Member has not transferred the offered
Interest to the Offeror within sixty days thereafter, then the Escrowed Amount
shall be released to the Offering Member; provided, however, that if the
Purchasing Member is ready, willing and able to consummate the purchase of the
offered Interest on the Option Termination Date and the sale of such Interest
does not occur through no fault of the Purchasing Member, the Escrowed Amount
shall be released to the Purchasing Member on the Option Termination Date; and
provided further that, if the Escrowed Amount is released to the Offering Member
and the Offering Member subsequently transfers its Interest to the Offeror
within one year thereafter, the Offering Member shall return the Escrowed Amount
to the Purchasing Member, together with interest thereon at the prime rate then
in effect as announced by The Chase Manhattan Bank in New York, New York.
(d) If the Members have elected to purchase less than all of
the offered Interests, the Company shall then have the right to purchase the
remaining portion of the offered Interests upon the terms, including at the
price, contained in the Bona-Fide Offer, which right is exercisable by written
notice to the Offering Member, the other Members and the Managers of its
intention to do so, which notice shall be delivered within fifteen days of
delivery of the First Refusal Election Notice.
23
<PAGE> 54
(e) If the purchase and sale of the offered Interest has not
taken place within sixty days from the date of the First Refusal Election Notice
(the "Option Termination Date"), then the Offering Member shall have the right
to Transfer the offered Interest to the Offeree, provided, that (i) the
consummation of the sale occurs within thirty days from the Option Termination
Date, and (ii) the price shall be no less, and the terms and conditions shall be
no more favorable, than that contained in the Bona Fide Offer, and (iii) the
Managers have consented to such Transfer as provided herein.
6.4 Transfer Upon Repurchase Events.
(a) Offer to Sell. Upon the occurrence of a Repurchase Event
(as defined in Section 6.4(b)), the Member which is the subject of the
Repurchase Event and each of his Transferees (other than transferees who are
Members) (collectively, the "Selling Member") shall automatically be deemed to
irrevocably offer to sell their entire Interest (the "Offered Interests") to the
Company and the other Members, and the Company and the other Members shall have
the option to purchase all or a portion of the Selling Member's Interest, in the
manner and subject to the terms and conditions set forth in this Section 6.4.
(b) Repurchase Event. A "Repurchase Event" with respect to any
Member shall mean (i) the Bankruptcy of such Member; (ii) the conviction of a
crime which constitutes a felony under applicable law or the entering of a plea
of guilty or nolo contenders by such Member with respect thereto; or (iii) the
sale of substantially all of the assets of, or a controlling equity interest in,
such Member.
(c) Exercise of Options.
(i) Notice of Repurchase Event. Upon the Managers becoming
aware of the occurrence of a Repurchase Event, the Managers shall promptly
notify the Company and the other Members (the "Repurchase Event Option Notice")
and shall include in such notice a description of the Interests which are
subject to purchase options pursuant to this Section 6.4 and, if then
determined, the purchase price of the Offered Interests.
(ii) First Option of the Members. Upon the occurrence of a
Repurchase Event, the remaining Members shall have a non-assignable first option
(the "First Repurchase Event Option") to purchase all or any portion of their
pro rata portion of the Offered Interests. Such options shall be exercisable by
a Member by giving written notice of its election to exercise its option to the
Selling Member, the other Members and the Managers (a "Repurchase Event Election
Notice") within fifteen (15) days after the later of the receipt of the
Repurchase Event Option Notice or the determination of the Purchase Price of the
Offered Interests (the "First Repurchase Event Option Period"). The holders of
the First Repurchase Event Options shall have the right to exercise their
options with respect to all or a portion of their pro rata portion of the
Offered Interests (which pro rata portion shall be determined based on such
Member's Percentage Interest relative to the aggregate Percentage Interest of
all Members electing to exercise First Repurchase
24
<PAGE> 55
Event Options) or in such other proportion as such Members may unanimously agree
upon.
(iii) Option of the Company. If the Members have elected or
deemed to have elected to purchase less than all of the Offered Interests which
are the subject of the First Repurchase Event Option, the Company shall have a
non-assignable option to purchase all or any portion of the remaining Offered
Interests (the "Second Repurchase Event Option"; together with First Repurchase
Event Options the "Repurchase Event Options") by giving written notice thereof
to the Members and the Managers within five (5) days after the earlier of the
receipt of a Repurchase Event Election Notice from the Members or the expiration
of the First Repurchase Event Option Period ("Second Repurchase Event Options
Period"). The Company shall have the right to exercise its option with respect
to all or a portion of the Offered Interests.
(iv) Obligations to Purchase. If holders of Repurchase
Event Options elect to purchase all or any portion of the Offered Interests
subject to Repurchase Event Options, then such holders (to the extent that each
has so elected) shall be obligated to purchase and the Selling Member shall be
obligated to sell such Offered Interests or portion thereof within fifteen (15)
days of the later of the termination of the Second Repurchase Event Option
Period or receipt of the last Repurchase Event Election Notice to purchase the
Offered Interests.
(v) Retention of Offered Interests. If the entire Offered
Interests of the Selling Member are not purchased by holders of Repurchase Event
Options within the time period set forth in this Section 6.4, then the Selling
Member shall retain such portion of the Offered Interests which have not been so
purchased.
(d) Purchase Price. The purchase price to be paid for a
Member's Interest pursuant to this Section 6.4 (the "Purchase Price") shall be
the fair market value of the Interest as determined by the Managers in good
faith within thirty (30) days after the Managers are informed or become aware of
the occurrence of a Repurchase Event. If the Managers are unable for any reason
to make such determination, the Purchase Price shall be determined by three
independent appraisers, one of which shall be selected by the Quintel Designees,
one of which shall be selected by the Paradigm Designees, and the third of which
shall be selected by the two initially selected appraisers. The cost of such
appraisal shall be borne equally between the selling and purchasing Member.
(e) Other Closing Conditions. At the Closing of the Transfer of
the Offered Interest pursuant to this Section 6.4, the Selling Members shall
deliver to the Purchaser such instruments of Transfer as the purchaser shall
request so as to transfer record and beneficial ownership of such Interest to
the purchaser on the books and records of the Company. The Interest shall be
transferred to the purchaser free and clear of any and all liens, claims,
mortgages, security interest, pledges and other encumbrances of any nature
whatsoever ("Liens'). If the Selling Member's entire Interest is being
purchased, the Selling Members shall repay in full all amounts outstanding to
the Company or any of its Affiliates, whether or not such amounts are otherwise
then due and payable.
25
<PAGE> 56
6.5 Mandatory Transfer.
(a) Request for Purchase or Sale. At any time, a Member (the
"Initiating Member") may, by written notice to the other Members (a "Request
Notice"), request that such other Members purchase all (but not less than all)
of the Interests of the Initiating Member (the "Subject Interest") or sell to
the Initiating Member all (but not less than all) of such other Member's
Interests, at the purchase price per Percentage Interest and on the other terms
and conditions contained in the Request Notice (the "Purchase Price"). The other
Members (the "Non-Initiating Members") shall then have the obligation to either
(i) purchase their pro rata portion of the Subject Interest at the Purchase
Price of such Interest (a "Purchase"), or (ii) sell all of their Interests in
the Company to the Initiating Member at the Purchase Price of such Interest (a
"Sale").
(b) Exercise of Option. The Non-Initiating Members shall elect
whether they shall effect a Purchase of the Subject Interest or a Sale of their
Interests, which election shall be made by written notice (the "Election
Notice") to the Initiating Member and the Managers within thirty (30) days after
the receipt of the Request Notice.
(c) Purchase and Sale. The purchase and sale of Interests under
this Section 6.5 shall take place within thirty (30) days after the receipt by
the Members and the Managers of an Election Notice.
(d) Other Closing Conditions. At the closing of a Transfer of
an Interest to a Member under this Section 6.5, (i) the selling Member shall
deliver to the purchasing Member such instruments of Transfer as the purchaser
shall reasonably request so as to transfer record and beneficial ownership of
such Interest, and (ii) the Interest shall be Transferred free and clear of all
Liens, and (iii) the transferring Member shall repay in MI any and all amounts
owed to the Company, whether or not such amounts are otherwise due and payable.
6.6 General Conditions to Transfer.
(a) Capacity. Notwithstanding anything herein to the contrary,
no Transfer of any Interest or portion thereof shall be made (i) to a Person
who, in accordance with applicable law, lacks the capacity to own, or otherwise
is prohibited from owning, any such Interest in the Company by reason of
minority, incompetence or otherwise; or (ii) to a Person otherwise prohibited by
applicable law from entering into such transaction or holding such Interest; or
(iii) which violates any other provision of this Operating Agreement.
(b) Requirements. No Transfer of an Interest otherwise
permitted by this Agreement shall be effective unless:
26
<PAGE> 57
(i) such Transfer shall have been consented to in writing
by the Managers (other than the Manager who is the designee of the Transferring
Member or of the Member group of which the Transferring Member is a part);
(ii) the transferee shall accept in writing, by an
instrument in form and substance satisfactory to the Managers, all of the terms
and provisions of this Agreement, as the same may be amended from time to time,
and shall have expressly assumed all of the obligations of the transferring
Member;
(iii) the transferee shall pay all filing, publication and
recording fees, if any, and all reasonable expenses, including, without
limitation, reasonable counsel fees and expenses incurred by the Company in
connection with such transaction;
(iv) the transferee shall execute such other documents or
instruments as counsel to the Company may require (or as may be required by law)
in order to effect the admission of such Person as a Member;
(v) the transferee shall execute a statement that it is
acquiring the Interest for its own account for investment and not with a view to
the resale or distribution thereof and that he will only Transfer the acquired
Interest to a Person who so similarly represents and warrants and shall include
in such statement such other representations and warranties as the Managers as
counsel to the Company may reasonably require;
(vi) if required by the Managers, the Company receives an
opinion of responsible counsel (who may be counsel for the Company), in form and
substance satisfactory to the Managers, that such Transfer does not violate
federal or state securities laws or any representation or warranty of such
transferring Member given in connection with the acquisition of its Interest;
(vii) if required by the Managers, counsel to the Company
delivers to the Company an opinion that such Transfer (A) will not result in a
termination of the Company under Section 708 of the Code; (B) will not cause the
Company to lose its status as a partnership for United States federal income tax
purposes; and (C) will not cause the Company to become subject to the Investment
Company Act of 1940, as amended; and
(viii) such disposition, when added to the total of all
other dispositions within the period of twelve (12) consecutive months prior
thereto, would not, in the opinion of counsel for the Company, result in the
Company being considered to have been terminated within the meaning of the Code
or would not otherwise result in material adverse tax treatment or consequences,
unless, in the opinion of counsel for the Company, that termination will not
have a substantial adverse effect upon the remaining Members.
27
<PAGE> 58
(c) Fulfillment of all Conditions. No Transfer of an Interest,
where otherwise permitted by the terms of this Agreement, shall be binding on
the Company until all of the conditions to such Transfer have been fulfilled.
Upon the admission of a substitute Member, the Managers shall promptly cause any
necessary documents or instruments to be filed, recorded or published, wherever
required, showing the substitution of the transferee as a substitute Member in
place of the transferring Member.
(d) Distributions. A transferee of an Interest shall be
entitled to receive distributions of cash or other property from the Company
attributable to the Interest acquired by reason of such Transfer from and after
the effective date of the Transfer of such Interest to him; provided, however,
that anything herein to the contrary notwithstanding, the Company and the
Managers shall be entitled to treat the transferor of such Interest as the
absolute owner thereof in all respects, and shall incur no liability for
allocations of income, gain, losses, credits, deductions or distributions that
are made in good faith to such transferor until such time as all of the
conditions of such Transfer have been fulfilled, the written instrument of
Transfer has been received by the Company and the effective date of Transfer has
passed.
(e) Effective Date of Transfer. The effective date of a
permitted Transfer of an Interest shall be no earlier than the last day of the
calendar month following receipt of notice of assignment and such documentation
as the Managers determine is required.
(f) Effect of Transfer. The transferring Member shall cease to
be, and the transferee shall become, a substituted Member as to the Interest so
transferred as of the effective date, and thereafter the transferring Member
shall have no rights or obligations with respect to the Company insofar as the
Interest transferred is concerned.
6.7 Withdrawal. Except as expressly provided for in this Operating
Agreement, no Member shall have the right to withdraw from the Company except
upon such terms and conditions as may be specifically agreed upon between such
other Members and the withdrawing Member. The provisions of this Operating
Agreement with respect to distributions to Members upon withdrawal are exclusive
and no Member shall be entitled to claim any further or different distribution
upon withdrawal under the Act or otherwise.
6.8 Collateral Assignment of.Interests Each Member hereby agrees,
if necessary or desirable as determined by the vote of the Managers, in
connection with any borrowing by the Company, to pledge and collaterally assign
its Interest, upon terms and conditions as may be requested by any lender or
lenders to the Company.
7. BOOKS, RECORDS AND REPORTS.
7.1 Company Documents. The Managers shall maintain at the principal
office of the Company or at such other place as the Managers may determine the
following documents: (a) a current list of the full name and last known business
address of
28
<PAGE> 59
each Member; (b) a copy of the Articles of Organization of the Company, together
with executed copies of any powers of attorney pursuant to which such
certificate or any amendment thereto has been executed; (c) copies of the
Company's federal, state and local income tax returns and reports, if any, for
each fiscal year during which the Company has been in existence; (d) copies of
this Operating Agreement, as it may be further amended and/or restated, and as
then in effect, and (e) of any financial statements of the Company for each
fiscal year during which the Company has been in existence, Such documents are
subject to inspection and copying at the reasonable request, and at the expense,
of any Member during ordinary business hours and on reasonable prior written
notice.
7.2 Financial Books. The Managers shall keep or cause to be kept
complete and accurate financial books in accordance with generally accepted
accounting principles with respect to the Company's business.
7.3 Bank Accounts. The funds of the Company shall be deposited in
such amounts in such bank account or accounts as shall be designated by the
Managers and withdrawals therefrom shall be made upon the signature of such
Person or Persons as shall be designated in writing by the Managers. The funds
of the Company shall not be commingled with the funds of any other Person and,
if not immediately required for Company business, may be temporarily invested in
such manner as the Managers shall determine.
7.4 Reports. The Managers, at the expense of the Company, shall
cause to be prepared and distributed to each Person who was a Member during any
fiscal year of the Company:
(a) within sixty (60) days after the end of each fiscal year of
the Company, all information relating to the Company that is necessary for the
preparation of the Members' federal, state and local income tax returns;
(b) within one hundred eighty (180) days after the end of each
fiscal year of the Company, an annual financial statement of the Company
prepared on a federal income tax basis in accordance with generally accepted
accounting principles, compiled or reviewed by independent public accountants
selected by the Managers; and
(c) Any other information that may be reasonably requested by
any Members.
7.5 Tax Returns. The Managers, at the expense of the Company, shall
cause to be prepared all tax returns for the Company and shall further cause
such returns to be timely filed with the appropriate authorities. It is
contemplated that the Company will be classified as a "partnership" for federal,
state and local income tax purposes. The Company and its Members will take such
reasonable action as may be necessary or advisable, and as determined by the
Managers, including the amendment of this Operating Agreement to cause or ensure
that the Company shall be treated as a "partnership' for federal, state and
local income tax purposes.
29
<PAGE> 60
7.6 Tax Matters Person. In the event the Company is subject to
administrative or judicial proceedings for the assessment and collection of
deficiencies for federal taxes or for the refund of overpayments of federal
taxes arising out of a Company's distributive share of income, losses, gain,
credits and deductions, the Managers shall designate one of the Managers as the
tax matters person ("TMP") and such Manager shall have all the powers and duties
assigned to the TMP under Sections 6221-6232 of the Code and the Regulations
thereunder. The Members agree to perform all acts necessary under Section 6231
of the Code and the Regulations thereunder to designate such designated Person
as the TMP.
7.7 Fiscal Year and Accounting Method. The Company shall adopt a
fiscal year ending on the last day of such month of each year and a method of
accounting selected by the Managers with the advice of the accountants for the
Company; provided, however, that the Managers in their sole discretion may,
subject to any approval required by the Internal Revenue Service and the
applicable state taxing authorities, at any time without the approval of the
Members change the Company's method of accounting.
7.8 Tax Elections. The Managers shall have the authority to cause
the Company to make any election required or permitted to be made for income tax
purposes. Notwithstanding the foregoing, the Managers may cause the Company to
make, in accordance with Section 754 of the Code, a timely election to adjust
the basis of Company property as described in Sections 734 and 743 of the Code
in the sole discretion of the Managers.
7.9 Title to Company Assets. Title to, and all right and interest
in, the Company's assets, shall be acquired in the name of and held by the
Company, or, if acquired in any other name, be held for the benefit of the
Company.
8. DISSOLUTION AND TERMINATION OF THE COMPANY.
8.1 Dissolution. The Company shall be dissolved and terminated and
its affairs shall be wound up upon the earliest to occur of the following:
(a) withdrawal of a Member, unless within 90 days after the
occurrence of such an event all of the remaining Members elects to continue the
Company business, and all other requirements of the Act are complied with;
(b) the express written consent of all Members;
(c) the entry of a decree of judicial dissolution of the
Company; or
(d) ownership by any of the Members of 100% of the Interests of
the Company.
30
<PAGE> 61
8.2 Liquidation. (a) In the event of dissolution under Section 8.1,
and if there has been no election to continue the Company as provided therein,
unless agreed to by the Members, each of the then unsold assets of the Company
shall be sold for cash or distributed in kind, as the Managers shall determine.
(b) Following the sale of the Company's property, the assets of
the Company shall be paid and distributed as follows:
(i) first, all of the Company's debts and liabilities to
Persons other than Members shall be paid and discharged (excluding secured
creditors whose obligations will be assumed or otherwise transferred on the
liquidation of Company assets), and any reserve deemed necessary by the Managers
for the payment of such debts shall be set aside; thereafter
(ii) all of the Company's loans from Members shall be paid
and discharged; thereafter
(iii) all of the Company's other debts and liabilities to
Members shall be paid and discharged; and thereafter
(iv) to the Members in accordance with the positive balance
in their Capital Accounts (calculated after giving affect to the allocation of
Net Profits and Net Losses under Article IV and distributions of Available Cash
pursuant to Article IV hereof for the year in which dissolution occurs),
(c) Upon dissolution, the Members shall look solely to the
assets of the Company for the return of their Capital Contributions. The winding
up of the affairs of the Company and the distribution of its assets shall be
conducted exclusively by the Managers, who hereby are authorized to do any and
all acts and things authorized by law for these purposes. In the event of the
dissolution or Bankruptcy of the sole remaining Manager, and there is a failure
of the Members to appoint a new Manager, the winding up of the affairs of the
Company and the distribution of its assets shall be conducted by the remaining
Members.
8.3 Termination. Upon the completion of the distribution of Company
assets as provided in Section 8.2 and all affairs of the Company have been wound
up, the Company shall be terminated, and the Managers or other Person acting as
liquidator (or the Members, if necessary) shall cause the Articles of
Organization of the Company to be cancelled and shall take such other actions as
may be necessary to terminate the existence of the Company.
31
<PAGE> 62
9. APPLICABLE LAW.
9.1 Applicable Law. This Agreement and the rights and obligations of
the parties hereto shall be interpreted in accordance with the laws of the State
of New Jersey applicable to contracts entered into and to be performed therein
without giving effect to principles of conflict of laws.
9.2 Dispute Resolution. The parties agree to try in good faith to
settle any dispute, controversy or claim arising out of or relating to this
Operating Agreement or the breach thereof through negotiation and if such
dispute cannot be settled through negotiation within 60 days, by mediation in
the City, County and State of New York administered by the American Arbitration
Association under its Commercial Mediation Rules before resorting to
arbitration, litigation or some other dispute resolution procedure. If the
parties are unable to settle said dispute through negotiation or mediation, it
shall be settled by arbitration in the City, County and State of New York
administered by the American Arbitration Association under its Commercial
Arbitration Rules and the Supplementary Procedures for Large, Complex Disputes,
and judgment on the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
10. MISCELLANEOUS PROVISIONS.
10.1 No Third Party Beneficiary. None of the provisions of this
Operating Agreement shall be for the benefit of, or enforceable by, any Person
who is not a party to this Operating Agreement, or the successor or permitted
assigns of such a party.
10.2 Power of Attorney to each Manager. (a) Quintel hereby makes,
constitutes, and appoints each Quintel Designee, and Paradigm hereby makes,
constitutes and appoint each Paradigm Designee, its attorney-in-fact in its
name, place and stead, to make, execute, swear to and acknowledge, amend, file,
record and deliver the following documents and interests and any other documents
or instruments deemed by the Managers necessary or appropriate for the business
of the Company:
(i) any Certificate of Formation, or amendments or restatements
thereto, required or permitted to be filed on behalf of the Company, and any and
all certificates or other documents as may be necessary to qualify or continue
the Company as a limited liability company (or other entity wherein the Members
thereof have limited liability) in the states where the Company may be doing
business, and all instruments that effect a change or modification of the
Company in accordance with this Operating Agreement;
(ii) any amendments to this Operating Agreement or the
Schedules hereto in accordance with this Operating Agreement;
32
<PAGE> 63
(iii) any other instrument that is now or that may hereafter be
required or be advisable in the reasonable judgment of the Managers to be filed
for or on behalf of the Company; and
(iv) any document that may be reasonably required to effect the
admission of an additional or substituted Member, or the termination of a Member
(provided such admission or termination is in accordance with the terms of this
Operating Agreement), or to reflect any change in the amount of Capital
Contributions, Interests or Percentage Interests of Members in accordance with
the terms of this Operating Agreement.
In the case of any of the foregoing, each of the designated Managers will have
the power to execute such instruments on such Member's behalf, whether or not
such Member approves of such action,
(b) This power of attorney is a special power of attorney coupled
with an interest, and shall not be revoked and shall survive the assignment,
delivery or transfer by a Member of all or part of its Member Interest.
(c) Each Member hereby gives and grants to its said attorney full
power and authority to do and perform each and every act and thing whatsoever
requisite, necessary or appropriate to be done and performed in connection with
this power of attorney as fully to all intents and purposes as he, she or it
might or could do if personally present, hereby ratifying all that its said
attorney shall lawfully do or cause to be done by virtue of this power of
attorney.
(d) The existence of this power of attorney shall not preclude
execution of any such instrument by a Member individually on any matter. A
Person dealing with the Company may conclusively presume and rely on the fact
that any such instrument executed by such agent and attorney-in-fact is
authorized and binding without further inquiry.
(e) The appointment of the Paradigm Designees and the Quintel
Designees as attorneys-in-fact pursuant to this power of attorney automatically
shall terminate as to such Person at such time as he or it ceases to be a Member
or Manager and from such time shall be effective only as to the substitute
Member(s) or Managers designated or elected pursuant to this Operating
Agreement.
10.3 Notices. (a) All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
addressed to the Members at their addresses set forth on Schedule 1. 8, or to
such other addresses as may have been specified in a written notice duly given
to the others.
(b) Any notices addressed as aforesaid shall be delivered by hand or
overnight courier, by telecopier or by the United States mail by certified mail,
return receipt requested and shall be deemed given upon receipt.
33
<PAGE> 64
10.4 Severability. If any covenant, condition, term, or provision of
this Operating Agreement is illegal, or if the application thereof to any Person
or in any circumstance be judicially or administratively determined to be
invalid or unenforceable, the remainder of this Operating Agreement, or the
application of such covenant, condition, term, or provision to Persons or in
circumstances other than with respect to which it is held invalid or
unenforceable, shall not be affected thereby, and each covenant, condition,
term, and provision of this Operating Agreement shall be valid and enforceable
to the fullest extent permitted by law.
10.5 Counterparts. This Operating Agreement may be executed in one or
more counterparts, each of which, for all purposes, shall be deemed an original
and all of such counterparts, taken together, shall constitute one and the same
Operating Agreement. Counterparts of this Agreement may be delivered by
telecopier.
10.6 Entire Agreement; Amendments. This Operating Agreement and the
agreements referred to herein constitute the entire agreement of the parties
relating to the subject matter hereof, and together they supersede and replace
any prior agreement or understanding between some or all of the parties
pertaining thereto. Except as otherwise expressly provided for herein, this
Operating Agreement may not be amended, changed or modified, except by the prior
written consent of each Member.
10.7 Further Assurances. The Members will execute and deliver such
further instruments and do such further acts and things as may be reasonably
required to carry out the intent and purposes of this Operating Agreement,
including, without limitation, such amendments to this Operating Agreement as
the Managers may determine to be reasonably necessary or advisable to ensure
that the Company will be classified and treated as a partnership for federal,
state and local income tax purposes.
10.8 Successors and Assigns. Subject in all respects to the limitations
on transferability contained herein, this Operating Agreement shall be binding
upon, and shall inure to the benefit of, the heirs, administrators,
representatives, successors and permitted assigns of the respective parties
hereto.
10.9 Waiver of Action for Partition. Each of the parties hereto
irrevocably waives, during the term of the Company and during the period of
liquidation following any dissolution, any right that it may have to maintain
any action for partition with respect to any of the assets of the Company.
10.10 Insurance. Each Member agrees that if requested by the Managers,
it shall cause the Company and each other Member to be named as an additional
insured on its liability and malpractice insurance policies, as the case may be.
10.11 Representations of the Members. Each Member hereby represents and
wan-ants to each other Member that:
34
<PAGE> 65
(a) Such Member has full authority to enter into this Agreement and
perform the transactions contemplated hereby.
(b) The consummation of the transactions contemplated hereby will
not result in violation of any instrument to which such Member is a party or by
which it is bound.
(c) This Agreement constitutes the valid and binding obligation of
such Member enforceable against it in accordance with its terms subject to
applicable Bankruptcy, insolvency, moratorium and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity (regardless if enforcement is sought in a proceeding in
equity or at law).
(d) Such Member has such knowledge and experience in financial and
business matters to enable it (i) to utilize. the information made available to
it in connection with its investment, (ii) to understand and evaluate the merits
and risks of its investment hereunder and (iii) to protect its own interests in
connection with its investment hereunder.
(e) Each Member and its representatives have made an investigation
of the Company and have been granted full access to all information regarding
the Company that it regards as relevant in making a decision to consummate this
transaction. In connection with such investigation of the Company, it and its
representatives: (i) have been given an opportunity to ask, and have, to the
extent considered necessary, asked questions of, and have received answers from
the Company concerning the business of the Company and (ii) have been given or
afforded access to all documents, records, books and additional information that
he has requested regarding such matters.
(f) Such Member is acquiring its Interest solely for its own
account for investment and not with a present intention to make any sale,
distribution or other transfer of its Interest in a manner that is in violation
of any applicable securities laws.
35
<PAGE> 66
IN WITNESS WHEREOF, the undersigned have duly executed this Operating
Agreement as of the date first above written.
PARADIGM DIRECT, INC.
By: /s/ David Graf
------------------------------------------
Name: David Graf 6/10/98
Title: President
QUINTEL ENTERTAINMENT, INC.
By: /s/ Jeffrey Schwartz
------------------------------------------
Name: Jeffrey Schwartz 6/10/98
Title: CEO
36
<PAGE> 1
EXHIBIT 10.6
SERVICE CONFIRMATION _____ NEW X REVISED
WEST INTERACTIVE CORPORATION 12/30/98 REVISION EFFECTIVE DATE
Client Name: New Lauderdale
--------------
Account Manager:Sean Owens
---------------
Program Name: All U.S. 800 and 900 Programs
-----------------------------
Contact: Steve Feder/Andrew Stollman Title: _______________
---------------------------
Sales Representative:
------------------------------------------
Client of Record Status: x WIC _____ Client
SET-UP FEES
X Custom Programming @ {Confidential portion omitted and filed separately
with the Commission}/Hr = Will be bid
PER TRANSACTION FEES
X AT&T Settlement & Billing {Confidential portion omitted and filed
separately with the Commission}
X Misc. Telecommunications Tax {Confidential portion omitted and filed
separately with the Commission}
X AT&T SERVICE FEES - 900 NUMBER
{Confidential portion omitted and filed separately with the
Commission}
{Confidential portion omitted and filed separately with the Commission}
X Turn-Up Fee per 900 number* {Confidential portion omitted and filed
separately with the Commission}
X Price-Point Change Fee per 900 number* {Confidential portion omitted and
filed separately with the Commission}
* Price-Point/Turn-Up fee for those in a combined access of 200 per month
per client
X AT&T SERVICE FEES - 800 NUMBER {Confidential portion omitted and filed
separately with the Commission} {Confidential portion omitted and filed
separately with the Commission}
X CANADIAN ACCESS {Confidential portion omitted and filed separately with
the Commission}
X CALLER PREAMBLE (Per Caller Disconnect within established duration)
AT&T FEES
0-19 Seconds {Confidential portion omitted and filed separately with
the Commission}
20-30 Seconds {Confidential portion omitted and filed separately
with the Commission}
Over 30 Seconds {Confidential portion omitted and filed separately with
the Commission.}
WEST INTERACTIVE FEES
0-30 Seconds {Confidential portion omitted and filed separately with the
Commission}
Over 30 Seconds {Confidential portion omitted and filed separately with
the Commission}
SERVICE BUREAU FEES (Billed in full minute increments)
<TABLE>
<CAPTION>
Monthly 0 - 400,000 400,001+
------- ----------- -----------------
<S> <C> <C>
Per Min. {Confidential portion omitted and filed separately with
the Commission}
</TABLE>
X TOLL LINE FEES {Confidential portion omitted and filed separately with the
Commission}
MONTHLY FEES
X AT&T Number Fee-900 Ea. @ {Confidential portion omitted and filed
separately with the Commission} = $___/mo.
__ AT&T Number Fee-800 ___ @ {Confidential portion omitted and filed
separately with the Commission} = $___/mo.
X Add'l. Speech Storage{Confidential portion omitted and filed separately
with the Commission} $If applicable/Mo.
X Monthly Service Fee:
<TABLE>
<CAPTION>
Call Minutes 0 - 5,000 5001 +
------------ --------- ------
<S> <C> <C>
Per Month {Confidential portion omitted and filed separately with
the Commission}
</TABLE>
<PAGE> 2
SPECIAL SERVICE FEES
X Voice Talent-English ($150 Minimum) {Confidential portion omitted and
filed separately with the Commission}
X Recording for outbound use (1 hr. minimum) {Confidential portion omitted
and filed separately with the Commission}
X Voice Talent-Spanish ($200 Minimum) {Confidential portion omitted and
filed separately with the Commission}
X Translations {Confidential portion omitted and filed separately with the
Commission}
X Dubbing Fees First 2 Hours {Confidential portion omitted and filed
separately with the Commission}
After 2 Hours {Confidential portion omitted and filed separately with the
Commission}
X Outdial Calls (Billed in 6 sec. increments) {Confidential portion omitted
and filed separately with the Commission} (6 sec. Minimum)
X Transfer Calls-800 Line-In House Center {Confidential portion omitted and
filed separately with the Commission}
X Conference Program {Confidential portion omitted and filed separately with
the Commission}
X Transfer calls to toll line {Confidential portion omitted and filed
separately with the Commission}
X Voice Recognition {Confidential portion omitted and filed separately with
the Commission}
X Automatic Number Identification (ANI) {Confidential portion omitted and
filed separately with the Commission}
__ Voice Capture - Send Tape {Confidential portion omitted and filed
separately with the Commission}
X LIDB-Batch {Confidential portion omitted and filed separately with the
Commission}
X LIDB-Real Time {Confidential portion omitted and filed separately with the
Commission}
X ADR RRN Fee {Confidential portion omitted and filed separately with the
Commission}
X ADR Fees {Confidential portion omitted and filed separately with the
Commission}
X ADR Setup Fees (over 4,000 Nos.) {Confidential portion omitted and filed
separately with the Commission}
X Real time OCDD {Confidential portion omitted and filed separately with the
Commission}
X DAT Tape {Confidential portion omitted and filed separately with the
Commission}
X Audiotape {Confidential portion omitted and filed separately with the
Commission}
X UCC Slips {Confidential portion omitted and filed separately with the
Commission}
X COD Labels {Confidential portion omitted and filed separately with the
Commission}
X Facsimile Reporting {Confidential portion omitted and filed separately
with the Commission}
X Send Electronic transfer {Confidential portion omitted and filed
separately with the Commission}
X Diskette {Confidential portion omitted and filed separately with the
Commission}
X Loading Vice Files w/FTP File Transfer {Confidential portion omitted and
filed separately with the Commission}
X LCI Sales Verification {Confidential portion omitted and filed separately
with the Commission}
X Speech Storage (Voiceprint, Personals, Voicemail) {Confidential portion
omitted and filed separately with the Commission}
X Express ID (Targus) {Confidential portion omitted and filed separately
with the Commission}
X Guaranteed Payout 900# {Confidential portion omitted and filed separately
with the Commission}
X ASDM Back-up Voice Print Storage; Eff. 7/1/98 {Confidential portion
omitted and filed separately with the Commission}
X Area Code Routing {Confidential portion omitted and filed separately with
the Commission}
All shipping/postage to be billed at cost
TRANSCRIPTION FEES (PER RECORD)
X Name/Address/City/State/Zip (Total Monthly Records)
<TABLE>
<CAPTION>
0 - 30,000 30,001-300,000 300,000 +
---------- -------------- ---------
<S> <C> <C>
{Confidential portion omitted and filed separately with the Commission}
One Output Included (Please Designate)
</TABLE>
__ Mag Tape __Hard Copy __ Diskette
X Add Telephone Number {Confidential portion omitted and filed separately
with the Commission}
X Birthday {Confidential portion omitted and filed separately with the
Commission}
__ Sequence Number {Confidential portion omitted and filed separately with
the Commission}
X Name Only (Effective 11/2) {Confidential portion omitted and filed
separately with the Commission}
X Yes/No {Confidential portion omitted and filed separately with the
Commission}
<PAGE> 3
X Social Security {Confidential portion omitted and filed separately with
the Commission} (Effective 10/7)
X Modem Charge (Effective 11/2) {Confidential portion omitted and filed
separately with the Commission}
X Data Merge {Confidential portion omitted and filed separately with the
Commission}
There is a minimum {Confidential portion omitted and filed
separately with the Commission} fee
SPANISH TRANSCRIPTION FEES (PER RECORD)
X Name/Address/City/State/Zip (Total Monthly Records)
<TABLE>
<CAPTION>
0-30,000 30,001-300,000 300,001+
-------- -------------- --------
<S> <C> <C>
{Confidential portion omitted and filed separately with the Commission}
One Output Included (Please Designate)
</TABLE>
__ Mag Tape __ Hard Copy __ Diskette
X Add Telephone Number {Confidential portion omitted and filed separately
with the Commission}
X Birthday {Confidential portion omitted and filed separately with the
Commission}
__ Sequence Number {Confidential portion omitted and filed separately with
the Commission}
X Name Only (Effective 11/2) {Confidential portion omitted and filed
separately with the Commission}
X Yes/No {Confidential portion omitted and filed separately with the
Commission}
X Modem Charge {Confidential portion omitted and filed separately with the
Commission} (Effective 11/2)
X Data Merge {Confidential portion omitted and filed separately with the
Commission}
There is a minimum {Confidential portion omitted and filed separately with
the Commission}
WEST TELEMARKETING CORPORATION
LIVE OPERATOR SERVICES
X Inbound (Assumes 70% agent productivity) {Confidential portion omitted and
filed separately with the Commission}
X VRU to LO Promotions-900 Primary {Confidential portion omitted and filed
separately with the Commission}
X VRU to LO Promotions-900 Not Primary {Confidential portion omitted and
filed separately with the Commission}
X Training {Confidential portion omitted and filed separately with the
Commission}
X TR Incentive Pay {Confidential portion omitted and filed separately with
the Commission}
X TR Supervisors (3) - Hampton {Confidential portion omitted and filed
separately with the Commission}
X Remote Monitoring {Confidential portion omitted and filed separately with
the Commission}
X Long Distance {Confidential portion omitted and filed separately with the
Commission}
Less 70% Agent Productivity {Confidential portion omitted and filed
separately with the Commission}
X OUTBOUND LIVE OPERATOR SERVICES
0 - 10,000 Hours {Confidential portion omitted and filed
separately with the Commission}
10,001 - 20,000 Hours {Confidential portion omitted and filed
separately with the Commission}
20,001 + {Confidential portion omitted and filed
separately with the Commission}
X Training {Confidential portion omitted and filed separately with the
Commission}
__ Third Party Transfer/Verification {Confidential portion omitted and filed
separately with the Commission}
Notes:
1. Prices are subject to change if AT&T fee structure changes. Not included
are caller refunds or any applicable taxes.
2. Inbound live operator services dedicated only agents to Quintel/PRN will
have a {Confidential portion omitted and filed separately with the
Commission} minimum/agent hour if {Confidential portion omitted and filed
separately with the Commission} agent productivity is not achieved.
ACCEPTANCE
The signatures below indicate full acceptance of the terms and conditions of the
automated program identified. This is an addendum to Service Agreement
#____________________ dated: ________________________.
New Lauderdale West Interactive Corporation
Signature:________________________ Signature:__________________________
<PAGE> 4
Title: Title: Account Manager
--------------------------- ------------------------------
Date: Date:
----------------------------- -------------------------------
West Interactive Corporation - Proprietary and Confidential
<PAGE> 1
EXHIBIT 10.15.2
AGREEMENT
AGREEMENT (this "Agreement"), dated as of May 6, 1998 by and between
Paradigm Direct, Inc., a corporation having offices at Two Executive Drive, Fort
Lee, New Jersey 07024 ("Paradigm") and Quintelcomm, Inc., a corporation having
offices at One Blue Hill Plaza, Pearl River, New York 10965 ("Quintel").
1. Paradigm has agreed to provide marketing services to Qwest
Communications Corporation ("Qwest") pursuant to this certain agreement dated as
of April 15, 1998 by and between Paradigm and Qwest (the "Qwest Agreement").
Quintel hereby agrees to provide Paradigm with marketing services for the Qwest
telecommunications services, upon the terms and subject to the conditions
contained herein and in the Qwest Agreement, a copy of which has been provided
to Quintel. Quintel agrees to comply with the provisions of Section 7 of the
Qwest Agreement. It is specifically acknowledged that Quintel shall not be bound
by the restrictive covenants contained in Section 8 of the Qwest Agreement.
2. (a) Each of Paradigm and Quintel shall receive the following
amounts:
(i) 50% of Net Profits, and
(ii) 50% of Contained Customer Revenues.
"Customer" shall mean each customer solicited by Quintel or
solicited by Paradigm using names from the Quintel database who remains a
customer of Qwest for at least 30 days after initial activation.
"Expenses" shall mean (i) all telemarketing fees incurred in
connection with the Quintel marketing programs, including expenses incurred by
Quintel in connection with fulfillment services provided pursuant to Section
3(a) hereof, and (ii) all direct costs incurred by Paradigm or Quintel in
connection with the Quintel marketing programs.
"Gross Revenues" shall mean the sum of $37.50 for each Sale and
$25.50 for each Customer, which amounts are actually received from Qwest.
"Net Profits" shall mean Gross Revenues less Expenses.
"Sale" shall mean each customer solicited by Quintel (i) who has
been third party verified and, at the option of Qwest, PIC verified, and
activated by Qwest, or (ii) which orders have been verified by Qwest but not yet
activated and for which Qwest has made payment to Paradigm.
"Continued Customer Revenues" shall mean the following amounts
actually received by Paradigm from Qwest for each Customer to whom a Sale was
made: the sum of $30 for each customer for which the average monthly long
distance billing in a consecutive six month period equals or is greater than
$10.00 and whose account balance is current within 60 days, provided, that such
fee shall be paid for each time a Customer meets such criteria in any six month
period, and provided further, that the billings of a
<PAGE> 2
Customer in any one month shall only be used one time in calculating the
foregoing amounts; and provided further, that such payments shall only be made
with respect to a customer for the 42 month period commencing on the date each
Customer was activated.
(b) Paradigm shall provide for separate billing to Qwest with
respect to customers solicited by Quintel or solicited by Paradigm using the
Quintel database, and such amounts shall be deposited into a joint
Paradigm/Quintel bank account (the "Account"). Funds from the Account shall be
distributed promptly after receipt in the following manner:
(i) First, to Paradigm, in an amount which is equal to the amount
received from Qwest in excess of Gross Revenues;
(ii) Second, to Paradigm and Quintel, on a pari passu basis, in an
amount equal to their respective Expenses for which appropriate
documentation is provided; and
(iii) Then, Net Profits and Continued Customer Revenues to
Paradigm and Quintel, as provided in Section 2 hereof.
(c) In the event that the Qwest Agreement is terminated in a
manner contemplated by Section 2(a)(3) thereof, Paradigm shall pay Quintel 50%
of the total amount of compensation actually received from Qwest by Paradigm
pursuant to Section 2(a)(3)(i) or (ii), but solely with respect to those
customers solicited by Quintel or solicited by Paradigm using the Quintel
database.
3. (a) Quintel shall be responsible for fulfillment services for
customers solicited by Quintel and for customers solicited by Paradigm using the
Quintel database.
(b) Quintel may, from time to time upon request by Paradigm,
provide fulfillment services for customers solicited by Paradigm (other than
those solicited using the Quintel database). Quintel shall invoice Paradigm for
any such services at a cost to be mutually agreed upon by the parties, and such
amounts shall be paid by Paradigm promptly thereafter.
4. This Agreement is intended to set forth the compensation
arrangements of the parties until such time as the parties enter into a
comprehensive agreement setting forth all of the terms and conditions upon which
Quintel shall provide the services described herein. This Agreement is
terminable by either party upon 24 hours written notice. No amendment or waiver
of the provisions hereof shall be effective unless expressed in a writing signed
by Quintel and Paradigm.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have signed this Agreement
to be executed as of the date first above written.
PARADIGM DIRECT, INC.
By: /s/ David Graf
-------------------------------------
David Graf
President
QUINTELCOMM, INC.
By: /s/ Jeffrey Schwartz
-------------------------------------
Jeffrey Schwartz
Chairman and Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.15.3
TERMINATION AGREEMENT
This Termination Agreement is made as of the 30th day of November, 1998
(the "Effective Date"), but has been executed by the parties on the dates
written below the parties' signatures at the end of this Agreement) by and
between Paradigm Direct, Inc., a Delaware corporation, with offices located at 2
Executive Drive, Fort Lee, New Jersey 07024 ("Paradigm") and Quintelcomm, Inc.,
a Delaware corporation, with offices at One Blue Hill Plaza, Pearl River, New
York ("Quintel").
WITNESSETH:
WHEREAS, Paradigm provided marketing services to Qwest Communications
Corporation ("Qwest") pursuant to that certain agreement dated as of April 15,
1998 by and between Qwest and Paradigm (the "Paradigm Qwest Agreement");
WHEREAS, Quintel agreed to provide Paradigm marketing services relating
to the Paradigm Qwest Agreement pursuant to the agreement dated as of May 6,
1998 by and between Paradigm and Quintel (the "Quintel/Paradigm Qwest Marketing
Agreement"); and
WHEREAS, Paradigm and Quintel now wish to (i) terminate the
Quintel/Paradigm Qwest Marketing Agreement, (ii) confirm the termination of
their joint marketing activities under the Quintel/Paradigm Qwest Marketing
Agreement, and (iii) settle amounts due to Quintel thereunder, all as set forth
herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
I. TERMINATION OF ACTIVITIES UNDER THE QUINTEL/PARADIGM QWEST MARKETING
AGREEMENT. The Quintel/Paradigm Qwest Marketing Agreement is hereby terminated.
Quintel and Paradigm confirm that by mutual agreement Quintel ceased to provide
marketing services to Paradigm under the Quintel/Paradigm Qwest Marketing
Agreement as of August 1, 1998.
<PAGE> 2
(a) Subject to the payment by Paradigm to Quintel of the
Termination Payment, Quintel shall have no further claim for payment under the
Quintel/Paradigm Qwest Marketing Agreement, or otherwise with respect to the
activities conducted by Quintel and Paradigm with respect to the Paradigm Qwest
Agreement or the "new agreement" between Paradigm and Qwest dated as of October
1, 1998 referred to in clause (ii) below. Paradigm represents and warrants to
Quintel that (i) the Paradigm Qwest Agreement was terminated by consent of
Paradigm and Qwest as of October 1, 1998, and Paradigm did not receive any form
of payment or other consideration pursuant to Section 2(a)(3) of the Paradigm
Qwest Agreement, and (ii) Paradigm and Qwest entered into a new agreement as of
October 1, 1998 without a termination provision similar to Section 2(a)(3) of
the Paradigm Qwest Agreement, and (iii) Paradigm did not receive any payment or
other form of consideration in exchange for relinquishing the termination
payment provisions under or waiving any rights under Section 2(a)(3) of the
Paradigm Qwest Agreement.
(b) Notwithstanding the foregoing, Paradigm and Quintel agree that
each party must perform its respective obligations for fulfillment services
described in Section 3 of the Quintel/Paradigm Qwest Marketing Agreement.
2. PAYMENTS. At the Closing, Paradigm shall pay to Quintel by wire
transfer concurrently with the Closing the following amounts (collectively, the
"Termination Payment"): (i) $512,096.13 on account of amounts currently due
Quintel under the Quintel/Paradigm Qwest Marketing Agreement and (ii) $85,000.00
on account of Quintel's interest in future payments respecting the $10 payment
tranche payable by Qwest under the Paradigm Qwest Agreement.
3. CLOSING
(a) This Agreement shall be effective contemporaneously with the
closing of the Purchase and Sale Agreement dated as of November 30, 1998 between
Paradigm and Quintel Communications, Inc. regarding the sale by Quintel and
purchase by Paradigm of Quintel Communications, Inc.'s interest in Paradigm
Cellular, L.L.C., a Delaware limited liability company.
(b) At the Closing, Quintel shall deliver to Paradigm the Mutual
Release, the form of which is attached hereto as Exhibit 3(b) (the "Release").
(c) At the Closing, Paradigm shall (i) pay to Quintel the
Termination Payment and (ii) deliver to Quintel the Release.
4. RETURN OF CERTAIN INFORMATION TO QUINTEL. Paradigm acknowledges
that in the course of the activities conducted by Quintel and Paradigm under the
Quintel/Paradigm Qwest Marketing Agreement, Quintel made a computer-generated
database available to Paradigm containing names and/or telephone numbers
(collectively referred to as the "Quintel Information") for soliciting potential
customers under the Paradigm Qwest Agreement, all of which Quintel Information
Paradigm acknowledges is confidential and
<PAGE> 3
proprietary information belonging to Quintel. The term "Quintel Information"
does not include the names and telephone numbers of any actual or potential
customers obtained by Paradigm from any other source without breaching any
obligation of confidentiality owing to Quintel by Paradigm or such other source,
which or whose name or telephone number may also be included within the Quintel
Information. Paradigm agrees that all of the Quintel Information which is in
tangible form shall be returned to Quintel not later than thirty (30) days after
the date of this Agreement. Paradigm will not use, publish or disclose any of
the Quintel Information or authorize any other person or entity to make, use,
publish or disclose any of the Quintel Information for any purpose whatsoever;
provided, however, that to the extent that the current customers of Qwest are
persons disclosed as part of the Quintel Information, Paradigm shall continue to
have the right to use the name and telephone number of such customer in
Paradigm's performance under the Paradigm Qwest Agreement, but for no other
purpose.
Paradigm acknowledges and agrees that Quintel will be irreparably
damaged if the provisions of this Section 4 are not specifically enforced.
Accordingly, Quintel shall be entitled to an injunction restraining any breach
of this Section 4 by Paradigm (without being required to prove irreparable
injury), or any other appropriate decree of specific performance. Such remedy
shall not be exclusive and shall be in addition to any other remedy which
Quintel may have for such breach. As a condition precedent for the application
for any such injunction or any other form of equitable or extraordinary relief,
Quintel shall first notify Paradigm in writing of any such alleged breach. Such
notice shall contain the names and addresses of the persons for whom such a
breach is alleged to have occurred and such other information as may be
necessary to identify with specificity the cause of such breach. Paradigm shall
have five business days to respond to such notice of an alleged breach by
providing to Quintel written documentation demonstrating that Quintel and the
Company have not breached the provisions of Section 4. Quintel agrees to give
Paradigm and the Company at least two (2) business day's prior notice of any
application for injunctive or other extraordinary relief. The foregoing shall
not constitute a waiver of Paradigm's right to an undertaking or bond in
connection with such injunction or decree as provided under applicable law.
5. FURTHER ASSURANCES. If, at any time after the date hereof, either
party shall determine that any further assignments, conveyances, certificates,
filings, instruments or documents or any other things are reasonably necessary
or desirable to consummate any of the transactions contemplated by this
Agreement, the other party shall, upon request, promptly execute and deliver all
such proper instruments and do all things reasonably necessary and proper to
otherwise carry out the purposes of this Agreement.
6. MISCELLANEOUS.
(a) This Agreement and the exhibits hereto set forth the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersede any prior negotiations, agreements, letters
of intent, understandings or arrangements between the parties hereto with
respect to the subject matter hereof.
<PAGE> 4
(b) Each of Quintel and Paradigm represents and warrants to
the other that:
(i) It is a corporation duly organized, validity existing
and in good standing with the laws of the State of Delaware,
and has all requisite corporate power to own, operate and
lease its properties and carry on its business as the same is
now being conducted;
(ii) It has all requisite corporate power and authority to
execute, deliver and perform its obligations under this
Agreement and each agreement, document or instrument
contemplated hereby; the execution, delivery and performance
by Quintel of this Agreement and each such agreement,
document or instrument, and the consummation of the
transactions contemplated hereby and thereby, have been
authorized by all necessary action and (x) do not require the
consent, waiver, approval, license or authorization of any
person, entity, or public authority, (y) do not violate, with
or without the giving of notice and/or the passage of time,
any provision of law, and (z) will not conflict with or
result in a breach or termination of any provision of, or
constitute a default or give rise to a right of termination
or acceleration under, any corporate charter, by-law,
mortgage, deed of trust, indenture or other agreement or
instrument, or any order, judgment, decree, statute,
regulation or any other restriction of any kind or character,
to which Quintel is a party or by which any of its assets or
properties may be bound, or result in the creation of any
lien, charge or encumbrance upon any of the assets of the
Company;
(iii) it has duly executed and delivered this Agreement,
which constitutes, and each other agreement, document,
certificate or instrument contemplated by this Agreement when
executed and delivered shall constitute, its legal, valid and
binding obligation enforceable against it in accordance with
its terms.
(c) This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto, or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
(d) In the event any provision of this Agreement or the
application thereof to any person or circumstances shall be adjudged to be
invalid or unenforceable according to any applicable laws, the remaining
provisions of this Agreement and the application thereof to any person or
circumstances shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
<PAGE> 5
(e) Unless some meaning and intent is apparent from the context of
the Agreement, the plurals shall include the singular and vice versa, and
masculine, feminine and neuter words shall be used interchangeably.
(f) The section and other headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
(g) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date and year first above written.
PARADIGM DIRECT, INC.
By: /s/
--------------------------
Its: Chief Executive Officer
--------------------------
Date: January 25, 1999
--------------------------
QUINTELCOMM, INC.
By: /s/ Jeffrey Schwartz
--------------------------
Its: Chief Executive Officer
--------------------------
Date: January 25, 1999
--------------------------
<PAGE> 6
EXHIBIT 3(b)
MUTUAL RELEASE
This Mutual Release is entered into this 25 day of January, 1999 by and
between PARADIGM DIRECT, INC., a Delaware corporation, with offices located at 2
Executive Drive, Fort Lee, New Jersey ("Paradigm") and QUINTELCOMM, INC., a
Delaware corporation, with offices at One Blue Hill Plaza, Pearl River, New York
("Quintel").
WITNESSETH:
WHEREAS, Paradigm has agreed to provide marketing services to Qwest
Communications Corporation ("Qwest") pursuant to that certain agreement dated as
of April 15, 1998 by and between Qwest and Paradigm (the "Qwest Agreement");
WHEREAS, Quintel agreed to provide Paradigm marketing services relating
to the Qwest Agreement pursuant to the agreement dated as of May 6, 1998 by and
between Paradigm and Quintel (the "Quintel/Paradigm Qwest Marketing Agreement");
WHEREAS, Paradigm and Quintel have confirmed the termination of their
joint marketing activities under the Quintel/Paradigm Qwest Marketing Agreement,
and settled amounts due to Quintel thereunder as of the date hereof as set forth
in an agreement between them of even date (the "Termination Agreement").
WHEREAS, Section 3 of the Termination Agreement requires each party to
release the other in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree:
1. Release. Quintel and Paradigm hereby release and discharge each
other, and their respective shareholders, directors, managers, members,
officers, employees, agents, attorneys, and their respective successors and
assigns, from all actions, causes of action, suits, debts, dues, accounts,
bonds, covenants, contracts, agreements, damages, judgments, claims, and demands
whatsoever, in law or in equity, which either party ever had, now has, or
hereafter can, shall or may have, for, upon, or by reason of any matter, causes
or things whatsoever from the beginning of the world to the date of this Mutual
Release arising out of the Quintel/Paradigm Qwest Marketing Agreement, except
for those obligations thereunder which survive pursuant to the Termination
Agreement.
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day near first above written:
QUINTELCOMM, INC.
By: /s/ Jeffrey Schwartz
--------------------------
Its: Chief Executive Officer
--------------------------
PARADIGM DIRECT, INC.
By: /s /
--------------------------
Its: Chief Executive Officer
--------------------------
<PAGE> 8
AGREEMENT
AGREEMENT (this "Agreement"), dated as of April 15, 1998 by and between
Paradigm Direct, Inc., a corporation having offices at Two Executive Drive, Fort
Lee, New Jersey 07024 ("Paradigm') and Qwest Communications Corporation, a
corporation having offices at 555 17th Street, Suite 1000, Denver, Colorado.
80202 ("Qwest").
WITNESSETH
WHEREAS, Qwest is in the business of providing long distance
telecommunication services (the "Qwest Services'); and
WHEREAS, Paradigm is engaged in the business of providing marketing
services; and
WHEREAS, Qwest wishes to engage Paradigm to perform marketing services
(the "Marketing Services") with respect to the telecommunications services
offered by Qwest, and Paradigm wishes to accept such engagement, upon the terms
and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and conditions contained herein the parties, intending to be legally bound,
agree as follows:
1. PROVISION OF SERVICES.
(a) Qwest hereby engages Paradigm, and Paradigm hereby accepts
such engagement, to provide the Marketing Services on behalf of Qwest, upon the
terms and subject to the conditions contained herein.
(b) The parties agree that the appointment of Paradigm by Qwest is
not exclusive. Paradigm acknowledges and agrees that Qwest directly or through
other sales representatives may offer the Qwest Services to customers to whom
Paradigm may offer the Qwest Services. If a customer is solicited by Paradigm
and also by either another independent authorized sales representative or by an
employee of Qwest, the order shall be credited to Paradigm if the Paradigm order
is submitted at least 24 hours prior to the other representative's order. If the
orders are submitted on the same day, Qwest shall determine to which
representative or employee to credit such order, provided that Qwest will
alternate credits between Paradigm and other representatives to assure that
Paradigm receives credit for approximately one-half of all such orders.
2. COMPENSATION.
(a) AMOUNT OF COMPENSATION. As compensation for providing the
Marketing Services, Qwest shall pay Paradigm the following amounts with respect
to customers solicited by Paradigm:
1. Prior to January 1, 1999.
<PAGE> 9
(i) for each of the first 300,000 customers activated by
Qwest:
(a) the sum of _____ for each customer activated by
Qwest after 3rd party verification and PIC Freeze;
(b) the sum of _____ for each customer which has
remained a customer of Qwest for at least 30 days after initial
activation;
(ii) for each customer after the first 300,000 customers
activated by Qwest:
(a) the sum of _____ for each customer activated by
Qwest after 3rd party verification and PIC Freeze;
(b) the sum of _____ for each customer which has
remained a customer of Qwest for at least 30 days after initial
activation
(iii) the sum of $10 for each customer for which the average
monthly long distance billing in a consecutive six month period
equals or is greater than $10.00 and whose account balance is
current within 60 days; provided, that such fee shall be paid to
Paradigm for each time a customer meets such criteria in any six
month period; and provided further, that the billings of a
customer in any one month shall only be used one time in
calculating the foregoing amounts; and provided further, that such
payments shall only be made with respect to a customer for the 42
month period commencing on the date such customer was activated;
and
2. On and after January 1, 1999,
(i) the sum of _____ for each customer activated by Qwest
after 3rd party verification and PIC Freeze
(ii) the sum of _____ for each customer which has remained a
customer of Qwest for at least 30 days after initial activation;
(iii) the sum of $10 for each customer for which the average
monthly long distance billing in a consecutive six month period
following the initial 30 day period equals or is greater than $10 and
whose account balance is current within 60 days; provided, that such
fee shall be paid to Paradigm for each time a customer meets such
criteria in any six month period; and provided further, that the
billings of a customer in any one mouth shall only be used one time in
calculating the foregoing amounts; and provided further, that such
payments shall only be made with respect to a customer for the 42 month
period commencing on the date such customer was activated, and
3. If, prior to the date which is five years from the date
hereof, Qwest shall (a) terminate this Agreement in accordance with Section 4(a)
hereof, other than as a result of a material breach of this Agreement or the
commission of a fraudulent act by Paradigm, or (b) take
<PAGE> 10
or omit to take actions for a sixty (60) day period which, through no fault of
Paradigm, prevents Paradigm from attaining the criteria referenced in this
Section 2(a), then in either case Qwest shall pay Paradigm, on the effective
date of termination or the date which is the final date of the sixty day period
(the "Termination Date"), 75% of the Owed Amount for the greater of (i) each Ten
Plus Customer (each as defined below) on the Termination Date, or (ii) 500,000
customers, whether or not such customers are actual customers on the Termination
Date.
For purposes of this Section 2(a):
"Customer Term" shall mean the period commencing on the date a
customer is activated and ending 42 months after such date.
"Ten Plus Customer" shall mean a customer for which, on the
Termination Date, the average monthly long distance billing for such customer
equals or is greater than $10.00.
"Owed Amount" with respect to each Ten Plus Customer shall mean
the sum of $10 for each Six Month Period.
"Six Month Period" shall mean any consecutive six month period in
a Customer Term (provided that no one month shall be counted more than once),
other than a Period for :which a payment was made under Section 2(a)(iii).
(b) COMPENSATION ADJUSTMENT. At the end of the first 90 days
of the term of this Agreement, Qwest shall have the right to review the
compensation payable under paragraph (a) and make adjustments as deemed
appropriate and mutually agreed to by the parties.
(c) PAYMENT OF COMPENSATION. Amounts payable to Paradigm
under Section 2(a) hereof shall be billed weekly by Paradigm and shall be paid
by Qwest net thirty days. Each payment by Qwest shall be accompanied by all
documentation which supports the calculation by Qwest of amounts owed to
Paradigm and shall include, without limitation, third party verification
information, the names of activated and deactivated customers and the date on
which such activations and deactivations occurred. Paradigm will be paid
compensation only on amounts that are revenue to Qwest. Therefore, for purposes
of determining whether a customer account has satisfied the requirements of
paragraphs 2aliii and 2a2iii above, charges that Qwest pays as a result of
local, state or federal rules and regulations (including, but not limited to
taxes, access charges, universal service and high cost funds and PIC C charges)
shall not be included. Qwest shall also deduct any credits or discounts received
by the customer prior to determining whether the above referenced criteria have
been satisfied.
(d) CHARGE BACK. Qwest may charge back Paradigm for commissions
paid by mistake or on unauthorized PIC-changes.
(e) RESOLUTION OF DISCREPANCIES. Paradigm and Qwest shall
negotiate in good faith to resolve any discrepancies with respect to the payment
obligations of Qwest hereunder. In connection therewith Qwest shall promptly
provide Paradigm with all reasonably requested documentation and other
information with respect to such discrepancies. If the parties are unable to
resolve any such discrepancies within ten days after written notice thereof by
Paradigm, the
<PAGE> 11
parties shall submit such dispute to an independent accounting firm or other
third party to be mutually agreed upon, whose determination shall be final and
binding upon the parties. The expenses of such submission shall be borne equally
between the parties.
3. RELATIONSHIP OF PARTIES. Paradigm shall act as an independent
contractor and not an employee of Qwest for any purpose whatsoever. Paradigm
shall have no authority to execute any document on behalf of Qwest or bind Qwest
in any way whatsoever. Qwest shall not have any right to require Paradigm to
take any actions or devote any specific time or efforts whatsoever with respect
to the Marketing Services.
4. TERM; TERMINATION.
(a) This Agreement shall commence on the date hereof and be
effective for a period of five years from the date hereof; provided, however,
that either party may terminate this Agreement prior thereto upon ninety days'
written notice to the other.
(b) Qwest may terminate this Agreement for reasonable cause if
Paradigm or its employees, agents, subagents, representatives, vendors or other
affiliates has engaged in a pattern of the following conduct:
(i) makes any misrepresentation to a customer, prospective
customer, or to Qwest;
(ii) changes or attempts to change the primary interexchange
carrier ("PIC") of a customer to Qwest without the legal consent of the customer
("unauthorized "PIC-change");
(iii) takes any action or permits inaction which is
inconsistent with any rule, regulation, statute or law applicable to the
activities contemplated by this Agreement;
(iv) breaches any provision of this Agreement;
(v) is insolvent, commences a bankruptcy proceeding, is
placed in receivership or dissolves; or
(vi) assigns or attempts to assign this Agreement or any of
Paradigm's duties under this Agreement to another party without the prior
written consent of Qwest.
(c) Notwithstanding the payment terms set forth in Section 2
hereof, any and all amounts owing to any party hereunder through the Termination
Date shall be paid promptly upon termination of this Agreement.
5. OBLIGATIONS OF THE PARTIES.
(a) OBLIGATIONS OF PARADIGM.
<PAGE> 12
(i) Paradigm shall provide to such third party verification
agent as Qwest shall designate the customers which Paradigm has contacted and
which have agreed to purchase telecommunications services from Qwest.
(ii) Paradigm shall provide Qwest with a copy of proposed
scripts, storyboards, direct mail pieces and other information intended to be
used by Paradigm and its representatives in connection with the provisions of
the Marketing Services, which shall be approved by Qwest in writing prior to
Paradigm's use thereof.
(iii) Paradigm shall provide Qwest with monthly volume
projections; provided that such projections shall not in any way obligate
Paradigm to meet such projections.
(iv) Paradigm shall be responsible for all costs associated
with the Marketing Services (other than third party verification costs),
including costs of fulfillment of Affinity offers.
(v) Paradigm shall, at all times during the Term, permit
Qwest to monitor its telemarketing and promotional activities.
(b) OBLIGATIONS TO QWEST.
(i) Qwest shall be solely responsible for all
services required in connection with the activation and retention of customers,
including, without limitation, handling all inbound customer service calls,
billing and provisioning; provided, however, that Qwest shall not be responsible
for inbound inquiries relating to any premium or incentive, and shall instead
such customers' inquiries to Paradigm.
(ii) Qwest shall provide Paradigm with a daily data
file of all customers who have passed third Party verification, PICed and
canceled. Qwest shall provide Paradigm with such other information from time to
time as Paradigm shall reasonably request with respect to the obligations of the
parties hereunder.
(iii) Qwest shall be responsible for all third party
vendor costs including, without limitation, management thereof.
(iv) From time to time during the term hereof,
Paradigm may request that Qwest provide funding for customer support and
retention programs. Qwest may, but shall not be obligated to, provide any such
funding.
6. EXCLUSIVE REPRESENTATIVE.
(a) Qwest agrees that, during the Term hereof, no other person or
entity shall provide Qwest with Mass Direct Marketing Affinity Services (as
defined below); provided that Qwest shall not be so restricted if Qwest has not
activated at least 50,000 customers in the first six-month period of this
Agreement; and provided, further, that nothing contained herein shall prevent
Qwest from receiving Mass Direct Marketing Affinity Services
<PAGE> 13
from a third party as a result of a merger, acquisition or other business
combination of Qwest which may occur after the date hereof.
(b) For purposes hereof, "Mass Direct Marketing Affinity Services"
shall mean the direct marketing of services to consumers in which the offer
includes a gift, premium or other incentive based on some perceived interest of
the targeted customers which is communicated to the customer via outbound
telemarketing in excess of 2,000 telemarketing hours per month or direct mail in
excess of 50,000 pieces per month.
7. CONFIDENTIALITY.
(a) From and after the date hereof, the parties hereto shall keep
confidential and shall use all reasonable efforts to cause their respective
officers, directors, employees and agents to keep confidential, (i) the nature
and substance of this Agreement, and (ii) all Confidential Information (defined
below) of such other party, its affiliates and its clients, and shall not use or
disclose any such Confidential Information for any purposes other than those
contemplated by this Agreement; provided, however, that neither party shall be
subject to the obligations set forth in the preceding sentence with respect to
any such information provided to it by the other party which either (i)
subsequently enters the public domain through no act or failure to act on the
part of the receiving party, or (ii) is necessary or appropriate to disclose to
any regulatory or judicial authority having jurisdiction over any of the parties
hereto or as otherwise required by law.
(b) "Confidential Information" of a party shall mean any and all
material or information of any kind, whether tangible or intangible, relating to
the business and operations of such party including, without limitation,
business ideas and strategies, financial information and client identities, and
further including, without limitation, any information provided pursuant to
Section 5 hereof.
(c) The provisions of this Section 7 shall survive the termination
of this Agreement.
8. COMPETITION. Paradigm shall take all commercially reasonable steps
to protect the Confidential Information of Qwest including, without limitation,
the following:
(a) Paradigm shall not perform telemarketing services for any
other long distance or local carriers in the same physical location as that in
which any marketing services are being performed by Paradigm for Qwest;
(b) Paradigm shall not market services for any other long distance
or local carriers using any of the lists which Paradigm uses to perform the
Marketing Services for Qwest;
(c) Paradigm shall restrict access to Confidential Information
regarding Qwest including, but not limited to, data, software, plans and
marketing strategies, to those personnel actively involved in the performance of
Marketing Services for Qwest hereunder;
<PAGE> 14
(d) Paradigm shall not solicit customers or receive any
compensation for current customers of Qwest for whom/which Paradigm did not
receive compensation prior to the submission and acceptance of a service order;
(e) Paradigm shall for ninety (90) days from the date of
termination use its best efforts to not solicit customers who have Qwest
Services; and
(f) Paradigm agrees that, during the Term hereof, it shall not
provide marketing services for any long distance telecommunications provider,
other than those for which Paradigm is performing such services as of the date
hereof.
9. REPRESENTATIONS AND WARRANTIES. Each of the parties represents and
warrants to the other as follows:
(a) Such party has the full power and authority to execute and
deliver this Agreement, and this Agreement constitutes such party's legal, valid
and binding agreement, enforceable against such party in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the equitable principles
and the discretion of the court before which any proceeding therefor may be
brought (whether at law or in equity).
(b) Such party is not a party to any contract or other agreement
which would restrict it from entering into this Agreement or performing its
obligations hereunder.
(c) COVENANTS. Paradigm hereby covenants and agrees during the
Term:
(i) to, at its own expense, operate in full compliance with
all laws, rules and regulations, including, but not limited to, all rules,
regulations, orders and opinions of the Federal Communications Commission, the
Federal Trade Commission, and regulatory and consumer agencies of the various
states;
(ii) to maintain the highest and most ethical standards of
sales and marketing prevailing in the telecommunications industry.
10. INDEMNIFICATION.
(a) Paradigm agrees to indemnify and hold harmless Qwest and
its officers, directors, employees and other affiliates from and against all
losses, claims, actions, suits, liabilities, damages, deficiencies, judgements,
settlements cost of investigation and other expenses, including but not limited
to interest, penalties and reasonable attorney's fees and disbursements incurred
(whether or not a third party is involved) in investigating, preparing for or
defending any litigation or other action commenced or threatened in connection
with the foregoing (collectively, "Losses"), based upon. or arising out of
breach of any representation, warranty, covenant or agreement of Paradigm
contained in this Agreement.
<PAGE> 15
(b) Qwest agrees to indemnify and hold harmless Paradigm and its
officers, directors, employees and other affiliates from and against all Losses
based upon or arising out of any breach of any representation, warranty,
covenant or agreement of Qwest contained in this Agreement.
11. TRADE NAMES AND TRADEMARKS.
(a) Paradigm may use only such Qwest trademarks, trade names and
service marks ("Marks") as may be authorized by Qwest in writing from time to
time and subject to any and all limitations contained in the grant of the right
of such use. Qwest may change Marks at any time and Paradigm agrees to abide by
any and all changes as directed by Qwest. Paradigm acknowledges that as between
the parties Qwest is the sole and exclusive owner of all Marks and Paradigm
agrees to use its continuing best efforts to:
(i) secure, protect and maintain the Marks,
(ii) assist Qwest in securing the Marks
(iii) and advise Qwest of any misuse or infringement of the
Marks that Paradigm has knowledge of during the Term.
(b) The effect of any termination of this Agreement on the Marks
shall be as follows:
(i) Upon termination of this Agreement, with no continuing
relationship between the parties, any permission or right to use the Marks
granted hereunder shall cease to exist. Upon such termination, Paradigm shall
immediately cease any use of such Marks and Paradigm shall immediately cease
referring to itself as an Authorized Sales Representative of Qwest.
(ii) Paradigm, or its designated agent, shall promptly, but
within thirty (30) days of the date of termination of this Agreement return to
Qwest all advertising, promotional and other materials which contain any of the
Marks. The parties hereto shall share equally in the cost of returning such
materials; provided, however, that if this Agreement is terminated by Qwest
pursuant to Section 4b. of this Agreement, Paradigm shall bear all of the costs
associated with the return of such materials.
12. MISCELLANEOUS.
(a) NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally by
hand, by telecopy or mail if mailed by registered or certified mail, postage
prepaid return receipt requested or by federal express or similar overnight
courier service as follows:
If to Paradigm, one copy to:
David Graf
<PAGE> 16
Paradigm Direct Inc.
Two Executive Drive
Fort Lee, New Jersey, 07024
Telecopier: 201-461-1963
with a copy to:
Joel M. Handel, Esq.
Baer Marks & Upham LLP
805 Third Avenue
20th Floor
New York, New York 10022
Telecopier: 212-702-5941
If to Qwest, one copy to:
Liza Burns
Qwest Communications Corporation
555 17th Street
Denver, Colorado 80202
Telecopier: 303-291-1999
with a copy to:
Linnea Simons
Qwest Communications Corporation
555 17th Street
Denver, Colorado 80202
Telecopier: 303-291-1490
Each such notice or other communication shall be effective (i) if given by
telecopier, when such telecopy is transmitted to the telecopier number specified
and a confirmation receipt is received by the sender; or (ii) if given by any
other means set forth above, when delivered at the address specified. Any party
by notice given in accordance herewith to the other party may designate another
address (or telecopier number) or person for receipt of notices hereunder.
(b) AMENDMENT-WAIVER. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies that any party may otherwise have at
law or in equity.
<PAGE> 17
(c) GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Colorado applicable to agreements
made and to be performed entirely within such State, without regard to the
conflict of laws rules thereof.
(d) ARBITRATION. Except as provided in Section 2(c) hereof, any
controversy arising in connection with or relating to this Agreement shall be
determined and settled by arbitration in the State of Colorado in accordance
with the rules of the American Arbitration Association. Any award rendered
therein shall be final and binding on each of the parties hereto and judgement
may be entered thereon in any court having jurisdiction.
(e) 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. This Agreement may not be assigned by a party
without the express written consent of the other and any purported assignment,
unless so consented to, shall be void and without effect.
(f) SEVERABILITY. If any provisions of this Agreement for any
reason shall be held to be illegal, invalid or unenforceable, such illegality
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such illegal, invalid or unenforceable provision had never
been included herein.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.
(i) STANDARD OF CONDUCT. In performing its duties under this
Agreement, Paradigm shall maintain the highest and most ethical standards of
sales and marketing prevailing in the telecommunications industry. Paradigm
shall do nothing which would tend to discredit, dishonor, reflect adversely on
or in any manner injure the reputation or brands of Qwest.
IN WITNESS WHEREOF, the PARTIES hereto have caused this Agreement to be
executed as of the date first above written.
PARADIGM DIRECT, INC.
By: /s/ David Graf
----------------------------
David Graf
President
QWEST COMMUNICATIONS CORPORATION
By: /s/ Stephen M. Jacobsen
----------------------------
Name: Stephen M. Jacobsen
Title: Senior Vice President
<PAGE> 1
EXHIBIT 10.17.1
MARKETING SERVICES AGREEMENT
THIS MARKETING SERVICES AGREEMENT dated as of August 10, 1998 by and
between QUINTEL ENTERTAINMENT, INC., a Delaware corporation ("Quintel"), and
DELTA THREE DIRECT, LLC, a New York limited liability company (the "Company"),
WITNESSETH:
WHEREAS, pursuant to its Operating Agreement of even date herewith (the
"Operating Agreement"), the Company is being formed to engage in the business of
providing certain telephony services (as more fully described in the Operating
Agreement, the "Business"), and Quintel is becoming a member of the Company; and
WHEREAS, Quintel is in the business of providing marketing services;
and
WHEREAS, the Company desires to engage Quintel to provide marketing
services for the Company, and Quintel desires to provide such services;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
1. Marketing Services. During the Term (as hereinafter defined):
(a) Quintel shall provide the following marketing services for
the Business;
(i) telemarketing;
(ii) direct mail;
(iii) broadcast media advertising;
(iv) infomercials;
(v) print advertising, including inserts;
(vi) on-line marketing;
(vii) direct sales;
(viii) agented sales;
<PAGE> 2
(ix) building and maintaining customer and prospective
customer data bases; and
(x) creative services.
(b) Quintel shall collect and compile customer lists based on its
marketing services hereunder for utilization solely by the Company and also
shall make available to the Company its other customer data bases or such
portions thereof as Quintel may deem appropriate. Quintel shall deliver
exclusively to the Company all such prospective customers for the Company's
products and services.
(c) Quintel shall provide the services of Mr. Eric Aroesty to
serve as President and Chief Executive Officer of the Company in accordance with
Section 6.1(d) of the Operating Agreement.
2. Term. The term of this Agreement (the "Term") shall commence on
the date hereof and shall continue until the date on which Quintel withdraws as
a member of the Company (other than in the event that Quintel transfers its
interest in the Company to an Affiliate (as defined in the Operating Agreement)
of Quintel), subject to earlier termination as provided in Section 5; provided
that, unless this Agreement is terminated pursuant to Section 5(a), the Company
may elect to extend the Term on a month-to-month basis for up to nine months
from the date of Quintel's withdrawal from the Company.
3. Fees.
(a) Service Fees. In consideration of its services hereunder,
Quintel shall be entitled to a fee equal to its "Direct Cost." For this purpose,
"Direct Cost" means Quintel's direct cost for providing marketing services,
including without limitation (i) the salary and other compensation costs of
Quintel's employees (whether full or part time), other than Mr. Aroesty and
other management employees, to the extent dedicated to providing marketing
services hereunder, and (ii) any fees or costs of third-party service providers
to whom Quintel subcontracts marketing services, but excluding Quintel's
overhead costs (including without limitation depreciation and amortization or
other costs and expenses of Quintel's physical facilities and equipment), except
to the extent incurred for the purpose of providing marketing services
specifically to the Company.
(b) Billing. As soon as practicable after the end of each
calendar month during the Term, Quintel shall provide the Company with an
invoice detailing the amounts to be paid by the Company in connection with the
services provided to the Company hereunder.
(c) Payments Due; Late Payment Charges. Amounts due hereunder
shall be paid within thirty (30) days of receipt of the invoice therefor. Any
undisputed amount due hereunder not paid within thirty (30) days of receipt of
the invoice therefor shall accrue
2
<PAGE> 3
interest from the date such amount was due at the rate of five percent (5%) per
annum, compounded daily.
(d) Disputed Payments. If a dispute arises in good faith with
respect to any amount due hereunder, the Company shall pay when due the
undisputed portion of such amount, if any, and, if the dispute is resolved in
Quintel's favor, promptly pay the disputed portion (or applicable part thereof)
when the dispute is resolved without the applicable late payment charge
otherwise incurred in connection with Section 3(c).
(e) Currency. All invoices hereunder shall be rendered, and all
payments hereunder shall be made, in U.S. Dollars.
4. Certain Covenants.
(a) The Company shall:
(i) be solely responsible to its Customers for providing
telecommunications and other services, including without limitation contracting
with its customers for the provision of such services and performing customer
service functions for its customers, including responding to customer inquiries
and complaints;
(ii) act in accordance with all applicable federal, state,
municipal or foreign statutes, rules, regulations, policies, orders or
ordinances (the "Governmental Rules") governing or relating to the provision of
services to its customers, including without limitation any and all Governmental
Rules prohibiting "slamming;" and
(iii) secure and maintain such federal and state regulatory
authorizations, and maintain on file with federal and state regulatory
authorities such tariffs, as shall be necessary and appropriate for engaging in
the Business.
(b) Quintel shall:
(i) act in accordance with all applicable Governmental
Rules governing or relating to the provision of marketing services hereunder,
including without limitation Governmental Rules prohibiting slamming; and
(ii) secure and maintain such federal and state regulatory
authorizations, and maintain on file with federal and state regulatory
authorities such filings, as shall be necessary and appropriate for engaging in
the marketing services hereunder.
3
<PAGE> 4
5. Termination.
(a) Termination for Cause. In the event that (i) either the
Company or Quintel materially breaches any of its duties or obligations
hereunder or (ii) Delta Three, Inc., a Delaware corporation, or Quintel
materially breaches any of its obligations under the Operating Agreement or any
agreement, certificate or other instrument or document delivered in accordance
therewith, which breach shall not be cured within ten (10) days after written
notice is given to the breaching party specifying the breach, then either the
Company or Quintel, as the case may be, may, by giving written notice thereof to
the other, terminate this Agreement as of a date specified in such notice of
termination, which date shall be no earlier than ten (10) days after the date of
such notice. Notwithstanding anything to the contrary contained herein, either
party may terminate this Agreement or discontinue the provision of services
hereunder, effective immediately upon written notice to the other, upon the
occurrence of any of the following events:
(i) the violation by such other party of any Governmental
Rule with respect to the provision of such services if such violation
is reasonably expected to cause a material harm to the business of the
party terminating this Agreement; or
(ii) a government entity with appropriate jurisdiction
issues a final order that (a) the provision of the services or the
relationship hereunder is contrary to Governmental Rules or (b) such
other party has engaged in fraudulent, deceptive or illegal conduct.
(b) Termination for Bankruptcy. In the event of the Bankruptcy
(as hereinafter defined) of either the Company or Quintel, then the non-bankrupt
party may, by written notice thereof to the party in Bankruptcy, terminate this
Agreement as of a date specified in such notice of termination, which date shall
be no earlier than ten (10) days after the date of such notice. For the purposes
of this Agreement, "Bankruptcy" shall mean the happening of any of the
following: (i) the filing of an application for, or a consent to, the
appointment of a trustee for all or substantially all of the relevant party's
assets, (ii) the filing of a voluntary petition in bankruptcy, or the filing of
a pleading in any court of record admitting in writing the relevant party's
inability to pay its debts generally as they come due, (iii) the making of a
general assignment for the benefit of creditors, (iv) the entry of an order,
judgment or decree by any court of competent jurisdiction adjudicating the
relevant party a bankrupt, or appointing a trustee of all or substantially all
of such party's assets unless such order, judgment or decree is vacated or
stayed on appeal within thirty (30) days or (v) the filing of an involuntary
case or other proceeding against the relevant party seeking liquidation,
reorganization or other relief under any bankruptcy, insolvency or other similar
law, which case or proceeding shall not have been dismissed within sixty (60)
days after filing.
(c) Effect of Termination. In the event of the termination of
this Agreement, all rights and obligations of the Company and Quintel shall
terminate as of the effective date of such termination, except that (i) such
termination shall not constitute a waiver of any rights that either the
4
<PAGE> 5
Company or Quintel may have by reason of a breach of this Agreement, including
any right to indemnification pursuant to Section 8, (ii) such termination shall
not constitute a waiver of any right to receive payments that are due and owing
pursuant to Section 3 and (iii) the provisions of Section 7 shall continue in
full force and effect. Neither party shall, by reason of termination or
expiration of this Agreement, be liable to the other for compensation,
reimbursement or damage of any kind on account of loss of profits on anticipated
sales or on account of expenditures, investments or commitments made by such
party in connection with the business or goodwill of such party.
6. Disclaimer of General Warranty by Quintel. QUINTEL MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, CONCERNING THE SERVICES PROVIDED
HEREUNDER, INCLUDING ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE,
MERCHANTABILITY OR OTHERWISE.
7. Confidentiality.
(a) In connection with the services provided hereunder, each party
may disclose to the other party confidential and proprietary technical,
commercial and other information concerning the business and affairs of such
party (the "Information"). The parties agrees that for the longest period
permitted by Governmental Rules it shall hold in strictest confidence and take
all reasonable care to insure that such Information shall not be disclosed to
any third party, including imposing reasonable confidentiality requirements with
respect to such Information on its Affiliates and its or its Affiliates'
respective employees, agents, counsel, accountants and other representatives,
except insofar as (i) such disclosure may be specifically authorized in writing
from time to time by the disclosing party, (ii) such Information is necessarily
disclosed by its commercial use in the operation of the business of the
receiving party, (iii) the receiving party of such Information can demonstrate
that such Information was previously made public or disclosed by the disclosing
party without restriction to a third party or is in the public domain otherwise
than as a consequence of a breach of the receiving party's obligations
hereunder, (iv) such Information is known by the receiving party without
proprietary restrictions at the time of receipt of such Information or (v) such
disclosure is required pursuant to compulsory legal process, including subpoena,
civil investigative demands, oral questions or interrogatories; provided that,
in such event, the receiving party of such Information shall promptly provide
written notice of such legal process to the disclosing party so that such
disclosing party may oppose such disclosures or seek a protective order or other
confidential treatment of such Information.
(b) The parties recognizes that the absence of a time limitation
in Section 7(a) is reasonable and properly required for the protection of the
parties and in the event that the absence of such limitation is deemed to be
unreasonable by a court of competent jurisdiction, each party agrees and submits
to the imposition of such a limitation as said court shall deem reasonable.
(c) Each party specifically recognizes that any breach of Section
7(a) will cause irreparable injury to the other party and that actual damages
may be difficult to ascertain and, in any event, may be inadequate. Accordingly
(and without limiting the availability of legal or equitable,
5
<PAGE> 6
including injunctive, remedies under any other provisions of this Agreement),
each party agrees that in the event of any such breach, the other party shall be
entitled to injunctive relief in addition to such other legal and equitable
remedies that may be available. In addition, the parties agree that the
provisions of Section 7(a) shall be considered separate and apart from the
remaining provisions of this Agreement and shall be enforced as such.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless Quintel from
and against, and to reimburse Quintel with respect to, any and all loss, damage,
liability, cost and expense, including without limitation reasonable attorneys'
fees and expenses (as and when incurred) incurred by Quintel, or any Affiliate
of Quintel, by reason of or arising out of or in connection with the breach of
any of the representations, warranties, covenants, agreements or undertakings
made by the Company hereunder.
(b) Quintel agrees to indemnify and hold harmless the Company from
and against, and to reimburse the Company with respect to, any and all loss,
damage, liability, cost and expense, including without limitation reasonable
attorneys' fees and expenses (as and when incurred) incurred by the Company, or
any Affiliate of the Company, by reason of or arising out of or in connection
with the breach of any of the representations, warranties, covenants, agreements
or undertakings made by Quintel hereunder; provided that, in no event shall
Quintel be liable for any special, indirect, incidental or consequential damages
whatsoever which in any way arise out of, relate to or are a consequence of its
failure to provide the marketing services hereunder.
9. Miscellaneous.
(a) Independent Contractor. This Agreement does not constitute the
Company as an agent, legal representative, joint venturer, partner or as an
employee of Quintel for any purpose. This Agreement does not authorize the
Company to make any contract, agreement, warranty, statement or representation
or take any other action which could establish any apparent relationship or
agency, joint venture, partnership or employment with Quintel. Quintel shall not
be bound in any manner by any such contract, agreement, warranty, statement or
representation made by the Company to any other person or with respect to any
other action by the Company; and the Company shall not be bound in any manner by
any contract, agreement, warranty, statement or representation made by Quintel
to any other person or with respect to any other action by Quintel. As a result
solely of this Agreement, Quintel shall not have control over the Company's
employees, including the terms and conditions of their employment, or over the
Company's methods of doing business except as set forth herein.
(b) Further Assurances. Each party will, at any time and from time
to time after the date hereof, upon the request of the other, do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged and
delivered, all such other instruments as may be reasonably required in
connection with the performance of this Agreement and each shall take all such
further actions as may be reasonably required to carry out or further effect the
transactions contemplated by
6
<PAGE> 7
this Agreement. Upon request, Quintel and the Company will cooperate, and will
use their respective best efforts to have their respective officers, directors
and other employees cooperate, at the requesting parties' expense, during and
after the Term in furnishing information, evidence, testimony and other
assistance in connection with any actions, proceedings, arrangements or disputes
involving Quintel or the Company.
(c) Survival of Representations. All statements, certifications,
indemnifications, representations and warranties made by the parties to this
Agreement in this Agreement or in any certificate or list delivered pursuant
hereto, and their respective obligations to be performed pursuant to the terms
hereof and thereof, shall survive the Term notwithstanding (a) any examination
or audit by or on behalf of any party hereto and (b) any notice of a breach or
of a failure to perform not waived in writing.
(d) Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or delivered
(i) when delivered personally or by private courier, (ii) when actually
delivered by registered or certified United States mail, return receipt
requested and postage prepaid or (iii) when sent by facsimile (provided that it
is confirmed in writing sent by either of the methods set forth in clauses (i)
or (ii) on the day that such facsimile is sent), addressed as follows:
If to the Company:
Delta Three Direct, LLC
One Blue Hill Plaza
Pearl River, New York 10965
Fax No.: 914-620-1717
Attention: Eric Aroesty
with a copy to:
Delta Three Israel Ltd.
Jerusalem Technology Park
Malha Building 9, 4th Floor
Jerusalem 96951
Israel
Fax No.: 972-2-649-1200
Attention: Elie Wurtman
7
<PAGE> 8
and a copy to:
RSL Communications, N. America, Inc.
767 Fifth Avenue
Suite 4300
New York, NY 10153
Fax No.: 212-317-0600
Attention: Avery S. Fischer, Esq.
If to Quintel:
Quintel Entertainment, Inc.
One Blue Hill Plaza
Pearl River, New York 10965
Fax No.: 914-620-1717
Attention: President
with a copy to:
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022-1200
Fax No.: 212-888-7776
Attention: Murray Skala, Esq.
or to such other address as such party may indicate by a notice delivered to the
other party hereto pursuant to the terms hereof.
(e) No Modification Except in Writing. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and no obligation of any party under this Agreement may be discharged
except by performance in accordance with the terms hereof or by a writing signed
by the other party.
(f) Entire Agreement. This Agreement and all other documents to be
delivered in connection herewith set forth the entire agreement and
understanding between the parties as to the subject matter hereof and merges and
supersedes all prior discussions, agreements and under standings of every kind
and nature between them.
(g) Severability. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
8
<PAGE> 9
(h) Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
(i) Public Announcements. Neither party hereto shall issue or make
any advertisement, press release or public announcement with respect to this
Agreement and the transactions contemplated herein, without the prior written
consent of the other party hereto, except to the extent required by Governmental
Rules (including U.S. securities rules and regulations and the rules and
regulations of any stock exchange on which the capital stock of any party hereto
or its Affiliate is traded). The parties hereto agree, to the extent practical,
to consult with each other regarding any public announcement required by
Governmental Rules in advance of such public announcement.
(j) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof. For purposes of this
Agreement, each party hereby irrevocably submits to the nonexclusive
jurisdiction of the courts of the State of New York, sitting in New York County,
and the courts of the United States for the Southern District of New York. Each
party irrevocably waives, to the fullest extent permitted by Governmental Rules,
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding brought in any such court, any claim that
any such suit, action or proceeding brought in such a court has been brought in
an inconvenient forum and the right to object, with respect to any such suit,
action or proceeding brought in any such court, that such court does not have
jurisdiction over such party. In any such suit, action or proceeding, each party
waives, to the fullest extent it may effectively do so, personal service of any
summons, complaint or other process and agrees that the service thereof may be
made by certified or registered mail, addressed to such party at its address set
forth in Section 9(d). Each party agrees that a final non-appealable judgment in
any such suit, action or proceeding brought in such a court shall be conclusive
and binding.
(k) Third Party Beneficiaries. Nothing in this Agreement, express
or implied, shall create or confer upon any person or entity, other than the
parties to this Agreement or their respective successors and permitted assigns,
any rights, remedies, obligations or liabilities.
(l) Captions. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof.
(m) Interpretation. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or persons referred to may require.
(n) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties by their respective duly authorized
officers, have duly executed and delivered this Agreement, as of the date set
forth in the Preamble hereto.
QUINTEL ENTERTAINMENT, INC. DELTA THREE DIRECT, LLC
By: /s/ Jeffrey L. Schwartz By: /s/ Eric Aroesty
------------------------------ -------------------------------
Jeffrey L. Schwartz, President Eric Aroesty, President
10
<PAGE> 1
EXHIBIT 10.17.2
OPERATING AGREEMENT
OF
DELTA THREE DIRECT, LLC
(A New York Limited Liability Company)
THIS OPERATING AGREEMENT, dated as of August 10, 1998, by and
between QUINTEL ENTERTAINMENT, INC., a Delaware corporation ("Quintet"), and
DELTA THREE, INC., a Delaware corporation ("Delta"),
W I T N E S S E T H:
WHEREAS, Quintet and Delta desire to form, and become the members of
DELTA THREE DIRECT, LLC, a New York limited liability company (the "Company"),
and to provide herein for its management and the conduct of its business and
affairs and their relative rights and obligations with respect thereto;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter provided, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINED TERMS
Section 1.1 Certain Defined Terms. The following capitalized terms
are used herein as defined below:
"Act" means the New York Limited Liability Company Law, as amended.
"Affiliate" of a Person means another Person directly or indirectly
controlling, controlled by, or under common control with such Person from time
to time; for this purpose, "control" of a person means the power (whether or not
exercised) to direct the policies, operations or activities of such Person by
virtue of the ownership of,
<PAGE> 2
or right to vote, or to direct the manner of voting of, securities of such
Person, or pursuant to Law or agreement, or otherwise.
"Agent" means a Person effecting Agency Sales on behalf of the
Company pursuant to a written agreement.
"Agency Sales" means Telephony Services sold to an Agent for resale
under any Brand Name, provided that any agreement with an Agent other than RSL
USA and RSL Canada shall prohibit sales of Telephony Services to Business
Customers.
"Agent Agreement" has the meaning given in Section 6.13.
"Agreement" means this Operating Agreement, including any Schedules
or Exhibits hereto, as supplemented, amended or restated from time to time in
the manner provided herein.
"Appraised Value" has the meaning given in Section 8.2.
"Board" means the board of Managers.
"Board Deadlock" has the meaning given in Section 6.1(b).
"Brand Name" has the meaning given in Section 7.1(p).
"Budget" has the meaning given in Section 6.1(a).
"Business" means the provision of Telephony Services, and services
and activity incidental thereto, in the Territory, except that activities
prohibited to the Company in Sections 6.8 and 6.13 shall not be included in the
"Business" of the Company.
"Business Customers" means customers (i) who are billed for ten or
more ANI's or (ii) whose average monthly telecommunications expenditure for the
12 months prior to the date at issue $5,000 or more.
"Capital Account" has the meaning given in Section 3.2.
<PAGE> 3
"Capital Commitment" of a Member means the aggregate amount set
forth under "Capital Commitment" opposite such Member's name on Schedule B
hereto.
"Capital Commitment Balance" of a Member means at any time the
excess, if any, of (a) such Member's Capital Commitment over (b) all amounts
theretofore drawn against such Member's Capital Commitment (and contributed to
the capital of the Company pursuant to Section 3.1(b)), less all such amounts
returned to such Member pursuant to Section 4.1(a).
"Change of Control" means, as to Delta, any transaction or event as
a result of which Elie Wurtman is not the Chief Executive Officer of Delta and a
Person other than Ronald S. Lauder has the ultimate power to elect a majority of
the Board of Directors of Delta, and, as to Quintel, any transaction or event as
a result of which a Person other than Jay Greenwald, Peter T. Dirksen, as
Trustee, Michael G. Miller, Jeffrey L. Schwartz and Andrew Stollman, in the
aggregate, has the power to elect a majority of the Board of Directors of
Quintel.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder, or any corresponding, or succeeding
provisions of applicable Law.
"Commitment Deficit" has the meaning given in Section 3.1(b).
"Consent" means the approval, authorization or ratification of, or
consent to, any act or matter by the vote of all the Members at a meeting duly
held pursuant to this Agreement or given by such Members in an instrument duly
executed and delivered in the manner provided herein, provided, that for so long
as any Commitment Deficit remains outstanding, "Consent" shall mean the
approval, authorization or ratification of, or consent to, any act or matter by
the vote or signature of the non-Defaulting Member.
3
<PAGE> 4
"Customer" of a Person means another Person to whom such Person
provides Telephony Services, including without limitation, through Agency Sales,
pursuant to a written or otherwise documented or verifiable agreement.
"Default" has the meaning given in Section 3.1(d).
"Defaulting Member" has the meaning given in Section 3.1(b).
"Electing Member" means (i) if a Change of Control of a Member
occurs, the other Member, (ii) if Delta attempts to compel any action pursuant
to Section 6.1(c), Quintel, (iii) in the event of a Default by a Member, the
non-defaulting Member or (iv) a Member which elects, on or prior to September 30
of any calendar year beginning in calendar year 1999, to send a written notice
to the other Member pursuant to Section 9.1(a).
"Excluded Area" means a geographic territory designated as such on
Schedule A.
"Fiscal Year" means a fiscal year of the Company.
"Fractional Share" has the meaning given in Section 3.3.
"Governmental Authority" means any federal, state, local or foreign
government or governmental authority, agency or instrumentality, or any court or
arbitration panel of competent jurisdiction.
"Indentures" means the Indenture dated October 3, 1996 relating to
RSL's 12 1/4% Senior Notes due 2006, the Indenture dated February 27, 1998
relating to RSL's 9-1/8% Senior Notes due 2008 and the Indenture dated February
27, 1998 relating to RSL's 10-1/8% Senior Discount Notes due 2008 and the
Indenture dated as of March 16, 1998 relating to RSL's 10% Senior Discount Notes
due 2008, each among RSL, RSL Communications, Ltd., a Bermuda corporation, and
The Chase Manhattan Bank, as
4
<PAGE> 5
trustee, and the related notes, guarantees, security agreements, and other
agreements, instruments and documents thereunder, as the same may be amended,
supplemented, renewed or extended.
"Interest" means the right of a Member to be allocated a Fractional
Share of Profits or Losses, to receive distributions and to participate in the
management of the Company in accordance with this Agreement, and all other
rights, powers, duties and obligations of such Member provided herein or by
applicable Law.
"Initial Capital Contribution" of a Member means the amount being
contributed to the capital of the Company pursuant to Section 3.1(a).
"IP Telephony Services" means telecommunications services and value
added services, including the services and activities set forth on Schedule A,
which are provided by utilizing the Internet and networks based on Internet
Protocols.
"Law" means any statute, rule, regulation or ordinance of any
Governmental Authority.
"Liability" has the meaning given in Section 6.6.
"License" means any license, permit, certification, qualification,
franchise or privilege granted or issued by any Governmental Authority.
"Liquidating Agent" has the meaning given in Section 9.2.
"MD Purchase Offer" has the meaning given in Section 8.2.
"MD Purchase Price" has the meaning given in Section 8.2.
"Make-up Contribution" has the meaning given in Section 3.1(b).
"Manager" means a manager of the Company.
5
<PAGE> 6
"Marketing Agreement" means the Marketing Services Agreement of even
date herewith between the Company and Quintel, as the same may be amended from
time to time.
"Member" means a member of the Company.
"Member's Deadlock" has the meaning given in Section 6.1(b).
"Net Cash Flow" means, for any period, the amount by which the sum
of (a) the gross cash receipts of the Company during such period (other than
capital contributions) and (b) the amount of any reduction in Reserves made
during such period exceeds the sum of (c) the gross cash expenditures of the
Company during such period (other than distributions to Members) and (d) the
amount of any increase in Reserves made during such period.
"Network Agreement" means the Network Services Agreement of even
date herewith between the Company and Delta, as the same may be amended from
time to time.
"Non-IP Telephony Services" means all telecommunications services
and value added services other than IP Telephony Services.
"Offer" has the meaning given in Section 8.3.
"On-Line Service" means the utilization of the world-wide web to
procure and service Customers.
"Order" means any judgment, order, writ, decree, award, directive,
ruling or decision of any Governmental Authority.
"Other Member" means a Member other than the Electing Member.
6
<PAGE> 7
"Person" includes without limitation a natural person, corporation,
joint stock company, limited liability company, partnership, joint venture,
association, trust, Governmental Authority, and any group of any of the
foregoing acting in concert.
"Proceeding" means any action, suit, investigation or administrative
or other proceeding at law or in equity, before or by any Governmental
Authority.
"Profit" or "Loss" means, for any Fiscal Year, the Company's taxable
income or loss, respectively, for such Fiscal Year as computed for federal
income tax purposes (including all items required to be separately stated),
increased by items of income which are exempt from federal income tax and
reduced by expenditures which, under federal income tax law, are neither
deductible nor properly chargeable to a Capital Account, other than amounts
required to be specially allocated pursuant to Section 4.3.
"Purchase Price" has the meaning given in Section 8.3.
"Reserves" means, for any Fiscal Year, such amounts as are reserved
from time to time, in the manner hereinafter provided, for the payment of
operating and capital expenses, contingent liabilities and other obligations and
liabilities of the Company.
"Restricted Business" means the business of providing phone-to-phone
IP Telephony Services to end users (other than Business Customers) directly or
through agents, in the United States or Canada, and any other business relating
to additional products, product lines or distribution channels as may be
specified by Consent of the Members.
"Representative" has the meaning given in Section 6.2.
"Reseller/Wholesale Sales" means services sold to a Person,
including wholesale sales to telecommunications providers or to resellers, for
resale by such Person, other than Agency Sales.
7
<PAGE> 8
"RSL" means RSL Communications PLC, a public limited company
organized under the laws of the United Kingdom.
"RSL Canada" means RSL COM Canada Holdings Inc. and its
subsidiaries.
"RSL USA" means RSL COM U.S.A. Inc. and its subsidiaries.
"Telephony Services" means IP Telephony Services and Non-IP
Telephony Services.
"Territory" means throughout the world, or such other geographic
territory to which the Members may Consent.
"Trade Right" means any patent, claim of copyright, trademark, trade
name, brand name, service mark, logo, symbol, trade dress or design, or
representation or expression of any thereof, or any registration or application
for registration thereof, or any invention, trade secret, technical information,
know-how, proprietary right or intellectual property.
"Transfer" has the meaning given in Section 8.1.
ARTICLE 2
FORMATION
Section 2.1 Formation. The Company is being formed as a limited
liability company under the Act upon the filing on the date hereof of the
initial Articles of Organization of the Company with the New York Department of
State, and, concurrently therewith, by executing this Agreement, Quintel and
Delta are becoming Members, all upon the terms and subject to the conditions set
forth in this Agreement. The name and address of each Member, its Initial
Capital Contribution, Capital Commitment and Fractional Share are set forth on
Schedule B.
8
<PAGE> 9
Section 2.2 Name of the Company. The name of the Company is Delta
Three Direct, LLC. The Company shall conduct its business under such name, or
under any assumed, fictitious or other name permitted by Law adopted by the
Board.
Section 2.3 Places of Business. The principal place of business of
the Company shall be located at One Blue Hill Plaza, Pearl River, New York, or
at such other place as the Board may determine.
Section 2.4 Purpose. The purpose of the Company is to engage in the
Business.
ARTICLE 3
CAPITALIZATION
Section 3.1 Capital Contributions and Certain Obligations of the
Members.
(a) Concurrently herewith, each Member is making the Initial
Capital Contribution set forth opposite its name under "Initial Capital
Contribution" on Schedule B in cash to the Company. The Initial Capital
Contributions of the Members shall be applied to fund the initial marketing
activities of the Company or to such other purposes as to which the Members may
Consent.
(b) (i) To pay any expense or other obligation or liability of
the Company provided in the applicable Budget or otherwise approved by the
Board, the Board of the Company may from time to time require the Members to
make additional capital contributions to the Company in an amount, as to each
Member, not in excess of its Capital Commitments Balance and in proportion to
the Fractional Share of such Member. In any such event, the Board shall direct
the President of the Company to give written or telephonic notice to each Member
of such required capital contribution,
9
<PAGE> 10
setting forth therein the amount thereof. Each Member shall thereupon make the
required capital contribution before the close of business on the second
business day after such notice.
(ii) If any Member (the "Defaulting Member") shall fail
to make a capital contribution in the full amount required pursuant to Section
3.1(b), the other Member may, but shall not be required to, make a further
capital contribution (a "Make-up Contribution") not in excess of the amount by
which the amount of the capital contribution required to be made by the
Defaulting Member exceeds the amount of the capital contribution actually made
by the Defaulting Member (the "Commitment Deficit").
(iii) The Company and any non-Defaulting Members shall
be entitled to the following remedies against any Defaulting Member.
(A) The Company shall withhold all or any portion (up to
the amount of the Commitment Deficit) of any distributions which such Defaulting
Member would otherwise be entitled to receive and apply the same (I) as a
capital contribution for the account of the Defaulting Member to the extent of
the excess of the Commitment Deficit of such Defaulting Member over the amount
of the Make-up Contribution, if any, of the other Member, and (II) as interest
payable to the Company at the rate of 10% per annum. (or, if less, the maximum
rate then permitted by applicable Law) accruing on the Commitment Deficit from
the date that the additional capital contribution would have been required to be
made pursuant to Section 3.1(b) until the date such amount is applied as a
capital contribution to the Company pursuant to clause (I) of this paragraph (A)
(any such interest to be treated as income to the Company, and not as a capital
contribution).
10
<PAGE> 11
(B) For so long as any Commitment Deficit remains
outstanding, the number of Managers comprising the entire Board shall be reduced
to five and the Defaulting Member shall be entitled to designate only two such
Managers.
(C) If the Board shall determine that the failure of
such Defaulting Member to make the required capital contribution has a material
adverse effect on the Company, the Board may expel such Defaulting Member, in
which case, such Defaulting Member shall be entitled to receive only the amount
of the positive balance, if any, of its Capital Account on the date on which the
additional capital contribution was required to made pursuant to Section 3.1(b).
(c) If at any time the Board shall determine by
unanimous action that (i) Net Cash Flow is, or is likely to be, insufficient to
pay the debts and obligations of the Company as they become due or to fund
budgeted capital expenditures or the operations of the Company or (ii) it is
otherwise in the best interests of the Company, the Board may, subject to
Section 7.1, (1) request to borrow money from the Member or any other Person,
(2) require additional capital contributions from either or both of the Members
or from any other Person and issue Interests with respect thereto, or (3) take
any other action to provide funds for the Company, on such terms and subject to
such conditions as the Board may deem appropriate.
(d) If at any time after the Members shall have
contributed their full Capital Commitments, the Board shall require additional
capital contributions (which shall be in proportion to the Members' Fractional
Shares) in accordance with Section 3.1(c) and a Member shall fail to make its
capital contribution at the time and in the full amount required (a "Default"),
then the non-defaulting Member may, but shall not be required to (1) send a
written notice pursuant to Section 8.3(a) or
11
<PAGE> 12
(ii) within 15 days of such Default, make a capital contribution (which shall be
credited to its Capital Account) equal to the contributions which the defaulting
Member has failed to make.
(e) Subject to the Board's approval, a capital
contribution made pursuant to Section 3.1(b), (c) or (d) may consist of money,
securities, property, including without limitation Trade Rights, or other
consideration. The date and amount of such capital contribution and if such
capital contribution includes any consideration other than cash, a description
in reasonable detail thereof, shall be set forth on Schedule B and the valuation
thereof shall be approved by the Consent of the Members.
(f) Except as otherwise expressly provided in this
Section 3.1, no Member shall be required or permitted to make any capital
contribution or to lend or advance funds or property to the Company for any
purpose whatsoever, without the Consent of the Members.
(g) Subject to Section 4. 1, no Member shall be entitled
to a return of any part of its contribution to the capital of the Company,
except in connection with its expulsion or any permitted withdrawal as a Member
or the liquidation of the Company.
(h) Any return of capital to a Member shall be made
solely from the assets of the Company available therefor; and no Member shall be
required to make any capital contribution or lend or advance any funds to the
Company, decrease its Interest or abandon or waive any right hereunder, or
otherwise be liable to provide for the return of any other Member's capital
contribution.
12
<PAGE> 13
(i) No interest shall accrue for the benefit of, or be
paid to, any Member on contributions to the capital of the Company.
Section 3.2 Capital Accounts.
(a) A separate Capital Account shall be established and
calculated daily for each Member in accordance with Treasury Regulation
ss.1.704-1(b). A Member's Capital Account balance shall initially equal its
Initial Capital Contribution and shall (i) increase by (A) the amount of Profit
allocable to such Member and any income or gain specially allocated to such
Member, (B) any cash and the fair market value of any property (net of any
liabilities secured by such property that the Company assumes or takes subject
to) hereafter contributed to the capital of the Company by such Member,
including Make-Up Contributions, and (C) in the case of property distributed in
kind, the amount of gain, if any, which would have been allocated to such Member
if the property had been sold by the Company for its fair market value on the
date of distribution and (ii) decrease by (A) the amount of Loss allocable to
such Member and any losses or deductions specially allocated to such Member, (B)
the amount of cash and the fair market value of any property (net of any
liabilities secured by such property that such Member assumes or takes subject
to) distributed to such Member, and (C) in the case of property distributed in
kind, the amount of loss, if any, that would have been allocated to such Member
if the property had been sold by the Company for its fair market value on the
date of distribution.
(b) In the event of a Transfer by a Member of all or a part of
its Interest in accordance with this Agreement, a proportionate amount of the
Capital Account of the transferor shall be transferred to such transferee.
13
<PAGE> 14
(c) The Members may adjust the Capital accounts to reflect a
revaluation of the Company's property on the Company's books in accordance with
Treasury Regulation ss.1.704-1(b)(2)(iv)(f) under the circumstances described
therein. In the event that property contributed to the Company has a fair market
value which differs from its basis (at the time of contribution) or an election
is made under Treasury Regulation ss.1.704-1(b)(2)(iv)(f), the Capital Accounts
shall be adjusted in accordance with Treasury Regulation ss.1.704-1(b)(2)(iv)(g)
for allocations of depreciation, amortization and gain or loss, as computed for
book purposes, with respect to such property.
(d) The provisions of this Agreement are intended to comply
with Treasury Regulations ss. 1.704-1(b) and -2 and shall be interpreted and
applied in a manner consistent with such regulations. The Members may amend this
Agreement (including without limitation to modify the manner in which Capital
Accounts are maintained) in order to comply with such regulations (as they are
currently in effect or may subsequently be amended).
Section 3.3 Fractional Shares. The Fractional Share of a Member
shall equal at all times the ratio of such Member's Capital Account to the sum
of the Capital Accounts of all the Members.
Section 3.4 Interests. An Interest is personal property. A Member
has no right to, interest in, or claim against any specific property of the
Company by reason of its Interest.
ARTICLE 4
DISTRIBUTIONS AND ALLOCATIONS
14
<PAGE> 15
Section 4.1 Distributions of Net Cash Flow. The Company shall make
distributions (including interim distributions) of Net Cash Flow to the Members
in proportion to their respective Fractional Shares (or, in connection with the
liquidation of the Company pursuant to Section 9.2, as therein provided):
(a) on the first business day of each calendar month, in an
amount equal, as to each Member, to the excess, if any, on the last day of the
preceding calendar month of such Member's Capital Account balance over the
amount of such Member's Initial Capital Contribution;
(b) at such times and in such amounts sufficient to fund the
payment of any federal, state, local or foreign taxes required to be paid by the
Members in respect of any Profit (or the taxable portion thereof) allocable to
the Members in respect of any Fiscal Year or other taxable period of the
Company;
(c) as provided in Section 6.1(c); and
(d) subject to Subsections 6.1(a), (b) and (c), at such other
times and in such other amounts determined by the Board.
From time to time prior to the liquidation and dissolution of the Company, the
Company may also make such other distributions of property of the Company, in
cash or in kind, to the Members in proportion to their respective Fractional
Shares as the Board may determine.
Section 4.2 Allocation of Profit and Loss.
(a) Profit for each Fiscal Year shall be allocated
as follows:
15
<PAGE> 16
(i) Profit shall be allocated first to offset Loss
previously allocated pursuant to Section 4.2(b)(ii), to the extent such Loss was
not previously offset; and
(ii) any remaining Profit shall be allocated to the
Members in proportion to their respective Fractional Shares.
(b) Loss for each Fiscal Year shall be allocated as follows:
(i) Loss shall be allocated first to offset Profit
previously allocated pursuant to Section 4.2(a)(i) to the extent such Profit was
not previously offset and exceeds the cumulative Net Cash Flow distributed on
account of such previously allocated Profit; and
(ii) any remaining, Loss shall be allocated to the
Members in proportion to their respective Fractional Shares.
Section 4.33 Special Allocations.
(a) Notwithstanding the foregoing, if there is a net decrease
in the Company minimum gain under Treasury Regulation ss. 1.704-2(d) (with
respect to "nonrecourse liabilities") or partner nonrecourse debt minimum gain
under Treasury Regulation ss. 1.704-2(i) (with respect to "partner nonrecourse
debt") during a Fiscal Year, the Members shall be allocated items of income and
gain for such Fiscal Year (and if necessary for subsequent Fiscal Years) in the
amounts and proportions determined pursuant to the provisions of Treasury
Regulations ss.1.704-2(f) and (i)(4), respectively. In addition, if a Member
unexpectedly receives any adjustments, allocations or distributions described in
Treasury Regulation ss.l.704-1(b)(2)(ii)(d)(4), (5) or(6) which creates or
increases a deficit in its Capital Account balance (as adjusted pursuant to such
16
<PAGE> 17
regulations), items of Company income (including gross income) and gain
(consisting of a pro rata portion of each item of Company income and gain) shall
be specially allocated to such Member in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible pursuant to the provisions
of Treasury Regulation ss.1.704-1(b)(2)(ii)(d). Any special allocation under
this Section 4.3(a) shall be taken into account in computing subsequent
allocations of Profit and Loss, so that the net amount allocated to each Member
shall, to the extent possible, be equal to the net amount that would have been
allocated had such special allocation not been made.
(b) In the event that property contributed to the Company has
a fair market value which differs from its basis (at the time of contribution)
or an election is made by the Members under Section 3.2(c) to adjust Capital
Accounts to reflect a revaluation of Company property, income, gain, loss and
deduction as computed for federal income tax purposes with respect to such
property shall be allocated in the manner determined by the Members,
consistently applied, pursuant to Section 704(c) of the Code so as to take into
account any variation between the Company's basis in the property and its fair
market value.
(c) In the event that the Interests of the Members vary during
a Fiscal Year, the Profit, Loss, and any amount specially allocated pursuant to
Section 4.3(a) shall be allocated among the Members under Section 706(d) of the
Code in the manner determined by the Members.
Section 4.4 Allocation of Nonrecourse Liabilities. A Member's share
of the nonrecourse liabilities of the Company shall be allocated in accordance
with Treasury Regulation ss. 1.752-3(a), except that excess nonrecourse
liabilities shall be
17
<PAGE> 18
allocated among the Members in accordance with the Members' respective
Fractional Shares.
Section 4.5 Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state, local or foreign tax law with respect to any
payment or distribution to the Company or the Members shall be treated as
amounts distributed to the Members under Section 4.1 in such amounts as the
Members may determine in accordance with applicable Law.
ARTICLE 5
FISCAL MATTERS
Section 5.1 Tax Matters Partner. Delta shall be the "tax matters
partner" of the Company within the meaning of Section 6231 (a)(7) of the Code.
Section 5.2 Tax Returns. The Company shall prepare and file, or
shall cause to be prepared and filed, all federal and any required state, local
and foreign income and other tax returns for the Company for each Fiscal Year,
and, in connection therewith, may make any available or necessary elections or
determinations.
Section 5.3 Fiscal Year and Other Elections.
(a) The Fiscal Year shall coincide with the taxable year of
the Company and end on December 31 of each year or such other date as the
Members may Consent, subject to applicable Law. All other accounting decisions
and elections required or permitted to be made by the Company for tax purposes
under applicable Law shall be made by the Board, except that without the Consent
of the Members, none of the Board, nor any Manager, officer or Member shall
waive or consent to an extension of the period of limitations for assessing any
tax liability against the Company or computing the amount of any tax items.
18
<PAGE> 19
(b) Each Member shall promptly, and, in any event, within ten
days of (i) receiving notice of any proposed tax audit or examination of the
Company, give written notice thereof to the other Member, and (ii) receiving any
material correspondence relating to the Company from the Internal Revenue
Service or any state, local or foreign tax authority, give a copy thereof to the
other Member, and promptly advise the other Member in writing of the substance
of any conversation with any representative of the Internal Revenue Service or
any state, local or foreign tax authority relating to the Company. Any Member
may notify the President of such Member's desire to represent itself, or to
cause independent tax counsel or accountants to represent it, in connection with
any examination, Proceeding or proposed adjustment and if a Member so notifies
the President, the President shall upon request, supply such Member and its tax
counsel or accountants, as the case may be, with copies of all written
communications received by the Company with respect thereto, together with such
other information as may be reasonably requested in connection therewith, and
cooperate with such Member and its tax counsel or accountants, as the case may
be, in connection with such separate representation, to the extent reasonably
practicable.
Section 5.4 Books and Records. The Company shall maintain or cause
to be maintained at the Company's principal place of business complete and
accurate books and records of the assets, business and affairs of the Company,
including without limitation:
(a) a current list of the Members, setting forth in
alphabetical order the full name, last known mailing address, capital
contribution, Fractional Share and Capital Commitment of each;
19
<PAGE> 20
(b) a copy of the Company's Articles of Organization and all
amendments thereto and restatements thereof, together with an executed copy of
any power of attorney pursuant to which any Articles or certificate, or
amendment thereto or restatement thereof, is executed.
(c) a copy of this Agreement; and
(d) a copy of the Company's income tax and information returns
and, if any, for each of the three most recently ended Fiscal Years. All
financial statements, ledgers and records shall be prepared in accordance with
generally accepted accounting principles.
Section 5.5 Reports to Members.
(a) The Company shall distribute to each Member:
(i) at least 45 days prior to the beginning of each
fiscal quarter beginning after the date hereof, the Budget for such fiscal
quarter;
(ii) as soon as practicable after the end of each Fiscal
Year, a copy of its Schedule K-1 to the Partnership Tax Return (Form 1065),
together with a statement of such Member's Capital Account and its allocable
share of Profit or Loss, including a brief account of the basis and computation
thereof;
(iii) as soon as practicable, and in any event within 30
days, after the end of each month, a financial statement, including a balance
sheet as of the end of such month and a statement of operations for the month
then ended;
(iv) as soon as practicable, and in any event within 30
days, after the end of each fiscal quarter, a financial statement, including a
balance sheet as of the end of such quarter and a statement of operations for
the quarter and the interim fiscal period from the beginning of such Fiscal Year
then ending, together
20
<PAGE> 21
with the comparative information for the corresponding periods of the preceding
Fiscal Year, and
(v) as soon as practicable, and in any event within 60
days, after the end of each Fiscal Year, a financial statement, including a
balance sheet as of the end of such Fiscal Year and statements of operations,
cash flows and changes in Member's equity for such Fiscal Year, together with,
as to the balance sheet and statement of operations, the comparative information
for the preceding Fiscal Year.
All such financial statements shall be prepared in accordance
with generally accepted accounting principles, applied in a manner consistent
with prior periods, except that interim statements may omit footnote disclosure
otherwise required by generally accepted accounting principles and may be
subject to normal year-end adjustments. The financial statements for the Fiscal
Year to be delivered pursuant to paragraph (v) shall be (A) audited by Deloitte
& Touche LLP, as the Company's independent certified public accountants and
shall be accompanied by their report thereon (unqualified as to audit scope),
and (B) shall be accompanied by a report prepared by or under the direction of
the President describing the business of the Company, including any material
agreements or transactions entered into or effected, during such Fiscal Year,
setting forth, to the extent practicable, a comparison of the Company's
financial statements for such Fiscal Year to the projections and performance
targets included in the Budgets for such Fiscal Year, and including any other
information that he deems material to the Members.
21
<PAGE> 22
The Company shall also promptly provide such additional
information as any Member may reasonably request for the preparation of its
income and other tax returns or its financial statements.
(b) Each Member may, for any purpose, at such Member's own
expense, upon reasonable prior notice to the other Member, inspect and copy,
during the normal business hours of the Company, any records or information
maintained by the Company, including without limitation the records and
information required to be maintained pursuant to Section 5.4 and the Company's
financial statements, if any, for any Fiscal Year or period.
ARTICLE 6
ADMINISTRATION
Section 6.1 Management of the Company.
(a) The Company's business and affairs shall be managed by the
Board. The Board shall prepare, or cause the President or chief financial
officer of the Company to Prepare and submit to the Board, at least 45 days
prior to the beginning of (i) each fiscal year and (ii) each fiscal quarter of
the Company beginning after the date hereof, a business plan and budget,
including proposed capital expenditures and projected operating revenues,
expenses and income for such year or quarter, as applicable (the "Budget"). The
Board shall review and consider each such Budget, and after making any changes
determined by the Board, shall adopt and approve the same.
(b) Unless the Members otherwise Consent, subject to Section
3.1(b)(iii), the Board shall at all times consist of an even number of Managers,
one-half of whom shall be designated from time to time by Quintel and one-half
of whom shall be designated from time to time by Delta. Any Member may remove
any Manager
22
<PAGE> 23
designated by it, with or without cause, and any Manager may resign, in each
case, at any time upon prior written notice to the remaining Managers or, if
none, to the Members. If any Manager shall resign, be removed, die, become
incapacitated or ineligible, or otherwise cease to serve in such position, the
Member that designated such Manager shall promptly designate a successor by
written notice to the other Member. The number of Managers comprising the entire
Board shall initially be six. Except as otherwise expressly provided herein, the
Board shall act by the vote or consent of a majority of the Managers. If the
Board is unable so to act with respect to any matter because any Manager or
Managers fail to appear or participate at any meeting of the Board (after notice
thereof is duly given to each such Manager) or to respond to any solicitation of
consents from the Managers or a majority of the Managers are unable to agree on
such matter (a "Board Deadlock"), any Manager may give notice to the Members of
such Board Deadlock, setting forth therein a description in reasonable detail of
the subject matter of such Board Deadlock, and the Members shall decide such
matter by their Consent; provided that, if the Members are likewise unable to
decide such matter (a "Member's Deadlock") and such matter involves (i) (in the
aggregate with any other matters then subject to a Member's Deadlock) the
expenditure or receipt of funds in an amount in excess of S2,500,000, or (ii)
the failure to agree upon the Budget, either Member may offer to sell its
interest to the other Member or purchase the other Member's interest pursuant to
Section 8.2.
(c) Any other provision hereof notwithstanding, but subject to
Section 8.3 (and without otherwise limiting the power of the Board or the
officers of the Company to cause the Company to make distributions, pay
indebtedness, make loans or advances, or sell, lease or otherwise transfer or
dispose of any of its assets, as elsewhere provided herein), for so long as any
of the Indentures remain in effect and
23
<PAGE> 24
the provisions thereof require RSL to be able to do, or cause Delta or the
Company to do, any of the following, at the direction of Delta and/or Delta's
designees to the Board, Quintel shall take, and cause its designees to the Board
to take, all necessary actions (including without limitation approving or
consenting to any of the following actions at a meeting of the Members or the
Board or by written consent) to cause the Company to:
(i) make any distribution permitted by applicable Law
with respect to the Interests;
(ii) pay any indebtedness owed to any Member or any
Affiliate of a Member;
(iii) make a loan or advance to a Member or any of its
Affiliates; provided, that such loan or advance is on fair and reasonable terms
no less favorable to the Company than could be obtained in a comparable arm's
length transaction with a Person that is not an Affiliate of the Company or a
Member, and
(iv) transfer any of its assets to a Member or an
Affiliate of a Member, provided that such transfer is on fair and reasonable
terms no less favorable to the Company than could be obtained in a comparable
arm's length transaction with a Person that is not an Affiliate of the Company
or a Member.
(d) Eric Aroesty shall serve as President of the Company
pursuant to the terms of the Marketing Agreement. As such, he shall be the chief
executive officer of the Company and, subject to the provisions hereof and
thereof, he shall supervise all other officers and employees of the Company
(except to the extent otherwise expressly provided by the Board), represent the
Company, negotiate and review agreements and transactions into which the Company
proposes to enter, and make all determinations with respect thereto, and
administer the business and affairs of the
24
<PAGE> 25
Company. Mr. Aroesty shall (i) perform his services in such capacity diligently
and faithfully for the benefit of the Company, (ii) perform such services under
the direction and control of the Board and in accordance with all applicable
policies and practices of the Company, and (iii) devote the majority of his
business time and attention to the Business and affairs of the Company.
Section 6.2 Representatives. Each Member shall appoint a
Representative to act on its behalf in connection with the Business and affairs
of the Company, including giving any required Consent, making any determination
or executing any document for or on behalf of such Member. Initially, Quintel's
Representative shall be Jeffrey L. Schwartz and Delta's Representative shall be
Elie Wurtman. Any Member may, upon prior notice to the other Members, remove or
replace its Representative.
Section 6.3 Officers.
(a) The following Persons shall serve initially in the offices
of the Company set forth opposite their respective names below:
Person Office(s)
Eric Aroesty President
Elie Wurtman Vice President
Doron Kemple Treasurer
Jay Greenwald Secretary
(b) The Board may also, from time to time, appoint or
designate such other officers as they deem appropriate for the management of the
Business and affairs of the Company.
(c) Each officer shall hold his office until his successor has
been elected or appointed and qualified or his earlier resignation or removal.
25
<PAGE> 26
(d) Any officer of the Company may be removed or replaced with
or without cause by the Board or upon the Consent of the Members.
(e) Any officer may resign at any time by giving written
notice to the Company.
(f) Each Representative shall devote such of his business time
and attention to the Business and affairs of the Company as is reasonably
required to perform his duties as a Representative hereunder. However, no
Representative shall be required to devote any minimum amount of time or to
perform his duties hereunder on a fixed or periodic basis.
Section 6.4 Standard of Care.
(a) In acting on behalf of the Company, each Manager and
officer shall act in good faith and with that degree of care that an ordinarily
prudent person in a like position would use under similar circumstances.
(b) In performing its duties, a Manager shall be entitled to
rely on information, opinions, reports or statements, including financial
statements and other financial data, in each case prepared or presented by:
(i) one or more agents or employees of the Company;
(ii) counsel, public accountants, business, investment
or financial consultants or advisors, or other Persons as to matters that he or
she believes to be within such Person's professional or expert competence; or
(iii) another Manager or officer duly designated in
accordance with this Agreement, as to matter within his or her designated
authority, which the Manager believes to merit confidence, so long as in so
relying he or
26
<PAGE> 27
she shall be acting in good faith and with such degree of care, but he or she
shall not be considered to be acting in good faith if he or she has knowledge
concerning the matter in question that would cause such reliance to be
unwarranted.
(c) A Person who so performs his or her duties in accordance
with this Section 6.4 shall have no liability by reason of being or having been
a Manager.
Section 6.5 Interested Members.
(a) Subject to Sections 6.5(b) and 7.1 and any applicable Law,
a Member may lend money to, borrow money from, guarantee or act as a surety for,
provide collateral for an obligation of and transact other business with, the
Company, and, shall have the same rights and obligations with respect thereto as
a Person who is not a Member.
(b) No contract or other transaction between or among the
Company and one or more of its Managers or Members or any Affiliate of a Manager
or Member or any other Person in which one or more of the Managers or Members
are partners, members, managers, directors or officers, or have a substantial
financial interest, shall be either void or voidable for this reason alone or by
reason alone that such Manager or Member is present at the meeting of the
Managers or Members which approves such contract or transaction, or that its
consent was given for such contract or transaction, if the material facts as to
such Manager's or Member's interest in such contract or transaction and as to
any such common partnership, membership, managership, directorship, officership
or financial interest are disclosed in writing to the Members, and the Members
Consent to such contract or transaction.
27
<PAGE> 28
(c) If such good faith disclosure of the material facts as to
the Manager's or Member's interest in the contract or transaction and as to any
such common partnership, membership, managership, directorship, officership or
financial interest is made in writing to the Members, or known to the Members
Consenting to such contract or transaction, as provided in Section 6.5(b), the
contract or transaction may not be avoided by the Company for the reasons set
forth in such Section.
(d) Common or interested Members may be counted in determining
the presence of a quorum at a meeting of the Members that Consent to such
contract or transaction.
Section 6.6 Limitation of Liability. Except as otherwise provided in
the Marketing Agreement and the Network Agreement, no Member or Manager shall be
liable, as such, to the Company or any other Member for any loss, damage,
liability or expense ("Liability") suffered or incurred by such Member on
account of, or by reason of any claim based on or arising from, any act taken or
omitted to be taken in the course of representing or performing services for the
Company or otherwise in its capacity as a Member or Manager, including without
limitation its appointment or retention of, or reliance upon, any employee or
agent of the Company or any Person referred to in Section 6.4(b),
notwithstanding any negligence, fraud or willful misconduct by such employee,
agent or Person, except to the extent that a judgment or other final
adjudication adverse to it establishes that its acts or omissions were in
violation of any provision of this Agreement, or were in bad faith or involved
intentional misconduct or a knowing violation of Law or that it personally
gained in fact a financial profit or other advantage to which it was not legally
entitled or that with respect to a distribution in violation of Section 508(a)
of the Act its acts were not performed in accordance with Section 6.4.
28
<PAGE> 29
Section 6.7 Indemnification. Except as otherwise provided in the
Marketing Agreement and the Network Agreement, the Company shall indemnify each
Member, Manager, officer, Representative, and their respective legal
representatives, successors and assigns, and hold each of them harmless from and
against any Liability suffered or incurred by any of them in the course of
serving in any such office of, or otherwise representing (within the scope of
its authority) or acting, as such, for or on behalf of the Company, except to
the extent that a judgment or other final adjudication adverse to such Member,
Manager, officer, Representative or other Person establishes (i) that its acts
were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or (ii) that
it personally gained in fact a financial profit or other advantage to which it
was not legally entitled; provided, that, any other provision hereof
notwithstanding, any such indemnification shall be from the assets of the
Company, and no Member shall be required to make any capital contribution or
otherwise pay any amount from its own assets as a result thereof. The Company
may procure insurance in such amounts and covering such risks as the Board deems
appropriate to fund any indemnification required or permitted to be made
hereunder.
Section 6.8 No Competition: Other Activities of and Restrictions on
Members and the Company.
(a) Except as otherwise provided in this Section 6.8, no
Member shall (i) engage in the Restricted Business, or serve as a partner,
member, manager, director, officer or employee of, or consultant or advisor to,
or market its services to, or perform services for, or in any manner own,
control, manage, operate or otherwise invest or participate in any Person that
engages in the Restricted Business, or
29
<PAGE> 30
(ii) employ, engage or retain any employee of the Company or any Person who at
any time during the 12 preceding months shall have been an employee of the
Company, unless such employee or former employee is or shall have been at any
time during the 36 preceding months an employee of such Member or an Affiliate
thereof, or (iii) knowingly, approach or contact any supplier or other Person
for the purpose of causing any such supplier or other Person to divert business
from the Company in the United States or Canada.
(b) Neither Delta nor its Affiliates shall utilize the On-Line
Services of any Person to offer or service the Business (i) which are being
utilized by the Company or Quintel or its Affiliates or (ii) as to which the
Company or Quintel shall have given written notice to Delta to the effect that
the Company or Quintel or its Affiliates, as the case may be, has made or is
concurrently making a written proposal or offer to such Person to utilize such
Person's On-Line Services for a period of 60 days after such notice is given;
provided that the foregoing shall not restrict Delta or its Affiliates from
using any On-Line Services to provide services which are not included in the
Business, including Reseller/Wholesale Sales and providing services to any
Business Customer.
(c) Neither the Company nor Quintel or its Affiliates shall
utilize the On-Line Services of any Person to offer or service the Business (i)
which are being utilized by Delta or its Affiliates or (ii) as to which Delta or
its Affiliates shall have given written notice to the Company and Quintel,
respectively, to the effect that Delta or its Affiliates has made or is
concurrently making a written proposal or offer to such Person to utilize such
Person's On-Line Services for a period of 60 days after such notice is given.
30
<PAGE> 31
(d) No Member shall knowingly approach or contact, or permit
any Affiliate thereof to knowingly approach or contact, any Customer of the
other Member or any Affiliate thereof or the Company, to solicit such Customer
or to provide to such Customer, in the United States or Canada, Telephony
Services included in the Business provided, that non-targeted general
solicitations shall not be deemed prohibited by this paragraph.
(e) The Company shall not, directly or indirectly, knowingly
approach or contact any Customer of a Member or any Affiliate thereof, to
solicit such Customer or to provide to such Customer Telephony Services.
(f) The foregoing provisions of this Section 6.8
notwithstanding, (i) any Member may invest its funds in securities of an issuer
if the securities of such issuer are listed for trading on a registered
securities exchange or actively traded in the over-the-counter market and such
Member's holding therein represents less than 5% of the total number of shares
or principal amount of the securities of such issuer then outstanding; (ii) no
provision of this Section 6.8 shall prohibit or restrict any business activity
or operation in which any Member is, directly or indirectly, engaged or actively
and diligently preparing to engage on the date hereof as set forth on Schedule
C; and (iii) no provision of this Section 6.8 shall prohibit or restrict any
Member's provision of services to its Affiliates. Each Member acknowledges that
the provisions of this Section, and the period of time, geographic area and
scope and type of restrictions on its activities set forth herein, are
reasonable and necessary for the protection of the Company.
(g) Except as otherwise provided in this Agreement, a Member
may engage or participate in other activities incidental to any employment,
31
<PAGE> 32
occupation or business venture or enterprise. Except as otherwise agreed between
them, none of the Company nor any Member shall be entitled to participate or
otherwise have any interest in such other employment, occupation or business
venture or enterprise.
(h) Subject to Sections 6.8, 6.13 and 6.15, the Company, Delta
and Quintel may all provide the following services through the channels
indicated:
(i) PC to phone and phone to PC IP Telephony Services
anywhere in the Territory and through any medium or channel of distribution; and
(ii) IP Telephony Services, by direct sale methods
(including telemarketing) and through agents, in each case if outside the U.S.
and Canada.
(i) Nothing in this Agreement shall be construed as
prohibiting Delta from engaging in the Business through Reseller/Wholesale
Sales, nor shall any activities which are not Restricted Businesses be
prohibited as to Delta or Quintel, except as otherwise provided in this Section
6.8.
(j) The terms of this Section 6.8 shall survive as to a Member
so long as such Member or its Affiliates hold an Interest in the Company
provided, however, that such Member shall continue to be bound by Section 6.8(d)
for a period of nine months thereafter.
Section 6.9 Trade Rights.
(a) The Company and each Member shall have joint ownership
rights to any Trade Right conceived, developed or created jointly by the Members
for the Business, whether or not patentable or registrable, provided, that any
32
<PAGE> 33
Trade Right acquired by the Company shall become the sole and exclusive property
of the Company.
(b) Each Member hereby grants a non-exclusive, royalty-free
license to the Company to use any Trade Right currently or hereafter conceived,
developed, created, or acquired by such Member relating or useful to the
Business from the date hereof until the nine month anniversary of the date on
which such Member and its Affiliates no longer hold an Interest in the Company.
Each Member shall disclose the same promptly and completely to the Company and
shall, at any time and from time to time hereafter, (i) execute any documents
reasonably requested by the Company to permit its use of the same, (ii) execute
any documents reasonably requested by the Company for filing and procuring such
applications for Trade Rights as the Company may desire to prosecute, and (iii)
give the Company all assistance it may reasonably require, including the giving
of testimony in any Proceeding, in order to obtain, maintain and protect the
Company's right therein and thereto. Subject to Section 6.89, the grant of such
License shall not impair or limit the use of such Trade Right by such Member,
including without limitation the right to license such Trade Right to any other
Person. Upon the liquidation of the Company, each license provided hereby shall
terminate and the Trade Right subject thereto shall revert solely to the Member
that shall have licensed the same to the Company.
Section 6.10 Confidentiality. In connection with the operations of
the Company and the Members' transactions in connection therewith, the Members
and certain of their respective Affiliates may furnish and disclose to the
Company, each other and certain of their Affiliates confidential and proprietary
technical, commercial and other information, including without limitation
information relating to the Company's and each
33
<PAGE> 34
Member's (and certain of its Affiliates') organization, personnel, business
activities, policies, strategies, finances, costs, marketing plans, projected
revenues, technology, rights, obligations and liabilities ("Information").
Information so furnished or disclosed by any Member or its Affiliate is
confidential, and the other Member (and each of its Affiliates) shall take all
reasonable care to insure that such Information shall not be disclosed to any
third party, including imposing reasonable confidentiality requirements with
respect to such Information on its Affiliates and its or its Affiliates'
respective employees, agents, counsel, accountants and other representatives,
except insofar as such Information is distributed to such Member pursuant to
this Agreement or insofar as (i) such disclosure may be specifically authorized
in writing from time to time by the Member or its Affiliate furnishing or
disclosing such Information, (ii) such Information is necessarily disclosed by
its commercial use in the operation of the Company or pursuant to any right or
license granted by the Company, (iii) the receiving Member can demonstrate that
such Information was previously made public or disclosed by the furnishing
Member without restriction to a third party, or is in the public domain
otherwise than as a consequence of a breach of its obligations hereunder, (iv)
such Information is known by the Company or the receiving Member or Affiliate
without proprietary restrictions at the time of receipt of such Information, or
(v) such disclosure is required pursuant to compulsory legal process, including
subpoena, civil investigative demands, oral questions or interrogatories;
provided that the party subject to such compulsory disclosure promptly provides
written notice of such legal process to the disclosing party so that such party
may oppose such disclosures or seek a protective order or other confidential
treatment of such Information.
Section 6.11 Public Announcements. No Member shall issue or make any
advertisement, press release or public announcement with respect to the Company,
34
<PAGE> 35
or its Business or affairs, this Agreement or any other agreement between the
Company and any Member, without the prior written consent of the Board, unless
required to do so by Law (including U.S. securities rules and regulations and
the rules and regulations of any stock exchange on which the capital stock of
any Member or its Affiliate is traded). The Members agree, to the extent
practical, to consult with each other regarding any public announcement required
by Law in advance of such public announcement.
Section 6.12 Bank Accounts. The Company shall maintain one or more
accounts, including checking, cash management and/or money market accounts, in
such banks or other financial institutions as the Board or the President may
select. All amounts deposited by or on behalf of the Company in those accounts
shall be and remain the property of the Company. Withdrawals from such accounts
shall be made by the President or other signatories designated by the Board or
the President, provided that any payment, withdrawal or other transfer of funds
from such an account covering related matters in excess of $10,000 shall require
the authorization and signature of two officers, one of whom shall be the
President and the other of whom shall be the Treasurer. No funds of the Company
shall be kept in any account other than a Company account, and funds of the
Company shall not be commingled with the funds of any other Person; and no
Member shall apply, or permit any other Person to apply, such funds in any
manner except for the benefit of the Company.
Section 6.13 Restricted Activities of the Company.
(a) Without Delta's prior written consent, the Company shall
not engage in Reseller/Wholesale Sales. The Company shall refer all
opportunities for Reseller/Wholesale Sales to Delta. Without the Consent of
Members or as otherwise provided in the Network Agreement, the Company shall not
purchase or
35
<PAGE> 36
otherwise utilize Telecom Network Services from Persons in competition with
Delta or marketing services from Persons in competition with Quintel.
(b) The Company shall not provide Telephony Services to
Business Customers. The Company shall enter into an agent agreement (the "Agent
Agreement") which shall provide that the Company shall refer all Business
Customers that it sources exclusively to RSL USA and RSL Canada, which entities
shall be required to compensate the Company for such referrals on a commission
basis in an amount to be agreed upon between such parties (the "Agent
Agreement"). In the event that the Company engages in the Business in any
country other than the United States or Canada, the Company shall enter into a
written agreement with the Affiliate of Delta which operates in such country on
terms substantially similar to the Agent Agreement.
Section 6.14 Customers of the Company. Subject to any restrictions
set forth elsewhere herein, a Member may sell any products or services or
otherwise transact business with any customer of the Company; provided, that, if
(i) such Member is not selling such products or services or engaging in
transactions of such type on the date hereof, and (ii) such customer of the
Company is not generated from a customer list of such Member, such Member shall
pay to the Company a fee in respect of such customer based on the rate then set
forth in the Standard Rate and Data Guide (on a per-thousand basis).
Section 6.15 Excluded Areas.
(a) The Company shall not engage in the Business in any
Excluded Area to the extent, and only to the extent, such Business is prohibited
or restricted pursuant to a written agreement with a Member relating to such
Excluded Area.
36
<PAGE> 37
(b) Upon written request by Quintel, Delta shall use
commercially reasonable efforts to cause the counterparties to the agreements
relating to the Excluded Areas to waive the restrictive provisions thereof
relating to the operation of the Business. If any such counterparty waives such
provisions, or otherwise agrees to permit the Company's operation of the
Business within any territory theretofore designated as an Excluded Area, Delta
shall promptly give notice to such effect to the Company and such territory
shall be removed from Schedule A as an Excluded Area. From and after the date in
which the Company engages in the Business in any country in the Territory other
than the U.S. or Canada, no Member shall enter into any agreement (including any
amendment or supplement to an agreement in effect on the date hereof) which
prohibits or restricts the Company from engaging in the Business in such
country.
Section 6.16 Other Agreements. Concurrently herewith, the Company is
entering into the Marketing Agreement and the Network Agreement.
Section 6.17 Permits. Licenses and Other Regulatory Authorizations.
The Company shall not operate the Business in any jurisdiction where it is not
properly qualified to do so or does not have the necessary Licenses to do so.
Accordingly, promptly after the date hereof, the Members shall cause the Company
to obtain any such Licenses to the extent required, and each Member shall
cooperate with the Company in order to obtain such Licenses.
Section 6.18 Other Services of Members. In connection with the
operation of the Business, each Member may, from time to time, upon request by
the Company and subject to approval by the Board, provide the Company with
certain services other than as provided in the Marketing Agreement or the
Network Agreement (including without limitation the use of certain employees of
such Member). In such
37
<PAGE> 38
event, the Member providing such services shall be entitled to be reimbursed by
the Company for 105% of its direct cost (without allocation of overhead
expenses) of providing such services, provided that the provision of executive
management services to the Company by a Member shall be without compensation to
the Member. Such Member shall invoice the Company (which invoice shall include a
description, in reasonable detail, of the services provided by such Member)
within 15 days of the end of each month for any services provided to the Company
during such month which are not provided pursuant to either the Marketing
Agreement or the Network Agreement. The Company shall make payment for such
services within 30 days of the receipt of such invoice unless it disputes in
good faith any item or items contained in such invoice, in which case payment
with respect to any item in dispute shall be made within three business days
after the resolution of such dispute.
ARTICLE 7
CONSENTS; MEETINGS OF MEMBERS
Section 7.1 Consents. Any other provision hereof notwithstanding,
without the Consent of the Members, the Company shall not:
(a) admit a Member or issue an Interest;
(b) call for or permit to be made any capital contribution or
investment in the Company;
(c) except as provided in Section 4.1(a) and 6.1(c), declare
or make any distribution with respect to Interests, or apply any of the
Company's property or assets to the repayment of any contributions to the
Company's capital;
(d) adopt, amend, restate or revoke the Articles of
Organization of the Company or this Agreement
38
<PAGE> 39
(e) dissolve, liquidate or wind up its Business and affairs;
(f) sell, exchange, lease, mortgage, pledge or, except as
provided in Section 6.1(c), otherwise transfer all or substantially all of the
assets of the Company;
(g) merge or consolidate with or into another limited
liability company or other Person; or enter into any business combination,
partnership or joint venture; or acquire or dispose of all or any interest in
any other Person or business;
(h) engage in any business, other than the Business, or in any
activity not consistent with the Company's purpose;
(i) engage in the Business in any country in the Territory
other than the United States or Canada;
(j) create, incur, assume or otherwise become liable with
respect to any obligation for borrowed money (including a guarantee of, or
contingent liability for, the indebtedness or other obligations of any Person),
or issue any bonds, debentures, notes or other evidences of indebtedness, other
than in the ordinary course of business or if as a result thereof the total
principal amount of such obligations at any time outstanding would exceed
$100,000 or such greater amount as to which the Members may from time to time
Consent;
(k) subject to Section 6.1(c), sell, lease or otherwise
dispose of assets of the Company whose fair market value exceeds $100,000 or
such greater amount as to which the Members may from time to time Consent;
39
<PAGE> 40
(l) subject to Section 6.1(c), make any loan or extend credit
to any Person if at any time the total principal amount of such loans and other
credit then outstanding exceeds $100,000;
(m) enter into any transaction or series of related
transactions involving capital expenditures, including lease commitments, of a
total value in excess of $100,000;
(n) adopt or approve any annual or longer term budget,
business plan or operating strategy for the Company, including without
limitation changes in the management or operating structure of the Company or
marketing practices,
(o) change its independent auditor, or establish, modify,
amend or repeal the Company's accounting practices, except to the extent that
such establishment, modification, amendment or repeal shall be required by
applicable Law;
(p) except as provided in Section 6.1(c), authorize or enter
into any agreement, commitment or other transaction, or any series of related
agreements, commitments or other transactions between the Company and a Manager
or Member or an Affiliate of a Manager or Member;
(q) adopt any trademark, trade name, brand name, service mark,
logo, symbol, trade dress or design identifying the Company or any of its
products, other than "Delta Three Direct," the names listed on Schedule D hereto
or a variation thereof (together with "Delta Three Direct," each, a "Brand
Name");
(r) enter into or renew any employment or consulting
agreement, commitment or arrangement providing for, or that could reasonably be
expected to obligate the Company to pay, annual compensation in excess of
$100,000;
40
<PAGE> 41
or establish, modify, amend or repeal any plan, program, scheme or arrangement
in the nature of an employee compensation plan or benefit plan applicable
generally to employees or to classes of employees, including without limitation
pension and retirement plans, savings plans, stock ownership plans, and medical,
health, accident, disability and life insurance plans;
(s) commence, join in or settle any Proceeding by, against or
involving the Company which may materially affect the operations of the Company;
or
(t) confess a judgment against the Company.
Section 7.2 Meetings of Members.
(a) The Members shall hold an annual meeting within four
months of the end of each Fiscal Year. Other Members' meetings may be called by
the Board or either Member upon 10 days' prior written notice, given in any
manner provided in Section 11.3, when any action requiring Consent of the
Members is to be taken or when it is otherwise deemed to be in the best interest
of the Company. Meetings shall be held at the office of the Company or at such
other place to which the Members Consent.
(b) A Member may appear and vote at a meeting in person or by
proxy. Any proxy shall be dated and signed by the Member (or his
attorney-in-fact) and shall remain effective for a period of 11 months from the
date thereof. Any such proxy may be revoked at any time, such revocation to be
effective upon the presentation of a later-dated proxy or written notice of
revocation given to the Company.
41
<PAGE> 42
(c) Member may participate in a meeting by means of a
conference telephone or similar communication equipment by means of which all
Persons participating in the meeting can hear each other simultaneously and such
participation in a meeting shall constitute presence in person at such meeting.
(d) The presence of all Members shall constitute a quorum at
any meeting of Members. Once a quorum is present at a meeting, any action
properly taken at the meeting remains valid and effective, notwithstanding the
subsequent withdrawal of any Member from the Meeting. If a quorum does not
appear at a Meeting, any Member present may adjourn the meeting despite the
absence of a quorum.
(e) Written notice shall be given by any Person entitled to
call the meeting or by the President or any other duly authorized officer of the
Company stating the place, date and hour of the meeting, indicating that it is
being issued by or at the direction of the Person calling the meeting and, in
the case of a special meeting, stating the purpose or purposes for which the
meeting is called. An affidavit of a Person giving the notice that the notice
required by this Section has been given shall, in the absence of fraud, be prima
facie evidence of the facts therein stated. When a meeting is adjourned to
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted at the
original date of the meeting.
(f) Notice of meeting need not be given to any Member who
submits a signed waiver of notice, in person or by proxy, whether before or
after the meeting. The attendance of any Member at a meeting, in person or by
proxy,
42
<PAGE> 43
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting, shall constitute a waiver of notice by it.
(g) Whenever under this Agreement Members are required or
permitted to take any action by vote, such action may be taken without a
meeting, without prior notice and without a vote, if an instrument or
instruments setting forth the action so taken shall be signed by all the Members
and delivered by hand or by certified or registered mail, return receipt
requested, to the office of the Company, its principal place of business, or an
officer, employee or agent of the Company having custody of the records of the
Company. Every such instrument shall bear the date of signature of each Member
who signs such an instrument, and no such instrument shall be effective to take
the action referred to therein unless, within 60 days of the earliest dated such
instrument delivered in the manner required by this Section to the Company,
instruments signed by all the Members are delivered to the office of the
Company, its principal place of business, or an officer, employee or agent of
the Company having custody of the records of the Company.
43
<PAGE> 44
ARTICLE 8
TRANSFERS
Section 8.1 Transfers.
(a) Except as provided in Sections 8.2 or 8.3, no Member may
withdraw from the Company (prior to the liquidation of the Company) or sell
assign, exchange, give, pledge, hypothecate, grant a security interest in, or
otherwise encumber, or otherwise voluntarily or involuntarily transfer or
dispose of (collectively, "Transfer") any Interest in the Company, except to an
Affiliate of such Member, without the prior written consent of the other
Members, which consent may be withheld in their sole discretion. In the event of
such a Transfer, the transferee shall become a Member only if the
non-Transferring Members Consent to the admission of the transferee as a Member,
which consent may be withheld in their sole discretion, and such transferee
accepts and agrees to be bound by this Agreement by executing a counterpart
hereof, expressly assumes all of the obligations of the transferor hereunder and
executes and delivers such other agreements, instruments, certificates,
affidavits, opinions of counsel and other documents as the other Members may
reasonably require in order to admit such new Member. Any purported Transfer in
violation of this Agreement shall be void ab initio and shall not bind the
Company.
(b) A Transfer of an Interest shall not dissolve the Company
or entitle the transferee to participate in the management and affairs of the
Company or to become, or to exercise any rights or powers of, a Member. The only
effect of a Transfer, unless the transferee is admitted as a Member, is to
entitle the transferee to receive, and to the extent Transferred, the
distributions and allocations of
44
<PAGE> 45
Profits and Losses to which the transferor would be entitled. Until the
transferee becomes a Member, the transferee shall have no liability as a Member
solely as a result of such Transfer.
Section 8.2 Member's Deadlock Buyout.
(a) If a Member's Deadlock occurs, the Members shall promptly
(and in any event within 20 days after the occurrence of a Member's Deadlock)
select an investment banking, accounting or appraisal firm to determine the fair
market value of the Company based on a valuation of its business and assets. In
the event the Members are unable to agree on the selection of such firm within
such 20 day period, then the Company's regularly engaged independent certified
public accountants shall make such determination. Such firm, shall provide an
appraisal within 30 days after its selection and, utilizing its appraisal of the
fair market value of the Company, as provided above, such firm shall also
determine the appraised value of each Interest in the Company (the "Appraised
Value"), and shall deliver to the Company and each Member a certificate setting
forth therein the Appraised Value of each Member's Interest and a statement in
reasonable detail of the basis therefor. The determination of Appraised Value by
such firm shall be conclusive and binding upon the Company and the Members.
(b) Within 10 days of receipt by the Members of such
certificate of Appraised Value, either Member may offer in writing to purchase
the other Member's Interest (the "MD Purchase Offer") at a cash purchase price
in U.S. dollars (the "MD Purchase Price") equal to the Appraised Value of such
other Member's Interest by giving written notice of such offer to the other
Member within such 10 day period. If the other Member desires to accept the MD
Purchase Offer, it shall give written notice to such effect to the offering
Member within 15 days of receipt of the
45
<PAGE> 46
offering Member's notice (the "Acceptance Notice"). In order to effect such
sale, the party selling such Interest shall execute and deliver to the party
acquiring such Interest all necessary assignments, membership transfer forms or
other instruments or documents as are necessary in order to effectively transfer
the Interest.
(c) If an MD Purchaser Offer is accepted, the parties shall
agree to a closing date, which shall be no more than 20 days after the date of
the Acceptance Notice. The MD Purchase Price shall be payable in full in
immediately available funds, at the closing.
(d) If neither Member elects to purchase the other Member's
Interest, or if both the Members elect to purchase the other Member's Interest
and Member desires to sell its Interest then, unless the Member's Deadlock is
resolved within 45 days after the receipt by the Member of the Appraisal Value
certificate, the Company shall proceed promptly to be liquidated pursuant to
Article 9.
(e) Upon consummation of any sale of an Interest pursuant to
the MD Purchase Offer, the purchaser shall (i) deduct from the MD Purchase Price
the amount of any distributions from the Company which the seller has received
since the date on which the MD Purchase Offer was made and (ii) add to the MD
Purchase Price Offer the amount of any capital contributions to the Company
which the Seller made since the date on which the MD Purchase Offer was made.
During such period the Members shall make capital contributions to the Company
consistent with past practices.
Section 8.3 Buy/Sell Provisions.
(a) In the event that either (i) a Change of Control of a
Member occurs, (ii) Delta elects to compel any action pursuant to Section
6.1(c), (iii)
46
<PAGE> 47
a Default occurs or (iv) a notice is delivered by a Member in accordance with
Section 8.3(f), then the Electing Member may send a written notice to the Other
Member offering both (i) to sell all of the Electing Member's Interest to the
Other Member (the "Sale Offer") and (ii) to purchase all of the Other Member's
Interest (the "Purchase Offer" and, together with the Sale Offer, the "Offer").
(b) The Offer must (i) specify a single cash purchase price
(the "Purchase Price") in U.S. dollars per share applicable both to the Sale
Offer and to the Purchase Offer and (ii) provide that, in connection with either
the Sale Offer or the Purchase Offer, the Purchase Price is to be paid in
immediately available funds on the date of consummation of the transaction.
(c) The Offer shall be irrevocable for a period of 30 days
from and after the receipt of such Offer. The Other Member may, on or before the
30th day after receipt of such Offer, accept either the Sale Offer or the
Purchase Offer. If the Other Member shall fail, within such period of 30 days,
to accept either the Sale Offer or the Purchase Offer, the Electing Member shall
thereupon have the obligation to purchase, and the Other Member shall have the
obligation to sell, the Interest owned by the Other Member at the Purchase Price
specified in the Purchase Offer and otherwise on the terms and conditions
provided in such Purchase Offer.
(d) Any sale or purchase of an Interest pursuant to the Sale
Offer or the Purchase Offer shall be consummated (i) within 30 days following
the Other Member's acceptance of such Sale Offer or Purchase Offer, as the case
may be, or (ii) if the Other Member declines to accept either Offer, within 60
days following the Other Members receipt of such Offer. In order to effect such
sale, the party selling such Interest (the "Seller") shall execute and deliver
to the party acquiring such Interest (the
47
<PAGE> 48
"Buyer") all necessary assignments, membership transfer forms or other
instruments or documents as are necessary in order to effectively transfer the
Interest.
(e) Upon consummation of any sale or purchase of shares
pursuant to the Sale Offer or the Purchase Offer, the Buyer shall (i) deduct
from the Purchase Price the amount of any distributions from the Company, which
the Seller has received since the date on which the Offer was made and (ii) add
to the Purchase Price the amount of any capital contributions to the Company
which the Seller made since the date on which the Offer was made. During such
period the Members shall make capital contributions to the Company consistent
with past practices.
(f) If a Member shall have given notice of an election to
dissolve pursuant to Section 9.1(a), such Member shall be deemed to have given
notice as an Electing Member pursuant to Section 8.3(a), shall include in such
notice a single cash purchase price and other information in accordance with
Section 8.3(b), and the remaining Member shall be deemed to be an Other Member
for all purposes of this Section 8.3.
Section 8.4 Delta Three Withdrawal License. If Delta shall sell or
otherwise dispose of its Interest pursuant to Section 8.2 or 8.3 while Quintel
remains a Member, the Company shall have the right to use, and Delta hereby
grants to the Company a non-exclusive royalty-free license to use, the "Delta
Three" name and related Trade Rights in the Business to the same extent and in
the same manner as used previously in the Business prior to such sale or
disposition for a period of 12 months after the date of such sale or
disposition.
Section 8.5 Services Agreement Wind-down. Notwithstanding the
complete withdrawal of either Member pursuant to Section 8.2 or 8.3, the Company
may
48
<PAGE> 49
(but shall not be required to) continue the Marketing Agreement or the Network
Agreement, as the case may be, in effect until the first anniversary of the date
of such withdrawal or such earlier date as the Company may determine to
terminate such agreement upon ten days' prior written notice to such Member.
ARTICLE 9
DISSOLUTION AND LIQUIDATION
Section 9.1 Dissolution. Subject to the provisions of applicable
Law, the Company shall be dissolved upon the first of the following events to
occur:
(a) December 31, 1999 or any December 31 thereafter if any
Member gives a notice of termination to any other Member on or before September
30, 1999 or any September 30 thereafter provided, that in the event such notice
is given the provisions of Section 8.3(f) will apply and a dissolution shall not
be required;
(b) the bankruptcy of any Member, unless within 180 days after
such event the remaining Members Consent to continue the Company;
(c) the sale of all or substantially all of the Company's
assets;
(d) neither Member's Interest is sold pursuant to the purchase
option provided in Section 8.2;
(e) by Quintel upon the termination of the Network Agreement
or by Delta upon the termination of the Marketing Agreement, in each case upon
10 days' prior written notice to the Company; or
(f) the Consent of the Members.
Section 9.2 Liquidation.
49
<PAGE> 50
(a) Upon a dissolution of the Company, the President or
another Person appointed by the Board (the "Liquidating Agent") shall take or
cause to be taken a full account of the Company's assets, properties,
indebtedness and liabilities as of the date of such dissolution and shall
proceed with reasonable promptness to liquidate the Company's assets and
properties and to terminate its Business and affairs. Subject to Section 9.2(b),
the Company's property or the proceeds from the liquidation thereof, shall be
applied in cash or in kind in the following order:
(i) to the payment of all liabilities and obligations of
the Company, including expenses of the liquidation and obligations and
liabilities to the Members (other than on account of their Capital Accounts or
liabilities for distributions under applicable Law),
(ii) to the establishment of such reserves for
contingent liabilities of the Company as are deemed necessary or desirable by
the Liquidating Agent; provided, however, that such reserves shall be deposited
in escrow with a bank for the purpose of disbursing such reserves for the
payment of such contingent liabilities and, at the expiration of such period as
the Liquidating Agent may reasonably deem advisable, for the purpose of
distributing the remaining balance in accordance with subparagraph (iii) below,
and
(iii) to the Members, to be divided among them in
accordance with their respective Capital Account balances.
(b) The Liquidating Agent shall be allowed a reasonable time
for the orderly liquidation of the Company's assets and properties and the
discharge of indebtedness and other liabilities to creditors, so as to preserve
and, upon disposition, maximize the value of the Company's assets and
properties.
50
<PAGE> 51
Section 9.3 Fiscal Year of Termination. Upon the liquidation of the
Company (or any Member's Interest) within the meaning of Treasury Regulation
ss.1.704-1 (b)(2)(ii)(g), the liquidating distributions shall be made, if
practicable, on or before the close of the Fiscal Year in which the liquidation
occurs, and, in any event, within 90 days after the date of such liquidation. In
the case of the liquidation of the Company, such distribution may be made to a
trust established for the benefit of the Members for purposes of liquidating
Company assets, collecting amounts owed to the Company, paying any indebtedness
and other liabilities of the Company and distributing the remaining amounts to
the Members in the same amounts as would have been distributed by the Company
without regard to the trust.
Section 9.4 Continuing Liabilities and Other Obligations. Except as
otherwise expressly provided herein, no reconstitution, dissolution, liquidation
or termination of the Company shall relieve, release or otherwise discharge any
Member, or any of that Member's successors, assigns, heirs or legal
representatives, from any previous breach or default of, or any obligation or
other liability therefore incurred or accrued under, any provision of this
Agreement or applicable Law, and any and all liabilities claims, demands, or
causes of action arising from any such breaches, defaults, obligations and
liabilities shall survive any such reconstitution, dissolution, liquidation or
termination.
Section 9.5 Final Statement. As soon as practicable after the
dissolution of the Company, the Liquidating Agent shall cause a statement of the
Company's assets and liabilities to be prepared as of the date of such
dissolution and furnished to the Members.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
51
<PAGE> 52
Section 10.1 Ouintel's Representations and Warranties. Quintel
hereby represents and warrants to Delta as follows:
(a) Quintel is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the full
power and authority to own its assets and carry on the Business as and in the
places where such assets are now owned or such Business is conducted.
(b) Quintel has full corporate power and authority to execute
and deliver this Agreement and the Marketing Agreement and to assume and perform
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Marketing Agreement by Quintel and the performance of its
obligations hereunder and thereunder have been duly authorized by all requisite
corporate action on the part of Quintel. This Agreement and the Marketing
Agreement have been duly executed and delivered by Quintel, and this Agreement
and the Marketing Agreement are legally valid and binding obligations of
Quintel, enforceable against Quintet in accordance with their respective terms,
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) equitable principles limiting the availability of certain remedies. The
execution and delivery of this Agreement and the Marketing Agreement do not, and
the performance by Quintel of its obligations hereunder and thereunder, will
not, violate any provision of Quintel's Certificate of Incorporation or By-laws
and do not and will not conflict with or result in any breach of any condition
or provision of, or constitute a default under, or create or give rise to any
adverse right of termination or cancellation by, or excuse the performance of,
any other Person under, or result in the creation or imposition of any lien upon
any of the assets of the Company or have a
52
<PAGE> 53
material adverse effect on the Company by reason of the terms of, any contract,
indenture, instrument lien or Order to which Quintel is a party or is subject or
which is or purports to be binding upon it or its assets.
(c) No consent of, or notice to, any Person is required as to
Quintel in connection with Quintel's execution and delivery of this Agreement or
the Marketing Agreement, or the performance of Quintel's obligations hereunder
or thereunder.
(d) No Proceeding is pending or, to the best of Quintel's
knowledge, threatened against or affecting the Business or the assets or
operations of Quintet in which an unfavorable Order would have a material
adverse effect on the Company, or prohibit, invalidate, or make unlawful, in
whole or in part, this Agreement or the Marketing Agreement, or the carrying out
of the provisions hereof or thereof. Quintel is not in default in respect of any
Order, nor is there any such Order enjoining Quintel in respect of, or the
effect of which is to prohibit or curtail Quintel's performance of, its
obligations hereunder or under the Marketing Agreement.
Section 10.2 Delta's Representations and Warranties. Delta hereby
represents and warrants to Quintel as follows:
(a) Delta is a corporation duly organized validly existing and
in good standing under the laws of the State of Delaware and has the full power
and authority to own its assets and carry on the Business as and in the places
where such assets are now owned or such Business is conducted.
(b) Delta has full corporate power and authority to execute
and deliver this Agreement and the Network Agreement and to assume and perform
its obligations hereunder and thereunder. The execution and delivery of this
53
<PAGE> 54
Agreement and the Network Agreement by Delta and the performance of its
obligations hereunder and thereunder have been duly authorized by all requisite
corporate action on the part of Delta. This Agreement and the Network Agreement
have been duly executed and delivered by Delta and this Agreement and the
Network Agreement are legally valid and binding obligations of Delta,
enforceable against Delta in accordance with their respective terms, subject to
(i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii)
equitable principles limiting the availability of certain remedies. The
execution and delivery of this Agreement and the Network Agreement do not, and
the performance by Delta of its obligations hereunder and thereunder, will not,
violate any provision of Delta's Certificate of Incorporation or By-laws and do
not and will not conflict with or result in any breach of any condition or
provision of, or constitute a default under, or create or give rise to any
adverse right of termination or cancellation by, or excuse the performance of,
any other Person under, or result in the creation or imposition of any lien upon
any of the assets of the Company or have a material adverse effect on the
Company by reason of the terms of, any contract, indenture, instrument, lien or
Order to which Delta is a party or is subject or which is or purports to be
binding upon it or its assets.
(c) No consent of, or notice to, any Person is required as to
Delta in connection with Delta's execution and delivery of this Agreement or the
Network Agreement, or the performance of Delta's obligations hereunder or
thereunder.
(d) No Proceeding is pending or, to the best of Delta's
knowledge, threatened against or affecting the Business or the assets or
operations of Delta in which an unfavorable Order would have a materially
adverse effect on the
54
<PAGE> 55
Company, or prohibit, invalidate, or make unlawful, in whole or in part, this
Agreement or the Network Agreement, or the carrying out of the provisions hereof
or thereof or the transactions contemplated hereby or thereby. Delta is not in
default in respect of any Order, nor is there any such Order enjoining Delta in
respect of, or the effect of which is to prohibit or curtail Delta's performance
of, its obligations hereunder or under the Network Agreement.
(e) Delta or an Affiliate thereof is a party on the date
hereof to an enforceable agreement that prohibits or restricts, or pursuant to
which the other party or parties thereto would be entitled to assert or exercise
a right or remedy to prohibit or restrict, the Company's operation of the
Business (or any aspect of the Business) within each Excluded Area and the
Excluded Areas are the only geographical territories subject to any such
prohibition or restriction as of the date hereof.
55
<PAGE> 56
ARTICLE 11
MISCELLANEOUS
Section 11.1 Limitation of Authority. Except as expressly provided
herein, no provision hereof shall be deemed to create any partnership, joint
venture or joint enterprise or association among the parties hereto, or to
authorize or to empower any party hereto to act on behalf of, obligate or bind
any other party hereto.
Section 11.2 Fees and Expenses. All fees and expenses, including
without limitation attorneys' fees and expenses, incurred by the Members in
connection with the initial organization of the Company shall be borne by the
respective Members.
Section 11.3 Notices. Except as otherwise expressly provided herein,
any notice or demand required or permitted to be given or made hereunder shall
be deemed to have been duly given or made for all purposes if (a) in writing and
sent by (i) messenger or an overnight courier service against receipt, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by telegram, telecopy, telex or similar electronic means; provided that a
written copy thereof is sent on the same day by postage-paid first-class mail in
the case of a Member at its address or fax number as set forth on Schedule B
hereto, or any such other address or fax number as any Member may at any time,
or from time to time, direct by notice given to other Member in accordance with
this Section. The date of giving or making of any such notice or demand shall
be, in the case of clause (a)(i), the date of the receipt; in the case of clause
(a)(ii), five (5) business days after such notice or demand is sent; and, in the
case of clause (b), the business day next following the day that notice or
demand is sent.
56
<PAGE> 57
Section 11.4 Amendment. Except as otherwise provided herein, no
amendment of this Agreement shall be valid or effective, unless in writing or
signed by or on behalf of all the Members.
Section 11.5 Waiver. No course of dealing or omission or delay on
the part of any party hereto in asserting or exercising any right hereunder
shall constitute or operate as a waiver of any such right. No waiver or
provision hereof shall be effective, unless in writing and signed by or on
behalf of the party to be charged therewith. No waiver shall be deemed a
continuing waiver or waiver in respect of any other or subsequent breach or
default, unless expressly so stated in writing.
Section 11.6 Governing Law. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to choice or conflict of laws principles.
Section 11.7 Jurisdiction. Each of the Members and the Company
herein irrevocably consents and submits to the jurisdiction of the Supreme Court
of the State of New York and of the United States District Court for the
Southern District of New York in connection with any Proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby, waives
any objection to venue in New York County or such District, and agrees that
service of any summons, complaint, notice or other process relating to such
Proceeding may be effected in the manner provided by clause (a)(ii) of Section
11.3.
Section 11.8 Remedies. In the event of any actual or prospective
breach or default by any party, the other parties shall be entitled to equitable
relief, including remedies in the nature of injunction and specific performance.
All remedies hereunder are cumulative and not exclusive, and nothing herein
shall be deemed to
57
<PAGE> 58
prohibit or limit any party from pursuing any other remedy or relief available
at law or in equity for any actual or prospective breach or default, including
the recovery of damages.
Section 11.9 Severability. The provisions hereof are severable and
in the event that any provision of this Agreement shall be determined to be
invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any invalid or
unenforceable provision shall be deemed, without further action on the part of
the parties hereto, amended and limited to the extent necessary to render such
provision, as so amended and limited, valid and enforceable.
Section 11.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and which together
shall constitute one and the same agreement.
Section 11.11 Further Assurances. Each party shall promptly execute,
deliver, file or record such agreements, instruments, certificates and other
documents and perform such other and further acts as any of the other parties
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.
Section 11.12 Assignment. Except as otherwise provided elsewhere
herein, this Agreement, and each right, interest and obligation hereunder, may
not be assigned by any party hereto without the prior written consent of each
other party hereto. Any purported assignment without such consent shall be void
and without effect.
58
<PAGE> 59
Section 11.13 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. This Agreement is not intended, and shall not be deemed,
to create or confer any right or interest for the benefit of any Person not a
party hereto.
Section 11.14 Titles and Captions. The titles and captions of the
Articles and Sections of this Agreement are for convenience of reference only
and do not in any way define or interpret the intent of the parties or modify or
otherwise affect any of the provisions hereof.
Section 11.15 Grammatical Conventions. Whenever the context so
requires, each pronoun or verb used herein shall be construed in the singular or
the plural sense and each capitalized term defined herein and each pronoun used
herein shall be construed in the masculine, feminine or neuter sense.
Section 11.16 References. The terms "herein," "hereto," "hereof,"
"hereby" and "hereunder" and other terms of similar import, refer to this
Agreement as a whole, and not to any Section or other part hereof.
Section 11.17 No Presumptions. Each party hereto acknowledges that
it has participated, with the advice of counsel, in the preparation of this
Agreement. No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that any other party hereto drafted or
controlled the drafting of this Agreement.
Section 11.18 Entire Agreement. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes any prior agreement, commitment or arrangement relating thereto.
59
<PAGE> 60
Section 11.19 Effectiveness of Agent. Notwithstanding anything else
herein to the contrary, this Agreement shall not be and become effective and
binding upon the Members until the Members shall have agreed to a Budget for the
first full year of the Company's operations; provided, however, that if no such
Budget is agreed upon by August 31, 1998, this Agreement shall be null and void
ab initio, and no party shall be bound thereby.
IN WITNESS WHEREOF, the Members, by their respective duly authorized
officers, have duly executed and delivered this Agreement as of the date set
forth the Preamble hereto.
QUINTEL ENTERTAINMENT, INC. DELTA THREE, INC.
By: /s/ Jeffrey L. Schwartz By: /s/ Eli Wurtman
------------------------------- ----------------------------------
Jeffrey L. Schwartz, President Eli Wurtman, Chief Executive Officer
60
<PAGE> 61
SCHEDULE A
The IP Telephony Services shall include, subject to Article Six, the
following services which are provided by utilizing the Internet and
networks based on Internet Protocols:
1. On-line services
2. Dial around products
3. Value-added telecommunication services accessible via telephone or
internet, including without limitation voice mail, online/offline,
call forwarding, call conferencing, fax storing and forwarding,
e-mail and e-mail text to speech, unified messaging programs
4. Calling cards
Excluded Areas:
Norway
South America (all countries)
61
<PAGE> 62
SCHEDULE B
<TABLE>
Name and Initial Capital Fractional Capital
Address of Members Contribution Share (initial) Commitment
- ------------------ ------------ --------------- ----------
<S> <C> <C> <C>
Quintel Entertainment, Inc. $245,000 49% $3,185,000
One Blue Hill Plaza
Pearl River, NY 10965
Atn: President
Delta Three, Inc. $255,000 51% $3,315,000
430 Park Avenue
New York, NY 10022
Attn: President
</TABLE>
62
<PAGE> 63
SCHEDULE C
Quintel:
IP Telephony network with Grey Peak Technologies
Delta Three:
Riparius hand set bundling deal
EDU 2500 program
NACC agreement
LDM program
Co-Marketing Agreement between Delta Three, Inc. and the globe
63
<PAGE> 64
ARTICLES OF ORGANIZATION
OF
DELTA THREE DIRECT, LLC
Under Section 203 of the Limited Liability Company Law
The Articles of Organization of Delta Three Direct, LLC, a New York
limited liability company (the "Company"), are herein set forth as follows:
1. The name of the Company is Delta Three Direct, LLC.
2. The principal office of the Company is to be located in Rockland
County, New York State.
3. The Secretary of State of New York is designated as agent of the
Company upon whom process against it may be served, and the post office address
to which the Secretary of State of New York shall mail a copy of any process
against the Company served upon him or her is:
Delta Three Direct, LLC
One Blue Hill Plaza
Pearl River, NY 10965
Attn:President
4. The Company is to be managed by one or more managers.
IN WITNESS WHEREOF, the undersigned Organizer of the Company signs these
Articles of Organization and affirms that the foregoing is true under penalties
of perjury on this _____________________ day of August, 1998.
-------------------------------------
Robert L. Kohl, Organizer
64
<PAGE> 1
EXHIBIT 10.17.3
DELTA THREE NETWORK SERVICES AGREEMENT
DELTA THREE NETWORK SERVICES AGREEMENT (this "Agreement"), dated as of August
10, 1998, between DELTA THREE, INC., a Delaware corporation ("Delta"), and DELTA
THREE DIRECT, LLC, a New York limited liability company ("Newco").
W I T N E S S E T H:
WHEREAS, Delta is a telecommunications provider utilizing the
Internet and networks based on Internet Protocols to provide telecommunications
services;
WHEREAS, pursuant to an Operating Agreement dated as of the
date hereof (the "Operating Agreement"), between Delta and Quintel Entertainment
Inc., a Delaware corporation ("Quintel"), Delta and Quintel have formed Newco
for the purpose of marketing and selling certain telephony services (the "Newco
Business");
WHEREAS, in connection with the formation of Newco pursuant to
the LLC Agreement, Delta has agreed to provide the Internet Telephony Services
(as defined in Section 2.01 below), the Ancillary Services (as defined in
Section 2.02 below) and the Billing Services (as defined in Section 2.03 below)
to Newco.
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants hereinafter contained, the parties hereto hereby agree
as follows:
ARTICLE I
TERM
Section 1.01. TERM. The term (the "Term") of this Agreement
shall commence on the date hereof and shall continue until the date on which
Delta withdraws as a member of Newco (other than in the event that Delta
transfers its interest in Newco to an Affiliate (as defined in the LLC
Agreement) of Delta), subject to earlier termination as provided in Article V;
provided that, unless this Agreement is terminated pursuant to Section 5.01 or
Section 5.02, Newco may elect to extend the Term on a month-to-month basis for
up to nine months from the date of Delta's withdrawal from Newco.
<PAGE> 2
ARTICLE II
SERVICES PROVIDED BY DELTA
Section 2.01. Internet Telephony Services.
(a) During the Term, Delta shall provide the Internet
Telephony Services to Newco for resale to its Customers (as defined below). For
the purposes hereof, the "Internet Telephony Services" shall mean the
telecommunications services and value added services which are provided, or may
be provided, by Delta by utilizing the Internet and networks based on Internet
Protocols. For the purposes hereof, the term "Customers" shall include all
residential and commercial users of the Services (as defined below) from whom
Newco obtains service orders. During the Term, Delta shall be the exclusive
provider of the Internet Telephony Services to Newco. During the Term, Delta
shall provide the Services to Newco on an equal basis in terms of quality and
timeliness as it provides services to RSL Communications, Ltd. and its
subsidiaries.
(b) The Internet Telephony Services shall be provided
by Delta to Newco at Delta's IP Telephony Direct Cost (as defined below) of
providing such services. For the purposes hereof, "IP Telephony Direct Cost"
shall mean Delta's direct cost for providing the Internet Telephony Services
without inclusion of overhead costs (including depreciation and amortization
expenses and any other expenses of building or maintaining the network, except
to the extent such maintenance is necessary for the purpose of providing the
Internet Telephony Services specifically to Newco) and after taking into account
discounted rates or service credits provided under Operating Agreements (as
defined below). For the purposes hereof, "Operating Agreement" shall mean an
operating agreement relating to the provision by Delta of transmission services
that provides for return traffic or service credits.
Section 2.02. Ancillary Services.
(a) During the Term, at the request of Newco, Delta
shall provide the Services to Newco for use in connection with the Newco
Business. For the purposes hereof, the "Ancillary Services" shall mean customer
service and provisioning, each as customarily provided in the telecommunications
industry.
(b) The Ancillary Services shall be provided by Delta
to Newco at Delta's Ancillary Service Direct Cost (as defined below) of
providing such services. For the purposes hereof, "Ancillary Service Direct
Cost" shall mean Delta's direct cost for providing the Ancillary Services
without inclusion of overhead costs (including depreciation and amortization
expenses).
2
<PAGE> 3
Section 2.03. Billing Services.
(a) During the Term, at the request of Newco, Delta
shall provide the Billing Services to Newco for use in connection with the Newco
Business. For the purposes hereof, the "Billing Services" shall mean the billing
services provided by Delta through the operation of its on-line billing systems
and interfaces, as the same shall exist from time to time. For the purposes
hereof, the "Services" shall mean the Internet Telephony Services, the Ancillary
Services and the Billing Services.
(b) The Billing Services shall be provided by Delta
to Newco at Delta's Billing Direct Cost (as defined below) of providing such
services. For the purposes hereof, the "Billing Direct Cost" shall mean Delta's
direct cost for providing the Billing Services without inclusion of overhead
costs (including depreciation and amortization expenses).
Section 2.04. Operating Procedures. The Services to be
provided by Delta in accordance with this Article II shall be provided to Newco
in accordance with procedures that are customary in the telecommunication
industry and currently in use by Delta.
ARTICLE III
COVENANTS
Section 3.01. Covenants of Newco.
(a) Newco shall be solely responsible to its
Customers for providing telecommunications and other services, including,
without limitation, contracting with its Customers for the provision of such
services and performing customer service functions for its Customers, including
responding to customer inquiries and complaints.
(b) Newco shall act in accordance with all applicable
federal, state, municipal or foreign salutes, rules, regulations, policies,
orders or ordinances (the "Governmental Rules) governing or relating to the
provision of services to the Customers, including, without limitation, any and
all Governmental Rules prohibiting "slamming."
(c) Newco shall secure and maintain such federal and
state regulatory authorizations, and maintain on file with federal and state
regulatory authorities such tariffs, as shall be necessary and appropriate for
the provision of the Internet Telephony Services to the Customers.
3
<PAGE> 4
Section 3.02. Covenants of Delta.
(a) Delta shall act in accordance with all
Governmental Rules governing or relating to the provision of the Services.
(b) Delta shall secure and maintain such federal and
state regulatory authorizations, and maintain on file with federal and state
regulatory authorities such tariffs, as shall be necessary and appropriate for
the provision of the Internet Telephony Services to the Customers.
ARTICLE IV
PAYMENTS
Section 4.01. Service Charges. As soon as practicable after
the end of each calendar month during the Term, Delta shall provide Newco with
an invoice detailing the amounts to be paid by Newco in connection with the
Services provided to Newco hereunder.
Section 4.02. Payments Due: Late Payment Charges. Amounts due
hereunder shall be paid within thirty (30) days of receipt of the invoice
therefor. Any undisputed amount due hereunder not paid within thirty (30) days
of receipt of the invoice therefor shall accrue interest from the date such
amount was due at the rate of five percent (5%) per annum, compounded daily.
Section 4.03. Disputed Payments. If a dispute arises in good
faith with respect to any amount due hereunder, Newco shall pay when due the
undisputed portion of such amount, if any, and, if the dispute is resolved in
Delta's favor, promptly pay the disputed portion (or applicable part thereof)
when the dispute is resolved without the applicable late payment charge
otherwise incurred in connection with Section 4.02.
Section 4.04. Currency. All invoices hereunder shall
be rendered, and all payments hereunder shall be made in U.S. Dollars.
ARTICLE V
TERMINATION
4
<PAGE> 5
Section 5.01. Termination for Cause.
(a) In the event that (i) either Newco or Delta
materially breaches any of its duties or obligations hereunder or (ii) Quintel
or Delta materially breaches any of its obligations under the LLC Agreement or
any agreement, certificate or other instrument or document delivered in
accordance therewith, which breach shall not be cured within ten (10) days after
written notice is given to the breaching party specifying the breach, then
either Newco or Delta, as the case may be, may, by giving notice thereof to the
other, terminate this Agreement as of a date specified in such notice of
termination, which date shall be no earlier than ten (10) days after the date of
such notice.
(b) Notwithstanding anything to the contrary
contained herein, either party may terminate this Agreement or discontinue the
provision of Services, effective immediately upon written notice to the other,
upon the occurrence of any of the following events:
(i) the violation by such other party of any
Governmental Rule with respect to the provision of the
Services and such violation is reasonably expected to cause a
material harm to the business of the party terminating the
Agreement; or
(ii) a government entity with appropriate
jurisdiction issues a final order that (a) the provision of
the Services or the relationship hereunder is contrary to law
or regulation or (b) such other party has engaged in
fraudulent, deceptive or illegal conduct.
Section 5.02. Termination for Bankruptcy. In the event of the
Bankruptcy (as hereinafter defined) of either Newco or Delta, then the
non-bankrupt party may, by written notice thereof to the party in Bankruptcy,
terminate this Agreement as of a date specified in such notice of termination,
which date shall be no earlier than ten (10) days after the date of such notice.
For the purposes of this Agreement, "Bankruptcy" shall mean the happening of any
of the following: (i) the filing of an application for, or a consent to, the
appointment of a trustee for all or substantially all of the relevant party's
assets, (ii) the filing of a voluntary petition in bankruptcy, or the filing of
a pleading in any court of record admitting in writing the relevant party's
inability to pay its debts generally as they come due, (iii) the making of a
general assignment for the benefit of creditors, (iv) the entry of an order,
judgment or decree by any court of competent jurisdiction adjudicating the
relevant party a bankrupt, or appointing a trustee of all or substantially all
of such party's assets unless such order, judgment or decree is vacated or
stayed on appeal within thirty (30) days or (v) the filing of an involuntary
case or other proceeding against the relevant party seeking liquidation,
reorganization or other relief under any bankruptcy, insolvency or other similar
law, which case or proceeding shall not have been dismissed within sixty days
after filing.
5
<PAGE> 6
Section 5.03. Effect of Termination. In the event of
the termination of this Agreement, all rights and obligations of Newco and Delta
shall terminate as of the effective date of such termination, except that (i)
such termination shall not constitute a waiver of any, rights that either Newco
or Delta may have by reason of a breach of this Agreement, including any right
to indemnification pursuant to Article VIII, (ii) such termination shall not
constitute a waiver of any right to receive payments that are due and pursuant
to Article IV and (iii) the provisions of Article VII shall continue in full
force and effect. Neither party shall, by reason of termination or examination
of this Agreement, be liable to the other for cooperation, reimbursement or
damage of any kind on account of loss of profits on anticipated sales or on
account of expenditures, investments or commitments made by such party in
connection with the business or goodwill of such party.
ARTICLE VI
LIMITED WARRANTY
Section 6.01. Disclaimer of General Warranty by Delta. DELTA
MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, CONCERNING THE SERVICES
PROVIDED HEREUNDER, INCLUDING ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE, MERCHANTABILITY OR OTHERWISE.
Section 6.02. Force Majeure. Delta shall not be liable for any
interruption of Services when such interruption results from causes beyond its
reasonable control, including, but not limited to, any strikes, lock-outs or
other labor difficulties, acts of any government, riot, insurrection or other
hostilities, embargo, fuel or energy shortage, fire, flood, acts of God, wrecks
or transportation delays or inability to obtain necessary utilities. In any such
event, Delta's obligations to provide Services shall be postponed for such time
as its performance is suspended or delayed on account thereof; provided that,
during such time that Delta's provision of Services are suspended and/or
delayed, and only during such time, Newco shall be entitled to obtain such
Services from another provider of such Services. Delta will promptly notify
Newco, either orally or in writing, upon learning of the occurrence of such
event of force majeure. Upon the cessation of the force majeure event, Delta
"will use its commercially reasonable efforts to resume its provision of
Services with the least possible delay and, upon the resumption of such
Services, Newco shall promptly resume the exclusive utilization of Delta's
Services.
ARTICLE VII
CONFIDENTIALITY
6
<PAGE> 7
Section 7.01. Confidentiality.
(a) In connection with the Services provided
hereunder, each party may disclose to the other party confidential and
proprietary technical, commercial and other information concerning the business
and affairs of such party (the "Information"). The parties agrees that for the
longest period permitted by law it shall hold in strictest confidence and take
all reasonable care to insure that such Information shall not be disclosed to
any third party, including imposing reasonable confidentiality requirements with
respect to such Information on its Affiliates (as defined in the LLC Agreement)
and its or its Affiliates' respective employees, agents, counsel, accountants
and other representatives, except insofar as (i) such disclosure may be
specifically authorized in writing from time to time by the disclosing party,
(ii) such Information is necessarily disclosed by its commercial use in the
operation of the business of the receiving party, (iii) the receiving party of
such Information can demonstrate that such Information was previously made
public or disclosed by the disclosing party without restriction to a third party
or is in the public domain otherwise than as a consequence of a breach of the
receiving party's obligations hereunder, (iv) such Information is known by the
receiving party without proprietary restrictions at the time of receipt of such
Information or (v) such disclosure is required pursuant to compulsory legal
process, including subpoena, civil investigative demands, oral questions or
interrogatories; provided that, in such event, the receiving party of such
Information shall promptly provide written notice of such legal process to the
disclosing party so that such disclosing party may oppose such disclosures or
seek a protective order or other confidential treatment of such Information.
(b) The parties recognize that the absence of a time
limitation in this Section 7.01 is reasonable and properly required for the
protection of the parties and in the event that the absence of such limitation
is deemed to be unreasonable by a court of competent jurisdiction, each party
agrees and submits to the imposition of such a limitation as said court shall
deem reasonable.
Section 7.02. Equitable Remedies. Each party specifically
recognizes that any breach of Section 7.01 will cause irreparable injury to the
other party and that actual damages may be difficult to ascertain, and in any
event, may be inadequate. Accordingly (and without limiting the availability of
legal or equitable, including injunctive, remedies under any other provisions of
this Agreement), each party agrees that in the event of any such breach, the
other party shall be entitled to injunctive relief in addition to such other
legal and equitable remedies that may be available. In addition, the parties
agree that the provisions of Section 7.01 shall be considered separate and apart
from the remaining provisions of this Agreement and shall be enforced as such.
7
<PAGE> 8
ARTICLE VIII
INDEMNIFICATION
Section 8.01 Indemnification by Newco. Newco agrees to
indemnify and hold harmless Delta from and against, and to reimburse Delta with
respect to, any and all loss, damage, liability, cost and expense, including,
without limitation, reasonable attorneys' fees and expenses (as and when
incurred) incurred by Delta, or any Affiliate of Delta, by reason of or arising
out of or in connection with the breach of any of the representations,
warranties, covenants, agreements or undertakings made by Newco hereunder.
Section 8.02 Indemnification by Delta. Delta agrees to
indemnify and hold harmless Newco from and against, and to reimburse Newco with
respect to, any and all loss, damage, liability, cost and expense, including,
without limitation, reasonable attorneys' fees and expenses (as and when
incurred) incurred by Newco, or any Affiliate of Newco, by reason of or arising
out of or in connection with the breach of any of the representations,
warranties, covenants, agreements or undertakings made by Delta hereunder;
provided that, in no event shall Delta be liable for any special, indirect, or
consequential damages whatsoever which in any way arise out of, relate to or are
a consequence of its failure to provide the Services hereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Independent Contractor. This Agreement does not
constitute Newco as an agent, legal representative, joint venturer, partner or
as an employee of Delta for any purpose. This Agreement does not authorize Newco
to make any contract, agreement, warranty, statement or representation or take
any other action which could establish any apparent relationship or agency,
joint venture, partnership or employment with Delta. Delta shall not be bound in
any manner by any such contract, agreements, warranty, statement or
representation made by Newco to any other person or with respect to any other
action by Newco. As a result solely of this Agreement, Delta shall not have
control over Newco's employees, including the terms and conditions of their
employment, or over Newco's methods of doing business except as set forth
herein.
Section 9.02. Further Assurances. Each party will, at any time
and from time to time after the date hereof, upon the request of the other, do,
execute, acknowledge and deliver, or cause to be done, executed, acknowledged
and delivered, all such other instruments as may be reasonably required in
connection with the performance of this Agreement and each shall take all such
further actions as may be reasonably required to carry out or further effect the
transactions contemplated by this Agreement. Upon request, Delta and Newco will
cooperate, and will use their respective best efforts to have
8
<PAGE> 9
their respective officers, directors and other employees cooperate, at the
requesting parties' expense, during and after the Term in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes involving Delta and/or Newco.
Section 9.03. Survival of Representations. All statements,
certifications, indemnifications, representations and warranties made by the
parties to this Agreement in this Agreement or in any certificate or list
delivered pursuant hereto, and their respective obligations to be performed
pursuant to the terms hereof and thereof, shall survive the Term notwithstanding
(a) any examination or audit by or on behalf of any party hereto and (b) any
notice of a breach or of a failure to perform not waived in writing.
Section 9.04. Notices. All notices or other communications
required or permitted hereunder shall be in writing and shall be deemed given or
delivered (i) when delivered personally or by private courier, (ii) when
actually delivered by registered or certified United States mail, return receipt
requested and postage prepaid or (iii) when sent by facsimile (provided that it
is confirmed in writing sent by either of the methods set forth in clauses (i)
or (ii) on the day that such facsimile is sent), addressed as follows:
If to Delta:
c/o Delta Three Israel Ltd.
Jerusalem Technology Park
Malha Building 9, 4th Floor
Jerusalem 96951
Israel
Fax No.: 972-2-649-1200
Attention: Elie Wurtman
with a copy to:
RSL Communications, N. America, Inc.
767 Fifth Avenue
Suite 4300
New York, NY 10153
Fax No.: (212) 317-0600
Attention: Avery S. Fischer, Esq.
9
<PAGE> 10
If to Newco:
Delta Three Direct, LLC
One Blue Hill Plaza
Pearl River, New York 10965
Fax No.: 914-620-1717
Attention: Eric Aroesty
with a copy to:
Delta Three, Inc.
c/o Delta Three Israel Ltd.
Jerusalem Technology Park
Malha Building 9, 4th Floor
Jerusalem 96951
Israel
Fax No.: 972-2-6419-1200
Attention: Elie Wurtman
with a copy to:
RSL Communications, N. America, Inc.
767 Fifth Avenue
Suite 4300
New York, NY 10153
Fax No.: (212) 317-0600
Attention: Avery S. Fischer, Esq.
with a copy to:
Quintel Entertainment, Inc.
One Blue Hill Plaza
Pearl River, New York 10965
Fax No.: 914-620-1717
Attention: President
with a copy to:
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022-1200
Fax No.: 212-888-7776
Attention: Murray Skala, Esq.
10
<PAGE> 11
or to such other address as such party may indicate by a notice delivered to the
other party hereto pursuant to the terms hereof.
Section 9.05. No Modification Except in Writing. This
Agreement shall not be changed, modified, or amended except by a writing signed
by the party to be charged and no obligation of any party under this Agreement
may be discharged except by performance in accordance with the terms hereof or
by a writing signed by the other party.
Section 9.06. Entire Agreement. This Agreement and all other
documents to be delivered in connection herewith set forth the entire agreement
and understanding, between the parties as to the subject matter hereof and
merges and supersedes all prior discussions, agreements and understandings of
every kind and nature between them.
Section 9.07. Severability. If any provision of this Agreement
or the application of any provision hereof to any person or circumstances is
held invalid, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected unless the
provision held invalid shall substantially impair the benefits of the remaining
portions of this Agreement.
Section 9.08. Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. This Agreement may not be assigned by either party hereto
without the prior written consent of the other party.
Section 9.09. Public Announcements. Neither party hereto shall
issue or make any advertisement press release or public announcement with
respect to this Agreement and the transactions contemplated herein, without the
prior written consent of the other party hereto, except to the extent required
by Governmental Rules (including U.S. securities rules and regulations and the
rules and regulations of any stock exchange on which the capital stock of any
party hereto or its Affiliate is traded). The parties hereto agree, to the
extent practical, to consult with each other regarding any public announcement
required by Governmental Rules in advance of such public announcement.
Section 9.10. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof. For purposes of this
Agreement, each party hereby irrevocably submits to the nonexclusive
jurisdiction of the courts of the State of New York, sitting in New York County,
and the courts of the United States for the Southern District of New York. Each
party irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court, any claim that any such suit,
action or
11
<PAGE> 12
proceeding brought in such a court has been brought in an inconvenient forum and
the right to object, with respect to any such suit, action or proceeding brought
in any such court, that such court does not have jurisdiction over such party.
In any such suit, action or proceeding, each party waives, to the fullest extent
it may effectively do so, personal service of any summons, complaint or other
process and agrees that the service thereof may be made by certified or
registered mail, addressed to such party at its address set forth in Section
9.04. Each party agrees that a final non-appealable judgment in any such suit,
action or proceeding brought in such a court shall be conclusive and binding.
Section 9.11. Third Party Beneficiaries. Nothing in this
Agreement, express or implied, shall create or confer upon any person or entity,
other than the parties to this Agreement or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities.
Section 9.12. Captions. The captions appearing in this
Agreement are inserted only as a matter of convenience and for reference and in
no way define, limit or describe the scope and intent of this Agreement or any
of the provisions hereof.
Section 9.13. Interpretation. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular,
or plural as the identify of the person or persons referred to may require.
Section 9.14. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
DELTA THREE, INC.
By /s/ Elie Wurtman
-------------------------------
Name: Elie Wurtman
Title: Chief Executive Officer
DELTA THREE DIRECT, LLC
By /s/ Eric S. Aroesty
-------------------------------
Name: Eric Aroesty
Title: President
12
<PAGE> 1
EXHIBIT 10.17.4
RSL USA NETWORK SERVICES AGREEMENT
RSL USA NETWORK SERVICES AGREEMENT, (this "Agreement"), dated
as of August 10, 1998, between RSL COM U.S.A., INC., a Delaware corporation
("RSL USA"), and DELTA THREE DIRECT, LLC, a New York limited liability company
("Newco").
W I T N E S S E T H:
WHEREAS, pursuant to an Operating Agreement, dated as of the
date hereof (the "LLC Agreement"), between Delta Three, Inc., a Delaware
corporation and an Affiliate (as defined in the LLC Agreement) of RSL USA,
("Delta"), and Quintel Entertainment Inc., a Delaware corporation ("Quintel"),
Delta and Quintel have formed Newco for the purpose of marketing and selling
certain telephony services; and
WHEREAS, in connection with the formation of Newco pursuant to
the LLC Agreement, RSL USA has agreed to provide the Telephony Services (as
defined in Section 2.01 below), the Ancillary Services (as defined in Section
2.02 below) and the Billing Services (as defined in Section 2.03 below) to
Newco, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants hereinafter contained, the parties hereto hereby agree
as follows:
ARTICLE I
TERM
Section 1.01. Term. The term (the "Term") of this Agreement
shall commence on the date hereof and shall continue until the date (the
"Withdrawal Date") on which Delta withdraws as a member of Newco (other than in
the event that Delta transfers its interest in Newco to an Affiliate of Delta),
subject to earlier termination as provided in Section 2.04 or Article V.
Notwithstanding the foregoing, if, as of the Withdrawal Date, this Agreement has
not been terminated pursuant to Article V, then Newco may elect to extend the
Term on a month-to-month basis for up to nine months from the Withdrawal Date
(the "Extension Period"); provided, however, that the Services will be provided
by RSL USA during the Extension Period on the terms contained herein
{Confidential portion omitted and filed separately with the Commission},
notwithstanding any changes in such terms after the date hereof (including any
such changes arising from an exercise of RSL USA's right of first refusal
pursuant to Section 2.04).
ARTICLE II
SERVICES PROVIDED BY RSL USA
<PAGE> 2
Section 2.01. Telephony Services.
(a) During the Term, RSL USA shall provide the Telephony
Services to Newco for resale to its Customers (as defined below). For the
purposes hereof, the "Telephony Services" shall mean the telecommunications
services provided to Newco by RSL USA or by other carriers (including Affiliates
of RSL USA) pursuant to certain agreements between RSL USA and such other
carriers, as the same may be modified, amended or terminated from time to time
(at RSL USA's sole and absolute discretion). For the purposes hereof, the term
"Customers" shall include all residential and commercial users of the Services
(as defined below) from whom Newco obtains service orders. During the Term, RSL
USA shall be the exclusive provider of the Telephony Services to Newco.
(b) The Telephony Services shall be provided by RSL
USA to Newco at RSL USA's Telephony Direct Cost (as defined below) of providing
such services plus {Confidential portion omitted and filed separately with the
Commission}. For the purposes hereof, "Telephony Direct Cost" shall mean RSL
USA's direct cost for providing the Telephony Services without inclusion of
overhead costs (including depreciation and amortization expenses and any other
expenses of building or maintaining the network, except to the extent such
maintenance is necessary for the purpose of providing the Telephony Services
specifically to Newco) and after taking into account discounted rates or service
credits provided under Operating Agreements (as defined below). For the purposes
hereof, "Operating Agreement" shall mean an operating agreement relating to the
provision by RSL USA of transmission services that provides for return traffic
or service credits.
Section 2.02. Ancillary Services.
(a) During the Term, at the request of Newco, RSL USA shall
provide the Ancillary Services to Newco for use in connection with the Newco
Business. For the purposes hereof, the "Ancillary Services" shall mean customer
service and provisioning, each as customarily provided in the telecommunications
industry.
(b) The Ancillary Services shall be provided by RSL USA to
Newco at RSL USA's Ancillary Service Direct Cost (as defined below) of providing
such services plus {Confidential portion omitted and filed separately with the
Commission}. For the purposes hereof, "Ancillary Service Direct Cost" shall mean
RSL USA's direct cost for providing the Ancillary Services without inclusion of
overhead costs (including depreciation and amortization expenses).
2
<PAGE> 3
Section 2.03. Billing Services.
(a) During the Term, at the request of Newco, RSL USA shall
provide the Billing Services to Newco for use in connection with the Newco
Business. For the purposes hereof, the "Billing Services" shall mean the billing
services provided by RSL USA through the operation of its on-line billing
systems and interfaces, as the same shall exist from time to time. For the
purposes hereof, the "Services" shall mean the Telephony Services, the Ancillary
Services and the Billing Services.
(b) The Billing Services shall be provided by RSL USA to Newco
at RSL USA's Billing Direct Cost (as defined below) of providing such services
plus {Confidential portion omitted and filed separately with the Commission}.
For the purposes hereof, "Billing Direct Cost" shall mean RSL USA's direct cost
for providing the Billing Services without inclusion of overhead costs
(including depreciation and amortization expenses).
Section 2.04. Right of First Refusal. In the event that Newco
receives a bona fide offer from a third party telecommunications carrier (a
"Proposed Carrier") to provide the Services to Newco at rates which are less
than the rates at which the Services are provided by RSL USA hereunder, then
Newco shall provide RSL USA with written notice thereof (the "First Refusal
Notice") which shall include a detailed description of the rates and other terms
at which the Proposed Carrier proposes to provide the Services (the "Third Party
Terms"). The First Refusal Notice shall also be accompanied by a true copy of
any bona fide written offer received by Newco from the Proposed Carrier. The
First Refusal Notice shall constitute an offer to RSL USA to continue to provide
the Services on the Third Party Terms. RSL USA shall have a period of fifteen
(15) business days (the "Offer Period") after its receipt of the First Refusal
Notice within which to accept such offer by giving written notice to such effect
to Newco within such period (the "Acceptance Notice"). If RSL USA shall accept
the offer made by the First Refusal Notice, then RSL USA shall continue to
provide such Services to Newco on the Third Party Terms and this Agreement shall
remain in full force and effect except to the extent that the Third Party Terms
differ from the rates and other terms upon which the Services are provided
hereunder. If RSL USA shall not accept the offer made by the First Refusal
Notice, this Agreement shall terminate effective as of the last day of the month
in which the Offer Period expires.
Section 2.05. Operating Procedures. The Services to be
provided by RSL USA in accordance with this Article II shall be provided to
Newco in accordance with procedures that are customary in the telecommunications
industry and currently in use by RSL USA.
3
<PAGE> 4
ARTICLE III
COVENANTS
Section 3.01. Covenants of Newco.
(a) Newco shall be solely responsible to its Customers for
providing telecommunications and other services, including, without limitation,
contracting with its Customers for the provision of such services and performing
customer service functions for its Customers, including responding to customer
inquiries and complaints.
(b) Newco shall act in accordance with all applicable federal,
state, municipal or foreign statutes, rules, regulations, policies, orders or
ordinances (the "Governmental Rules") governing or relating to the provision of
services to the Customers, including, without limitation, any and all
Governmental Rules prohibiting slamming."
(c) Newco shall secure and maintain such federal and state
regulatory authorizations, and maintain on file with federal and state
regulatory authorities such tariffs, as shall be necessary and appropriate for
the provision of the Telephony Services to the Customers.
(d) Newco shall not, without the prior written approval of RSL
USA, use any advertising or promotional materials to promote, market and solicit
orders for the Telephony Services, whether in print or other media, which
contain references to RSL USA or any affiliate of RSL USA (other than Delta,
which references are subject to the terms of the Operating Agreement).
Section 3.02. Covenants of RSL USA.
(a) RSL USA shall act in accordance with all Governmental
Rules governing or relating to the provision of the Services.
(b) RSL USA shall secure and maintain such federal and state
regulatory authorizations, and maintain on file with federal and state
regulatory authorities such tariffs, as shall be necessary and appropriate for
the provision of the Telephony Services to the Customers.
4
<PAGE> 5
ARTICLE IV
PAYMENTS
Section 4.01. Service Charges. As soon as practicable after
the end of each calendar month during the Term, RSL USA shall provide Newco with
an invoice detailing the amounts to be paid by Newco in correction with the
Services provided to Newco hereunder.
Section 4.02. Payments Due: Late Payment Charges. Amounts due
hereunder shall be paid within thirty (30) days of receipt of the invoice
therefor. Any undisputed amount due hereunder not paid within thirty (30) days
of receipt of the invoice therefor shall accrue interest from the date such
amount was due at the rate of ten percent (10%) per annum, compounded daily.
Section 4.03. Disputed Payments. If a dispute arises in good
faith with respect to any amount due hereunder, Newco shall pay when due the
undisputed portion of such amount, if any, and, if the dispute is resolved in
RSL USA's favor, promptly pay the disputed portion (or applicable part thereof)
when the dispute is resolved without the applicable late payment charge
otherwise incurred in connection with Section 4.02.
Section 4.04. Currency. All invoices hereunder shall be
rendered, and all payments hereunder shall be made in U.S. Dollars.
ARTICLE V
TERMINATION
Section 5.01. Termination for Cause.
(a) In the event that Newco or RSL USA materially breaches any
of its duties or obligations hereunder, which breach shall not be cured within
ten (10) days after written notice is given to the breaching party specifying
the breach, then either Newco or RSL USA, as the case may be, may, by giving
written notice thereof to the other, terminate this Agreement as of a date
specified in such notice of termination, which date shall be no earlier than ten
(10) days after the date of such notice.
(b) Notwithstanding anything to the contrary contained herein,
either party may terminate this Agreement or discontinue the provision of
Services, effective immediately upon written notice to the other, upon the
occurrence of any of the following events:
5
<PAGE> 6
(i) the violation by such other party of any
Governmental Rule with respect to the provision of the
Services and such violation is reasonably expected to cause a
material harm to the business of the party terminating, the
Agreement; or
(ii) a government entity with appropriate
jurisdiction issues a final order that (a) the provision of
the Services or the relationship hereunder is contrary to law
or regulation or (b) such other party has engaged in
fraudulent, deceptive or illegal conduct.
Section 5.02. Termination by RSL USA. Notwithstanding anything
to the contrary contained herein, if RSL USA determines, in good faith, that the
complaints received by Newco and/or RSL USA from Newco's Customers relating to
charges of "slamming" and/or "cramming" would cause a material harm to the
business of RSL USA, then RSL USA may terminate this Agreement or discontinue
the provision of Services, effective upon thirty (30) days' prior written notice
to Newco.
Section 5.03. Termination for Bankruptcy. In the event of the
Bankruptcy (as hereinafter defined) of either Newco or RSL USA, then the
non-bankrupt party may, by written notice thereof to the party in Bankruptcy,
terminate this Agreement as of a date specified in such notice of termination,
which date shall be no earlier than ten (10) days after the date of such notice.
For the purposes of this Agreement, "Bankruptcy" shall mean the happening of any
of the following: (i) the filing of an application for, or a consent to, the
appointment of a trustee for all or substantially all of the relevant party's
assets, (ii) the filing of a voluntary petition in bankruptcy, or the filing of
a pleading in any court of record admitting in writing the relevant party's
inability to pay its debts generally as they come due, (iii) the making of a
general assignment for the benefit of creditors, (iv) the entry of an order,
judgment or decree by any court of competent jurisdiction adjudicating the
relevant party a bankrupt, or appointing a trustee of all or substantially all
of such party's assets unless such order, judgment or decree is vacated or
stayed on appeal within thirty (30) days or (v) the filing of an involuntary
case or other proceeding against the relevant party seeking liquidation,
reorganization or other relief under any bankruptcy, insolvency or other similar
law, which case or proceeding shall not have been dismissed within sixty days
after filing.
Section 5.04. Effect of Termination. In the event of the
termination of this Agreement, all rights and obligations of Newco and RSL USA
shall terminate as of the effective date of such termination, except that (i)
such termination shall not constitute a waiver of any rights that either Newco
or RSL USA may have by reason of a breach of this Agreement, including any right
to indemnification pursuant to Article VIII, (ii) such termination shall not
constitute a waiver of any right to receive payments that are due and owing
pursuant to Article IV and (iii) the provisions of Article VII shall continue in
full force and effect. Neither party shall, by reason of termination or
expiration of this Agreement, be liable to the other for compensation,
reimbursement or damage of any kind on account of loss of profits on anticipated
sales or on account of expenditures, investments or commitments made by such
party in
6
<PAGE> 7
connection with, the business or goodwill of such party.
ARTICLE VI
LIMITED WARRANTY
Section 6.01. Disclaimer of General Warrants by RSL USA. RSL
USA MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, CONCERNING THE
SERVICES PROVIDED HEREUNDER, INCLUDING ANY IMPLIED WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE.
Section 6.02. Force Majeure. RSL USA shall not be liable for
any interruption of Services when such interruption results from causes beyond
its reasonable control, including, but not limited to, any strikes, lock-outs or
other labor difficulties, acts of any government, riot, insurrection or other
hostilities, embargo, fuel or energy shortage, fire, flood, acts of God, wrecks
or transportation delays or inability to obtain necessary utilities. In any such
event, RSL USA's obligations to provide Services shall be postponed for such
time as its performance is suspended or delayed on account thereof, provided
that, during such time that RSL USA's provision of Services are suspended and/or
delayed, and only during such time, Newco shall be entitled to obtain such
Services from another provider of such Services . RSL USA will promptly notify
Newco, either orally or in writing, upon learning of the occurrence of such
event of force majeure. Upon the cessation of the force majeure event, RSL USA
will use its commercially reasonable efforts to resume its provision of Services
with the least possible delay and, upon the resumption of such Services, Newco
shall promptly resume the exclusive utilization of RSL USA's Services.
ARTICLE VII
CONFIDENTIALITY
Section 7.01. Confidentiality.
(a) In connection with the Services provided hereunder, each
party may disclose to the other party confidential and proprietary technical,
commercial and other information concerning the business and affairs of such
party (the "Information"). The parties agrees that for the longest period
permitted by law it shall hold in strictest confidence and take all reasonable
care to insure that such information shall not be disclosed to any third party,
including imposing reasonable confidentiality requirements with respect to such
Information on its Affiliates and its or its Affiliates' respective employees,
agents, counsel, accountants and other representatives, except insofar as (i)
such disclosure may be specifically authorized in writing from time to time by
the disclosing party, (ii) such Information is necessarily disclosed by its
commercial use in the operation of the business of the receiving party, (iii)
the receiving party of such Information can demonstrate that such Information
was previously made public or disclosed by the disclosing party without
restriction to a third party or is in the public domain
7
<PAGE> 8
otherwise than as a consequence of a breach of the receiving party's obligations
hereunder, (iv) such Information is known by the receiving party's without
proprietary restrictions at the time of receipt of such Information or (v) such
disclosure is required pursuant to compulsory legal process, including subpoena,
civil investigative demands, oral questions or interrogatories; provided that,
in such event, the receiving party of such Information shall promptly provide
written notice of such legal process to the disclosing party so that such
disclosing party may oppose such disclosures or seek a protective order or other
confidential treatment of such Information.
(b) The parties recognizes that the absence of a time
limitation in this Section 7.01 is reasonable and properly required for the
protection of the parties and in the event that the absence of such limitation
is deemed to be unreasonable by a court of competent jurisdiction, each party
agrees and submits to the imposition of such a limitation as said court shall
deem reasonable.
Section 7.02. Equitable Remedies. Each party specifically
recognizes that any breach of Section 7.01 will cause irreparable injury to the
other party and that actual damages may be difficult to ascertain, and in any
event, may be inadequate. Accordingly (and without limiting the availability of
legal or equitable, including injunctive, remedies under any other provisions of
this Agreement), each party agrees that in the event of any such breach, the
other party shall be entitled to injunctive relief in addition to such other
legal and equitable remedies that may be available. In addition, the parties
agree that the provisions of Section 7.01 shall be considered separate and apart
from the remaining provisions of this Agreement and shall be enforced as such.
ARTICLE VIII
INDEMNIFICATION
Section 8.01 Indemnification by Newco. Newco agrees to
indemnify and hold harmless RSL USA from and against, and to reimburse RSL USA
with respect to, any and all loss, damage, liability, cost and expense,
including, without limitation, reasonable attorney's fees and expenses (as and
when incurred) incurred by RSL USA, or any Affiliate of RSL USA, by reason of or
arising out of or in connection with the breach of any of the representations,
warranties, covenants, agreements or undertakings made by Newco hereunder.
8
<PAGE> 9
Section 8.02 Indemnification by RSL USA. RSL USA agrees to
indemnify and hold harmless Newco from and against, and to reimburse Newco with
respect to, any and all loss, damage, liability, cost and expense, including,
without limitation, reasonable attorneys' fees and expenses (as and when
incurred) incurred by Newco, or any Affiliate of Newco, by reason of or arising
out of or in connection with the breach of any of the representations,
warranties, covenants, agreements or undertakings made by RSL USA hereunder;
provided that, in no event shall RSL USA be liable for any special, indirect,
incidental or consequential damages whatsoever which in any way arise out of,
relate to or are a consequence of its failure to provide the Services hereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Independent Contractor. This Agreement does not
constitute Newco as an agent, legal representative, joint venturer, partner or
as an employee of RSL USA for any purpose. This Agreement does not authorize
Newco to make any contract, agreement, warranty, statement or representation or
take any other action which could establish any apparent relationship or agency,
joint venture, partnership or employment with RSL USA. RSL USA shall not be
bound in any manner by any such contract, agreement, warranty, statement or
representation made by Newco to any other person or with respect to any other
action by Newco. Similarly, this Agreement does not authorize RSL USA to make
any contract or agreement on behalf of Newco and Newco shall not be bound in any
manner by any such contract or agreement made by RSL USA. As a result solely of
this Agreement, RSL USA shall not have control over Newco's employees, including
the terms and conditions of their employment, or over Newco's methods of doing
business except as set forth herein.
Section 9.02. Further Assurances. Each party will, at any time
and from time to time after the date hereof, upon the request of the other, do,
execute, acknowledge and deliver, or cause to be done, executed, acknowledged
and delivered, all such other instruments as may be reasonably required in
connection with the performance of this Agreement and each shall take all such
further actions as may be reasonably required to carry out or further effect the
transactions contemplated by this Agreement. Upon request, RSL USA and Newco
will cooperate, and will use their respective best efforts to have their
respective officers, directors and other employees cooperate, at the requesting
parties' expense, during and after the Term in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings,
arrangements or disputes involving RSL USA and/or Newco.
9
<PAGE> 10
Section 9.03. Survival of Representations. All statements,
certifications, indemnifications, representations and warranties made by the
parties to this Agreement in this Agreement or in any certificate or list
delivered pursuant hereto, and their respective obligations to be performed
pursuant to the terms hereof and thereof, shall survive the Term notwithstanding
(a) any examination or audit by or on behalf of any party hereto and (b) any
notice of a breach or of a failure to perform not waived in writing.
Section 9.04. Notices. All notices or other communications
required or permitted hereunder shall be in writing and shall be deemed given or
delivered (i) when delivered personally or by private courier, (ii) when
actually delivered by registered or certified United States mail, return receipt
requested and postage prepaid or (iii) when sent by facsimile (provided that it
is confirmed in writing sent by either of the methods set forth in clauses (i)
or (ii) on the day that such facsimile is sent), addressed as follows:
If to RSL USA:
RSL COM U.S.A., Inc.
430 Park Avenue, 5th Floor
New York, New York 10022
Fax No.: 212-813-9469
Attention: Edmond J. Thomas
with a copy to:
RSL Communication, N. America, Inc.
767 Fifth Avenue
Suite 4300
New York, NY 10153
Fax No.: (212) 317-0600
Attention: Avery S. Fischer, Esq.
If to Newco:
Delta Three Direct, LLC
One Blue Hill Plaza
Pearl River, New York 10965
Fax No.: 914-620-1717
Attention: Eric Aroesty
10
<PAGE> 11
with a copy to:
Delta Three Israel Ltd.
Jerusalem Technology Park
Malha Building 9, 4th Floor
Jerusalem 96951
Israel
Fax No.: 972-2-649-1200
Attention: Elie Wurtman
with a copy to:
RSL Communications, N. America Inc.
767 Fifth Avenue
Suite 4300
New York, NY 10153
Fax No.: (212) 317-0600
Attention: Avery S. Fischer, Esq.
with a copy to:
Quintel Entertainment, Inc.
One Blue Hill Plaza
Pearl River, New York 10965
Fax No.: 914-620-1717
Attention: President
with a copy to:
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022-1200
Fax No.: 212-888-7776
Attention: Murray Skala, Esq.
or to such other address as such party may indicate by a notice delivered to the
other party hereto pursuant to the terms hereof.
Section 9.05. No Modification Except in Writing. This
Agreement shall not be changed, modified, or amended except by a writing signed
by the party to be charged and no obligation of any party under this Agreement
may be discharged except by performance in accordance with the terms hereof or
by a writing signed by the other party.
Section 9.06. Entire Agreement. This Agreement and all other
documents to be
11
<PAGE> 12
delivered in connection herewith set forth the entire agreement and
understanding between the parties as to the subject matter hereof and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them.
Section 9.01. Severability. If any provision of this Agreement
or the application of any provision hereof to any person or circumstances is
held invalid, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected unless the
provision held invalid shall substantially impair the benefits of the remaining
portions of this Agreement.
Section 9.08. Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. This Agreement may not be assigned by either party hereto
without the prior written consent of the other party.
Section 9.09. Public Announcements. Neither party hereto shall
issue or make any advertisement, press release or public announcement with
respect to this Agreement and the transactions contemplated herein, without the
prior written consent of the other party hereto, except to the extent required
by Governmental Rules (including U.S. securities rules and regulations and the
rules and regulations of any stock exchange on which the capital stock of any
party hereto or its Affiliate is traded). The parties hereto agree, to the
extent practical, to consult with each other regarding any public announcement
required by Governmental Rules in advance of such public announcement.
Section 9.10. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof. For purposes of this
Agreement, each party hereby irrevocably submits to the nonexclusive
jurisdiction of the courts of the State of New York, sitting in New York County,
and the courts of the United States for the Southern District of New York. Each
party irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court, any claim that any such suit,
action or proceeding brought in such a court has been brought in an inconvenient
forum and the right to object, with respect to any such suit action or
proceeding brought in any such court, that such court does not have jurisdiction
over such party. In any such suit, action or proceeding, each party waives, to
the fullest extent it may effectively do so, personal service of any summons,
complaint or other process and agrees that the service thereof may be made by
certified or registered mail, addressed to such party at its address set forth
in Section 9.04. Each party agrees that a final non-appealable judgment in any
such suit, action or proceeding brought in such a court shall be conclusive and
binding.
Section 9.11. Third Party Beneficiaries. Nothing in this
Agreement, express or implied, shall create or confer upon any person or entity,
other than the parties to this Agreement or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities.
12
<PAGE> 13
Section 9.12. Captions. The captions appearing in this
Agreement are inserted only as a matter of convenience and for reference and in
no way define, limit or describe the scope and intent of this Agreement or any
of the provisions hereof.
Section 9.13. Interpretation. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular,
or plural as the identify of the person or persons referred to may require.
Section 9.14. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
RSL COM U.S.A., INC.
By /s/
-----------------------------
Name:
Title:
DELTA THREE DIRECT, LLC
By /s/ Eric Aroesty
--------------------------------
Name:
Title:
13
<PAGE> 1
EXHIBIT 10.21
1 16 98
Effective 08 07 97
Revision 15
ONE PLUS
BILLING AND INFORMATION MANAGEMENT
SERVICES AGREEMENT
This One Plus Billing and Information Management Services Agreement (the
"Agreement") is entered into this 19 day of January 1998, by and between Billing
Concepts, Inc., a Delaware corporation, dba U.S. Billing (hereinafter "USBI")
and Quintel Entertainment Inc., a Delaware corporation ("Customer").
WITNESSETH:
WHEREAS, Customer is engaged in the business of providing certain pre-subscribed
telecommunication services for which Customer desires to bill and collect for
these services through the Local Exchange Carriers (LECs); and
WHEREAS, USBI has entered into billing and collection agreements with certain
LECs which allow USBI to provide billing and information management services for
qualifying Message Telephone Service ("MTS") calls on behalf of USBI's
customers; and
WHEREAS, USBI has the ability through its computer hardware, computer software
and accounting systems to provide billing and information management services
for Qualifying MTS calls for Customer, and Customer desires to obtain such
billing and information management services from USBI on the terms and
conditions contained herein:
NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, do hereby agree as
follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings set forth
below, unless the context otherwise requires:
BAD DEBT: See Uncollectible Amounts and Written-Off Accounts.
BILLING TELEPHONE COMPANY (BTC): See Local Exchange Carrier.
BOC: Bell Operating Company.
<PAGE> 2
BUSINESS DAY: A day other than Saturday and Sunday on which commercial
banks are open in the State of Texas.
CLAIM: Claim, loss, liability, damage, cost, correction and expense,
and whether ordinary, special, consequential or otherwise.
CASUAL OPERATOR SERVICES (OS) TELEPHONE TRAFFIC: Casual operator
assisted telephone calls that originate from locations where Customer
is the pre-subscribed direct dial IXC or reseller of direct dial IXC
services and the OS telephone calls are billed: (i) to the originating
telephone number, (ii) collect to the terminating telephone number,
(iii) to a third telephone number other than the originating or
terminating telephone number, or (iv) to a LEC or IXC calling card.
EMI BILLING RECORD: Computer readable records containing the billing
data for Customer's Qualifying MTS calls, in the Bellcore EMI
(electronic message Interface) format, for which each LEC has the
capability of processing through its billing and collection systems.
END USER: A natural person, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental agency or instrumentality, or other entity that subscribes
to or uses Customer's telecommunication services.
FCC: The Federal Communications Commission.
FOREIGN LNTRASTATE TAXES: Those applicable taxes for OS and Travel Card
calls originating and terminating in the same state but billed in
another state as described in Section 9 herein.
INDEPENDENT TELEPHONE COMPANIES: Those LECs that are not BOCs, which
presently include, subject to revision by USBI from time to time:
General Telephone Operating Companies (GTOCs), United Companies
(GTOCs), United Telecommunications Operating Companies (United),
Alltel, the alliance of Independent Telephone Companies through
Independent NECA Services, and U.S. Intelco.
INTEREXCHANGE CARRIER (IXC): Those telephone companies, other than the
LECs, that can provide intraLATA (where applicable), interLATA,
interstate and international telecommunications service.
LEC PROCESSING FEES: As described in paragraph 4.(c)(i) and 4.(f).
LIBRARY CODE: An accounting identification code assigned by USBI that
is used to account for Customer's funds, fees, charges, charge backs,
adjustments and credits which Customer encodes within each EMI Billing
Record Customer desires USBI to account for separately.
2
<PAGE> 3
LOCAL EXCHANGE CARRIER (LEC): Any one of the local telephone companies,
as listed on Exhibit "A" hereto, providing intraLATA exchange telephone
services or issuing calling cards and with whom USBI has entered into a
billing and collection agreement.
MTS (MESSAGE TELEPHONE SERVICES): Direct-dialed or operator assisted
station-to-station or person-to-person telephone calls billed: (i) to
the originating telephone number, (ii) collect to the terminating
telephone number, (iii) to a third telephone number other than the
originating or terminating telephone number, or (iv) to a LEC calling
card or an IXC travel card. "Enhanced Telecommunications Services' or
"Information Services" are not considered MTS calls herein and cannot
be billed under this Agreement.
ONE PLUS TELEPHONE TRAFFIC: Direct dialed telephone calls which: (i)
originate from an equal access end office, (ii) are billed to the
originating telephone number or (iii) are billed to an IXC travel card
issued by Customer.
POST BILLING ADJUSTMENT OR CREDIT: Credit or rate adjustments applied
to an End User's account by the LEC or by USBI.
QUALIFYING MESSAGE TELEPHONE SERVICE (QUALIFYING MTS): Casual OS
Telephone Traffic and One Plus Telephone Traffic which are not of
objectionable content as set forth in paragraph 7.(g) of this
Agreement.
RBOCS: Regional Bell Operating Companies.
SUBMISSION DATE: As described in paragraph 3.(a).
TARIFFS: The rates, terms and conditions for providing intraLATA,
interLATA (intrastate), interstate, and international telecommunication
services as authorized and filed with the FCC or with state and local
regulatory authorities.
TAXES: The word "Taxes" shall mean all those taxes and tax-like
surcharges described in paragraph 9.(a) herein.
UNBILLABLE RECORDS: Those EMI Billing Records that pass USBI's edits
and screens and are submitted to the LECs for billing and collection
but subsequently fail the LEC's edits and screens and are not posted to
an End User's account by the LECs.
UNCOLLECTIBLE AMOUNTS: Those amounts that are billed to an End User's
account for Customer's Valid EMI Billing Records but are not collected
due to the End User receiving a Post Billing Adjustment or Credit to
its bill or the End User failing to pay its bill to the LEC and the
account subsequently being written off as Bad Debt by the LEC.
3
<PAGE> 4
USBI REJECTED RECORDS: Those EMI Billing Records that fail USBI's edits
and screens and are returned to Customer and not submitted to the LECs
for billing and collection.
VALID EMI BILLING RECORDS: As described in paragraph 3.(b).
WRITTEN-OFF ACCOUNTS: Those End Users' accounts that are not paid by
the End Users and are subsequently written off as Bad Debt by the LECs.
SECTION 2. SCOPE OF AGREEMENT.
Customer hereby agrees to purchase from USBI the services described in Section 3
herein, and USBI agrees to provide such services at the time and in the manner,
and subject to the terms and upon the conditions, set forth herein. Commencing
eight months after the initial term of this Agreement begins and continuing
through the end of the term of this Agreement, Customer agrees that USBI shall
be the exclusive source for LEC billing and information management services in
the United States for 800 call forwarding and conference call products of all
kinds offered by Customer, billed through the billing telephone companies listed
in Exhibit "A", attached hereto. However, nothing contained herein shall be
interpreted to prohibit Customer from contacting directly with any LEC for its
own direct LEC billing and collection agreement, to bill directly through any
LEC for 800 call forwarding and conference call products of all kinds offered by
Customer, provided that Customer shall notify USBI of its intent at least sixty
(60) days prior to activation of such agreement. As USBI enter into billing and
collection arrangements with additional LECs, USBI will provide billing and
information management services to Customer for such LECs on the same terms and
conditions as contained herein.
SECTION 3. BILLING SERVICES.
(a) Submission of EMI Billing Records. Customer shall submit to USBI
its EMI Billing Records for its Qualifying MTS calls for USBI to submit to each
LEC under contract with USBI. Customer shall be responsible for submitting to
USBI EMI Billing Records that contain adequate information so that USBI and the
LECs can process such EMI Billing Records. Customer shall submit its EMI Billing
Records to USBI once per week, except when Customer cannot satisfy USBI's
minimum volume requirements as described in paragraph 7.(f), in which case
Customer shall submit its EMI Billing Records at least once per month. The cost
of these submissions shall be borne by Customer. The date USBI receives
Customer's EMI Billing Records will be, for those records, the "Submission
Date."
(b) USBI's Edits and Screens. Upon receipt of Customer's EMI Billing
Records, USBI will promptly process Customer's EMI Billing Records through
USBI's computer edits and screens. Those EMI Billing Records that pass USBI's
edits and screens shall be "Valid EMI Billing Records." Those EMI Billing
Records that do not pass USBI's edits and screens shall be "USBI Rejected
Records," and shall be returned to Customer.
4
<PAGE> 5
(c) Submission to LECs. Promptly after receipt of Customer's EMI
Billing Records (within five (5) Business Days after such receipt for the RBOCs
and GTE, or within ten (10) Business Days after such receipt for Independent
Telephone Companies), USBI will submit Customer's Valid EMI Billing Records to
the appropriate LECs.
(d) Purchase by LEC. Each LEC shall be responsible, to the extent
required by its agreement with USBI, to purchase Customer's Valid EMI Billing
Records.
(e) Billing and Collection by LEC. Each LEC shall be responsible, for
such Valid EMI Billing Records purchased by the LEC, for the billing and
collection of the revenue, for Customer's Qualifying MTS calls, from End Users
residing within the applicable billing area of such LEC, subject to the terms,
conditions and operating procedures contained in each LEC's billing and
collection agreement with USBI.
(f) Printing of Customer's Name on End User's LEC Telephone Bill.
Wherever possible, USBI will use its best efforts to cause each Billing
Telephone Company to print Customer's name, along with the associated Valid EMI
Billing Records, on each End User's telephone bill. Customer acknowledges that
where the Billing Telephone Companies do not provide this service, Customer's
name shall not appear on the End User's telephone bill.
SECTION 4. LEC PAYMENTS, FEES AND CHARGES.
(a) Payment by LECs. Each LEC shall make payments to USBI for Valid EMI
Billing Records purchased from Customer in accordance with the LECs billing and
collection agreement with USBI.
(b) Amount Paid by LECs. The LEC shall pay to USBI the gross amount of
Valid EMI Billing Records purchased by the LEC less the then-applicable fees,
charges, charge backs, credits and adjustments as prescribed in its billing and
collection agreement with USBI.
(c) LEC Fees, Charges, Charge Backs, Credits and Adjustments. Customer
acknowledges and understands that USBI is and will be bound by the terms of its
billing and collection agreement with each LEC with respect to each LEC's right
to deduct or to reduce its collectible funds for: (i) the amount charged by each
LEC for processing, billing and collecting Customer's Valid EMI Billing Records
["LEC Processing Fees"], (ii) any Unbillable Records, (iii) any Post-Billing
Adjustments or Credits provided to End Users, (iv) any reserve for anticipated
Uncollectible Amounts ["Bad Debt Holdback Reserve"], (v) any LEC Bad Debt
"true-ups" [periodic true-ups between the Bad Debt Holdback Reserve and the
actual Uncollectible Amounts realized by the LECs]. In addition, Customer shall
be responsible for any data transmission and distribution fees for delivering or
receiving Customer's EMI Billing Records and for any other LEC charges
specifically related to billing and collecting Customer's EMI Billing Records.
Customer further agrees that payment of all amounts described in this paragraph
4.(c) shall be its sole responsibility and that USBI may withhold such amounts
from payments to Customer. Should such amounts exceed the amounts due to
Customer, such amounts shall
5
<PAGE> 6
be due and payable by Customer to USBI within ten (10) Business Days of
notification by USBI of any amounts due. A schedule setting forth USBI's
contractual LEC Processing Fees for each LEC is attached hereto as Exhibit B".
(d) Bad Debt Holdback Reserve. USBI will holdback or cause the LECs to
holdback an amount estimated to be sufficient to set-off any Uncollectible
Amounts that may be determined after the date USBI makes its final payment to
Customer for Customer's Valid EMI Billing Records billed and collected by the
LEC. Any Bad Debt Holdback Reserve withheld by the LEC shall be passed through
to Customer on the same percentage on the same amount as USBI was assessed by
the individual LECs. Until such time as sufficient data becomes available to
determine specific bad debt history attributable to Customer, the past 12
months' average bad debt holdback reserve, as indicated on Exhibit "G", shall be
utilized to determine the Customer's bad debt holdback reserve. However, once
sufficient data becomes available to USBI from the LECs to enable USBI to
determine to a specific Bad Debt history attributable to Customer, the Bad Debt
Holdback Reserve rate shall be based on Customer's specific historical
Uncollectible Amounts. A schedule setting forth the past twelve month's average
Bad Debt Holdback Reserve withheld by each LEC is attached hereto, for your
reference, as Exhibit "G".
(e) Monthly-LEC Bad Debt True-Up. Between six and eighteen (6-18)
months after USBI submits Customer's Valid EMI Billing Records to the LECs for
billing and collection, the LECs will determine the actual amounts collected
from the End Users and true-up the difference between this amount and the face
amount of Customer's Valid EMI Billing Records purchased by the LEC. USBI will
provide Customer monthly reports on Bad Debt true-ups for these differences. If
the amount of these true-ups is "in favor" (positive) of Customer, USBI will
remit such amount to Customer when USBI receives the true-up amount from the
LECs. If the amount of these true-ups is "not in favor" (negative) of Customer,
USBI will withhold such amounts from the next scheduled payment due to Customer.
If the amounts due to Customer are not sufficient to satisfy such true-up
amounts, such amounts shall be due and payable by Customer to USBI within ten
(10) Business Days of notification by USBI of any amounts due.
(f) LEC Processing Fee Calculation. Each calendar month USBI will
determine the number of End User bills (renderings) that were or will be
required to bill Customer's Valid EMI Billing Records submitted to USBI during
that month and the average number of Valid EMI Billing Records contained on each
End User's bill. USBI will multiply these quantities by its contractual LEC
Processing Fee Schedule, as set forth in Exhibit "B", for each LEC to calculate
the LEC Processing Fees associated with billing Customer's Valid EMI Billing
Records. The LEC Processing Fee will also include any data transmission fees,
distribution fees, programming fees and any other charges directly associated
with billing Customer's Valid EMI Billing Records.
(g) End User Inquiry, Investigation and Rebate. Primary End User
inquiry, investigation and rebate policies are set forth in Exhibit "F" attached
hereto. Customer shall be responsible for payment of all Post-Billing
Adjustments and Credits provided to End Users by either the LEC or USBI.
Customer understands that each LEC has its own policies regarding assessment of
credits, fees and penalties for customer service complaints
6
<PAGE> 7
and Customer agrees to be bound by such policies. Such amounts may be deducted
weekly from the amounts due to Customer. If the amount due to Customer is not
sufficient to satisfy these amounts, then Customer shall pay such amount to
satisfy these amounts within ten (10) Business Days of notification by USBI of
any amounts due.
(h) Rejected Records. Those EMI Billing Records that fail USBI's edits
and screens and not submitted to the LECs for billing and collection, USBI
Rejected Records, shall be returned to Customer at no charge. Unbillable Records
rejected by the LEC, through no fault of USBI, shall be charged the same USBI
Processing Fees as described in Exhibit "C" attached hereto.
(i) Resubmitted EMI Billing Records. Unbillable Records which are
resubmitted to LECs for billing and collection shall be charged the standard
USBI Processing Fees as described in Exhibit "C" attached hereto.
SECTION 5. USBI BILLING SERVICE FEES, CHARGES AND CHARGE BACKS.
In addition to the LEC Processing Fees, charges, charge backs, credits and
adjustments set forth in Section 4, Customer agrees to pay to USBI and USBI may
deduct from amounts collected by the LECs on behalf of Customer and paid to
USBI, the following USBI billing service fees, charges, charge backs, credits
and assessments:
(a) A billing and information management service fee, the USBI
Processing Fee, for each Valid EMI Billing Record submitted to the LECs for
billing and collection by USBI, as specified in Exhibit "C" attached hereto;
(b) A fee for each End User inquiry, investigation and rebate handled
by USBI on Customer's behalf as specified in Exhibit "C" attached hereto;
(c) Any Post-Billing Adjustment or Credit amounts refunded to End Users
by USBI's customer service inquiry and investigation activities, along with any
LEC charges associated with making such refunds to End Users;
(d) A charge, as specified in Exhibit "C" attached hereto, for any
submission of EMI Billing Records that contains less than the minimum volume
requirements of USBI for each "library code"; and
(e) Accounts Receivable Reconciliation System - FASTRACK. Customer
shall pay to USBI an initial, one-time fee, as described in Exhibit "C" attached
hereto, for USBI's accounts receivable reconciliation system known as FASTRACK.
As collateral for all obligations now existing or hereafter arising from
Customer to USBI, Customer hereby grants to USBI a security interest in all the
following property of Customer, whether now owned or hereafter acquired or
created, and all proceeds and products thereof.
7
<PAGE> 8
(a) All amounts paid, and all amounts owing, by each LEC to USBI on
accounts for Customer's Valid EMI Billing Records;
(b) All accounts owing from an End User to Customer arising from
services which give rise to Customer's Valid EMI Billing Records;
(c) All amounts deposited by Customer with USBI pursuant to paragraph
13.(b) hereof, and
(d) all amounts owing and all amounts to be owing from USBI to
Customer.
SECTION 6. PAYMENTS TO CUSTOMER.
(a) Determination of Amount to Due Customer. USBI will determine the
amount collected by each LEC for Customer's Valid EMI Billing Records and deduct
the then-applicable fees, charges, charge backs, credits and adjustments of the
LECs and USBI. If the amount due to Customer is not sufficient to satisfy these
fees, charges, charge backs, credits and adjustments, then Customer shall pay
this difference to USBI within ten (10) Business Days of notification by USBI of
any amounts due.
(b) Reserves and True-Ups for Unbillable Records. USBI will reserve an
amount, from one month to the next, that is equal to Customer's prior history
for Unbillable Records. USBI will recalculate Customer's historical experience
quarterly from its prior three months results. Until such history can be
determined for Customer, USBI will reserve one and one-half percent (1.5%) from
the amount due to Customer. USBI will true-up this reserve each month when the
information becomes available from the LECs. USBI will then return excess
amounts to Customer or withhold additional amounts as may be required to satisfy
these liabilities from the amounts due to Customer.
(c) Payment Schedules. USBI will advance to Customer the estimated
amount determined under paragraph 6.(a) above within seven (7) Business Days of
receipt by USBI of funds from a LEC for Customer's Valid EMI Billing Records;
PROVIDED, HOWEVER, that if Customer has ceased doing business for five (5)
Business Days, is the subject of a bankruptcy proceeding, or a receiver, trustee
or custodian is appointed over substantially all of Customer's assets, or if
Customer fails to make any deposit required by paragraph 13.(b), or if USBI has
reasonable grounds to believe that the fees, charges, charge backs, credits and
adjustments to Customer may exceed any amount owning or to become owing from
USBI to Customer, USBI may withhold payments to Customer until all such amounts
have been determined and deducted from the amount owing to Customer. If the
amount owing to Customer is determined not sufficient to satisfy these fees,
charges, charge backs, credits and adjustments, then Customer shall pay the
difference to USBI within ten (10) Business Days of notification by USBI of any
amount due.
(d) Method of Payment. USBI will make all advance payments and final
payments due to Customer, using ACH wire transfer each Tuesday or the first
Business Day
8
<PAGE> 9
following Tuesday should Tuesday not fall on a Business Day, based on the
schedule described in paragraph 6.(c) herein.
(e) Accounting for Funds. Funds received from the LECs for Customer's
Valid EMI Billing Records, less applicable fees, charges, charge backs, credits
and adjustments, shall be deposited and held by USBI in a common account until
such time as the amount determined to be due Customer is paid to Customer. USBI
will maintain an accounting of the balance owing or to be owing by USBI to
Customer of such amounts deposited and held by USBI.
SECTION 7. CUSTOMER'S OBLIGATIONS.
The Customer agrees as follows:
(a) Cooperation by Customer. Customer agree to Cooperate with USBI to
the fullest extent possible and to the best of Customer's ability to facilitate
the provisioning of services extent described in Section 3 herein. Such
cooperation shall include, but not be limited to, the following:
(i) Supplying USBI with Customer's identification Codes, any and
all certifications or regulatory authority necessary for Customer to
offer its services, and any other information and documents necessary
or helpful to USBI; and
(ii) Supplying USBI with all technical information and assistance
with testing that may be necessary or helpful to USBI in providing its
services herein.
(b) Applicable Approvals and Compliance with Law. Customer shall obtain
and keep current all applicable federal state and local licenses, certifications
and approvals and shall fully comply with, and has full responsibility to comply
with, all other applicable federal, state and local regulations, laws, rules and
Tariffs. Customer agrees that USBI shall assume and will assume no
responsibility for such compliance whatsoever. Customer acknowledges and
understands that certain LEC billing systems contains edits and screens that
"block" Customer's EMI Billing Records from being billed to End Users until USBI
can demonstrate to such LECs that Customer has proper authority for providing
its services to the End User. Customer further acknowledges and understands that
it may take as long as sixty (60) days after notification to the LECs of such
authority before the LECs will begin billing Customer's EMI Billing Records.
Therefore, USBI will not be responsible for billing Customer's EMI Billing
Records for services prior to the LECs removing their regulatory edits and
screens from their billing systems.
(c) Validation. Customer shall validate all collect, third party and
calling card billed MTS calls using the LECs' LIDBs (line information data
bases) or some other alternative validation method that is acceptable to the
LECs and to USBI.
(d) Completed Calls. Customer acknowledges and agrees the where
required, Customer shall be in compliance with the FCC's order to determine call
connection using hardware or software "answer detection." Customer further
agrees that it will submit to
9
<PAGE> 10
USBI only those EMI BilLing Records for calls that represent valid, completed
calls as defined in Exhibit "D" attached hereto.
(e) Aged EMI Billing Records. Customer shall not submit EMI Billing
Records to USBI that are more than ninety (90) days old or that exceed the "age
of toll" acceptable by the LECs, whichever is less.
(f) Minimum Transmission Volumes. Customer shall not submit to USBI
more than once per week its EMI Billing Records.
(g) Objectionable Content. Customer agrees, as a condition of USBI's
performance under this Agreement that USBI will not provide billing and
information management services which USBI deems harmful, damaging or against
public policy, including, but not limited to:
(i) Services which explicitly or implicitly refer to sexual
conduct;
(ii) Services which contain indecent, obscene or profane
language;
(iii) Services which allude to bigotry, racism, sexism or
other forms of discrimination;
(iv) Services which through advertising, content or delivery
are deceptive, or that may take unfair advantage of minors or the
general public;
(v) Services which are publicly accessible, multiparty
connections commonly known as "gab" or "chat" services;
(vi) Services which are prohibited by Federal, state, or local
laws or Tariffs; or
(vii) Services which individual LECs exclude from the "types"
of services or products for which their policies permit them to bill
and collect.
(h) No Other Billing Arrangement. Customer warrants that the EMI
Billing Records submitted and to be submitted by Customer to USBI pursuant to
this Agreement are not and will not be subject to any other valid or existing
billing and collection agreement, have not been billed previously and will not
be billed by another party following their submission by Customer to USBI.
(i) Customer shall limit the number of EMI Billing Records for Casual
OS Telephone Traffic to not more than ten Percent (10%) of the total EMI Billing
Records submitted to USBI on any given transmission. If Customer's volume of EMI
Billing Records for Casual OS Telephone Traffic exceeds ten percent (10%), then
Customer must execute a Zero Plus - Zero Minus Billing and Information
Management Services Agreement with ZPDI and shall submit its EMI Billing Records
for Casual OS Telephone Traffic to ZPDI for billing under this Zero Plus - Zero
Minus Billing and Information Management Agreement.
(j) Payment of Amounts Due USBI: For any amounts determined to be due
USBI by Customer under this Agreement, Customer agrees to pay such amounts to
USBI within ten (10) days of notification by USBI to Customer. After a period of
thirty (30) days from such invoice date, interest on unpaid balances shall
accrue at the lower of 12% per annum or the highest legal rate allowed by law.
10
<PAGE> 11
SECTION 8. PROTECTION OF CONFIDENTIAL INFORMATION.
As used herein, "Confidential Information' shall, mean (a) proprietary
information, (b) information marked or designated as confidential, (c)
information otherwise disclosed in a manner consistent with its confidential
nature, (d) information of one party, whether or not in written form and whether
or not designated as confidential, that is known or should reasonably be known
by the other party as being treated as confidential, and (e) information
submitted by one party to the second party where the second party knows or
reasonably should know that the first party is obligated to keep the information
confidential. The parties hereto expressly recognize and acknowledge that, as
result of the provision of services pursuant to this Agreement, Confidential
Information which may be proprietary to each party must or may be disclosed to
the other. Each party hereby agrees that it will make no disclosure of
Confidential Information provided under this Agreement without the prior written
consent of the other party. Additionally, each party shall restrict disclosure
of said information to its own employees, agents or independent contractors to
whom disclosure is necessary and who have agreed to be bound by.
SECTION 9. TAXES.
(a) Calculation of Telecommunications Taxes. USBI will be responsible
for calculating or will use its best efforts to cause the LECs to calculate the
following taxes applicable to each MTS call and allow them to be passed through
to the End User, such taxes being referred to herein collectively as "Taxes":
Federal excise tax, any state and local sales taxes or tax-like charges, or any
Foreign Intrastate Taxes or foreign tax-like charges. Notwithstanding the
foregoing, Customer acknowledges and agrees it is responsible for compliance
with all taxing requirements: therefore, Customer shall promptly notify USBI of
any tax or tax-like surcharges and the associated rates that apply to Customer's
MTS calls in any specific jurisdiction.
(b) Billing and Collection of Taxes. USBI will, for the benefit of and
on behalf of Customer. use its best efforts to cause the LECs to bill End Users
for all Taxes. Customer acknowledges and agrees that USBI is acting merely as
Customer's agent with respect to arranging for the billing and collection of
Taxes, and in no event shall USBI be entitled to retain or receive from
Customer, or from any End User, any statutory fee or share of Taxes to which the
person collecting the same may be entitled under applicable law.
(c) Tax Exempt Status for End Users. USBI will have the authority, on
behalf of Customer, to authorize the LECs to calculate Taxes in the same manner
as the LECs calculate Taxes for their End Users and to authorize the LECs to
establish the tax exempt status of End Users in the same manner as the LECs
establish such status for their End Users. If Customer's MTS calls are exempt
from Federal, state and local Taxes or tax-like charges, Customer shall so
indicate on each EMI Billing Record submitted to USBI.
11
<PAGE> 12
(d) Filing and Payment of Taxes. Based upon the information calculated
by USBI and/or received from the LECs with respect to Taxes assessed, billed and
collected by the LECs, USBI will, on behalf of Customer, prepare and file in a
timely manner with the applicable taxing authorities all returns covering Taxes,
and will, on behalf of Customer, but only to the extent of amounts otherwise
owing from USBI to Customer, pay in full and promptly remit to such taxing
authorities all Taxes owed thereto. Upon written request, USBI will provide to
Customer copies of any and all tax returns and other applicable information
relating to the payment of Taxes by USBI within thirty (30) days after being
filed and paid by USBI.
(e) Hold Harmless. Customer shall indemnify and hold USBI and its
employees, agents and representatives free and harmless from and against any
Claim (including, without limitation, reasonable attorneys' fees and court
costs) relating to or arising out of any Taxes, penalties, interest, additions
to tax, surcharge or other amounts to which USBI may be subject or incur,
relating to or arising out of (i) USBI's reliance upon any calculations,
determinations or other directives, or lack thereof, given by Customer to USBI
with respect to the calculation, assessment, billing and/or collection of any
Taxes contemplated by this Agreement; or (ii) a determination by the Internal
Revenue Service or any other taxing authority that any amount paid by USBI
pursuant to paragraph 9.(d) above with respect to Taxes was insufficient, except
in the event such insufficiency was the result of negligence on the part of
USBI; provided, however, that Customer shall not be required to indemnify USBI
or the employees, agents and representatives thereof for any loss, damage,
Claim, cause of action or other liability to the extent, but only to the extent,
caused by the gross negligence or willful misconduct of USBI.
(f) Billed Taxes. Customer shall be responsible for the payment of any
additional Taxes or tax-like charges assessed against USBI based on the revenues
collected from Customer's Valid EMI Billing Records. "Billed Taxes" under this
Agreement, excluding Federal and state income Taxes.
12
<PAGE> 13
SECTION 10. FORCE MAJEURE.
USBI shall not be held liable for any delay or failure in performance of any
part of this Agreement or Exhibits attached hereto from any cause beyond its
control and without its fault or negligence, such as acts of God, acts of civil
or military authority, government regulations, embargoes, epidemics, war,
terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear
accidents, floods, strikes, power blackouts, volcanic action, other major
environmental disturbances, unusually severe weather conditions, inability to
secure products or services of other persons or transportation facilities, or
acts or omissions of transportation common carriers.
SECTION 11. LIMITATION OF LIABILITY.
(a) USBI will use its best efforts at all times to provide prompt and
efficient service: however, USBI makes no warranties or representations
regarding the services except as specifically stated in this paragraph 11.(a).
USBI will use due care in processing all work submitted to it by Customer and
agrees that it will, at its expense, correct any errors which are due solely to
malfunction of USBI's computers, operating systems or programs or errors by
USBI's employees or agents. Correction shall be limited to reprocessing
Customer's EMI Billing Records. USBI will not be responsible in any manner for
failures of, or errors in, proprietary systems and programs other than those of
USBI, nor shall USBI be liable for errors or failures of Customer's software or
operational systems. THIS WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
WARRANTIES, AND CUSTOMER HEREBY WAIVES ALL OTHER WARRANTIES, EXPRESSED, IMPLIED,
OR STATUTORY, BUT LIMITED TO, ANY WARRANTY MERCHANTABILITY OR FITNESS FOR USE
FOR A PARTICULAR PURPOSE. Should there be any failure in performance or errors
or omissions by USBI with respect to the information being processed and being
submitted to the LECs for billing and collection, USBI's liability shall be
limited to using its best efforts to correct such failure. In no event, except
as specifically set forth herein, shall USBI be liable to Customer or any third
parties (including Customer's customers) for any Claim even if USBI has been
advised of the possibility of such Claim.
(b) Due to the nature of the services being performed by USBI, Customer
agrees that in no event will USBI be liable for any Claim caused by USBI's
performance or failure to perform hereunder which is not reported by Customer in
writing to USBI within thirty (30) days of such performance or failure to
perform.
(c) Customer shall indemnify and save harmless USBI from and against
any Claim asserted against USBI by third parties and arising out of Customer's
use of the services provided under this Agreement, unless such Claim arises out
of the willful misconduct or gross negligence of USBI.
(d) Liability of USBI in any and all categories and for any and all
Claims arising out of this Agreement or out of any act or omission relating
thereto shall, in the aggregate, not exceed one (1) month's average of USBI's
Processing Fees to Customer over the twelve (12) months preceding such date in
which the damage or injury is alleged
13
<PAGE> 14
to have occurred, but if this Agreement has not been in effect for twelve (12)
months preceding such date, then over such fewer number of preceding months that
this Agreement has been in effect.
SECTION 12. TERM OF AGREEMENT.
The initial term of this Agreement shall begin on the date on page 1 of this
Agreement or the date Customer begins submitting its EMI Billing Records to
USBI, whichever is later, and continue in full force and effect for a minimum
period of one (1) year unless terminated in accordance with paragraph 14.(b)(i)
and shall automatically renew for successive periods of one (1) year unless
terminated by written notice from either party at least sixty (60) days prior to
the scheduled expiration date.
Notwithstanding anything to the contrary contained herein, if Customer is
currently billing more than two hundred and fifty thousand (250,000) EMI Billing
Records per month, Customer may elect an initial term for this Agreement of two
(2) or three (3) years. Should Customer elect to extend the initial term of this
Agreement, Customer shall pay USBI a minimum Processing Fee, as described in
Exhibit "C" attached hereto, each month for the entire term of this Agreement.
In consideration for such, USBI will charge Customer a reduced billing services
fee for the term selected which coincides with the USBI fee schedule as
presented in Exhibit "C", attached hereto.
SECTION 13. EXPIRATION OR TERMINATION.
(a) Payment Upon Expiration or Termination. Upon the expiration or
termination of this Agreement for any reason, Customer agrees to satisfy, when
or before due, any and all of its obligations arising under this Agreement.
(b) Deposit for Charges. In addition Customer acknowledges and
understands that certain LEC charges for Uncollectible Amounts, Bad Debt
true-ups and Post-Billing Adjustments and Credits are not determined by the LECs
or provided to USBI for a period of up to eighteen (18) months after the final
processing of Customer's EMI Billing Records by USBI on behalf of Customer.
Customer further acknowledges and agrees that payment of these amounts shall be
its sole responsibility. To ensure such payments, Customer shall, at the
expiration or termination of this Agreement for any reason, deposit with USBI an
amount equal to two and one-half percent (2.5%) of the face amount of Customer's
gross billings for the prior twelve (12) months, or such other amount as is
estimated by USBI, based on Customer's prior history, necessary to satisfy such
charges. Such deposited amount shall be used by USBI to pay Uncollectible
Amounts, Bad Debt true-ups, Post-Billing Adjustments and Credits and other
charges incurred on behalf of Customer for billing and collecting Customer's EMI
Billing Records submitted by Customer to USBI during the term of this Agreement.
Each quarter USBI will re-examine the amount of funds deposited and make such
adjustments as USBI estimates may be necessary to satisfy the aforementioned
charges. USBI will provide Customer with proper documentation to substantiate
charges attributable to Customer on the same and consistent method as USBI
determines such charges for all of its customers.
14
<PAGE> 15
At the end of eighteen (18) months from the expiration or termination date, USBI
will return all unused amounts to Customer.
(c) Remaining Liability. Notwithstanding the foregoing, the deposit of
such amounts does not relieve or waive Customer's responsibility and obligation
to pay its obligations to USBI including, without limitation, any and all fees,
charges, charge backs, credits and adjustments associated with billing and
collecting its EMI Billing Records. In the event such associated fees, charges,
charge backs, credits and adjustments exceed the amount of the deposit described
in paragraph 13.(b), Customer shall remit to USBI such additional amounts as are
required to satisfy Customer's obligations under this Agreement to USBI within
ten (10) Business Days of notification by USBI of any such amounts due.
(d) Savings Clause. Except as otherwise provided herein, expiration or
termination of this Agreement under this Section 13 shall terminate all further
rights and obligations of the parties hereunder, provided that:
(i) Neither USBI nor Customer shall, be relieved of its
respective obligations to pay any sums of money due or to become due or
payable or accrued under this Agreement;
(ii) If such expiration or termination is a result of a
default hereunder or a breach hereof by a party hereto, the other party
shall be entitled to pursue any and all rights and remedies it has to
redress such default or breach in law or equity, subject to Sections 11
& 14 hereof; and
(iii) The provisions of Sections 8 and 9 hereof, except
paragraph 9.(b), shall survive the expiration or termination of this
Agreement.
(e) Early Termination of Extended Term Agreement. If Customer elects to
extend the initial term of this Agreement and should Customer terminate or
breach this Agreement before the expiration of the full initial term elected by
Customer upon execution hereof, USBI will recalculate and Customer shall pay to
USBI a USBI Processing Fee for all EMI Billing Records processed under this
Agreement based on the current USBI Processing Fee schedule at the one (1) year
rate, attached hereto as Exhibit "C", plus ten percent (10%) for each EMI
Billing Record processed under this Agreement, at Customer's monthly volume
levels.
SECTION 14. DEFAULT AND REMEDIES.
(a) Default. Either Party shall be in default hereunder if it:
(i) Fails to make any payment specified hereunder when or
before due and such failure continues for five (5) Business Days after
written notice;
(ii) Breaches any other material covenant or undertaking
contained in this Agreement and fails to remedy such breach within
thirty (30) Business Days after written notice thereof from the
non-defaulting party: or
(iii) Files, or there is filed against it, any voluntary or
involuntary proceeding under the Bankruptcy Code, or makes an
assignment for the benefit of creditors, dissolves, ceases to conduct
business for three (3) Business Days, resorts to any insolvency law,
declares that it is unable to pay its debts as they mature or
15
<PAGE> 16
if a receiver, trustee or custodian is appointed over, or an execution,
attachment, or levy is made upon, all or any material part of the
property of such party.
(b) Remedies. Time is of the essence of this Agreement. In the event of
any default hereunder, the non-defaulting party shall have the following rights
and remedies:
(i) To terminate or cancel this Agreement,. subject to the
provisions of paragraph 13.(d), by giving written notice thereof to the
defaulting party;
(ii) To declare all amounts due under this Agreement from the
defaulting party to the non-defaulting party to be immediately, due and
payable, including attorneys fees and expenses incurred or which may be
incurred in the collection of such amounts;
(iii) To withhold, setoff, and retain, until all obligations
of Customer to USBI have been satisfied in full, any and all amounts
which may otherwise be due and payable to Customer under this Agreement
and apply such amounts to any balance due or to become due from
Customer to USBI.
(iv) All rights and remedies allowed by the applicable Uniform
Commercial Code;
(v) All other rights and remedies allowed by this USBI
Agreement and under applicable law: and
(vi) All rights and remedies shall be cumulative and can be
exercised separately or concurrently.
SECTION 15. AMENDMENTS; WAIVERS.
No modification, amendment or waiver of any provision of this Agreement, and no
consent to any default under this Agreement, shall be effective unless the same
shall be in writing and signed by or on behalf of the party against whom such
modification, amendment, waiver or consent is claimed. In addition, no course of
dealing or failure of any party to strictly enforce any term, right or condition
of this Agreement shall be construed as a waiver or such term, right or
condition.
SECTION 16. ASSIGNMENT.
(a) By Customer or USBI. Assignment by Customer or USBI of any right,
obligation or duty or of any other interest hereunder, in whole or in part,
shall require consent by both parties. Such consent shall not be unreasonably
withheld by either party.
(b) Generally. All rights, obligations, duties and interests of any
party under this Agreement shall inure to the benefit stand be binding on all
successors in interest and assigns of such party and shall survive any
acquisition, merger, reorganization or other business combination to which it is
a party.
16
<PAGE> 17
SECTION 17. NOTICES AND DEMANDS.
(a) How Notice Is Given. Except as otherwise provided under this
Agreement, all notices, demands and requests which may be given to any party to
the other party shall be in writing and shall be: (i) delivered in person; (ii)
mailed postage prepaid, registered or certified mail, return receipt requested;
(iii) placed in the hands of a national overnight delivery service or (iv) sent
by facsimile transmission to the recipient's facsimile machine, with an extra
copy immediately following by first class mail; and addressed as follows:
IF TO USBI, TO IT AT:
BILLING INFORMATION CONCEPTS, INC.
DBA U.S. BILLING
ATTENTION: ALAN W. SALTZMAN
7411 JOHN SMITH DRIVE, SUITE 200
SAN ANTONIO, TEXAS 78229-4898
TELEPHONE: (210) 525-6260
FAX: (210) 692-0720
--------------------------------------------------------------
If to Customer, to it at:
---------------------------
Attention: ---------------------------
---------------------------
Telephone:
---------------------------
FAX:
---------------------------
If personal delivery is selected as the method of giving notice under this
Section, a receipt for such delivery shall be obtained. The address to which
such notices, demands, requests, elections or other communications may be given
by either party may be changed by written notice given by such party to the
other party pursuant to this Section 17.
(b) When Notice Effective: Except as otherwise expressly provided
herein, all such notices shall be effective upon receipt if delivered by hand,
facsimile, national overnight delivery service, certified or registered mail and
otherwise five (5) Business Days after placement in the U.S. Mails. The initial
term of this Agreement shall be for a period of ____________ (one, two or three)
years from the date hereof.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first
set forth above.
Billing Information Concepts, Inc.
dba U.S. Billing:
By: ________________________________
Alan W. Saltzman
President and
Chief Operating Officer
Date: _______________________________
CUSTOMER:
_____________________________________
By:__________________________________
Name:________________________________
(print)
Its:________________________________
Date:_______________________________
Yvette M. Shipley
Account Representative
18
<PAGE> 19
EXHIBIT "A"
USBI BILLING TELEPHONE COMPANIES
Alltel
Ameritech
Bell Atlantic
Bell South
Century Telephone
Chillicothe Telephone
Cincinnati Bell
Citizens Via Alltel
Citizens Via GTE
GTE Central
GTE Contel
GTE North
GTE South
GTE West
Illuminet
NECA
NYNEX
Pacific Telcom
Pactelis
Southern New England Bell
Southwestern Bell
Sprint Mid-Atlantic Telecom
Telecom Canada
U.S. WEST
United Florida
United Midwest
United North Central
NOTE: NPA-NXX list (On-Net File) of above BTCs will be furnished to Customer
quarterly. Format and media (i.e., reel-to-reel magnetic tape, diskette or
electronic bulletin board), to be mutually agreed upon by both parties.
COMPANY CONFIDENTIAL
19
<PAGE> 20
EXHIBIT "B"
U.S. BILLING CONTRACTUAL LEC COST
NOVEMBER 1997
PAGE 1 OF 5
<TABLE>
<CAPTION>
LEC COMPANY NAME BILL RENDERING CALL RECORDS ENHANCED
INTER INTRA INTER INTRA 42 RCDS
STATE STATE STATE STATE
<S> <C> <C> <C> <C> <C> <C>
BELL OPERATING COMPANIES:
10 NYNEX
9102 NEW ENGLAND TELEPHONE(1)
MASSACHUSETTS 0.9600 0.5500 0.0100 0.0200 0.0000
MAINE 0.9600 0.9600 0.0100 0.0100 0.0000
NEW HAMPSHIRE 0.9600 0.9600 0.0100 0.0100 0.0000
RHODE ISLAND 0.9600 0.9600 0.0100 0.0100 0.0000
VERMONT 0.9600 0.9600 0.0100 0.0100 0.0000
9104 NEW YORK TELEPHONE(1)
CONNECTICUT 0.9600 0.9600 0.0100 0.0100 0.0000
NEW YORK 0.9600 0.9600 0.0100 0.0100 0.0000
12 SNET
9147 SOUTHERN NEW ENGLAND 0.5100 0.5100 0.0560 0.0560 0.0000
14 BELL ATLANTIC
9206 NEW JERSEY BELL 0.3300 0.3300 0.0240 0.0240 0.2500
9208 PENNSYLVANIA BELL 0.3300 0.3300 0.0240 0.0240 0.2500
9210 DIAMOND STATE 0.3300 0.3300 0.0240 0.0240 0.2500
9211 C&P WASHINGTON D.C. 0.3300 0.3300 0.0240 0.0240 0.2500
9212 C&P MARYLAND 0.3300 0.3300 0.0240 0.0240 0.2500
9213 C&P VIRGINIA 0.3300 0.3300 0.0240 0.0240 0.2500
9214 C&P WEST VIRGINIA 0.3300 0.3300 0.0240 0.0240 0.2500
16 AMERITECH
9321 OHIO BELL 0.3500 0.3500 0.0300 0.0300 0.0000
9323 MICHIGAN BELL 0.3500 0.3500 0.0300 0.0300 0.0000
9325 INDIANA BELL 0.3500 0.3500 0.0300 0.0300 0.0000
9327 WISCONSIN BELL 0.3500 0.3500 0.0300 0.0300 0.0000
9329 ILLINOIS BELL 0.3500 0.3500 0.0300 0.0300 0.0000
18 CINCINNATI BELL
9348 KENTUCKY 0.6000 0.5500 0.0192 0.0192 0.0300
9348 OHIO 0.6000 0.6000 0.0192 0.0192 0.0300
</TABLE>
COMPANY CONFIDENTIAL
1. The rendering fee includes the first ten (10) messages. The additional $.01
only applies beginning at the eleventh (11th) message and greater.
20
<PAGE> 21
EXHIBIT "B"
U.S. BILLING CONTRACTUAL LEC COST
November 1997
Page 2 of 5
<TABLE>
<CAPTION>
LEC COMPANY NAME BILL RENDERING CALL RECORDS ENHANCED
INTER INTRA INTER INTRA 42 RCDS
STATE STATE STATE STATE
<S> <C> <C> <C> <C> <C>
20 BELL SOUTH
9417 SOUTHERN BELL
FLORIDA 0.3690 0.0000 0.0262 0.0210 0.1239
GEORGIA 0.3690 0.3600 0.0262 0.0700 0.1239
NORTH CAROLINA 0.3690 0.3600 0.0262 0.0610 0.1239
SOUTH CAROLINA 0.3690 0.3600 0.0262 0.0700 0.1239
9419 SOUTH CENTRAL BELL:
ALABAMA 0.3690 0.2600 0.0262 0.0506 0.1239
KENTUCKY 0.3690 0.2900 0.0262 0.0560 0.1239
LOUISIANA 0.3690 0.2900 0.0262 0.0560 0.1239
MISSISSIPPI 0.3690 0.2900 0.0262 0.0560 0.1239
TENNESSEE 0.3690 0.2900 0.0262 0.0560 0.1239
22 SOUTHWESTERN BELL
9533 SOUTHWESTERN BELL 0.2740 0.2740 0.0190 0.0190 0.0121
24 U.S. WEST
9631 NORTHWESTERN BELL 0.4200 0.4200 0.0250 0.0250 0.1000
9631 MINNESOTA 0.4200 0.4200 0.0350 0.0350 0.1000
9636 MOUNTAIN BELL 0.4200 0.4200 0.0250 0.0250 0.1000
9639 PACIFIC NORTHWEST 0.4200 0.4200 0.0250 0.0250 0.1000
BELL
26 PACTELIS
9740 PACIFIC BELL 0.2400 0.1900 0.0110 0.0110 0.0000
9742 NEVADA BELL 0.3500 0.6000 0.0350 0.0910 0.0000
GTE COMPANIES:
30 GTE SOUTH
328 GTE OF FLORIDA 0.3900 0.3500 0.0450 0.0762 0.1350
407 KENTUCKY 0.3900 0.3500 0.0450 0.0762 0.1350
4331 ALABAMA 0.3900 0.3500 0.0450 0.0762 0.1350
4334 NORTH CAROLINA 0.3900 0.3500 0.0450 0.0762 0.1350
4335 SOUTH CAROLINA 0.3900 0.3500 0.0450 0.0762 0.1350
4337 VIRGINIA 0.3900 0.3900 0.0450 0.0450 0.1350
40 GTE NORTH
169 GM OF PENNSYLVANIA 0.3900 0.3900 0.0450 0.0450 0.1350
615 GTE OF OHIO 0.3900 0.3900 0.0450 0.0450 0.1350
695 GM OF MICHIGAN 0.3900 0.3900 0.0450 0.0450 0.1350
772 GTE OF INDIANA 0.3900 0.3900 0.0450 0.0450 0.1350
886 GTE OF WISCONSIN 0.3900 0.3500 0.0450 0.0762 0.1350
1015 GTE ILLINOIS 0.3900 0.3500 0.0450 0.0762 0.1350
</TABLE>
COMPANY CONFIDENTIAL
21
<PAGE> 22
EXHIBIT "B"
U.S. BILLING CONTRACTUAL LEC COST
NOVEMBER 1997
PAGE 3 OF 5
<TABLE>
<CAPTION>
LEC COMPANY NAME BILL RENDERING CALL RECORDS ENHANCED
INTER INTRA INTER INTRA 42 RCDS
STATE STATE STATE STATE
<S> <C> <C> <C> <C> <C> <C>
GTE COMPANIES - CON'T.:
46 GTE CENTRAL
4311 IOWA 0.3900 0.3900 0.0450 0.0450 0.1350
4312 MINNESOTA 0.3900 0.2700 0.0450 0.0170 0.1350
4313 MISSOURI 0.3900 0.3500 0.0450 0.0643 0.1350
4314 NEBRASKA 0.3900 0.3900 0 0450 0.0450 0.1350
4341 ARKANSAS 0.3900 0.3900 0.0450 0.0450 0.1350
4342 NEW MEXICO 0.3900 0.3500 0.0450 0.0565 0.1350
4343 OKLAHOMA 0.3900 0.3900 0.0450 0.0450 0.1350
4344 CONTEL dba GTE TEXAS 0.3900 0.7500 0.0450 0.0300 0.1350
4344 GTE SOUTHWEST INC. 0.3900 0.3500 0.0450 0.0565 0.1350
52 GTE WEST
2319 CALIFORNIA 0.3900 0.1900 0.0450 0.0110 0.1350
2319 GTE, WC CA 0.3900 0.3500 0.0450 0.0762 0.1350
3100 GTE OF HAWAII 0.3900 0.0000 0.0450 0.0000 0.1350
4321 IDAHO 0.3900 0.3500 0.0450 0.0762 0.1350
4323 OREGON 0.3900 0.3500 0.0450 0.0762 0.1350
4324 WASHINGTON 0.3900 0.4800 0.0450 0.0762 0.1350
53 CITIZENS VIA GTE
4321 IDAHO 0.0000 0.0000 0.0938 0.0938 0.0900
4322 MONTANA 0.0000 0.0000 0.0938 0.0938 0.0900
4336 TENNESSEE 0.0000 0.0000 0.0634 0.0634 0.0900
4338 WEST VIRGINIA 0.0000 0.0000 0.0634 0.0634 0.0900
4426 ARIZONA 0.3900 0.3900 0.0450 0.0450 0.1350
4429 UTAH 0.0000 0.0000 0.0522 0.0522 0.0900
INDEPENDENTS:
28 TELECOM CANADA 0.0000 0.0000 0.5500 0.5500 0.0000
58 UNITED FLORIDA
340 CENTRAL 0.3150 0.0000 0.0280 0.0210 0.0000
141 UNITED 0.3150 0.0000 0.0280 0.0210 0.0000
</TABLE>
COMPANY CONFIDENTIAL
22
<PAGE> 23
EXHIBIT "B"
U.S. BILLING CONTRACTUAL LEC COST
NOVEMBER 1997
PAGE 3 OF 5
<TABLE>
<CAPTION>
LEC COMPANY NAME BILL RENDERING CALL RECORDS ENHANCED
INTER INTRA INTER INTRA 42 RCDS
STATE STATE STATE STATE
<S> <C> <C> <C> <C> <C>
46 UNITED MIDWEST
1456 MINNESOTA 0.3150 0.3150 0.0280 0.0320 0.0000
1594 WYOMING 0.3150 0.3150 0.0280 0.0320 0.0000
1595 NEBRASKA 0.3150 0.3150 0.0280 0.0320 0.0000
1810 EASTERN KANSAS 0.3150 0.3150 0.0280 0.0320 0.0000
1810 SOUTHCENTRAL KANSAS 0.3150 0.3150 0.0280 0.0320 0.0000
2084 KANSAS 0.3150 0.3150 0.0280 0.0320 0.0000
1957 MISSOURI 0.3150 0.2016 0.0280 0.0261 0.0000
2084 TEXAS 0.3150 0.3765 0.0280 0.0274 0.0000
2114 TEXAS CENTRAL 0.3150 0.1349 0.0280 0.1032 0.0000
2348 NEVADA 0.3000 0.0091 0.0500 0.0477 0.0000
2400 NORTHWEST 0.3150 0.3133 0.0320 0.0320 0.0000
63 SPRINT MID-ATLANTIC TELECOM
254 CENTRAL TELEPHONE 0.3150 0.3150 0.0280 0.0280 0.0000
470 CAROLINA T&T 0.3150 0.5590 0.0280 0.0240 0.0000
471 CENTRAL TELEPHONE 0.3150 0.2844 0.0280 0.0574 0.0000
506 UNITED TELEPHONE-SE (SC) 0.3150 0.3150 0.0280 0.0280 0.0000
567 UNITED TELEPHONE-SE (TN) 0.3150 0.3150 0.0280 0.0280 0.0000
567 UNITED TELEPHONE-SE (VA) 0.3150 0.3150 0.0280 0.0280 0.0000
66 UNITED NORTH CENTRAL
138 NEW JERSEY 0.3000 0.3000 0.0500 0.0500 0.0000
209 PENNSYLVANIA 0.3000 0.3000 0.0500 0.0500 0.0000
661 OHIO 0.1000 0.3000 0.0500 0.0500 0.0000
832 INDIANA O.3000 0.3000 0.0500 0.0500 0.0000
985 ILLINOIS 0.3000 0.3000 0.0500 0.0500 0.0000
74 ALLTEL
45 NEW YORK 0.5400 0.5400 0.0700 0.0700 0.0000
61 PENNSYLVANIA 0.5400 0.5400 0.0700 0.0700 0.0000
94 OHIO 0.5400 0.5400 0.0700 0.0700 0.0000
157 PENNSYLVANIA 0.5400 0.4700 0.0700 0.1090 0.0000
176 PENNSYLVANIA 0.5400 0.5400 0.0700 0.0700 0.0000
302 ALABAMA 0.5400 0.5400 0.0700 0.0700 0.0000
336 FLORIDA 0.5400 0.5400 0.0700 0.0700 0.0000
357 GEORGIA 0.5400 0.4700 0.0700 0.1090 0.0000
402 KENTUCKY 0.5400 0.8800 0.0700 0.0563 0.0000
</TABLE>
COMPANY CONFIDENTIAL
23
<PAGE> 24
EXHIBIT "B"
U.S. BILLING CONTRACTUAL LEC COST
NOVEMBER 1997
PAGE 5 OF 5
<TABLE>
<CAPTION>
LEC COMPANY NAME BILL RENDERING CALL RECORDS ENHANCED
INTER INTRA INTER INTRA 42 RCDS
STATE STATE STATE STATE
<S> <C> <C> <C> <C> <C> <C>
74 ALLTEL - CON'T.
453 MISSISSIPPI 0.5400 0.5400 0.0700 0.0700 0.0000
476 NORTH CAROLINA 0.5400 0.2800 0.0700 0.0604 0.0000
517 SOUTH CAROLINA 0.5400 0.5400 0.0700 0.0700 0.0000
577 TENNESSEE 0.5400 0.4700 0.0700 0.0700 0.0000
762 FLORIDA 0.5400 0.0000 0.0700 0.0716 0.0000
850 NORTH CAROLINA 0.5400 0.2900 0.0700 0.0604 0.0000
894 SOUTH CAROLINA 0.5400 0.3600 0.0700 0.0790 0.0000
938 MISSISSIPPI 0.5400 0.4700 0.0700 0.1090 0.0000
1691 ARKANSAS 0.5400 0.5400 0.0700 0.0700 0.0000
1885 MISSOURI 0.5400 0.8200 0.0100 0.0509 0.0000
1965 OKLAHOMA 0.5400 0.5400 0.0700 0.0700 0.0000
2011 OKLAHOMA 0.5400 0.5400 0.0700 0.0700 0.0000
2121 TEXAS 0.5400 0.4700 0.0700 0.1090 0.0000
2153 TEXAS 0.5400 0.4700 0.0700 0.1085 0.0000
4332 GEORGIA 0.5400 0.3500 0.0700 0.0812 0.0000
4425 GEORGIA 0.5400 0.4700 0.0700 0.1085 0.0000
75 CITIZENS ALLTEL II
2354 NEVADA 0.8200 0.0000 0.0800 0.2270 0.0000
4432 OREGON 0.8200 0.0000 0.0800 0.0971 0.0000
4449 ARIZONA 0.8200 0.6500 0.0800 0.0490 0.0000
4450 NEW MEXICO 0.8200 0.6500 0.0800 0.0490 0.0000
76 CITIZENS VIA ALLTEL
96 NEW YORK 0.0000 0.0000 0.0762 0.0762 0.0900
157 PENNSYLVANIA 0.5400 0.4700 0.0650 0.1035 0.0000
270 WEST VIRGINIA 0.8200 0.8200 0.6300 0.0630 0.0000
577 TENNESSEE 0.8200 0.0000 0.6300 0.0560 0.0000
4336 TENNESSEE 0.0000 0.0000 0.0634 0.0634 0.0000
81 INDEPENDENT NECA SVC. 0.3000 0.3000 0.2500 0.2500 0.0000
87 GTE CONTEL 0.4700 0.4700 0.7000 0.7000 0.0900
91 CHILLICOTHE TEL. CO. 0.0000 0.0000 0.3000 0.3000 0.0000
92 PACIFIC TELCOM 0.3000 0.3000 0.2500 0.2500 0.0000
93 CENTURY TELEPHONE 0.3900 0.1979 0.1300 0.1355 0.0000
94 ILLUMINET 0.3750 0.3750 0.3000 0.3000 0.0000
</TABLE>
COMPANY CONFIDENTIAL
24
<PAGE> 25
EXHIBIT "C"
PRICING
EFFECTIVE SEPTEMBER 1, 1997
(1) U.S. BILLING, MOST FAVORED PROCESSING FEES:
<TABLE>
<CAPTION>
Volume RATE RCD 1 Year 2 Year 3 Year
------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
0 -250,000 LEC Charge + $0.0525 $0.0525 $0.0525
Next 250,000 LEC Charge + $0.0525 $0.0485 $0.0440
Next 500,000 LEC Charge + $0.0475 $0.0435 $0.0390
Next 1,000,000 LEC Charge + $0.0435 $0.0395 $0.0350
Next 1,000,000 LEC Charge + $0.0405 $0.0365 $0.0320
Next 1,000,000 LEC Charge + $0.0385 $0.0345 $0.0300
Next 2,000,000 LEC Charge + $0.0385 $0.0345 $0.0225
Next 4,000,000 LEC Charge + $0.0385 $0.0345 $0.0185
Over 10,000,000 LEC Charge + $0.0385 $0.0345 $0.0150
</TABLE>
USBI's most favored Processing Fees are in addition to the USBI's
contractual LEC Processing Fees as outlined in Exhibit "B" attached
hereto which are calculated monthly as described 'in paragraph 4.(f)
hereof.
If Customer elects an initial term of this Agreement of two (2) or
three (3) years, Customer acknowledges and agrees to pay a minimum
monthly processing fee of at least $13,125/month (250,000 records/month
times $.0525/record), for the entire two (2) or three (3) year term of
the Agreement.
(2) END USER CUSTOMER SERVICE INQUIRY, INVESTIGATION AND REBATE:
USBI will perform End User customer service inquiry, investigation and
rebate for those areas where the LEC billing and collection agreements
provide for such: Customer will be charged a total of $2.50 for each
customer service inquiry, investigation or rebate handled by USBI on
behalf of Customer.
(3) MINIMUM USBI PROCESSING FEE PER TRANSMISSION:
For each submission of EMI Billing Records to USBI, Customer shall not
pay a minimum USBI Processing Fee. Customer will not submit more than
once per week its EMI Billing Records.
(4) ACCOUNTS RECEIVABLES RECONCILIATION SYSTEM - FASTRACK:
Customer shall pay an initial, one-time fee for USBI's accounts
receivable reconciliation system known as FASTRACK. The charge is one
thousand five hundred dollars ($1,500) for the first library code and
five hundred dollars ($500) for each additional library code. There is
no charge for weekly accounts removable status updates.
-----------------
USBI's extended term processing fees are applied separately to the
monthly volume of EMI billing records processed for each library code
assigned to Customer. However, at Customer's option USBI will aggregate
the total volume of call records submitted under each library code to
calculate the combined volume to determine the USBI processing fee.
Should Customer so elect, Customer must submit to USBI its election in
a letter signed by an owner or officer of the Company stating its
election and authorizing USBI to charge and to deduct from amount due
Customer a total of $1,000 per month for each library code, after the
first, assigned to customer. COMPANY CONFIDENTIAL
25
<PAGE> 26
EXHIBIT "D"
MTS CALL COMPLETION CRITERIA
A MTS call is completed if some type of direct communication or hardware or
software answer detection has been established between the originating person
and the terminating location. Collect and third number billed calls must be
verified that the receiving party or third party agrees to accept the charges
for the call if automated technologies are used, the receiving party must
positively acknowledge the acceptance of the call. In the case of
person-to-person calls, the operator must verify that the receiving party is the
person whom the originating party requested. For other direct dialed, automated
calling card or operator assisted calls, the call shall be considered completed
when the connection is verified by means of hardware or software detection as
required by Federal, state and local regulatory authorities.
In those cases where the Customer cannot determine the exact time the
terminating person has gone "off hook" (beginning of communication with the
originating party), and Federal, state or local regulatory authorities do not
require hardware or software answer detection, a call shall be considered to be
connected if the originating and receiving parties hold the connection for more
than thirty-six (36) seconds.
Calls for four hundred eighty (480) minutes (8 hours) or more are not considered
valid, completed calls and will not be billed.
Calls to operators, customer announcements, busy signals or ringing shall not be
considered completed calls and shall not be billed.
COMPANY CONFIDENTIAL
26
<PAGE> 27
EXHIBIT "E"
EXCHANGE MESSAGE INTERFACE (EMI) BILLING RECORD
The following Bellcore EMI billing record formats will be processed by USBI for
the LECs that are capable of billing and collecting for services using the
following EMI billing record format
RECORD ID
010101 Domestic Message Telephone Service (MTS) Charge
010132 Domestic Directory Assistance Charge
010201 North American Originated and Billable International Charge
425001 Miscellaneous Recurring and Non-Recurring Service Charge
202203 Pack Header Record
202204 Pack Trailer Record
COMPANY CONFIDENTIAL
27
<PAGE> 28
EXHIBIT "F"
USBI PROCEDURES FOR END USER CUSTOMER SERVICE
INQUIRIES, INVESTIGATIONS AND REBATES
PAGE 1 OF 2
I. For those LECs whose billing and collection agreements provide for USBI to
provide End User inquiry, investigation and rebate, USBI's toll-free "800"
number will appear on the End User's LEC telephone bill to be used for
resolution of any issues associated with the End User's bill.
At the time of the initial call from an End User, USBI's customer service
representative will request the End User's bill number in order to access
USBI's portion of the End User's bill. Once the account has been accessed,
the End User will be identified. If the End User is disputing any of the
following:
(a) Denying All Knowledge (DAK);
(b) Calls Not Connecting (CNC);
(c) Rates; or
(d) Fraudulent calls,
then an automated internal credit form will be prepared which contains the
following information:
(a) Bill name, number and address;
(b) Reason and dollar amount in dispute; and
(c) Copy of the EMI Billing Records being disputed.
II. This information will be forwarded to USBI's Investigations Department. All
inquiries over fifty dollars ($50.00) will be investigated. Basic investigation
procedure shall be to investigate all End User's bills where the End User denies
all knowledge (DAKs) of any and/or all records billed to them through USBI. Upon
receipt of the internal credit form and the printout of the End Users' records,
the following procedures shall be followed:
(A) Notify the LEC that an End User has denied all knowledge of the
telecommunication services being billed through USBI and that an
investigation will be conducted to determine the validity of such claim.
The following information will be given:
(1) End User's full name and address;
(2) Telephone number,
(3) Statement date; and
(4) Amount in dispute
(B) Maintain details of all conversations when investigating the calls
(i.e., person's name, complete telephone number, date and time of each
call).
(C) Maintain contact with the End User and the LEC concerning the
results of investigation.
COMPANY CONFIDENTIAL
28
<PAGE> 29
EXHIBIT "F"
USBI PROCEDURES FOR END USER CUSTOMER SERVICE
INQUIRIES, INVESTIGATIONS AND REBATES
PAGE 2 OF 2
(D) Notify Customer daily of all DAKs that exceed seventy-five dollars
($75.00) Notification will include the origination number.
III. Verification with the LEC if the End credit card has been canceled, and
when. Any records billed after the credit card cancellation date shall be
refunded 100% to the End User. Access numbers on computer to determine if other
calls have been billed to the End User. Call sufficient telephone numbers listed
to determine if the receiving parties know the End User who is disputing the
calls.
IV. The next step will be to call the LEC to inform them that the bill was
fraudulent or resolved, and that USBI will let the End User know how USBI will
proceed. A log of all calls and rate adjustments will be kept for end-of-month
reports. A confirmation letter will be mailed to the End User, and the LEC will
be advised of the approval or denial of credit.
V. Investigation process will be complete at this time.
VI. The following items procedures will be followed for a End User who receives
a refund check:
(A) Verify that no duplicate check has been issued previously to the
same End User.
(B) Issue a refund check for the amount approved by the investigation
department.
(C) Prepare a letter of explanation to accompany the check being mailed
to the End User.
VII. The following procedures will be utilized for credit issued through Bell
Operating Companies (BOCs):
(A) IC/EC memorandum will be issued for the amount approved by the
investigation department or an electronic EMI credit record will be
prepared.
(B) IC/EC memorandum will be mailed to the End User's Local Exchange
Carrier for credit towards End User's account or EMI credit record will
be submitted with the next billing submission.
The above procedures for refund checks, electronic EMI credit records and IC/EC
memorandums usually take a total of five (5) Business Days.
COMPANY CONFIDENTIAL
29
<PAGE> 30
EXHIBIT "G"
USBI BAD DEBT FACTOR
FOR PERIOD 08/01/96 - 07/31/97
PAGE 1 OF 2
<TABLE>
<CAPTION>
LEC NAME CHARGE
<S> <C> <C>
BELL OPERATING COMPANIES:
10 NYNEX
9102 NEW ENGLAND TELEPHONE .0321
9104 NEW YORK TELEPHONE .1293
12 SNET
9147 SOUTHERN NEW ENGLAND NA
14 BELL ATLANTIC
9206 NEW JERSEY BELL .0460
9208 PENNSYLVANIA BELL .0428
9210 DIAMOND STATE .0366
9211 C&P OF WASHINGTON, D.C. .0713
9212 C&P OF MARYLAND .0318
9213 C&P OF VIRGINIA .0227
9214 C&P OF WEST VIRGINIA .0214
16 AMERITECH
9321 OHIO BELL .0294
9323 MICHIGAN BELL .0300
9325 INDIANA BELL .0300
9327 WISCONSIN BELL .0300
9329 ILLINOIS BELL .0300
18 CINCINNATI BELL
9348 CINCINNATI BELL .0265
20 BELLSOUTH
9417 SOUTHERN BELL .0263
9419 SOUTH CENTRAL BELL .0272
22 SOUTHWESTERN BELL
9533 SOUTHWESTERN BELL .0416
24 U.S. WEST
9631 U.S. WEST - EASTERN .0984
9636 U.S. WEST - CENTRAL .0432
9638 U.S. WEST - WESTERN .0722
26 PACTELIS
9740 PACIFIC BELL .0609
9742 NEVADA BELL .0361
</TABLE>
COMPANY CONFIDENTIAL
30
<PAGE> 31
EXHIBIT "G"
USBI BAD DEBT FACTOR
FOR PERIOD 08/01/96 - 07/31/97
PAGE 2 OF 2
<TABLE>
<CAPTION>
LEC NAME CHARGE
GTE COMPANIES:
<S> <C> <C>
30 GTE SOUTH .0577
40 GTE NORTH .0365
46 GTE CENTRAL .0425
52 GTE WEST .0620
53 CITIZENS VIA GTE .0308
87 GTE CONTEL COMPANIES N/A
INDEPENDENTS:
28 TELECOM - CANADA N/A
58 UNITED FLORIDA .0332
62 UNITED MIDWEST .0391
63 SPRINT MID ATLANTIC TELECOM .0245
66 UNITED NORTH CENTRAL .0011
74 ALLTEL .0376
75 CITIZENS ALLTEL II N/A
76 CITIZENS VIA ALLTEL .0052
81 INDEPENDENT NECA SVC. N/A
91 CHILLICOTHE TELEPHONE COMPANY N/A
92 PACIFIC TELCOM N/A
93 CENTURY TELEPHONE N/A
94 ILLUMINET .0070
</TABLE>
COMPANY CONFIDENTIAL
31
<PAGE> 32
AMENDMENT NO. 1
This Amendment amends the Residential Distributor Program Agreement,
dated January 5, 1998 ("Agreement"), by and between LCI International Telecom
Corp ("LCI") and Quintelcomm, Inc. ("Representative").
1. The Agreement is hereby amended as follows:
A. This Amendment shall be effective for May and June 1998 and July
1998 only. Representative shall obtain {at least 100,000 newly
installed Customers} for the Services in each of May and June and July
1998, after completing {the "GBUS" order entry process}. The
commissions due as a result of the {first usage for the first 40,000
such Customers} each month shall be as set forth in the Agreement. The
commissions due as a result of the first usage for {the next 60,000
such Customers each month shall be as follows: $25.00 on "first usage"
and, provided there has been "first usage", $20.00 for each such
Customer who remains on the Service for at least thirty (30) days
following "CARE" confirmation, with no Usage Commission payable.} A new
"channel/org code" shall be used for such Customers {in excess of
40,000}. Commission payments under this Amendment may be made based on
good faith estimates by LCI. A "true up" shall be performed when
adequate and accurate reporting is available and additional payments or
chargebacks, as applicable, shall be made.
Notwithstanding anything in the Agreement to the contrary, in
May and June and July 1998 Representative may market for a competitor
of LCI provided 1) such marketing does not include a promotion that is
being marketed by Representative for LCI, 2) the segment of
Representative's database used for such marketing shall be separate and
distinct from that used or to be used for marketing on behalf of LCI
and 3) no LCI Customers shall be solicited.
After obtaining {at least 100,000 newly GBUS installed
Customers} in May 1998, Representative may, following written notice to
LCI,
<PAGE> 33
accelerate the start of obtaining the
{"second" 100,000 newly GBUS installed Customers}, that would otherwise
begin in June.
B. All capitalized terms not defined in the Amendment shall be as
defined in the Agreement.
II. All other terms and conditions of the Agreement remain unchanged.
LCI International Telecom Corp.
By /s/John C. Taylor Date 5-29-98
--------------------------- ------------------
John C. Taylor, SVP Consumer Markets
(Print Name and Title)
Quintelcomm, Inc.
By /s/Jeffrey Schwartz Date 5-26-98
----------------------------- ------------------
Jeffrey Schwartz, COB
(Print Name and Title)
2
<PAGE> 1
EXHIBIT 10.23.2
AMENDMENT NO. 1
This Amendment amends the Residential Distributor Program Agreement,
dated January 5, 1998 ("Agreement"), by and between LCI International Telecom
Corp ("LCI") and Quintelcomm, Inc. ("Representative").
1. The Agreement is hereby amended as follows:
A. This Amendment shall be effective for May and June 1998 and July
1998 only. Representative shall obtain {Confidential portion omitted
and filed separately with the Commission} for the Services in each of
May and June and July 1998, after completing {Confidential portion
omitted and filed separately with the Commission}. The commissions due
as a result of the {Confidential portion omitted and filed separately
with the Commission} each month shall be as set forth in the Agreement.
The commissions due as a result of the first usage for {Confidential
portion omitted and filed separately with the Commission} A new
"channel/org code" shall be used for such Customers {Confidential
portion omitted and filed separately with the Commission}. Commission
payments under this Amendment may be made based on good faith estimates
by LCI. A "true up" shall be performed when adequate and accurate
reporting is available and additional payments or chargebacks, as
applicable, shall be made.
Notwithstanding anything in the Agreement to the contrary, in
May and June and July 1998 Representative may market for a competitor
of LCI provided 1) such marketing does not include a promotion that is
being marketed by Representative for LCI, 2) the segment of
Representative's database used for such marketing shall be separate and
distinct from that used or to be used for marketing on behalf of LCI
and 3) no LCI Customers shall be solicited.
After obtaining {Confidential portion omitted and filed
separately with the Commission} in May 1998, Representative may,
following written notice to LCI,
<PAGE> 2
accelerate the start of obtaining the {Confidential portion omitted and
filed separately with the Commission}, that would otherwise begin in
June.
B. All capitalized terms not defined in the Amendment shall be as
defined in the Agreement.
II. All other terms and conditions of the Agreement remain unchanged.
LCI International Telecom Corp.
By /s/ John C. Taylor Date 5-29-98
------------------------------- -------
John C. Taylor, SVP Consumer Markets
(Print Name and Title)
Quintelcomm, Inc.
By /s/Jeffrey Schwartz Date 5-26-98
------------------------------- -------
Jeffrey Schwartz, COB
(Print Name and Title)
2
<PAGE> 1
Exhibit 10.23.3
AMENDED AND RESTATED
RESIDENTIAL DISTRIBUTOR PROGRAM AGREEMENT
IT IS AGREED as of September, 1, 1998, by and between LCI International Telecom
Corp., d.b.a. Qwest Communications Services ("Qwest"), a Delaware corporation,
with a principal place of business at 1000 Qwest Tower, 555 Seventeenth Street,
Denver, Colorado 80202 and Quintelcomm, Inc., a Delaware corporation
(hereinafter "Representative), whose address is One Blue Hill Plaza, Suite 500,
Pearl River, New York 10965.
THIS AGREEMENT amends and restates in its entirety the agreement dated as of
January 5, 1998 between the parties hereto.
1. GRANT OF AUTHORITY
a.) Quest appoints Representative as a non-exclusive
representative in the territory set forth in Exhibit A to
promote the sale of and solicit orders for the services
defined in Exhibit A ("Services") and to obtain customers for
such Services (a customer obtained by Representative shall be
referred to as the "Customer"), all subject to the terms and
conditions of this Agreement. Representative agrees to market
the Services in accordance with the terms of this Agreement
using the methods of Customer acquisition set forth in Exhibit
C. Qwest may 1) add to or delete from the Services, 20 change
the tariffs or terms and conditions relating to the Services,
or 3) change its requirements in connection with Verbal
Authorizations and LOAs (as hereinafter defined) (collectively
"Changes"); provided however, Qwest shall in the case of a
Material Change (defined as any change in the oral or written
marketing descriptions of the price or material terms and
conditions of the Services used by Representative hereunder)
that is not required as a result in a change in federal or
state laws or regulations ("Laws"), provide Representative
sixty (60) days prior written notice ("Notice") of such
Material Change (and Representative's sole remedy for Qwest's
failure to provide such Notice shall be the reimbursement of
Representative's actual expenses in making the Material
Change), and in the case of all other Changes, Qwest shall use
commercially reasonable efforts to provide as much advance
written notice as is practicable. In the event of a Material
Change that is required by a change in Laws, Qwest and
Representative shall share equally in the mutually agreed upon
expenses Representative may incur in changing its oral or
written materials. In the event of a Material Change or a
material change in Qwest's nationwide, residential long
distance service offerings, which, in either case, materially
adversely impacts Representative's rights or obligations or
ability to generate commissions hereunder, Representative
shall provide written notice to Qwest and the parties shall
work together in good faith to agree upon a course of action
whereby both parties continue to receive the benefits expected
under this Agreement, provided however, if the parties fail to
reach such an agreement within thirty (30) days of such notice
"Representative Discussion Period"), Representative may
terminate this Agreement by written notice to Qwest given
within ten (10) days following the Representative Discussion
Period. In the event any federal or state action, by
legislation,
<PAGE> 2
decision, order or otherwise, which materially adversely
effects Qwest's rights or obligations hereunder or the
marketing and sales method used by the parties hereunder or
materially increases the risk that the continuation of such
marketing and sales methods will have a material adverse
effect on Qwest's residential long distance business in that
jurisdiction, Qwest shall provide written notice to
Representative and the parties shall work together in good
faith to agree upon a course of action whereby both parties
continue to receive the benefits expected under this
Agreement, provided however, if the parties fail to reach such
an agreement within thirty (30) days of such notice ("Qwest
Discussion Period"), Qwest may eliminate from Representative's
marketing efforts the jurisdiction(s) in which the
governmental action applies, by providing written notice to
Representative given within ten (10) days following the Qwest
Discussion Period, and if such jurisdiction as the federal
government or if the foregoing procedure in the aggregate
results in 33% or more of U.S. population being eliminated,
Qwest may, upon ten (10) days written notice to Representative
terminate this Agreement. Representative further agrees to
secure and use at its own expense and within thirty (30) days
from the date hereof, for the purpose of communication and
electronic download of LOAs to Qwest, the equipment or its
equivalent as outlined in Exhibit E. If Qwest offers, via
nationwide third party sales representatives, 1) residential
voice, data and fax long distance services not previously
marketed by Qwest as of the date hereof, 2) or non-traditional
telecommunications services for residential customers such as
cellular, internet access or paging services, such services
shall be made available to Representative to market on terms
and conditions to be mutually agreed upon.
b.) Representative shall only use those means of marketing and
selling the Services which are set forth in Exhibit C or are
agreed upon in the sales and marketing plan ("Plan"). Qwest
reserves the right to approve all customer databases used by
Representative that are not set forth in the initial Plan
which approval or disapproval shall be consistent with Qwest's
general residential marketing guidelines, strategies and
objectives. Qwest acknowledges that it has approved the
customer database described in Representative's letter dated
December 30, 1997. Representative agrees to submit for
approval by Qwest an updated Plan every ninety (90) days.
Representative agrees to submit any changes in the Plan to
Qwest for written approval, prior to any implementation by
Representative. Qwest shall have ten (10) business days to
approve the Plan, but any failure to so approve shall not be
deemed approval. Thereafter, Qwest shall have five (5)
business days to approve changes to the Plan and any failure
to approve or disapprove the changes shall be deemed approval.
If the parties cannot reach agreement on changes to the Plan,
the previous Plan shall continue to apply. The initial
proposed Plan and any changes or updates thereto shall include
the identifying characteristics of each prospect class,
segment or group proposed to be solicited, identified as
specifically as possible by Representative including the
approximate number of prospects therein ("Cell"). If Qwest
does not approve the
2
<PAGE> 3
initial Plan, such disapproval shall be consistent with
Qwest's general residential marketing guidelines, strategies
and objectives and Qwest shall provide to Representative the
reasons for such disapproval. If the initial Plan is not
approved within thirty (30) days of initial submission by
Representative ("Plan Period"), Representative may terminate
this Agreement by providing written notice within ten (10)
days following the Plan Period. Solicitation by sweepstakes,
contests, or drawings is not permitted by Representative, its
employees, agents, or contractors under this Agreement without
prior written approval from Qwest. Qwest understands that
Representative will use premiums that are astrological in
nature in connection with its solicitation process.
c.) Qwest shall have the right to remotely monitor inbound and
outbound telemarketing calls performed by Representative
hereunder. Following thirty (30) days of selling by
Representative of a particular Cell, Qwest shall have the
right to terminate all solicitations to that Cell as set forth
below:
i.) If the "Billing Rate" for a Cell is less
than {Confidential portion omitted and filed
separately with the Commission} per month,
Qwest may terminate all solicitations to
that Cell pursuant to this Section 1.c.i
upon written notice to the Representative.
"Billing Rate" shall be defined as Billed
Revenue from a Cell as measured over a
30-day period divided by the number of
Customers in that Cell measured over the
same 30-day period who had dial one Service
during the entire thirty (30) day period and
for whom an Installation Commission was
payable hereunder. Representative shall have
thirty (30) days from receipt of such notice
to "cure" by increasing the Billing Rate to
{Confidential portion omitted and filed
separately with the Commission} or more per
month for that Cell as measured over the
30-day cure period. If Representative fails
to so cure, all solicitations to that Cell
shall terminate upon written notice from
Qwest to Representative.
ii.) If the "Churn Rate" for a particular Cell is
greater than {Confidential portion omitted
and filed separately with the Commission},
Qwest may terminate all solicitations to
that Cell pursuant to this Section 1.c.ii
upon written notice to Representative.
"Churn Rate" shall be defined as the number
of Customers from the Cell disconnecting
from dial one Service during a thirty (30)
day period ("Measuring Period") divided by
the number of Customers from the Cell on
dial one Service at the start of that
Measuring Period. Measuring Periods in all
instances shall begin on the same day of the
week and for purposes of this Section
1.c.ii, a Cell must contain at least
{Confidential portion omitted and filed
separately with the Commission} Customers.
Upon receipt of
3
<PAGE> 4
written notice from Qwest, Representative
shall have thirty (30) days to "cure" by
maintaining the Churn Rate for that Cell
during such 30 day cure period at
{Confidential portion omitted and filed
separately with the Commission} or less and
achieving a Churn Rate for all new Customers
for that Cell during such 30 day cure period
at {Confidential portion omitted and filed
separately with the Commission}.
d.) The term "telemarketing" shall mean Representative's inbound
and outbound telephone sales, with Representative initiating
telephone calls to third parties for the purpose of marketing
Qwest's Services to those third parties.
i.) All telemarketing services shall be in accordance
with the highest professional standards.
ii.) Representative shall perform the telemarketing
services in compliance with all applicable federal,
state and local laws relating to telemarketing
including, without limitation, compliance with all
applicable third party verification procedures and
regulations as required by the Federal Communications
Commission (FCC) including, without limitation, 47
CFR Sections 64.1100 and 64.1200 of the FCC rules, as
amended, and compilation of a "Do Not Call" list as
legally required. As applicable under federal, state
or local laws and regulations, Representative shall
supply sales information to a third party verifier,
at Qwest's option, or a third party verifier in
accordance with an arrangement with Quest and a third
party verification company approved by Qwest in
writing.
iii.) Representative shall not use Qwest's name and/or any
of Qwest's registered trademarks and services marks
unless expressly authorized by Qwest in writing. Even
if permission is granted, Representative shall
immediately cease use of Qwest's marks on direction
from Qwest and, in any event, at the termination of
the Agreement.
iv.) Representative shall manage, direct, hire and train
all personnel assigned to Qwest and Representative
shall have sole responsibility for all salaries,
wages and benefits of such employees. Representative
shall only use telemarketing sales representatives
who have satisfactorily completed Representative's
sales training program.
v.) Representative shall maintain full, accurate and
complete records and books of account, regarding the
telemarketing services performed under the Agreement.
4
<PAGE> 5
vi.) Representative shall be responsible for the
formulation of all scripts subject to prior review
and written approval of Qwest. Written materials
describing Qwest programs and procedures contained in
telemarketing scripts shall not be used by
Representative in any other manner without Qwest's
prior written approval. Representative, its
employees, agents, and contractors, shall use only
the approved telemarketing script(s) and associated
sales materials provided by Qwest for sales training
and telemarketing sales generation. Representative,
its employees, agents, and contractors shall not make
any revisions to or materially deviate from the
script of any other sales materials approved by Qwest
without Qwest's written approval. Any scripts
developed by Representative shall remain
Representative's property.
vii.) As applicable under any federal, state or local law
or regulation i) any party wishing not to be called
shall immediately be added to Representative's DO NOT
CALL list, ii) all names and telephone numbers and
sales leads shall immediately be matched against the
Direct Marketing Association and Representative's DO
NOT CALL files and shall not be called, and iii)
Representative shall submit a report to Qwest each
week listing those who request to be added to the DO
NOT CALL list.
viii.) Qwest reserves the right, without providing prior
notice and to the event permitted by law, to monitor
the handling of telemarketing calls where the
telemarketing services are being performed and to
ensure compliance with Qwest's scripts and sales
materials.
e.) The parties shall execute Amendments No. 1 and 2 as set forth
in Exhibits F and G.
2. COMMISSION
Representative shall receive commissions in accordance with the
commission structure set forth in Exhibit B, provided however, no
commission shall be paid on then current LCI customers (except as
specifically set forth in Exhibit B) or Qwest customers for the
Services or on new customers that call Qwest directly to subscribe to
the Services (other than inbound programs previously approved by Qwest
in writing).
3. RELATIONSHIP
During the term of this Agreement and for as long as commissions are
payable following termination or expiration, Representative shall not
knowingly, directly or indirectly, encourage or solicit any Customer to
discontinue using the Services. Except as permitted by the provisions
of Section 15 hereof, neither Representative nor an affiliate of
Representative shall enter into any oral or written agreement with a
provider of residential
5
<PAGE> 6
long distance services similar to this Agreement nor shall
Representative, directly or indirectly, market, solicit or sell
residential long distance of a competitor of Qwest (the term "long
distance service" excludes for purposes of this Agreement internet
telephony and 10xxx or "casual" calling). Representative shall not make
any representations of rates, terms or conditions of the Services that
conflict with the applicable tariffs or written information provided by
Qwest. Representative is responsible for all expenses and obligations
incurred by it as a result of its efforts to solicit Customers
including all costs for third party verification (TPV). The terms and
condition of the TPV contract, the costs associated therewith and
identity of any TPV vendor shall at all times be subject to mutual
approval of the parties hereto. The TPV contract shall be among Qwest,
Representative and the TPV, provided however, both Qwest and
Representative shall have the unilateral right to terminate the
contract for inadequate performance by the TPV vendor after prior
written notice and consultation with one another. Representative shall
be responsible for payment of all income taxes due on Representative's
income from the payments made to Representative by Qwest.
4. CUSTOMER SERVICE AND OTHER CUSTOMER MATTERS
a.) Representative shall not provide customer service with regard
to the Services to Customers solicited by Representative,
including billing, collections or repair service. Customers
attracted by Representative are customers of Qwest and any
termination or expiration of this Agreement shall have no
effect on Qwest's relationship with such Customers. All
information and data specific to the Customer's phone number
and the long distance usage thereon obtained by Representative
from Qwest Customers, potential customers or Qwest in
connection with this Agreement (such information and data is
referred to as the "Confidential Customer Telecommunications
Information") shall be proprietary to Qwest and shall be
governed by the Confidentiality Agreement. Representative
shall in no event use or disclose such Confidential Customer
Telecommunications Information, except to provide its services
hereunder. All information and data regarding the Customer
provided by Representative (including, without limitation, the
name and address of the Customer) other than the Confidential
Customer Telecommunications Information shall be proprietary
to the Representative and its parent corporation and other
entities owned or controlled by or under common control with
Representative and its parent corporation (hereafter such
parent corporation and other entities are referred to as the
"Affiliates"), and shall be governed by the Confidentiality
Agreement. Representative and its Affiliates shall have the
right to use the phone number of the Customer in their
business activities, subject to the restrictions under the
first two sentences of Section 3 of this Agreement provided
such name, address and phone number were known by
Representative prior to the Customer becoming a Customer
pursuant to this Agreement.
6
<PAGE> 7
b.) Qwest shall train, at each of Representative's telemarketing
sites, Representative's trainers and supervisors with the
intent that those employees will train the remainder of the
employees, staff and agents affiliated with Representative.
All other training and support shall be at Representative's
expense unless otherwise agreed in writing by the parties
hereto.
5. PRODUCT LITERATURE AND MARKETING
Representative, Representative's agents, contractors or franchisees
shall not develop or use any product literature, telemarketing scripts
or other marketing or sales material ("Marketing Material"), other than
that provided by Qwest or approved by Qwest pursuant to this Agreement,
without the prior written consent of Qwest. Qwest shall have ten (10)
business days to approve the initial submittal of any Marketing
Material, but any failure to so approve shall not be deemed approval.
Thereafter, Qwest shall have five (5) business days to approve changes
to the Marketing Material and any failure to approve or disapprove the
changes shall be deemed approval. If Qwest does not approve the initial
Marketing Materials, such disapproval shall be consistent with Qwest's
general residential marketing guidelines, strategies and objectives and
Qwest shall provide to Representative the reasons for such disapproval.
If the initial Marketing Material is not approved within thirty (30)
days of initial submission by Representative ("Material Period"),
Representative may terminate this Agreement by providing written notice
within ten (10) days following the Material Period.
6. ORDER PROCESSING, BILLING AND COLLECTION
a.) Qwest shall have the sole right to accept or reject all orders
in its sole discretion but only for reasons relating to
credit, fraud, invalid PIC authorizations, or the inability to
provide Service in a geographic area. Qwest shall provide to
Representative a suppression file stating the geographic areas
where the Service is not available and Qwest shall update the
file as needed to keep current. If geographic areas are added
following submission of the initial suppression file, the
Revenue Volume commitments in Section 4 of Exhibit B shall be
reduced proportionate to the number of potential customers
eliminated. Upon execution of this Agreement, Qwest shall
provide to Representative a list of NECA and USINTELCO
exchanges where Qwest does not provide the Services, which
list may be updated by Qwest from time to time by written
notice to Representative. Qwest shall provide installation and
other services to the Customers, including customer service,
consistent with that provided to other customers of Qwest.
Representative agrees that all orders submitted to Qwest are
subject to verification by Qwest for accuracy and completeness
and/or the TPV process.
b.) Representative shall submit to Qwest Verbal Authorizations and
LOAs that are compliant in all respects with all laws and
regulations. Further, Representative shall only use
telemarketing scripts and LOAs that have been approved and
7
<PAGE> 8
authorized for current use by Qwest. In the event a local
exchange carrier (LEC) or any regulatory or judicial entity
assesses or levies against Qwest or any Qwest Affiliate
(defined herein as Qwest, any entity controlled by Qwest or
its direct or indirect subsidiaries and any entity under
common control with Qwest or its direct or indirect
subsidiaries) any charges, fines, or forfeitures for invalid
PIC authorizations relating to any Qwest Services ordered
through or by Representative (collectively referred to as
"Fines"), Representative shall promptly reimburse Qwest or
Qwest Affiliate for all Fines plus a Qwest management fee not
to exceed {Confidential portion omitted and filed separately
with the Commission} per customer telephone number ordered
through or by Representative that is deemed to be invalid
and/or is not compliant with any law or regulation (defined
herein as "Fees"), provided however, Representative shall not
be liable for Fines or Fees if, in connection with the PIC
change(s) relating to the Fee and/or Fine, Representative has
fully complied with its obligations under this Section 6.b.,
the TPV process, the then current Policy (as hereinafter
defined), Qwest's Verbal Authorization requirements and has
used the LOA approved by Qwest, as applicable. The payment for
any such Fees and Fines may be withheld by Qwest from
otherwise payable commissions. Upon the request of Qwest,
Representative shall promptly and in good faith provide to
Qwest, Qwest Affiliate, or the LEC, at Representative's
expenses, any documentation required by the LEC or regulatory
agency regarding PIC selections or authorizations for
customers sold hereunder. In addition, Representative shall
completely and in good faith cooperate with Qwest and all LECs
and regulatory and enforcement agencies in attempting to
resolve all PIC selection and authorization and related
disputes including, but not limited to, promptly responding to
inquiries or complaints from governmental bodies or private
individuals or entities and providing tape recordings,
original LOAs, TPV data, and order forms containing customer
signatures. Further Qwest, in its sole discretion and without
obligation or liability for possible or actual reduction of
commission payment to Representative, may suspend the
acceptance of orders by Representative in any state where
there is any investigation or litigation involving the sales
practices or marketing activities of Representative. The
obligations under this Section are in addition to
Representative's obligations under Section 8 below.
Notwithstanding the foregoing, if the number of PIC
authorizations which have not been obtained in accordance with
applicable legal requirements exceed {Confidential portion
omitted and filed separately with the Commission} of the total
PIC authorizations obtained by Representative hereunder, Qwest
may terminate this Agreement.
c.) Representative shall provide, at Representative's cost, a copy
of "Qwest's POLICIES AND PROCEDURES REGARDING SLAMMING
PREVENTION" ("Policy") including an "Acknowledgment" form as
set forth in Exhibit D, to all employees, agents, contractors,
or independent distributors involved in the selling of Qwest
services. Qwest may modify such Policy from time to time and
any such modifications shall be provided to Representative by
written notice.
8
<PAGE> 9
Representative shall have such employee, agent, contractor, or
independent distributor review the aforementioned policy and
return to the Representative a signed "Acknowledgment" form,
indicating they understand and will comply with the Qwest
policy. Representative further agrees to produce a copy of the
signed "Acknowledgment" form within forty-eight (48) hours,
upon Qwest's request, for any such employee, agent,
contractor, or independent distributor. If Representative does
not comply with the request for providing a signed
"Acknowledgment" form, then Qwest may suspend accepting LOAs
hereunder and/or service order information or terminate this
Agreement immediately.
7. CONFIDENTIALITY
The parties agree to abide by the terms of the Agreement set forth in
Exhibit H ("Confidentiality Agreement"). Representative shall not
disclose the terms and conditions of this Agreement to any person or
entity without the prior written consent of Qwest.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Representative represents, warrants and covenants to Qwest
that as of the date of this Agreement and continuing for the
term of this Agreement that:
a.) Representative is a (check one):
(X) Corporation
( ) Partnership
( ) Sole Proprietorship
duly organized, validly existing and in good standing
under the laws of Delaware, with a Federal EIN of
, is qualified to do business in all
states necessary for the conduct of its business and
has full and unrestricted power and authority to
execute and perform under this Agreement.
b.) Representative has obtained all licenses, permits and
other authorizations necessary to perform its
obligations under this Agreement and shall maintain
same, as required, in full force and effect during
the term of this Agreement. Representative shall
comply with all applicable tariffs and orders of
judicial and regulatory bodies and all local, state
and federal laws.
c.) Representative shall not participate in any pyramid
or multilevel marketing system in conjunction with
any person who has an agreement with Qwest.
Representative shall 1) appoint a single point of
contact for Qwest regarding all matters pertaining to
this Agreement, 2) commit no act which would reflect
unfavorably upon Qwest.
9
<PAGE> 10
d.) Representative shall not knowingly solicit any
existing Qwest or LCI customer not originally sold by
Representative, for the purposes of selling,
upgrading or converting such account to Qwest
service. Representative shall not knowingly solicit
any existing Qwest or LCI customer for the purposes
of converting such account to a competitor of Qwest.
e.) Representative agrees that the consummation of this
Agreement is not in conflict in any respect with, and
will not constitute a default under any other
agreements or judicial or administrative orders to
which Representative is a party or by which it may be
bound;
f.) Representative is not in default or otherwise in
non-compliance in any material respect with any
contract, agreement or other arrangement for goods,
services or technology, the termination of which
might reasonably be expected to have a material
adverse effect on Representative's ability to perform
any of its obligations hereunder.
g.) Representative has the unencumbered right to use all
information or data to be used by Representative in
connection with its performance hereunder.
h.) Representative is not subject to any consent decree,
judgment, injunction, restraining order, settlement
agreement, or agreement or order similar in nature
relating to the conduct of its business.
i.) In addition to its obligations under this Section 8
of this Agreement, Representative hereby covenants
and agrees that during the term of this Agreement
that it will notify Qwest in writing within three (3)
business days of:
i.) Representative becoming aware of any
investigation or threatened investigation of
Representative's sales or marketing
activities by any federal, state, or local
governmental body or agency, that is related
to the performance of this Agreement or
ii.) Representative becoming subject to or
entering into any consent decree, judgment,
injunction, restraining order, settlement
agreement or agreement or order relating to
the conduct of its business, that is related
to the performance of this Agreement.
j.) Qwest may, at its sole discretion, exercised in a
commercially reasonable manner and following written
notice and a three (3) business day "cure" period,
suspend the acceptance of orders from Representative
in any state where there is an investigation or
decree as described in Section 8.1.i following the
receipt of any notice issued by Representative
pursuant to
10
<PAGE> 11
Section 8.1.i or if no notice is sent following Qwest
becoming aware of any such investigation or decree.
Qwest, at its sole discretion, exercised in a
commercially reasonable manner, will determine if any
order suspensions will be lifted.
k.) Representative shall, upon reasonable prior notice,
provide to Qwest access to its books, records and
operations so that Qwest may verify Representative's
performance hereunder.
8.2 Qwest represents, warrants and covenants to
Representative that as of the date of this Agreement
and continuing for the term of this Agreement that:
a.) Qwest is a (check one):
(X) Corporation
( ) Partnership
( ) Sole Proprietorship
duly organized, validly existing and in good standing
under the laws of Delaware, is qualified to do
business in all states where necessary for the
conduct of its business and has full and unrestricted
power and authority to execute and perform under this
Agreement.
b.) Qwest has obtained all licenses, permits and other
authorizations necessary to perform its obligations
under this Agreement and shall maintain same, as
required, in full force and effect during the term of
this Agreement. Qwest shall comply with all
applicable tariffs and orders of judicial and
regulatory bodies and all local, state and federal
laws.
c.) Qwest agrees that the consummation of this Agreement
is not in conflict in any respect with, and will not
constitute a default under any other agreements or
judicial or administrative orders to which Qwest is a
party or by which it may be bound;
d.) Qwest is not in default or otherwise in noncompliance
in any material respect with any contract, agreement
or other arrangement for goods, services or
technology, the termination of which might reasonably
be expected to have a material adverse effect on
Qwest's ability to perform any of its obligations
hereunder.
e.) Qwest is not subject to any consent decree, judgment,
injunction, restraining order, settlement agreement
or agreement or order similar in nature relating to
the conduct of its business.
11
<PAGE> 12
f.) In addition to its obligations under this Section 8
of this Agreement, Qwest hereby covenants and agrees
that during the term of this Agreement that it will
notify Representative in writing within three (3)
business days of:
i.) Qwest becoming aware of any investigation or
threatened investigation of Qwest's or
Representative's sales or marketing
activities by any federal, state, or local
governmental body or agency, that is related
to the performance of this Agreement;
provided however, Qwest shall have no such
obligation if in its good faith judgment
such notice would impede the investigation,
if it is requested by the investigating
authorities to not so notify Representative,
or if it is prohibited by law or court
order.
ii.) Qwest becoming subject to or entering into
any consent decree, judgment, injunction,
restraining order, settlement agreement or
agreement or order relating to the conduct
of its business, that is related to the
performance of this Agreement.
9. INSURANCE
Representative shall secure and maintain Workers Compensation, General
Comprehensive Liability Insurance and Automobile Insurance in
sufficient amounts to comply with all applicable laws and to cover its
respective obligations under this Agreement, including claims for
bodily and personal injury, death, property damage, and all other harm
caused by or occurring in connection with Representative's performance
under this Agreement. Further certificates of insurance shall be
submitted to Qwest naming Qwest an ADDITIONAL INSURED on such policies
as appropriate, prior to the execution of this Agreement. These
certificates shall certify that no material alteration, modification or
termination of such coverage shall be effective without at least thirty
(30) days advance notice to Qwest. Upon request, Representative shall
furnish insurance certificates as evidence of such coverage.
At a minimum, Representative agrees to maintain the following insurance
coverages.
a.) Comprehensive or Commercial General Liability Insurance:
$1,000,000 per occurrence combined single limit/$2,000,000
general aggregate and will include coverage for the use of
independent contractors, products, and completed operations.
b.) Workers Compensation and Employer's Liability Insurance:
Workers Compensation in the statutory amounts and with
benefits required by the laws of the state in which the Qwest
Services are sold and the states (in which
12
<PAGE> 13
employees and/or Representative's independent contractors are
hired, if the state(s) are other than that in which the Qwest
Services are sold).
THE REQUIRED MINIMUM LIMITS OF COVERAGE SHOWN ABOVE WILL NOT
IN ANY WAY RESTRICT OR DIMINISH REPRESENTATIVE'S LIABILITY
UNDER THIS AGREEMENT.
10. TRADEMARKS AND TRADE NAMES
Representative shall sell the Services under the Qwest trademarks and
trade names only in accordance with the manner of use approved in
writing in advance by Qwest. Representative agrees to comply with any
standards for usage of such trademarks and trade names issued or to be
issued by Qwest from time to time. Representative shall not use in its
business or trade or corporate name the name "Qwest" or any name of a
service provided by Qwest, or the Qwest symbol, nor shall it use any
trademark or service mark of Qwest or symbol related to Qwest without
the prior, express written consent of Qwest as to the manner of such
use, unless advance provision to do so is made in separate agreement
between the parties. Without limiting the foregoing, Representative
shall not, without Qwest's prior written consent as to the manner of
use, advertise, market or provide information about Qwest services or
use Qwest's trademarks, service marks, logos or other intellectual
property, on the "Internet" or on any print or electronic media.
11. TERM OF AGREEMENT AND TERMINATION
a.) The initial term of this Agreement shall be until
January 5, 2001, and the Agreement shall be renewed
thereafter automatically on a year-to-year basis,
unless sooner terminated as hereinafter provided,
subject to and upon the terms and conditions herein
specified. Either party may terminate this Agreement
at any time during a renewal term upon giving the
other party one hundred twenty (120) days prior
written notice.
b.) Qwest may terminate this Agreement upon written notice to
Representative in the event of:
i.) Representative's failure to attain the monthly
Collected Revenue level specified in Exhibit B.
ii.) Breach by Representative of any warranty or covenant
under this Agreement, or if Representative defaults
or fails to perform any obligation hereunder,
provided however, if such breach, default or failure,
is subject to cure. Representative shall have twenty
(20) days after written notice from Qwest to so cure,
or such longer period as necessary to so cure
provided Representative diligently and in good faith
works to so cure in such longer period; and
13
<PAGE> 14
iii.) Insolvency, bankruptcy, receivership or dissolution
of Representative.
iv.) Representative violates any federal, state or local
law or regulation in connection with its performance
hereunder or Representative engages in, participates
in, or allows the perpetration of any fraud against
Qwest.
12. INDEMNIFICATION
Each party shall indemnify, defend and hold the other (and all
officers, directors, employees, agents and affiliates thereof) harmless
from and against any and all claims, demands, actions, losses, damages,
assessments, charges, liabilities, costs and expenses (including,
without limitation, interest, penalties, and attorney's fees and
disbursements) which may at any time be suffered or incurred by, or be
asserted against, any or all of them, directly or indirectly, on
account of or in connection with:
a.) The indemnifying party's default under any provision herein,
breach of any warranty or representation herein, or failure in
any way to perform any obligation hereunder; or
b.) Bodily injury or damage to property (including death) to any
person (including, without limitation, any employee of either
party and any third person), and any damage to or loss of use
of any property, arising out of or in any way relating to the
services or pursuant, directly or indirectly, to this
Agreement.
Each party shall hold harmless and indemnify the other from and against
any claim, cause of action, judgment, liability or expense relating to
or arising out of the acts or omissions of that party's
Representative's employees, contractors and agents.
13. LIABILITY
Except for Representative's liability for consequential damages,
including lost profits, for any breach of the obligations in the first
two sentences of Sections 3, Section 8.1.d., and Section 7, in no event
shall either party be liable for special, indirect, incidental, or
consequential damages, including loss of profits, arising from the
relationship or the conduct of business contemplated herein. With the
exception of willful misconduct, gross negligence and the amount of
commissions due pursuant to Exhibit B, in no event shall Qwest's
liability in connection with this Agreement exceed {Confidential
portion omitted and filed separately with the Commission}. With the
exception of willful misconduct and gross negligence, in no event shall
Representative's liability in connection with this Agreement exceed
{Confidential portion omitted and filed separately with the
Commission}, provided however, {Confidential portion omitted and filed
separately with the Commission}.
14
<PAGE> 15
14. MISCELLANEOUS
Representative shall not assign this Agreement or any interest therein
without Qwest's prior written consent. This Agreement shall be governed
by and construed in accordance with the laws of New York. This
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Provisions
of this Agreement identified by the context to survive the termination
or expiration of this Agreement shall so survive. This Agreement
(including any Exhibits hereto) constitutes the entire Agreement
between the parties hereto with respect to the subject matter hereof,
and it supersedes all prior oral or written agreements, commitments or
understandings, with respect to the matters provided for herein.
15. EXCLUSIVITY
{Confidential portion omitted and filed separately with the Commission}
Should Representative wish to acquire customers in excess of the
commitments set forth in this Section 15, Qwest shall either:
a.) accept those customers and pay Representative pursuant to this
Agreement; or
b.) allow Representative to solicit and sell such excess customers
on behalf of another telecommunications provider, in which
event Qwest shall have no liability to Representative for
payment of any kind for such excess customers. The residential
long distance customers sold on behalf of another
telecommunications provider in accordance with this Section
15.b. shall be representative of the customers obtained for
Qwest and in no event shall Representative reserve or provide
for such other telecommunications provider a Cell, customer
class, segment or group that is superior in any way to the
customers obtained by Representative for Qwest
hereunder. Notwithstanding the provisions of Section 3 to the
contrary, Representative shall have the right to enter into
oral or written agreements with providers of residential long
distance service or otherwise deal with competitors of Qwest
in order to provide for the sale of telecommunications service
to such excess customers. Representative shall also have the
right to enter into oral or written agreements with providers
of residential long distance service or otherwise deal with
competitors of Qwest in order to provide for the sale of
telecommunications services to a person in databases and
Cells, excluding Qwest Customers, disapproved by Qwest or to
which marketing has been terminated pursuant to Section 1.c.
of this Agreement.
16. NOTICES
All notices under this Agreement, whether addressed to Qwest or
Representative, shall be sent by Certified Mail, Return Receipt
Requested ("Certified Mail") or by a nationally
15
<PAGE> 16
recognized overnight delivery service ("Overnight Mail") and shall be
deemed received on the date of delivery if delivered by Certified Mail
and on the next business day if delivered by Overnight Mail.
If to Qwest: Qwest Communications Corporation
1000 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
ATTN: Legal Department
With a copy to: Qwest Communications Corporation
4650 Lakehurst Court
Dublin, OH 43016
ATTN: Legal Department
If to Representative: Quintelcomm, Inc.
c/o Quintel Communications, Inc.
One Blue Hill Plaza, Suite 500
Pearl River, New York 10965
ATTN: Jeffery Schwartz
With a copy to: Geoffrey A. Bass, Esq.
Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022-1200
17. ARBITRATION
Except for the right of either party to apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief, any claim or controversy arising
out of or related to this Agreement, shall be settled by binding
arbitration administered by the American Arbitration Association under
its Commercial Arbitration with the matter to be heard in Washington,
D.C. The arbitration shall be conducted in accordance with the United
States Arbitration Act (Title 9, U.S. Code) notwithstanding any choice
of law provision in this Agreement. The parties agree that judgment
upon the award rendered in such arbitration may be entered in and
enforced by any court of competent jurisdiction. Each party shall bear
the cost of preparing and presenting its case. The cost of the
arbitration, including the fees and expenses of the arbitrator(s) will
be shared equally by the parties.
Each of the parties shall select one arbitrator; the party requesting
arbitration shall name its arbitrator together with its notice
demanding arbitration and the other party shall name its arbitrator
within fifteen (15) days after the giving of such notice. If the second
party fails to notify the first party of the appointment of its
arbitrator within the time specified,
16
<PAGE> 17
then the appointment of the second arbitrator shall be made in the same
manner as provided for the appointment of a third arbitrator in a case
where the two arbitrators appointed by the parties are unable to agree
upon that appointment. The two arbitrators so chosen shall meet within
ten (10) days after the second arbitrator is appointed and the two
arbitrators shall together appoint a third arbitrator. If the two
arbitrators are unable to agree upon that appointment within thirty
(30) days after the appointment of the second arbitrator the third
arbitrator shall be selected by the parties themselves if they can so
agree within a further period of ten (10) days. If the parties do not
so agree, then either party, on behalf of both and on notice to the
other, may request such appointment by the American Arbitration
Association (or successor organization) in accordance with its ten-
prevailing rules or if the American Arbitration Association (or
successor organization) shall fail to appoint the third arbitrator
within twenty (20) days after the request is made, then either party
may apply, on notice to the other, to a justice of the Supreme Court of
the State of New York for the appointment of the third arbitrator. Each
arbitrator chosen or appointed pursuant to this Article shall have at
least ten (10) years experience in a calling connected with the
dispute; and the third arbitrator shall be a disinterested person and
an attorney admitted to the practice of law for not less than fifteen
(15) years and experienced in business and financial transactions. The
arbitrators' decision shall be in writing, and counterparts shall be
delivered to the parties. The arbitrators shall have no power to modify
the terms of this Agreement and their jurisdiction is expressly so
limited.
18. NO WAIVER
The failure of either party to insist on the strict performance of any
terms, covenants and conditions of this Agreement at any time, or in
any one or more instances, or its failure to take advantage of any of
its rights shall not be construed as a waiver or relinquishment of any
such rights or conditions any time and shall in no way affect the
continuance in full force and effect of all the provisions and
conditions of this Agreement.
19. SEVERABILITY
If any term or provision of this Agreement or any exhibit is found to
be invalid or unenforceable in any situation or jurisdiction, such
determination shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforceability
of the offending term or provision in any other situation or in any
other jurisdiction, and the remaining provisions of this Agreement and
all exhibits shall remain in full force and effect.
20. INTERPRETATION
The parties have participated jointly in the negotiations and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of
17
<PAGE> 18
proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
21. THIRD PARTY BENEFICIARY
This Agreement confers no rights of any kind upon any third party.
22. INDEPENDENT CONTRACTOR
Representative is an independent contractor and not an agent or
employee of Qwest. Representative has no authority to act for or on
behalf of Qwest. Representative is not authorized to incur any
obligation on behalf of Qwest or to bind Qwest in any manner
whatsoever. Qwest shall incur no obligation to employees, contractors
or other parties utilized by Representative in selling services to
customers for Qwest. Such individuals shall at all times remain
employees, agents or contractors of Representative.
23. AUDIT
Qwest shall provide reports regarding the customers obtained through
Representative with respect to the following information:
a.) A residential Commission Summary Report containing billed
revenue information by ANI by service type on a monthly basis;
b.) A weekly report of all residential Customer Account Record
Exchange ("CARE") codes by ANI including the In-House
Disconnect Report (2200 Report); and
c.) A weekly First Call Report by ANI.
The parties shall mutually agree in writing on any additional reports
or information regarding Representative-sold Customers reasonably
requested by Representative.
Not more than twice annually and upon not less than fifteen (15) days
written notice to the other party, Representative shall have the right
to engage a certified public accounting firm or such other assistance,
other than the assistance of a direct competitor, as it deems desirable
to conduct an audit of all books and records of Qwest directly related
to the calculation and/or payment of commissions hereunder by either,
but excluding the call detail of Qwest customers and Qwest switch
tapes. Either party may require any person or firm retained for this
purpose to execute a nondisclosure agreement in favor of the other
party. Such audit shall be conducted during regular business hours at
Qwest's offices where such books and records are regularly maintained
and shall be paid for by the requesting party. If the Audit discloses
any overpayments of commissions by Qwest, Qwest will have the right to
offset Representative commissions against any commissions due or owed.
18
<PAGE> 19
In the event that as a result of such audit, Representative alleges an
underpayment to Representative of its commissions due hereunder,
Representative shall have the right to appoint an independent firm of
certified public accountants to examine such books and records, and in
the event that such accountants and Qwest's firm of certified public
accountants are unable to resolve the discrepancy within thirty (30)
days thereafter, the two accounting firms shall appoint a third firm of
certified public accountants to resolve the dispute and the decision of
such third accounting firm shall be final and binding upon Qwest and
Representative. Qwest shall forthwith pay to Representative the amount
of any underpayment determined to be due to Representative, and
Representative shall forthwith pay to Qwest the amount of any
overpayment ultimately determined to be due to Qwest. The costs of the
third accounting firm engaged pursuant to this paragraph shall be paid
by Representative, unless it is ultimately determined that there has
been an underpayment to Representative of its commissions, in which
case Qwest shall pay the cost of the third accounting firm. In
addition, if the underpayment is greater than five percent (5%) of the
commission payment(s) to Representative in issue, Qwest shall pay the
costs for Representative's first accounting firm.
24. FORCE MAJEURE
Neither Qwest nor Representative will be liable for loss or damage or
deemed to be in breach of this Agreement if its failure to perform its
obligations result from (a) compliance with any law, ruling, order,
regulation, requirement of any federal, state or municipal government
or department or agency thereof or court of competent jurisdiction; (b)
acts of God; (c) acts or omissions of the other party; (d) fires,
strikes, war, insurrection or riot; (e) or any other cause beyond its
reasonable control. Any delay resulting therefrom will extend
performance accordingly or excuse performance, in whole or in part, as
may be reasonable.
19
<PAGE> 20
25. EFFECTIVE
This Agreement shall become effective only upon approval and signature
of an officer of Qwest.
26. SURVIVAL
The obligations set forth in the first two sentences of Section 3,
Section 7, Section 12, Section 13, the last paragraph of Section 2 of
Exhibit B and any other provision by its context that is intended to
survive the termination or expiration of this Agreement, shall so
survive.
IN WITNESS WHEREOF, the parties have executed this Agreement intending to be
legally bound.
QWEST COMMUNICATION SERVICES QUINTELCOMM, INC.
By: /s/ By: /s/ Jeffrey Schwartz
---------------------------- -------------------------
Title: Title: Chairman
---------------------------- -------------------------
Date: Date: 10/28/98
---------------------------- -------------------------
20
<PAGE> 21
EXHIBIT A
I. Representative's nonexclusive territory ("Territory") shall be the
contiguous forty-eight states of the Continental U.S. and Hawaii
(excluding exchanges of members of the National Exchange Carrier
Association, commonly known as "NECA", and the United States
Independent Telephone Company organization, commonly known as
"USINTELCO"). If Qwest offers other territories in the US to other
residential sales representatives selling on a national basis, such
other territories shall be added to Representative's territory
hereunder.
II. Services:
1. Q,Home
2. 9(cent) per minute (interstate) 24 hours/7 days with $4.95 MRC
3. Difference Card and WorldCard Plus calling card
4. Home 800
5. Residential base international
6. Residential International Tell the World
III. The services shall include substantially similar services of Qwest's
affiliated corporations. All Services and rates will be provided in
accordance with Qwest's tariffs and are subject to change in accordance
with Section 1 of the Agreement. Day, Evening and Night/Weekend periods
are as defined in Qwest's tariffs.
21
<PAGE> 22
EXHIBIT B
COMMISSIONS
1. INSTALLATION COMMISSION
During the term of this Agreement, Qwest shall pay Representative
{Confidential portion omitted and filed separately with the Commission}
for each newly installed Customer for the Services in the Territory
upon said Customer's first usage, provided said usage is within
{Confidential portion omitted and filed separately with the Commission}
from installation ("Installation Commission(s)"). "First usage" shall
be defined as any activity on either Qwest's Dial One service or
connected calling card service. "Newly installed customers" shall
include Customers obtained by Representative hereunder who previously
had Qwest or LCI residential service and disconnected that service but
who were not previously obtained by Representative hereunder or under
the LCI agreement. Neither Installation Commissions nor Usage
Commissions shall be paid on LOAs or Verbal Authorizations submitted
from customers who are existing Qwest or LCI residential customers,
home 800 accounts or for any usage on a calling card service that is
not a connected calling card service. "Connected calling card service"
shall mean calling card service where there is at least one call made
on "Dial One" service (sometimes called "PIC'd service") that is
provided by Qwest in conjunction with the calling card. {Confidential
portion omitted and filed separately with the Commission}.
2. USAGE COMMISSION
Subject to Section 2.a., Qwest shall pay Representative a commission on
"Billed Revenue" for sales of the Services in the Territory pursuant to
this Agreement ("Usage Commission(s)"). Usage Commissions shall be
payable for "newly installed Customers" and for Customers originally
obtained by Representative who disconnected and were resigned by Qwest
by using a Representative-funded promotion.
BILLED REVENUE COMMISSION
RATE
{Confidential portion omitted and filed separately with the Commission}
22
<PAGE> 23
EXHIBIT B
Except as set forth in the following sentence, Usage Commissions shall
be paid following termination or expiration of this Agreement for any
reason until the date Usage Commissions equal or are less than
{Confidential portion omitted and filed separately with the
Commission}, for a consecutive two (2) month period, provided
Representative does not knowingly, directly or indirectly, engage in a
program to encourage or solicit Customers to discontinue using the
Service. No commission shall be payable following the termination of
this Agreement by Qwest in connection with Representative's failure to
comply with any obligation under the first sentence of Section 3 of
this Agreement.
a.) Qwest shall pay Usage Commissions based on interchange toll
billed by Qwest to Customers for the Services sold hereunder
including "Qwest Surcharges" and excluding taxes and "Mandated
Surcharges", less a percentage related to Qwest estimated
unbillables, uncollectables and LEC holdbacks ("Percent"),
which Percent is currently {Confidential portion omitted and
filed separately with the Commission} (referred to as "Billed
Revenue"). Mandated Surcharges shall mean government or LEC
mandated charges passed through by Qwest to the Customer
essentially without mark-up, including but not limited to
PIXIE charges and universal service funds charges. Qwest
Surcharges shall mean all surcharges other than Mandated
Surcharges. Qwest Surcharge and Mandated Surcharges may be
combined into one surcharge in a Customer's bill.
{Confidential portion omitted and filed separately with the
Commission}
b.) Qwest reserves the right to reduce from commissions any amount
due to Qwest by Representative under this Agreement.
c.) Customers and the associated "Billed Revenue" obtained by
Representative pursuant to the Residential Distributor Program
Agreement, ("LCI Agreement"), dated January 5, 1998, between
LCI International Telecom Corp. ("LCI") and Representative
shall be included as Billed Revenue hereunder for purposes of
paying Usage Commissions and calculating the Commission Rate.
23
<PAGE> 24
EXHIBIT B
3. PAYMENT OF COMMISSIONS
Installation Commissions will be paid by Qwest approximately fifteen
(15) days following the availability of the first usage occurrence
report (but in no event longer than thirty (30) days following the
month of installation), as long as first usage occurs no later than one
hundred twenty (180) days after install by Qwest. Usage Commissions
will be paid by Qwest approximately forty-five (45) days following the
end of the month in which the Billed Revenue is billed.
4. REVENUE VOLUME COMMITMENTS
Representative shall generate and maintain the following monthly
Revenue (defined as Billed Revenue minus the Percent) within the
applicable Measuring Periods:
{Confidential portion omitted and filed separately with the Commission}
Average Revenue shall be determined at the end of each Measuring
Period.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
QWEST COMMUNICATIONS SERVICES QUINTELCOMM, INC.
By: /s/ By: /s/Jeffrey Schwartz
------------------------ -------------------------
Title: Title: Chairman
------------------------ -------------------------
Date: Date: 10/28/98
------------------------ -------------------------
24
<PAGE> 25
EXHIBIT C
Inbound and outbound telemarketing ("Verbal Authorizations") and by obtaining
Customer-executed, written Primary Interchange Carrier ("PIC") change
authorizations in mutually agreed upon form ("LOA") through direct mail
campaigns all in accordance with the then applicable federal and state laws and
regulations regarding PIC change authorizations. Representative shall record all
Verbal Authorizations. Representative understands that Verbal Authorizations
obtained by outbound telemarketing and by inbound telemarketing in certain
states shall be subject to third party verification ("TPV") as described in
section 3 of this Agreement.
25
<PAGE> 26
EXHIBIT D
Page 1 of 4 Pages
"QWEST'S POLICIES AND PROCEDURES REGARDING SLAMMING
PREVENTION"
ADVISORY TO ALL REPRESENTATIVES SELLING QWEST SERVICES:
All Representatives/Distributors selling Qwest's long distance service must
carefully read the contents of this document. It will explain Qwest's policies
and procedures for the sale of Qwest long distance services. The purpose of this
document is to explain what can cause unauthorized switching of a customer, the
importance of preventing such switching, and the seriousness of the matter to
Qwest, its authorized Representatives, and their independent distributors. This
document includes an "Acknowledgment" that must be read, signed, and returned to
the Representative/Distributor by each individual selling Qwest services.
Representatives/Distributors must make a signed copy of this document available
to Qwest, upon request.
A. COMMON CAUSES OF SLAMMING:
- - Incorrect telephone number on submitted LOAs - means that incorrect
telephone number is switched without the customer's written consent.
- - The submitted LOA is illegible and directly causes the person that keys
the order into the system to enter the wrong name and/or phone number.
- - The person who "authorized" switching carriers really didn't have the
authority to make the switch. Sometimes receptionists, secretaries or
assistants authorize a switch to qualify for some sort of premium or
other inducement.
- - A simple misunderstanding when one partner doesn't tell the other
partner about selecting a new long distance service. This is especially
true when it is the other person who reviews or pays the bills. The
bill-paying partner sees a new long distance carrier name and thinks
something is wrong. Please ask your customers to inform the appropriate
persons about changing long distance carriers.
- - Signing someone up just to "get the sale" or reach a qualification or
commission level.
- - Signing someone up, without the customer's knowledge, as a result of
spending a lot of time with a decision-maker and assuming that the
person would be satisfied with Qwest service.
B. EFFECTS OF SLAMMING:
- - It is illegal and will not be tolerated by Qwest!
- - Creates a bad image and adversely affects Qwest's and the Sales
Agent/Distributor's reputation.
- - Takes time to investigate and correct.
- - If we can get information verified (correct), it will save on:
1. Order rejects
2. Returned mail
3. Time to process valid and accurate orders.
26
<PAGE> 27
EXHIBIT D
Page 2 of 4 Pages
- - Frustrating experience for the company that was slammed.
- - Usually the local telephone company levies a charge to make the initial
switch to Qwest and then charges again to switch the affected customer
back to the original long distance company. Qwest and then the
distributor and its sales agents are billed for these costs. These
Qwest charges will probably be billed by distributors to their sales
agent. This leads to serious consequences for the agent, including
termination of the sales agent relationship with Qwest.
QWEST AS WELL AS FEDERAL, STATE, AND LOCAL REGULATORY AGENCIES VIEW "SLAMMING"
AS A VERY SERIOUS PROBLEM. THE FCC CAN IMPOSE SIGNIFICANT FINES ON A PER
VIOLATION BASIS.
C. HOW CAN A REPRESENTATIVE/DISTRIBUTOR PROTECT AGAINST SLAMMING:
- - You are strongly encouraged to verify information against each new
customer's actual telephone bill for each LOA.
- - The person signing the LOA should be a person with authority to act on
behalf of the company or the person whose name appears on the telephone
bill. It is essential that the person signing the LOA has authority to
change long distance carriers. Note that children, roommates,
receptionists, secretaries and assistants typically do not have the
authority to change long distance carriers for an individual or a
company. If the person signing the LOA is different from the person
with the actual authority to do so, you should attempt to contact the
other person. While this policy might jeopardize some sales orders, it
should give you a chance to retain sales by demonstrating your concern
and professionalism.
- - Take your time. Review the LOA for accuracy and legibility, especially
the telephone number. Confirm the person's telephone number.
- - NEVER sign someone else's name on an LOA or any other document!
- - Don't force a sale that is not there.
27
<PAGE> 28
EXHIBIT D
Page 3 of 4 Pages
ACKNOWLEDGMENT
This will verify that I have received, read, understand, and will comply with
the document entitled "QWEST'S POLICIES AND PROCEDURES REGARDING SLAMMING
PREVENTION". I fully understand and appreciate my obligations as a Qwest sales
agent OR INDEPENDENT CONTRACTOR not to engage in or facilitate the practice of
"slamming" customers. I understand that Qwest will not tolerate further
occurrences of "slamming", and that Qwest will take whatever actions are
necessary to protect against slamming including, without limitation, termination
of the sales agent relationship and enforcement of all applicable legal rights
and remedies.
/s/Jeffrey Schwartz
- ------------------------------------------------------
Signature of Representative Selling Qwest Long Distance
Date 10/28/98
---------------------
/s/Jeffrey Schwartz
- ------------------------------------------------------
Print Name
Home Phone Number
----------------------------
/s/Quintel Communications
- ------------------------------------------------------
Print Name of Company
Channel Code
------------------
Organization Code
-------------
28
<PAGE> 29
EXHIBIT D
Page 4 of 4 Pages
ACKNOWLEDGMENT BY SALES AGENT
This will verify that on behalf of Quintel Communications, I have received,
read, understand, and will distribute the document entitled "QWEST'S POLICIES
AND PROCEDURES REGARDING SLAMMING PREVENTION" to the individuals responsible for
selling Qwest International Long Distance Service. We fully understand and
appreciate our obligations as a Qwest sales agent not to engage in or facilitate
the practice of "slamming" customers. We understand that Qwest will not tolerate
further occurrences of "slamming", and that Qwest will take whatever actions are
necessary to protect against slamming including, without limitation, termination
of the sales agent relationship and enforcement of all applicable legal rights
and remedies.
/s/Jeffrey Schwartz Date 10/28/98
- --------------------------------------------- ---------
Signature of Representative
/s/Jeffrey Schwartz
- ---------------------------------------------
Print Name
Business Phone Number
------------------------
/s/Quintel Communications
- ---------------------------------------------
Print Name of Company
Channel Code
---------------------------------
Organization Code
---------------------------------
29
<PAGE> 30
EXHIBIT E
MINIMUM COMPUTER EQUIPMENT
I. The following IBM compatible equipment shall be used by Representative
for the purpose of account information and the electronic transfer of
LOAs to Qwest. All reporting to the Representative by Qwest shall be
done via electronic files.
A. Hardware
1. PC Compatible with a Pentium 100+ MHz, recommended;
486 66 MHz, minimum
2. 16 Meg of RAM on board, minimum
3. 520 MB IDE Hard Drive, minimum
4. 28.8 internal/external FAX modem, recommended; 14.4
minimum
5. VGA color Monitor, minimum
6. 101 keyboard style
7. A working printer for reports. A wide carriage type
(EPSON FX) is preferred but not necessary.
B. Software
1. DOS 6.20 or better
2. Windows 3.11 for work groups (Windows 95 is also
supported)
3. Communications package (Quicklink or PROCOMM PLUS is
preferred, but not necessary.)
4. Microsoft Office (Optional)
5. Microsoft Access, Version 2.0 (Office 97 version not
supported) if using current versions of Qwest
provided data entry software.
6. Microsoft Internet Explorer (most recent version),
recommended; Netscape, optional
7. Wildcat browser - Qwest provided
II. Distributor may use its own or other programs for electronic submission
of LOAs, as long as files meet Qwest file type and layout requirements.
III. The above listing is a minimum guideline and is subject to change by
Qwest. Qwest should be contacted prior to any purchases of equipment or
software for confirmation of latest standards.
IV. Qwest does not currently support an Apple/Macintosh or UNIX environment.
30
<PAGE> 31
EXHIBIT F
Page 1 of 3 Pages
AMENDMENT NO. 1
This Amendment, effective as of September 1, 1998, amends the amended
Residential Distributor Program Agreement, dated September 1, 1998
("Agreement"), by and between LCI International Telecom Corp., d.b.a. Qwest
Communications Services ("Qwest") and Quintelcomm, Inc. ("Representative").
1. The Agreement is hereby amended as follows:
A. During the term of the Agreement, Representative shall,
working in cooperation with {Confidential portion omitted and
filed separately with the Commission} offer a program known as
"Fly Free America", whereby newly acquired Qwest customers
receive a pair of free airline ticket vouchers after being a
PIC'd Qwest customer for 60 consecutive days and a second pair
of free airline ticket vouchers after being a PIC'd Qwest
customer for 240 consecutive days. The airline tickets must be
used in conjunction with the "Fly Free America" program. The
vouchers shall be redeemable for domestic departure to 31
resort destinations through major U.S. airlines including
Continental, United, Delta, U.S. Airways, Hawaiian Airlines,
Alaska Airlines and other mutually agreed upon airlines, with
blackout periods no more than 10% of the calendar year. The
cost of the vouchers, TPV, IVR and fulfillment expenses shall
be Representative's responsibility. The foregoing shall be
referred to as the "Airline Program".
Representative shall provide an inbound toll free number for
use by customers in obtaining responses to customer's
questions. The Airline Program is separate and distinct from
other promotional programs previously authorized by Qwest
including but not limited to astrological promotions.
B. Representative shall not market a program similar to the
Airline Program on behalf of any competitor of Qwest provided
that:
1.) Qwest accepts all customer volume generated by the
Airline Program through March 1, 1999 ("Test Period")
and,
2.) Qwest may modify or terminate the Airline Program
upon 60 days prior written notice to Representative,
with any such termination or modification being
effective no earlier than March 1, 1999, but any such
modification may be limited to a reduction of the
number of customers Qwest is required to accept
provided that such acceptance rate may not be less
than the previous quarter's average monthly sales
rate, and
31
<PAGE> 32
EXHIBIT F
Page 2 of 3 Pages
3.) Notwithstanding Section 3 of the Agreement, Qwest
understands that Representative's arrangement
regarding the marketing of the "Fly Free America"
Airline Program for long distance services is not
exclusive with respect to print or point of purchase
advertising, and that Representative will receive
revenue in connection with print or point of purchase
marketing of long distance service using programs
similar to the "Fly Free America" Airline Program.
C. During the Test Period Quest shall not solicit any current or
new third party sales representative to offer a program
similar to the Airline Program. Until September, 1, 1999,
Qwest will not enter into a third party sales representative
contract with any person or entity whose primary offer is a
program similar to the Airline Program. Any existing third
party sales representative of Qwest may utilize a program
similar to the Airline Program as long as Qwest has complied
with the first sentence of this Paragraph 1.C.
D. The parties shall review the success of the Airline Program in
January, 1999, including consideration by Qwest of paying an
"up-front" commission.
E. Representative shall provide Qwest with a rolling day forecast
of sales for the Airline Program.
F. No other promotions shall be used by Representative to market
Qwest Services under the Airline Program (other than the free
airline vouchers described in Paragraph 1.A. hereof).
G. Upon termination of the Airline Program pursuant to Section
B.2. hereof, Representative may market a program similar to
the Airline Program on behalf of a competitor of Qwest to any
Cell disapproved by LCI or to any "excess" customers pursuant
to Section 15 of this Agreement.
H. Notwithstanding Sections 1 and 2 of Exhibit B of the
Agreement, Qwest shall pay Representative as follows for
customers obtained pursuant to this Amendment:
1.) {Confidential portion omitted and filed separately
with the Commission} for each Qwest customer whose
long distance service is confirmed by the LEC as
switched to Qwest, and
32
<PAGE> 33
EXHIBIT F
Page 3 of 3 Pages
2.) {Confidential portion omitted and filed separately
with the Commission} of the Billed Revenue for such
customers (including Qwest Surcharges and excluding
taxes and Mandated Surcharges, less the percentage
related to Qwest estimated unbillables,
uncollectibles and LEC hold backs described in
Section 2.A. of Exhibit B of this Agreement).
I. All capitalized terms not defined herein shall be as defined
in the Agreement.
II. All other terms and conditions of the Agreement remain unchanged.
QWEST COMMUNICATIONS SERVICES
By:
--------------------------------
- -----------------------------------
(Print Name and Title)
QUINTELCOMM, INC.
By: /s/Jeffrey Schwartz
--------------------------
Jeffrey Schwartz, Chairman
----------------------------------
(Print Name and Title)
33
<PAGE> 34
EXHIBIT G
AMENDMENT NO. 2
This Agreement amends the Residential Distributor Program Agreement, dated
September 1, 1998 ("Agreement"), by and between LCI International Telecom Corp.,
d.b.a. Qwest Communications Services ("Qwest") and Quintelcomm, Inc.
("Representative").
I. The Agreement is hereby amended as follows:
A. This Amendment shall be effective for August, September and
October 1998 only. Representative shall obtain at least
{Confidential portion omitted and filed separately with the
Commission}. The commissions due as a result of the first
usage for the {Confidential portion omitted and filed
separately with the Commission}such Customers each month shall
be as set forth in the Agreement. The commissions due as a
result of the first usage for the next {Confidential portion
omitted and filed separately with the Commission} Commission
payments under this Amendment may be made based on good faith
estimates by Qwest. A "true up" shall be performed when
adequate and accurate reporting is available and additional
payments or chargebacks, as applicable, shall be made.
After obtaining at least {Confidential portion omitted and
filed separately with the Commission} installed Customers in
any month, Representative may, following written notice to
Qwest, accelerate the start of obtaining the "second"
{Confidential portion omitted and filed separately with the
Commission} installed Customers, that would otherwise begin in
the following month.
B. All capitalized terms not defined in the Amendment shall be as
defined in the Agreement.
II. All other terms and conditions of the Agreement remain unchanged.
QWEST COMMUNICATIONS SERVICES
By: Date
----------------------------- -------------------
- --------------------------------
(Print Name and Title)
QUINTELCOMM, INC.
By: /s/ Jeffrey Schwartz Date 10/28/98
----------------------- --------------------
Jeffrey Schwartz, Chairman
- ----- --------------------------
(Print Name and Title)
34
<PAGE> 35
EXHIBIT H
CONFIDENTIALITY AGREEMENT
This is a Confidentiality Agreement dated September, 1998, between LCI
International Telecom Corp., d.b.a. Qwest Communications Services and
Quintelcomm, Inc.
The parties to this Confidentiality Agreement have agreed to the following terms
governing the confidentiality of certain information to be exchanged between the
parties:
DEFINITIONS
A. For the purposes of this Confidentiality Agreement, "Confidential
Information" means all information in whatever form transmitted
relating to the past, present, or future business affairs, including
without limitation, research, all Qwest customer information,
development, or business plans, operations or systems, of either party
or a third party whose information either party has in its possession
under obligations of confidentiality, which (i) is disclosed by either
party or its affiliates, or (ii) is produced or developed during the
working relationship between the parties and which could, if disclosed,
result in competitive harm to either party. Confidential Information
shall also include the terms and conditions of the Residential
Distributor Program Agreement dated September 1, 1998, between the
parties hereto ("Representative Agreement").
Confidential Information shall not include any information of either
party that (i) is already known to the other party at the time of its
disclosure; (ii) is or becomes publicly known through no wrongful act
of either party; (iii) is communicated to a third party (other than a
"third party verifier" with express written consent of the
nondisclosing party; (iv) is lawfully required to be disclosed by law,
provided that before making such disclosure the disclosing party shall
promptly give the nondisclosing party written notice and an adequate
opportunity to raise an objection or take action to assure confidential
handling of such information.
B. The term "affiliate" shall mean any person or entity controlling,
controlled by or under common control with a party.
USE OF INFORMATION
The parties hereto mutually agree to:
A. Use the Confidential Information solely for the performance of their
respective obligations under the Representative Agreement and shall not
use the Confidential Information for any other reason whatsoever.
35
<PAGE> 36
EXHIBIT H
B. As long as the Confidential Information is confidential, neither party
shall disclose any Confidential Information it receives from the other
party to any person or entity except employees of the parties and its
affiliates who have a need to know and who have been informed of the
other party's obligations under this Confidentiality Agreement. The
parties shall use not less than the same degree of care to avoid
disclosure of such Confidential Information as each party uses for its
own confidential information of like importance and, at a minimum,
shall exercise reasonable care.
OWNERSHIP
All Confidential Information disclosed by either party under this
Confidentiality Agreement in tangible form (including, without limitation,
information incorporated in computer software or held in electronic storage
media) shall be and remain property of the disclosing party.
All such Confidential Information shall be returned to the disclosing party
promptly upon written request and shall not be retained in any form by the other
party. The rights and obligations of the parties under this Confidentiality
Agreement shall survive any such return of Confidentiality Information.
TERMINATION
In the event of termination of the Representative Agreement, all rights and
obligations under this Agreement shall survive with respect to Confidential
Information disclosed prior to such termination.
LIABILITY
A. The parties acknowledge that Confidential Information is valuable and
unique and that disclosure will result in irreparable injury to the
disclosing party. Accordingly, the parties agree that in the event of a
breach or threatened breach of the terms of this Confidentiality
Agreement, the disclosing party shall be entitled to an injunction in
addition to and not in lieu of any other legal or equitable relief
including money damages.
B. Neither party shall in any way or in any form disclose, publicize or
advertise in any manner the discussions that are the reasons for this
Confidentiality Agreement or the discussions or negotiations covered by
this Confidentiality Agreement without prior written consent of the
other party.
36
<PAGE> 37
EXHIBIT H
C. The disclosing party shall not have any liability or responsibility for
errors or omissions in any Confidential Information disclosed under
this Confidentiality Agreement or for any business decisions under this
Confidentiality Agreement.
COMPLETE AGREEMENT; AMENDMENTS; GOVERNING LAW
This Confidentiality Agreement (i) is the complete agreement of the parties
concerning this subject matter and supersedes any prior such agreements; (ii)
may not be amended except in writing signed by both parties; (iii) shall be
governed by and construed in accordance with the laws of the State of New York
without regard to its choice of law provisions; and (iv) is executed by
authorized representatives of each party.
QWEST COMMUNICATIONS SERVICES
By
----------------------------
Title
-------------------------
QUINTELCOMM, INC.
By /s/ Jeffrey Schwartz
----------------------------
Title Chairman
-------------------------
37
<PAGE> 1
EXHIBIT 10.25
AGREEMENT
THIS AGREEMENT (hereinafter the "Agreement"), is made as of
the 3rd day of October, 1998, by and between Quintel Communications, Inc., a New
York corporation, with an office address at One Blue Hill Plaza, 5th Floor, P.O.
Box 1665, Pearl River, New York 10965 (hereinafter "Quintel"), and U.S. Mobile
Services, Inc., a Delaware Corporation with an address at 10810 Guilford Road,
Suite 101, Annapolis Junction, Maryland 20701 (hereinafter "USM").
BACKGROUND
WHEREAS, USM is a national wireless and wireline resale
provider of prepaid wireless, prepaid wireline and prepaid local exchange
services;
WHEREAS, Quintel is in the business of providing inter alia,
telecommunications products and services as well as direct marketing services to
its clients;
WHEREAS, Quintel has developed and is currently running a
sales commercial on a national basis which advertises a "free cellular phone" to
any customer that switches his/her long distance wireline telephone service to a
company represented by Quintel (hereinafter the "Quintel Affiliate");
WHEREAS, USM is desirous of supplying the "free cellular
phone" as well as monthly cellular service (under certain terms and conditions)
to the Quintel customers mentioned above;
NOW, THEREFORE, in consideration of the mutual covenants,
promises and conditions herein set forth, Ten and 00/100 Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. RECITALS. The foregoing recitals are hereby
incorporated herein by reference as if fully set
forth at this point in the text of the Agreement.
2. QUINTEL RESPONSIBILITIES AND PAYMENT OBLIGATIONS. On
the terms and subject to the conditions set forth in
this Agreement, Quintel agrees as follows:
a. Quintel will produce and fund all
productions of spots and/or infomercials;
b. Quintel will manage and fund all media
purchases;
c. Quintel will write all telemarketing scripts
and manage the inbound telemarketing process
with respect to its programs;
d. Quintel will provide USM with a list of
customers that have qualified for the "free
cellular phone" program;
<PAGE> 2
e. Quintel will provide the aforementioned
customer information to USM via electronic
file with the pertinent information
regarding each customer;
f. Quintel will pay USM {Confidential portion
omitted and filed separately with the
Commission} for each cellular phone shipped
with respect to customers that receive
phones in conformance with the Quintel "free
cellular phone" program (i.e.: phone
shipment after the customer has been a long
distance customer of the Quintel affiliate
for {Confidential portion omitted and filed
separately with the Commission} which phones
shall be loaded with {Confidential portion
omitted and filed separately with the
Commission} for use by the customer. Quintel
will make the aforementioned payment to USM
within seven days subsequent to the phone
shipment mentioned above. The cellular
phones to be shipped with respect to the
"free cellular phone" program mentioned
above will be shipped to customers by USM
only after authorization from Quintel;
g. Quintel will receive a {Confidential
portion omitted and filed separately with
the Commission} percent commission on
prepaid cellular airtime sold to each
customer on a recurring monthly basis
(exclusive of any initial airtime loads)
during the entire period such customer
remains a customer of USM or any of its
subsidiaries or affiliates.
3. USM RESPONSIBILITIES AND PAYMENT OBLIGATIONS. On the
terms and subject to the conditions set forth in this
Agreement, USM agrees as follows:
a. USM will carry the inventory of prepaid
cellular phone hardware and will fulfill
customer orders. The aforementioned phones
will be loaded with {Confidential portion
omitted and filed separately with the
Commission} of airtime when they are shipped
from the USM fulfillment center. It is
understood and agreed by the parties hereto
that Quintel will not be paid a commission
with respect to the initial {Confidential
portion omitted and filed separately with
the Commission} airtime load mentioned
herein;
b. USM will bear the cost associated with the
shipping of the phones as well as the
{Confidential portion omitted and filed
separately with the Commission} initial
airtime load mentioned herein;
c. USM will ship the prepaid cellular phone
within forty-eight (48) hours from the time
that it has been notified to do so by
Quintel. Quintel will provide USM with an
anticipated delivery schedule weekly, which
schedule shall detail the anticipated
prepaid phone deliveries for the following
two (2) week period;
2
<PAGE> 3
d. USM will provide and manage the "back end"
customer service function as well as its
telemarketing programs. USM will provide the
same product and service warranties to the
"free cellular phone" customers as those
supplied to other customers of USM and
otherwise required by law. USM will
indemnify Quintel against any claim made
against Quintel by a USM customer and hold
Quintel harmless from any liability, cost or
expense arising out of such product and
service warranties or the use of the
cellular telephone by such customer. The
foregoing indemnification does not cover
misrepresentations by Quintel, nor will it
extend to negligence or fraud on the part of
Quintel;
e. USM agrees to ship a maximum of
{Confidential portion omitted and filed
separately with the Commission} cellular
phones {Confidential portion omitted and
filed separately with the Commission} under
the "free cellular phone" program mentioned
in Paragraph 2 above. If the program is more
successful than originally anticipated, the
parties hereto agree that USM shall have the
option to ship more than {Confidential
portion omitted and filed separately with
the Commission} phones per month in USM's
sole and absolute discretion;
f. Sixty-one (61) days subsequent to the date
that a customer switches its long distance
service to the Quintel Affiliate, USM will
contact the customer in an attempt to
encourage the customer to pay a sum of money
to purchase the cellular phone rather than
waiting an additional four (4) months to
receive the "free cellular phone" pursuant
to the original offer. Providing that USM is
successful in encouraging the customer to
pay for the cellular phone, Quintel will not
be required to pay USM pursuant to paragraph
2(g) above. Notwithstanding the foregoing,
Quintel will continue to be entitled to the
commission referred to in Paragraph 2(g)
above;
g. Quintel will maintain script approval with
respect to outbound telemarketing efforts
and approval of all other media, print or
otherwise, with regard to paragraph 3(f)
above.
4. PRIVATE LABEL. The Parties hereto agree that the
commercials that are being aired will continue to be aired
under the Quintel Private label.
5. TERM. The term of this agreement shall be for a period of
one (1) year. USM and Quintel shall have the right to elect
two (2) one year renewal options in their discretion on the
terms and conditions contained herein. During the term of this
agreement, Quintel agrees to deliver all sales including all
customer leads to USM in conformance with the terms of this
Agreement. In markets where USM can not activate mobile
identification numbers, USM and Quintel agree that Quintel can
utilize
3
<PAGE> 4
provider for purposes of fulfilling the "free cellular phone"
program mentioned above.
6. REPRESENTATIONS AND WARRANTIES BY QUINTEL. To induce
USM to enter into this agreement, Quintel makes the
following representations and warranties:
a) Quintel has the power and authority to enter
into this Agreement and to perform all of
its duties and obligations hereunder;
b) The execution of this Agreement as well as
the full and complete performance by Quintel
of the provisions hereof will not violate or
result in any breach of, or constitute a
default under any agreement or other
instrument to which Quintel is a party, or
by which Quintel is bound.
7. REPRESENTATIONS AND WARRANTIES BY USM. To induce
Quintel to enter into this Agreement, USM makes the
following representations:
a) USM has the power and authority to enter
into this Agreement and to perform all of
its duties and obligations hereunder;
b) The execution of this Agreement as well as
the full and complete performance by USM of
the provisions hereof will not violate or
result in any breach of or constitute a
default under any agreement or other
instrument to which USM is a party, or by
which USM is bound.
8. THIRD PARTY BROKERAGE. The parties hereto hereby
represent and warrant to each other that neither USM
or Quintel have dealt with any broker or finder in
connection with the transactions which are the
subject of this Agreement, and each party hereby
agrees to indemnify, save harmless and defend the
other from and against all claims, losses,
liabilities and expenses, including reasonable
attorney's fees, arising out of any claims made by
any broker, finder, or other intermediary who claims
to have dealt with such party in connection with the
transaction which is the subject of this Agreement.
The provisions of this Section shall survive the
termination of this Agreement.
9. HEADINGS. The headings used in this Agreement are for
purposes of convenience only and shall not be used in
construing the provisions hereof.
4
<PAGE> 5
10. SEVERABILITY. The provisions of this Agreement shall
be deemed severable, and the invalidity or
unenforceability of any one or more of the provisions
hereof shall not affect the validity or
enforceability of the other provisions hereof.
11. ENTIRE AGREEMENT. This document represents the entire
agreement between the parties with respect to the
subject matter hereof, and supersedes any and all
prior agreements, representations and covenants, oral
or written.
12. MODIFICATIONS. This Agreement may not be modified
except by the written agreement signed by both of the
parties hereto.
13. NOTICES. Notices given pursuant to this Agreement
shall be in writing, shall be given by actual
delivery or by mailing the same to the party entitled
thereto, at the addresses set forth below or at such
other address as any party may designate in writing
to any other party pursuant to the provisions of this
Section. Notices given by mail shall be sent by
United States mail, certified or registered, return
receipt requested. Except as otherwise provided
herein, notices shall be deemed to be received on the
date of actual receipt, in the case of personal
deliver, or on the date of mailing in the case of
mailing. Notices shall be served or mailed to the
following addresses, subject to the changes provided
above:
If to USM: U.S. Mobile Services, Inc.
10810 Guilford Road
Annapolis Junction, Maryland 20701
Attention: Brian A. McCormick
If to Quintel: Quintel Communications, Inc.
One Blue Hill Plaza, 5th Floor
P.O. Box 1665
Pearl River, NY 10965
Attention:
14. MISCELLANEOUS.
a). This Agreement shall be governed by and
construed in accordance with the laws of the
State of Maryland;
b). Neither party shall be permitted to assign
its rights and/or delegate its duties under
this Agreement without the written consent
of the other, which consent shall not be
unreasonably withheld;
5
<PAGE> 6
c). This Agreement may be executed in several
counterparts and all counterparts so
executed shall constitute one Agreement
binding on all of the parties hereto,
notwithstanding that all of the parties are
not a signatory to the original or the same
counterpart.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
U.S. MOBILE SERVICES, INC. (USM)
By: /s/ Brian A. McCormick
---------------------------------
Brian A. McCormick
Chairman & CEO
QUINTEL COMMUNICATIONS, INC. (Quintel)
By: /s/ Gary Salmirs
---------------------------------
Title: Vice President
7
<PAGE> 1
EXHIBIT 10.26.1
SETTLEMENT AND RELEASE RESPECTING
ALLEGED IMPROPER ADJUSTMENTS FOR CALLS PRIOR
TO DECEMBER 31, 1997
WHEREAS, New Lauderdale, a corporation organized under the laws of the State of
Delaware ("RELEASOR") and having offices at One Blue Hill Plaza, Pearl River, NY
10965 and West Interactive Corporation, a corporation organized under the laws
of the State of Delaware and having offices at 9223 Bedford Avenue, Omaha, NE
68134 ("RELEASEE"; collectively with the RELEASOR, the "PARTIES") are parties to
that certain Servicing Agreement (the "SA") under which RELEASEE contracts with
{Confidential portion omitted and filed separately with the Commission} to
perform certain billing services (the "Billing Services") for RELEASOR in
connection with calls made to RELEASOR's 900 pay-per-call programs ("RELEASOR's
900 Programs");
WHEREAS, in connection with the Billing Services, RELEASOR has made certain
inquiries respecting the duplication of certain adjustments made by
{Confidential portion omitted and filed separately with the Commission} for
uncollectible amounts;
WHEREAS, RELEASEE has investigated the items;
WHEREAS, the PARTIES wish to fully, finally and forever settle all disputes
respecting the investigation of duplicate adjustments for uncollectible amounts;
NOW THEREFORE, in consideration of the foregoing recitals and of the terms and
conditions set forth herein, the PARTIES hereby agree as follows:
1. RELEASOR, in consideration of the sum of $455,804.31 from RELEASEE, the
receipt of which is hereby acknowledged, releases and discharges
RELEASEE and each of its past, present and future investors,
subsidiaries, affiliates, officers, directors, employees, agents,
stockholders, partners, underwriters, successors and assigns
(collectively with RELEASEE, "RELEASEES"), from all manner of actions,
causes of action, suits, debts, dues, sums of money, accounts,
reckoning, bonds, bills, specialties, controversies, agreements,
promises, variances, trespasses, damages, judgment, extents,
executions, claims and demands whatsoever, in law, in admiralry, or in
equity which RELEASOR and RELEASOR's heirs, executors, administrators,
successors and assigns ever had, now have, or which they hereafter can,
shall or may have from the beginning of the world to the end of the
world, against RELEASEES, arising out of or relating to all alleged
duplicate adjustments for calls placed to RELEASOR's 900 Programs prior
to December 31, 1997.
2. The payment of $455,804.31 by RELEASEE is contingent upon the execution
of this Settlement and Release.
3. It is understood and agreed that this Settlement and Release is a
compromise of a claim, and that the consideration recited herein is not
an admission of liability on the part of any PARTY.
<PAGE> 2
4. The PARTIES further agree to: (a) restrict disclosure, to the extent
permitted by law, of the existence and terms of this Settlement and
Release solely to those of its employees, attorneys and financial
advisors with a need to know and not disclose the existence or terms of
this Settlement and Release to others; and (b) advise employees,
attorneys and financial advisors who receive notice of the existence
and terms of this Settlement and Release of the obligation of
confidentiality
5. This Settlement and Release contains the entire agreement between the
PARTIES relating to the matters referenced herein. However, neither the
terms of this Settlement and Release nor any matters referenced in this
Settlement and Release shall be construed to affect or vary any
contract between RELEASOR and RELEASEE, including but not limited to
the SA, which shall remain in full force and effect.
6. This Settlement and Release may not be changed orally.
7. This agreement shall be construed in accordance with and governed by
the local laws of the State of Nebraska.
8. The undersigned hereby state that they are authorized to sign this
Settlement and Release on behalf of the designated PARTY.
IN WITNESS HEREOF, RELEASOR AND RELEASEE have executed this Settlement and
Release on the 3 day of November 1998.
New Lauderdale
By: /s/Andrew Stollman
-----------------------
Andrew Stollman
- ----------------------------
Typed or Printed Name
Executive Vice President
- ----------------------------
Title
West Interactive Corporation
By: /s/Steven M. Stangl
------------------------
EVP 11/24/98
- ----------------------------
Steven M. Stangl
Executive Vice President
2
<PAGE> 1
EXHIBIT 10.26.2
SETTLEMENT AND RELEASE RESPECTING
ALLEGED IMPROPER ADJUSTMENTS FOR CALLS PRIOR
TO DECEMBER 31, 1997
WHEREAS, Calling Card Company, a corporation organized under the laws of the
State of Delaware ("RELEASOR") and having offices at One Blue Hill Plaza, Pearl
River, NY 10965 and West Interactive Corporation, a corporation organized under
the laws of the State of Delaware and having offices at 9223 Bedford Avenue,
Omaha, NE 68134 ("RELEASEE"; collectively with the RELEASOR, the "PARTIES") are
parties to that certain Servicing Agreement (the "SA") under which {Confidential
portion omitted and filed separately with the Commission} to perform certain
billing services (the "Billing Services") for RELEASOR in connection with calls
made to RELEASOR's 900 pay-per-call programs ("RELEASOR's 900 Programs");
WHEREAS, in connection with the Billing Services, RELEASOR has made certain
inquiries respecting the duplication of certain adjustments made by
{Confidential portion omitted and filed separately with the Commission} for
uncollectible amounts;
WHEREAS, RELEASEE has investigated the items;
WHEREAS, the PARTIES wish to fully, finally and forever settle all disputes
respecting the investigation of duplicate adjustments for uncollectible amounts;
NOW THEREFORE, in consideration of the foregoing recitals and of the terms and
conditions set forth herein, the PARTIES hereby agree as follows:
1. RELEASOR, in consideration of the sum of $239,543.53 from
RELEASEE, the receipt of which is hereby acknowledged,
releases and discharges RELEASEE and each of its past, present
and future investors, subsidiaries, affiliates, officers,
directors, employees, agents, stockholders, partners,
underwriters, successors and assigns (collectively with
RELEASEE, "RELEASEES"), from all manner of actions, causes of
action, suits, debts, dues, sums of money, accounts,
reckoning, bonds, bills, specialties, controversies,
agreements, promises, variances, trespasses, damages,
judgment, extents, executions, claims and demands whatsoever,
in law, in admiralry, or in equity which RELEASOR and
RELEASOR's heirs, executors, administrators, successors and
assigns ever had, now have, or which they hereafter can, shall
or may have from the beginning of the world to the end of the
world, against RELEASEES, arising out of or relating to all
alleged duplicate adjustments for calls placed to RELEASOR's
900 Programs prior to December 31, 1997.
2. The payment of $239,543.53 by RELEASEE is contingent upon the
execution of this Settlement and Release.
3. It is understood and agreed that this Settlement and Release
is a compromise of a claim, and that the consideration recited
herein is not an admission of liability on the part of any
PARTY.
<PAGE> 2
4. The PARTIES further agree to: (a) restrict disclosure, to the
extent permitted by law, of the existence and terms of this
Settlement and Release solely to those of its employees,
attorneys and financial advisors with a need to know and not
disclose the existence or terms of this Settlement and Release
to others; and (b) advise employees, attorneys and financial
advisors who receive notice of the existence and terms of this
Settlement and Release of the obligation of confidentiality.
5. This Settlement and Release contains the entire agreement
between the PARTIES relating to the matters referenced herein.
However, neither the terms of this Settlement and Release nor
any matter referenced in this Settlement and Release shall be
construed to affect or vary any contract between RELEASOR and
RELEASEE, including but not limited to the SA, which shall
remain in full force and effect.
6. This Settlement and Release may not be changed orally.
7. This agreement shall be construed in accordance with and
governed by the local laws of the State of Nebraska.
8. The undersigned hereby state that they are authorized to sign
this Settlement and Release on behalf of the designated PARTY.
IN WITNESS HEREOF, RELEASOR AND RELEASEE have executed this Settlement and
Release on the 3 day of November 1998.
Calling Card Company
By: /s/ Andrew Stollman
-----------------------
Andrew Stollman
- ----------------------------
Typed or Printed Name
Executive Vice President
- ----------------------------
Title
West Interactive Corporation
By: /s/ Steven M. Stangl
-----------------------
EVP 11/24/98
- ----------------------------
Steven M. Stangl
Executive Vice President
2
<PAGE> 1
EXHIBIT 10.27
AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of this 4th day of May,
1998 by and between Access Resource Services, Inc., a Delaware corporation
("ARS") and Quintel Entertainment, Inc., a Delaware corporation ("Quintel").
WITNESSETH:
WHEREAS, ARS has purchased commercial advertising time on three
syndicated daytime television talk shows entitled "The Sally Jesse Raphael
Show", "The Ricki Lake Show", and "The Montel Williams Show", (collectively, the
"Programs").
WHEREAS, ARS has the ability to include certain designated 800
telephone numbers in the advertising it has purchased on the Programs.
WHEREAS, Quintel periodically purchases commercial advertising time on
various other television programs and has the ability to designate 900 telephone
numbers in such advertising.
WHEREAS, ARS and Quintel wish to exchange the ability to designate
certain 800 and 900 telephone numbers in their respective media advertising.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, ARS and Quintel hereby
agree as follows:
1. ASSIGNMENT OF TELEPHONE NUMBERS BY ARS. ARS hereby agrees that, for
the period beginning on the date hereof and ending on July ___, 1998, ARS will
include 800 telephone numbers designated solely and exclusively by Quintel (the
"Quintel Numbers") in all ARS advertising on the Programs. (The aggregate cost
to ARS of all commercials including Quintel Numbers run on each Program is
hereinafter referred to as the "ARS Cost"). All costs related to the Quintel
Numbers shall be borne solely and exclusively by Quintel. Notwithstanding the
foregoing, ARS will not be obligated to included the Quintel Numbers in
advertising on the Programs which: (i) has previously been sold in connection
with a related sale of advertising time on "The Maury Povich Show"; or (ii) has
been allocated to the syndication of the Programs.
2. PURCHASE OF MEDIA TIME AND TRANSFER OF 900 MINUTES BY QUINTEL.
(a) In consideration for ARS, agreement to assign certain
Quintel Numbers to advertising on the Programs, Quintel hereby agrees to obtain
for ARS, at Quintel's sole cost and expense, 900 telephone number billable
minutes (the "900 Minutes"), from the following sources (the "900 Minutes
Sources"), in the following priorities: service bureaus handling 800 or 900
telephone number traffic; telemarketing companies; and live psychic operators.
Quintel shall instruct the 900 Minutes Sources to utilize 900 telephone numbers
designated by ARS in such sources' advertising during the term hereof.
<PAGE> 2
(b) {Confidential portion omitted and filed separately with
the Commission}
(c) ARS will be responsible for all 900 costs, including, but
not limited to, transport, billing and collection, redirect, psychic fees and
chargebacks.
(d) The respective number of minutes allocated by ARS to
Quintel and by Quintel to ARS shall be monitored on a weekly basis during the
term hereof. To the extent that the number of minutes allocated to each party by
the other during any weekly period is unequal, an appropriate adjustment shall
be made during the following week to cause such minutes, to the greatest extent
possible, to be equal during the term hereof.
3. FURTHER ASSURANCES. ARS and Quintel hereby agree to execute,
acknowledge, obtain and deliver all such further acts, assignments, conveyances,
consents, and assurances as may reasonably be required for the consummation of
the transactions contemplated by this Agreement.
4. INTERPRETATION. This Agreement and each provision hereof shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision hereof shall be prohibited by or invalid under such law,
then such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
5. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes any and all agreements, whether oral or
written, between the parties with respect to its subject matter. If an action is
brought by either party hereto for breach or default of any provision of this
Agreement, the prevailing party in such action shall be awarded reasonable
attorney's fees and costs in addition to any other relief to which the party may
be entitled.
6. MODIFICATION. This Agreement may not be altered or amended except by
written agreement duly executed by all parties hereto.
7. SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns.
8. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and such counterparts
shall together constitute but one and the same agreement, binding upon all the
parties hereto, notwithstanding that all the parties are not signatories to the
original of the same counterpart.
9. HEADINGS. The headings and labels of the paragraphs of this
Agreement are inserted solely for the convenience of reference, and in no way
define, limit, extend or aid in the construction of the scope, extent or intent
of this Agreement or of any term or provision hereof.
2
<PAGE> 3
10. WAIVER. The failure of any party to enforce at any time the
provisions of this Agreement shall not be construed as a waiver of any provision
or of the right of such party thereafter to enforce each and every provision of
this Agreement.
11. TIME IS OF THE ESSENCE. Time is of the essence in the performance
of this Agreement.
12. NO THIRD PARTY BENEFICIARIES. The parties acknowledge and agree
that this Agreement creates no rights for or in favor of any person or third
party not a party to this Agreement, and that no such person may place any
reliance hereon.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WITNESS/ATTEST: ACCESS RESOURCE SERVICES, INC.
BY:
---------------------------
ITS:
---------------------------
WITNESS/ATTEST: ACCESS RESOURCE SERVICES, INC.
BY: /s/Jeffrey Schwartz
---------------------------
ITS: Chairman
---------------------------
3
<PAGE> 1
EXHIBIT 10.28
US/INTELICOM INC.
SOFTWARE LICENSE AGREEMENT
THIS AGREEMENT, made and entered into as of the seventh day of April,
1998, by and between US/INTELICOM, Inc. (hereinafter referred to as
"US/INTELICOM") and Quintel Cellular, LLC (hereinafter referred to as the
"Licensee").
RECITALS:
A. US/INTELICOM is engaged in developing and licensing application
software for cellular telephones to produce prepaid cellular telephones
(hereinafter referred to as the "Phone" or "Phones"), as well as the development
of programs, systems and services intended to support such prepaid cellular
telephones (hereinafter referred to as the "Business").
B. US/INTELICOM has the exclusive right, title and interest in and to
said application software for prepaid cellular telephones (hereinafter referred
to as the "Software").
C. US/INTELICOM has agreed with Licensee to provide the Software to
Licensee for installation of the Software on the Phones and to sell, lease and
distribute the Phones to Licensee's customers, subject to the terms and
conditions of this Agreement.
D. The Licensee is engaged in the marketing, sale, lease and
distribution of prepaid cellular telephones.
E. The Licensee desires to sell and market Phones installed with the
Software, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of mutual covenants and agreements set
forth herein and other good and valuable consideration, the receipt, sufficiency
and adequacy of which the parties conclusively acknowledge, the parties agree as
follows:
1. Grant of License.
US/INTELICOM hereby grants to Licensee, a limited, worldwide,
nontransferable, nonexclusive, conditional right and license to use the Software
solely with the Phones and to reproduce the Software in connection with such
use, and Licensee hereby accepts said right, license and privilege, in
accordance with the terms of this Agreement. US/INTELICOM agrees to provide the
Software in executable form and any specifications and instructions required to
install the Software on the Phones to enable Licensee to sell, lease and
distribute prepaid cellular telephones to Licensee's customers, which customers
shall have the perpetual right to use the software in connection with their use
of their Phones.
Page 1 of 15 Confidential
<PAGE> 2
2. Term of License.
The term of this license shall be for an initial period of
forty-eight (48) months ("initial term"), commencing on the date of execution of
this Agreement. This license shall thereafter automatically renew on the
anniversary of this execution date for additional terms of twelve (12) months
("subsequent terms"), unless Licensee sends written notification to US/INTELICOM
of Licensee's intention not to renew. Such notification must be received by
US/INTELICOM not less than ninety (90) days preceding the automatic annual
renewal.
3. Fees.
As consideration for the rights granted and services provided
hereunder, Licensee shall remit fees to US/INTELICOM according to the fee
schedule and conditions described in the attached Addendum A, which is hereby
included within and made an integral part of this agreement. All fees,
reimbursements, and other financial figures referenced in this Agreement are
expressed in United States dollars.
(a) The fee amounts described in Schedule A shall remain
constant throughout the initial term of this
Agreement.
(b) These fees shall be subject to a modification during
each subsequent term. At each subsequent renewal of
this Agreement, the fee amounts shall be modified by
the change in the Consumer Price Index (CPI) over the
preceding calendar year (the "preceding year"). This
change shall not exceed five percent (5%) for any
year. Should Licensee have sold or leased a minimum
of two hundred thousand (200,000) Phones containing
the Software during a "preceding year", the fee
modification for the ensuing subsequent term will be
permanently waived.
4. Use of License.
During the term of this Agreement, Licensee covenants and
agrees to:
(a) use the Software only for the Phones covered under
the terms of this License;
(b) adhere precisely to any instructions and policies
furnished by US/INTELICOM regarding the use of the
Software, which instructions and policies may be
updated by US/INTELICOM from time to time consistent
with the terms of this License;
(c) comply with all applicable local and federal laws and
regulations governing Licensee's use, sale or rental
of the Software with respect
Page 2 of 15 Confidential
<PAGE> 3
to the Phones;
(d) inform US/INTELICOM immediately if any third party
claims any infringement on any of US/INTELICOM's
proprietary rights or interest by the use of the
Software; and
(e) refrain from modifying, translating, reproducing,
reverse engineering, disseminating, distributing or
determining the source code of the Software or any
enhancements or modifications thereto except as
provided in this Agreement. However, Licensee shall
be permitted to disseminate and distribute the
Software to its agents, employees and independent
contractors solely in connection with the sale and/or
lease of the Phones by Licensee.
5. Assignment.
Licensee's rights and interest under this Agreement shall not
be subject to assignment or transfer in any manner whatsoever without the prior
express written consent of US/INTELICOM, which shall not be unreasonably
withheld, and which consent shall be granted if the within license is conveyed
in connection with Licensee's sale of substantially all of its assets. If
Licensee is a corporation, partnership or limited liability company, the
transfer (in one or more transactions) of equity interests in Licensee which
possess a majority of the voting power in Licensee shall not constitute an
assignment for the purposes of this Agreement.
6. Representations and Warranties.
(a) Licensee warrants, represents and agrees that:
(i) it has the authority to enter into and to
consummate the transactions contemplated
hereby, and the Licensee is not under any
restriction or obligation which will impair
its full performance under this Agreement;
(ii) neither the execution of this Agreement nor
the performance of the obligations of the
Licensee require the consent, waiver or
approval of any party, or create a breach
of, violate or conflict with any contract,
agreement or other instrument or any
judgement or order to which the Licensee is
a party or otherwise subject; and
(iii) this Agreement, when duly executed, will
constitute the legal, valid and binding
obligation of the Licensee in accordance
with the terms of this Agreement.
Page 3 of 15 Confidential
<PAGE> 4
(b) US/INTELICOM warrants, represents and agrees that:
(i) the Software, all upgrades and versions now
existing or hereafter developed and all
rights thereto are owned by US/INTELICOM and
are free and clear of any and all security
interests and other liens and encumbrances;
(ii) it has the authority to enter into and to
consummate the transactions contemplated
hereby, and US/INTELICOM is not under any
restriction or obligation which will impair
its full performance under this Agreement;
(iii) the Software and its use by Licensee
pursuant to this Agreement do not violate
the copyright, patent, trade secret or other
proprietary rights of any third party;
(iv) neither the execution of this Agreement nor
the performance of the obligations of
US/INTELICOM require the consent, waiver or
approval of any party, or create a breach
of, violate or conflict with any contract,
agreement or other instrument or any
judgment or order to which US/INTELICOM is a
party or otherwise subject; and
(v) this Agreement, when duly executed, will
constitute the legal, valid and binding
obligation of US/INTELICOM in accordance
with the terms of this Agreement.
(c) In addition, US/INTELICOM warrants that the Software
is free of defects in material and workmanship and
the Software will operate correctly and for the
purpose intended on the Phones for a period of twelve
(12) months of normal use from the date of delivery
to Licensee's customers of the Software on any Phone.
EXCEPT FOR THE FOREGOING, THE SOFTWARE IS PROVIDED
"AS IS" WITHOUT WARRANTY BY US/INTELICOM, INCLUDING
WITHOUT LIMITATION, THE IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7. Termination.
(a) US/INTELICOM shall have the right to terminate this
Agreement immediately upon written notice to Licensee
in the event of any one or more of the following:
(i) Licensee does not sell or lease a minimum of
five thousand
Page 4 of 15 Confidential
<PAGE> 5
(5,000) Phones containing the Software in
any twelve (12) month period following the
sale or lease of the 100,000 Phones
containing the Software as described in
Addendum B, Prepayment of License Fees.
(ii) the breach by Licensee of any other term,
covenant or condition of this Agreement in
the event that Licensee fails to cure such
breach within (30) days after receipt of
written notice from US/INTELICOM specifying
such breach; or
(iii) If there is a final adjudication that
Licensee has materially failed to comply
with any statute, requirement, rule,
regulation, order or decree, of any federal,
state, municipal or other governmental
authority relating to the marketing, sale or
lease of prepaid cellular telephones.
(b) Upon any termination of this Agreement or the expiry
of the term of this Agreement, Licensee shall
immediately cease to use any and all versions,
components and aspects of the Software, and shall
immediately return to US/INTELICOM all tangible and
electronic representations or reproductions in
Licensee's possession or which Licensee has received
or acquired, provided, however, that Licensee shall
be permitted to (1) sell any Phones in its possession
or on order based on Purchase Orders issued at the
time of such termination, unless such sale would
violate any applicable law, regulation or court order
and (2) provide continued support of Phones
previously sold by Licensee under this Agreement.
(c) In the event of termination hereunder, any unused
portion of the Prepayment of License Fees described
in Addendum B shall be payable to Licensee. In such
event, the parties shall retain all such rights and
remedies as provided by law.
8. Relationship of Parties and Indemnification.
(a) Licensee is not, and shall not represent or hold
itself out as, an agent, legal representative, joint
venturer, partner, employee or servant of
US/INTELICOM for any purpose whatsoever. Licensee is
an independent contractor and is not authorized to
make any contract, agreement, commitment, warranty or
representation on behalf of US/INTELICOM, or to
create any obligation, express or implied, on behalf
of US/INTELICOM. Licensee hereby agrees to indemnify
and hold harmless US/INTELICOM from and
against any loss, claims, demands, actions, causes of
action, costs and expenses, including without
limitation all reasonable attorney's fees, expenses
of
Page 5 of 1 Confidential
<PAGE> 6
litigation, court costs and damages, arising from
or incurred in connection with either a breach by
Licensee of any term, condition, warranty, or
covenant set forth in this Agreement or the
performance, or failure to perform, services to any
customer of Licensee or US/INTELICOM, or the
collection of fees for services rendered by Licensee.
(b) US/INTELICOM hereby agrees to indemnify and hold
harmless Licensee from and against any loss, costs,
claims or judgments, including without limitation
attorney's fees and costs, incurred by Licensee as a
result of any third party claiming infringement on
the Software, or US/INTELICOM's breach of the License
or express warranty.
(c) Additional Terms and Conditions
US/INTELICOM and Licensee agree to the terms and
conditions, if any, described in the attached
Addendum B, which is hereby included within and made
an integral part of this agreement.
9. Covenants Against Disclosure of Trade Secrets and Confidential
Information.
(a) Licensee and US/INTELICOM acknowledge that in the
course of this license, they will become acquainted
with each other's proprietary and confidential
information concerning the Software and the Business,
including "Trade Secrets" and "Confidential
Information", as defined below. Both parties further
acknowledge that they each expend substantial
resources in time and money in the development of
their software, marketing, sales strategies,
programs, and in developing relationships with
customers.
(b) As used herein, the term "Trade Secrets" shall mean
any and all information of either party, including
without limitation, the Software, and other technical
and non-technical data, formulas, patterns,
compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans,
product plans, or lists of actual or potential
customers or suppliers, which (i) derive economic
value, actual or potential, from not being generally
known to, and not being readily ascertainable by
proper means by, other persons who can obtain
economic value from their disclosure or use; and (ii)
are the subject of efforts that are reasonable under
the circumstances to maintain their secrecy. "Trade
Secrets" excludes however, information in the public
domain or readily ascertainable from third parties.
Page 6 of 15 Confidential
<PAGE> 7
(c) As used herein, the term "Confidential Information"
shall mean proprietary and confidential information
or data, other than Trade Secrets, which is valuable
to, and related to the Software and the Business and
the details of which are generally unknown to the
competitors of either party. Confidential Information
shall include the following information, without
limitation, to the extent such information is not
already included in the definition of Trade Secrets
either at the time of the execution of this Agreement
or any time thereafter: (i) confidential financial,
business, marketing programs, strategies, and
services of either party; and (ii) such other
materials and items as the parties may designate,
mark or otherwise identify as confidential from time
to time. Any such information shall cease to be
Confidential Information for the purposes of this
Agreement at such time as that specific information
becomes generally known to the public unless such
disclosure is in violation of this Agreement or
another agreement of a similar purpose between
US/INTELICOM or Licensee and any third party.
(d) Licensee and US/INTELICOM hereby covenant and agree
that they shall not at any time, directly or
indirectly, misappropriate, take, use, divulge or
disclose any of the Trade Secrets of the other party
to any person, company, firm or entity for so long as
an item which is a Trade Secret remains a trade
secret under applicable law.
(e) Licensee and US/INTELICOM hereby covenant and agree
that during the tem of this Agreement and for a
period of thirty-six (36) months after the
termination of this engagement for any reason, they
shall not misappropriate, take, use, divulge or
disclose any of the Confidential Information of the
other party.
(f) Licensee and US/INTELICOM further covenant and agree
that all the Trade Secrets and Confidential
Information owned by each party shall remain the
property of that party and that, upon any termination
of this Agreement for any reason, each party shall
immediately return to the other party any tangible or
electronic representations or reproductions of any
Trade Secret or Confidential Information in their
possession or which they have received or acquired.
(g) Licensee and US/INTELICOM acknowledge the
confidential status of the Trade Secrets and the
Confidential Information.
11. Enforcement.
(a) Licensee and US/INTELICOM acknowledge and agree that
(i) the foregoing covenants set forth in Section 10
above are an essential part
Page 7 of 15 Confidential
<PAGE> 8
of this Agreement; (ii) the terms of the covenants
are reasonable; (iii) any breach of a covenant would
result in immediate and irreparable harm to the other
party; and (iv) such damages would be difficult to
ascertain and would not be entirely measurable in
money damages. Therefore, Licensee and US/INTELICOM
agree that, in the event of a breach or threatened
breach of a covenant, either party shall be entitled
to an injunction or other equitable relief to
restrain any breach or threatened breach of a
covenant, in addition to the right of either party to
an award of damages or other relief that the parties
may have under the law, including without limitation
reasonable attorney's fees and expenses incurred by
the other party in enforcing any claim hereunder,
regardless of any claim that either party may have or
assert against the other party.
(b) Licensee and US/INTELICOM agree that the covenants
and agreements contained in this Agreement are
separate, severable and independent of each other, as
each term and condition is based on viable and
independent consideration and is of great importance
to each party and should be enforceable as if each
were made the subject of a separate agreement between
US/INTELICOM and Licensee. Therefore, should any
court of competent jurisdiction declare any covenant
or provision of this Agreement invalid or
unenforceable for any reason, the remaining covenant
and other terms this Agreement shall continue in full
force and effect as if this Agreement had been
executed initially without the covenant or provision.
12. Force Majeure.
If the performance of all or any part of this Agreement by
US/INTELICOM or the Licensee is prevented or delayed by acts of civil or
military authority, flood, fire, epidemic, war or riot, which cannot be averted
or overcome by diligence (hereinafter referred to as a "Force Majeure Event"),
the party affected shall be excused from such performance, to the extent that
party is necessarily prevented or delayed thereby, only during the continuance
of any such Force Majeure Event; provided, however, that if such delay in
performance extends for more than thirty (30) days, the other party, at its
discretion, upon giving written notice, may terminate this Agreement.
13. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective
successors and assigns.
(b) This Agreement constitutes the entire agreement and
understanding of the parties with respect to the
subject matter of this Agreement. No revision,
modification or change in this Agreement whatsoever
Page 8 of 15 Confidential
<PAGE> 9
shall be claimed or become valid unless the same is
in writing and executed by the parties.
(c) The failure of a party to insist, in one or more
instances, on the performance by the other in strict
compliance with the terms and conditions of this
Agreement, shall not be deemed to be a waiver or
relinquishment of any right granted hereunder or of
any term or condition of this Agreement unless such
waiver is in writing and executed by the parties.
(d) Any notice or other communication required or
permitted hereunder shall be in writing and delivered
personally or by registered mail, return receipt
requested, with sufficient postage, to the best
available address of the party to be notified, and
shall be deemed to be effective on the earlier of
actual receipt of four (4) days after postmarking by
the U.S. Postal Service.
(e) The obligations of the parties created by the
provisions of this Agreement shall survive any
termination of this Agreement.
(f) The headings or captions used in this Agreement are
inserted for convenience or reference purposes only
and shall neither constitute a part hereof nor effect
the interpretation of any provision of this
Agreement.
(g) This Agreement is for the benefit of only the parties
hereto and no person, firm or entity that is not a
party to this Agreement shall have any rights or
claims under or by virtue of this Agreement.
(h) As used herein, the singular shall include the plural
and the neuter gender shall include the masculine or
the feminine as the context requires.
(i) In the event of adjudication, this Agreement shall be
governed by the laws of the State of the Plaintiff.
Page 9 of 15 Confidential
<PAGE> 10
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, on the date first set forth above.
US/INTELICOM Licensee
by: /s/ Michael A. Sauter by:
------------------------------- ------------------------------
Michael A. Sauter
------------------------------- ------------------------------
Print Name Print Name
President
------------------------------- ------------------------------
Title Title
4-7-98
- ----------------------------------- ----------------------------------
Date Date
Page 10 of 15 Confidential
<PAGE> 11
ADDENDUM A
FEES
SOFTWARE LICENSE FEE
Licensee agrees to pay to US/INTELICOM a software license fee of twelve ($12.00)
per Phone on which the Software is loaded, and sold or leased by Licensee.
PIN UPDATE FEE
The "PIN update" method of adding additional prepaid cellular airtime to a Phone
involves entering a unique 10 or 12 digit number directly into the Phone via the
keypad. Such PINs can be divided into two separate types:
a) Mass Production PINs - Licensee creates collections of PINs as
part of a mass PIN production process. As a rule, such PINs are
then packaged, distributed and sold via a variety of retail
channels.
b) On-demand PINs - Licensee creates individual PINs on an ad hoc
basis that are then supplied to the customer over the telephone.
Licensee may create and supply as many on-demand PINs as
indicated.
Licensee agrees to also pay to US/INTELICOM a fee of two dollars ($2.00) per PIN
code generated for use in adding additional units of airtime to Licensee's
Phones. Mass Production PINs are restricted to a maximum of 120 units each.
REAL TIME PREPAID FEE
The "Real Time PrePaid (RTPP)" method of adding additional prepaid cellular
airtime to a Phone does NOT require the use of a PIN code. Under this method,
the Phone will automatically place a call to Licensee's computer system and
request Licensee's permission to add a specified amount of airtime to the Phone.
Licensee's computer system will either approve or deny this request.
Licencee agrees to pay to US/INTELICOM an ongoing fee of two dollars ($2.00) per
Real Time PrePaid (RTPP) addition of units of airtime to Licensee's Phones.
PROMOTIONAL DISCOUNTS
US/INTELICOM agrees to offer a promotional discount of its fees for certain of
Licensee's Phones.
Page 11 of 15 Confidential
<PAGE> 12
- - To be eligible for this promotional discount, a Phone must "qualify" by
being sold or leased by Licensee to a customer directly acquired by
Licensee in the normal course of Licensee's telemarketing, direct
marketing and telesales business.
- - Any Phone sold or leased by Licensee that uses a Mass Production PIN in
adding additional units or airtime usage will not qualify for
promotional discount.
- - Promotional discounts shall be used to offset all license fees due
hereunder.
US/INTELICOM agrees to the following promotional discounts:
1. Nine dollars ($9.00) to be applied against its Software License
fee for each qualified Uniden PCD2000 and each qualified Kodenshi
T-100 Phone containing the Software sold or leased by Licensee.
2. Seven dollars ($7.00) to be applied against its Software License
fee for any other qualified prepaid Phone sold or leased by
Licensee.
3. Two dollars ($2.00) to be applied against each Real Time PrePaid
(RTPP) fee incurred by Licensee in adding additional airtime to
qualified Phones of Licensee.
4. Two dollars ($2.00) to be applied against each PIN Update fee
incurred by Licensee in adding additional airtime to qualified
Phones of Licensee via On-demand PINs.
Page 12 of 15 Confidential
<PAGE> 13
ADDENDUM B
OTHER TERMS AND CONDITIONS
CONFIDENTIALITY
Licensee understands and agrees that the unauthorized disclosure of certain
details contained within this License Agreement could cause irreparable harm to
US/INTELICOM. Licensee therefore agrees to treat this License Agreement as
confidential and will not disclose any details of this License Agreement to any
third party without the expressed written permission of US/INTELICOM, except
that Licensee shall be free to make such disclosures as is necessary to fulfill
legal obligations.
SOFTWARE SOURCE NON-DISCLOSURE
Licensee and US/INTELICOM agree to treat as confidential and not disclose the
fact that Licensee is acquiring its prepaid Software from US/INTELICOM, except
that Licensee shall be free to make such disclosures as is necessary to fulfill
legal obligations. US/INTELICOM may, however, request from Licensee a disclosure
of relevant facts and opinions to specified individuals and/or organizations in
order to assist US/INTELICOM's sales and marketing efforts. Such a request for
disclosure may be declined by Licensee if it feels there is a reasonable chance
that such disclosure would have a materially negative impact on its own sales
and marketing effort. Unless specifically authorized in writing, Licensee agrees
not to use the US/INTELICOM name, logo or other identification of US/INTELICOM
in any of its sales, marketing, promotional, product, or technical information,
whether printed, verbal, or provided via any other media.
COMPUTING FACILITIES
US/INTELICOM agrees to install certain computer programs relating to the support
of its prepaid cellular Software onto computer systems by Licensee. Licensee
acknowledges that it has requested such programs be installed on Licensee's
computer systems, and Licensee agrees to bear all costs associated with
providing and maintaining these systems subject to Licensee's prior written
approval and authorization for such systems. Licensee agrees to provide
US/INTELICOM with continuous and appropriate Internet access to such systems for
billing, monitoring, updating, and other purposes. Licensee agrees to compensate
US/INTELICOM for any out-of-pocket expenses incurred in supporting Licensee's
systems, including any related travel and accommodation expenses.
PAYMENT TERMS
Licensee agrees to remit payment to US/INTELICOM for all fees and other charges
described
Page 13 of 15 Confidential
<PAGE> 14
herein within fifteen (15) days following initial receipt of invoices detailing
such fees and other charges, subject to offsets for promotional discounts that
Licensee is entitled to receive hereunder.
PREPAYMENT OF LICENSE FEES
Licensee agrees to remit to US/INTELICOM a nonrefundable prepayment of Software
License fees within three (3) business days following the date of execution of
this Agreement. The amount of this prepayment is agreed to be three hundred
thousand dollars ($300,000.00), which sum shall offset and be applied against
any License fees, less any applicable promotional discounts, otherwise due from
Licensee hereunder.
PURCHASE OF CELLULAR TELEPHONES
In the event that Licensee enters into a business arrangement in which it
acquires the right to purchase cellular telephones and other cellular
accessories, US/INTELICOM shall have the right to acquire such equipment, either
directly or for another business entity not engaged in direct response
marketing, under the same pricing and terms as Licensee, subject to availability
and vendor approval. It is explicitly understood and agreed that the price for
such equipment will be the lowest price available under Licensee's arrangement
and will be net of any and all discounts, rebates and other incentives.
CONVERSIONS OF PREPAID SOFTWARE
In the event that Licensee shall request that US/INTELICOM convert its prepaid
cellular software so that the application can be made available on a specified
cellular phone, US/INTELICOM agrees to use its best reasonable efforts to effect
such a conversion in a mutually acceptable timeframe. Licensee understands and
agrees that US/INTELICOM shall have the right to reject a software conversion
request from Licensee in the event that US/INTELICOM determines that the
specified cellular phone does not adequately meet the minimum technical and
operational standards determined by US/INTELICOM. Licensee agrees to reimburse
US/INTELICOM for the actual cost of any such conversion request received from
Licensee, based upon a cost schedule approved by Licensee.
RESTRICTIVE COVENANT
US/INTELICOM agrees not to compete with Licensee by engaging in the sale of
prepaid cellular phones directly to end-user customers through direct response
marketing for as long as this Agreement is active.
Page 14 of 15 Confidential
<PAGE> 15
MAINTENANCE AND SUPPORT
Licensee acknowledges and agrees that it is both desirable and necessary for
US/INTELICOM to provide ongoing professional services to Licensee for
installation assistance, operational support and continued maintenance of
software installed and running on computer hardware and cellular telephones
controlled and/or sold by Licensee.
US/INTELICOM agrees to provide reasonable support and maintenance services to
Licensee under a Full Time Equivalent ("FTE") arrangement. US/INTELICOM agrees
to initially provide Licensee with one (1) FTE of appropriate professional
services. A Full Time Equivalent is any combination of support and maintenance
time provided by Licensee by US/INTELICOM personnel. Any FTE is limited to one
hundred and sixty-seven (167) hours of professional time per month.
Licensee agrees to pay to US/INTELICOM a monthly fee of ten thousand dollars
($10,000.00) per FTE of maintenance and support (the "FTE fee"). Licensee also
agrees to reimburse US/INTELICOM for all out-of-pocket expenses incurred in
providing support and maintenance services.
This monthly maintenance and support arrangement will have an initial term of
six (6) months. The arrangement will then automatically renew for an additional
twelve (12) months at the above rates and conditions unless written notification
to US/INTELICOM of Licensee's intent to cancel the arrangement is received no
later than September 1, 1998. Unless Licensee elects to cancel this arrangement
at the end of the first six months, the "initial term" of the arrangement will
be through September 30, 1999.
Following the initial term, this arrangement will automatically renew for an
additional twelve (12) months ("subsequent renewals") beginning each September
1st (the "renewal date") unless written notification to US/INTELICOM of
Licensee's intent to cancel the arrangement is received no later than sixty (60)
days prior to the renewal date. Each subsequent renewal will include an annual
ten percent (10%) increase in the monthly FTE fee.
Licensee may elect to increase the number of FTEs available for the support and
maintenance of Licensee's business by sending a written request to US/INTELICOM.
US/INTELICOM agrees to utilize its best reasonable efforts to provide such
additional FTEs upon such terms as the parties agree at that time.
Page 15 of 15 Confidential
<PAGE> 1
EXHIBIT 10.29.1
LICENSE AGREEMENT
LICENSE AGREEMENT (this "Agreement"), dated as of December 11,
1998 and effective as of August 28, 1999, by and between Quintelcomm, Inc., a
Delaware corporation ("Quintel" or "Licensee"), and {Confidential portion
omitted and filed separately with the Commission}. Licensee and Licensor are
sometimes referred to individually as a "Party" and collectively as the
"Parties".
RECITALS
WHEREAS, Licensor owns certain rights in the Licensed Property
(as defined below) and Licensee desires to obtain and use a license for the use
of the Licensed Property in the Territory (as defined below); and
WHEREAS, the businesses of each of the Licensor and Licensee
will benefit from the use of the license granted to Licensee pursuant to this
Agreement.
NOW THEREFORE, in consideration of the foregoing premises and
the representations, warranties, covenants and agreements contained herein,
intending to be legally bound hereby, the Parties agree as follows:
I. License.
a. Grant. Licensor hereby grants to Licensee and Licensee
accepts, a license to use the Licensed Property (the "License"), during the
period commencing on the date hereof and ending on December 31, 2047 (the
"Term") within the Territory. Such uses shall include, without limitation,
referencing any of the names, logos, or other items included within the Licensed
Property in connection with marketing, advertising, publicity, promotion and
sale of products for services by the Licensee or its Affiliates (as defined
below) for itself or as a marketing agent for other third parties (the "Covered
Products"). Nothing herein contained shall be construed as an assignment or
grant to Licensee of any right, title, or interest in or to the Licensed
Property. All rights relating to the Licensed Property, except for the License,
are reserved by Licensor.
i. For purposes of this Agreement, "Licensed
Property" means any of the following, whether presently existing or hereafter
created: (A) the marketing program developed by {Confidential portion omitted
and filed separately with the Commission} under the name "Fly Free America"(TM)
offering free airline travel in conjunction with hotel and other travel
arrangements (the "Free Travel Concept"), (B) the materials setting forth the
terms of the Travel Premium (as defined below) which incorporate the Trademark
(as defined below), as described in Section 3(a) (the "Fly Free Package"), (C)
the registered and unregistered trade names, trademarks, service marks,
copyrights, and rights under or related to copyrights of Licensor which relate
to the
1
<PAGE> 2
business of the Licensor related to the Free Travel Concept and the Fly Free
Package listed on Schedule 1(a) hereto (the "Trademark"); and (F) all common law
and other rights to the Trademark which relate to the business of the Licensor
related to the Free Travel Concept and the Fly Free Package. In addition,
"Licensed Property" includes, without limitation, any derivations or variations
of any of the foregoing.
ii. For purposes of this Agreement "Affiliate" means,
with respect to any entity, (A) any entity directly or indirectly controlling,
controlled by or under common control with such entity, or (B) any executive
officer, director or member of such entity. For purposes of this definition, the
terms "controls", "is controlled by" or "is under common control with" shall
mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a entity, whether through the
ownership of voting securities, by contract or otherwise.
b. Territory. For purposes of this Agreement, "Territory"
means the United States and Canada.
c. Exclusivity. Except as provided below, the License shall be
non-exclusive. For purposes of this Agreement, "Fiscal Period" means the twelve
month period from September 1 through August 31. The first Fiscal Period under
this Agreement shall be the twelve month period commencing on September 1, 1998
through August 31, 1999 (the "Initial Period").
i. Initial Period. During the Initial Period, the
Licensee shall have the exclusive right to use the Licensed Property in the
marketing, advertising, publicity, promotions and sale of Telecommunications
Products (as defined below) within the Territory (the "Exclusivity Right"). For
purposes hereof, "Telecommunications Products" means long distance
telecommunications service for purchasing such long distance service and
excludes all other telecommunications services and products, including without
limitation, local service, internet telephone service, voice mail, cellular
telephone service (both analog and digital) and calling cards for purchasing
such other products and services.
ii. Extended and Subsequent Periods. For purposes of
this Agreement, the "License Payment Formula" means the product of (1) the
difference between the Package Fee (as defined below) received by Licensor and
{Confidential portion omitted and filed separately with the Commission}, and (2)
the number of Fly Free Packages requested, received and paid for by Licensee.
The License Payment Formula shall be calculated separately for each applicable
Package Fee.
(a) If at the end of the Initial Period, the
License Fee together with the aggregate amount of the License Payment Formula
exceeds {Confidential portion omitted and filed separately with the Commission},
then the
2
<PAGE> 3
Exclusivity Right shall be automatically extended for the immediately following
Fiscal Year (the "Extended Period").
(b) If the Exclusivity Right has been
extended through the Extended Period, then at the end of each subsequent Fiscal
Year, the Exclusivity Right shall be automatically extended for the immediately
following Fiscal Year (a "Subsequent Period") provided that the aggregate amount
of the License Payment Formula is not less than the aggregate amount of the
License Payment Formula for the immediately preceding Fiscal Year.
(c) For purposes of this Agreement,
"Exclusivity Period" means the Initial Period and, as extended, the Extended
Period and any Subsequent Period.
iii. Adjustments. In the event that the Exclusivity
Period is extended through the second anniversary of the date hereof, then the
Package Fee shall be adjusted proportionately with respect to any increase or
decrease of Licensee's pricing arrangements with providers of Telecommunications
Products; provided, however, in no event shall the Package Fee be less than
{Confidential portion omitted and filed separately with the Commission}.
2. Fees.
a. License Fee. On or prior to the execution of this
Agreement, Licensee shall pay to the Licensor an initial license fee of
{Confidential portion omitted and filed separately with the Commission} (the
"License Fee"). Licensor shall pay the License Fee as follows: (i) {Confidential
portion omitted and filed separately with the Commission} by check or wire
transfer of immediately available funds to an account or accounts designated by
the Licensor in a written notice delivered to Licensee, and (ii) {Confidential
portion omitted and filed separately with the Commission} (such amount, the
"Escrow Amount") by check or wire transfer of immediately available funds,
delivered to Swidler Berlin Shereff Friedman, LLP (the "Escrow Agent"). The
Escrow Amount is to be held in an escrow account (the "Escrow Account") in
accordance with the terms of an escrow agreement among Licensor, Licensee and
the Escrow Agent (the "Escrow Agreement") in the form attached hereto as Exhibit
A.
b. Package Fee. The Licensee shall pay to the Licensor the
following fees for each Fly Free Package requested by and provided to Licensee
throughout the Term (the "Package Fee"):
Aggregate Number of Fly Free Packages Price Per Fly Free Package
{Confidential portion omitted and filed separately with the Commission}
3
<PAGE> 4
Licensee shall pay the Package Fee to Licensor within thirty (30) days after
delivery of the Fly Free Packages requested by Licensee from Licensor.
c. Sample Fee. From time to time, Licensee may request, and
Licensor shall provide to Licensee, Fly Free Packages which contain inactive
travel vouchers ("Sample Packages") for use by Licensee in marketing and
promoting the Free Travel Concept and the Fly Free Package. Licensee shall not
cause, assist, encourage, or permit any other party to cause, assist or
encourage the activation of the inactive travel vouchers contained within the
Sample Packages. In addition to the fees described above, Licensee shall pay
Licensor {Confidential portion omitted and filed separately with the Commission}
for each Sample Package provided to Licensee within thirty (30) days after
delivery of the Sample Packages requested by Licensee from Licensor.
d. Kiosk Fee. The Licensee shall pay Licensor a fee of
{Confidential portion omitted and filed separately with the Commission} for each
customer that has been pic'd and for which the service provider of
Telecommunications Products has compensated the Licensee.
3. Obligations of Licensor. Licensor shall be responsible for the
following:
a. Travel Premiums. For purposes of this Agreement, "Travel
Premiums" mean an offer of free airline travel with paid hotel and other travel
arrangements made to potential customers of Licensee for products or services as
an inducement to purchase or subscribe for a particular product or service.
Licensor shall furnish to the Licensee, for distribution to the recipients of
Travel Premiums, complete, ready to mail travel packages containing materials
setting forth the terms of the Travel Premium which incorporate the Trademark
(which travel packages are substantially similar to all other travel packages
provided by Licensor to its other customers at such time) and which travel
packages will be in a form ready for transmittal to the Travel Premium
customers. It is expressly acknowledged by the Parties that a substantial
portion of the total price of such travel packages are set annually by
participating hotels, who generally increase the cost each year, but it is
agreed that rate charged to customers of Licensee will not be greater than the
"rack rate."
b. Fly Free Packages. Upon reasonable request by Licensee in
writing, Licensor shall deliver requested Fly Free Packages and Sample Packages
to Licensee within ten (10) business days following such request.
c. Customer Service. In accordance with the terms and
conditions and general information sections of the Travel Premiums, Licensor
shall provide the following services to those customers who accept the Travel
Premium incorporated in a travel package and/or any upsell premium provided by
Licensor or {Confidential portion omitted and filed separately with the
Commission}:
4
<PAGE> 5
i. making all necessary arrangements with the air,
hotel and other providers of travel accommodations and services constituting
part of a travel package offered as a Travel Premium;
ii. addressing any customer complaints or inquiries
regarding the arrangements constituting part of the Travel Premium, travel
package or such upsell premium.
4. Additional Agreements.
a. Continued Development. Licensee may, and Licensor agrees to
cooperate with Licensee to, develop new opportunities for the use of Travel
Premiums incorporating the Free Travel Concept and the Trademark in the
marketing of Telecommunications Products; provided, however, that any use of
such developments shall be subject to the prior written approval of Licensor
which shall not be unreasonably withheld or delayed.
b. Credit Card Transactions. The transactions described in
this paragraph are referred to as the "Credit Card Transactions." With the
approval of the issuing bank or credit card company, Licensor shall attempt to
arrange for Licensee to be granted the right to market credit cards ("Licensee
Credit Cards") to the extent Licensor or its Affiliates may have such rights.
Licensee shall market Licensee Credit Cards as an upsell premium (other than a
Travel Premium) as an inducement to purchase or subscribe for a
Telecommunication Product (a "Upsell Premium"), with the Travel Premium provided
by or developed with Licensor, or to the extent permitted, market the credit
card as a default choice in marketing Telecommunications Products, subject in
each instance to the consent of the issuing bank or credit card company.
i. Credit Card Fees. Licensor shall pay to Licensee
sixty percent (60%) of the fees which it received from the issuing bank or
credit card company with respect to each Activated Customer obtained by Licensee
pursuant to the terms contained in Section 4b (the "Credit Card Fee"). For
purposes of this Agreement, an "Activated Customer" means a customer who
activates a Licensee Credit Card and uses such card to make one purchase or such
other amount as required by the issuer of such credit card. Licensor shall pay
all Credit Card Fees to Licensee within thirty (30) days after the receipt by
Licensor of the applicable payment which the issuing bank or credit card company
is obligated to make to Licensor pursuant to the relevant credit card customer
acquisition programs.
5
<PAGE> 6
c. Customer Databases. Licensor shall rent to the Licensee all
customer databases owned or controlled by Licensor (and Licensor shall use its
reasonable efforts to cause Triad's customer database to be rented to Licensee)
(the "Database") for Licensee's non-exclusive use in the marketing of
Telecommunications Products using the Licensed Property during the Term.
Licensor shall provide Licensee with regular updates of the Database from time
to time during the Term not less than monthly. The Database shall revert to the
exclusive control of the Licensor upon the expiration or earlier termination of
this Agreement. Nothing herein contained shall be construed as an assignment or
grant to Licensee of any right, title, or interest in or to the Database. All
rights relating to the Database are reserved by Licensor.
i. Database Fee. Licensor has provided access to the
Database to Licensee. From the date of this Agreement, Licensee shall pay a
monthly fee to Licensor of {Confidential portion omitted and filed separately
with the Commission} per each monthly update (the "Update") of {Confidential
portion omitted and filed separately with the Commission} customer names from
the Database (the "Database Fee"). The Database Fee shall be reduced by (A) then
applicable brokerage fee (which fee is currently {Confidential portion omitted
and filed separately with the Commission}, and (B) the product of {Confidential
portion omitted and filed separately with the Commission} and the number of
sales generated from customers listed in the Database that remain active
customer of the applicable provider of Telecommunications Products for more than
sixty (60) days and receive the Fly Free Package.
ii. Rights of Priority. Licensor shall not provide
the Update to any other marketer of Telecommunications Products, until the date
which is two (2) weeks after the delivery of the Update by Licensor to Licensee.
d. Customer Upsells. Any upsell premium provided by Licensor
or Triad to Licensee shall be on terms no less favorable than are offered by
Licensor or Triad, as the case may be, to any third party.
e. Licensor's Kiosks. Subject to the provisions of Section
2d., Licensor shall distribute promotional materials prepared by the Licensee
concerning the Licensee's Telecommunications Products using the Licensed
Property at any shopping mall kiosks operated by Licensor or its Affiliates. The
form and content of the materials would be determined by Licensee, subject to
Licensor's approval, which will not be unreasonably withheld or delayed.
5. Audit Rights. With respect to Licensee's transactions related to its
use of the License, Licensee shall, and with respect to Licensor's record of all
transactions related to the Credit Card Transactions, Licensor shall, maintain
full, true and accurate books and records, in accordance with generally accepted
accounting principles set forth in the opinions and pronouncements of the
Financial Accounting Standards Board which are applicable in the United States,
applied on a consistent basis to give a complete record
6
<PAGE> 7
of all of such actions for the preceding three (3) Fiscal Years. Upon the
request of either party (the "Requesting Party"), the other party (the
"Producing Party") shall give access to the relevant books and records relating
to the use of the License and the Credit Card Transactions, as the case may be,
at reasonable times, during reasonable hours so long as the Requesting Party has
requested such access at least forty-eight (48) hours in advance; provided that
the Producing Party shall not be required to provide such access to the
Requesting Party more than once in any Fiscal Year. A representative of the
Requesting Party (including an independent certified public accountant retained
by the Requesting Party for the purpose of verifying the accuracy of the reports
supplied hereunder) shall have the right to inspect such books and records at
the offices of the Producing Party. The Requesting Party shall pay for the cost
of its representative; provided that if such inspection reveals that the
Producing Party has inaccurately stated amounts due hereunder, as the case may
be, in an average amount of five percent (5%) or more over a six (6) month, then
the Producing Party will pay or reimburse the Requesting Party for the entire
cost of such inspection. The Producing Party agrees to pay the balance of any
fee due together with the cost of the inspection, to the Requesting Party within
ten (10) days after receipt by the Producing Party of written notice from the
Requesting Party of any inaccurate statements.
6. Covenants.
a. Compliance with Laws. Each Party agrees to comply in all
material respects with the provisions of applicable law, including without
limitation, the notice provisions of the copyright and trademark law of the
United States. Each Party agrees to place appropriate notice of any applicable
trademark, service mark or copyright with respect to the Licensed Property.
Licensee shall submit to Licensor and its counsel a sample of all uses of the
Licensed Property for its approval to ensure compliance in all material respects
with the provisions of applicable law, prior to any such use of the Licensed
Property.
b. Ownership and Goodwill. Each Party recognizes the value of
the good will associated with the Licensed Property and acknowledges that all
rights based upon or derived from the Licensed Property, including all rights
therein and good will pertaining thereto, belong to Licensor, subject to the
License, and that the Licensed Property has a secondary meaning in the mind of
the public associated with Licensor and, as used subject to the License, with
Licensee. Each Party agrees that it will not, during the Term, do or permit to
be done any act that will invalidate, attack or affect in any manner whatsoever
Licensor's rights based upon or derived from the Licensed Property as well as
the goodwill associated therewith.
c. Quality. Each Party agrees that it shall use, and shall
authorize the use of, the Licensed Property, with such style, appearance and
quality as to be adequate and suited for exploitation to the best advantage and
to the protection and enhancement of the Licensed Property and the good will
pertaining thereto, and that such uses shall in
7
<PAGE> 8
no manner reflect adversely upon the Licensed Property. Licensee shall submit to
Licensor a sample of all uses of the Licensed Property for its approval of the
design and quality of such use of the Licensed Property prior to any such use of
the Licensed Property. Such approval shall not be unreasonably withheld or
delayed, conditioned or delayed and shall be (i) deemed given, and the
submission of a sample shall not be required, if the uses of the Licensed
Property by the Licensee are the same as or substantially similar to uses
previously approved by the Licensor, or (ii) evidenced by written notice
executed by Licensor. Licensor's failure to approve or disapprove any such
sample by written notice within ten (10) business days of receipt of such sample
shall be deemed approval of such sample.
d. Advertising and Promotion. Each Party agrees that it shall
not engage, participate or otherwise become involved in any activity or course
of action including, without limitation, advertising and promotion, that
diminishes and/or tarnishes the image and/or reputation of the Licensed
Property.
e. Cooperation. Each Party agrees to cooperate with the other
in obtaining and enforcing copyright, service mark, trade name, trade dress and
trademark protection for the Licensed Property, including without limitation, in
connection with suits and claims for infringement of the Licensed Property.
f. Confidentiality. During the term of this Agreement, both
Parties may be exposed to certain information of the other Party which is the
confidential as well as other proprietary information and not generally known to
the public (herein "Confidential Information"). Both Parties will either mark
their materials as Confidential Information or notify the other Party, in
writing, that written or oral information is Confidential Information. Both
Parties agree that during and after the term of this Agreement they will not use
or disclose to any third party any of the other Party's Confidential Information
for purposes other than set forth in this Agreement without the prior written
consent of the other Party. Both Parties hereby consent to the disclosure of
their Confidential Information to the employees of the other Party as is
reasonably necessary in order to allow each Party to perform under this
Agreement and to obtain the benefits hereof, subject to obtaining written
confidentiality agreements from said employees, which are at least as protective
as this Agreement. This paragraph shall not apply to information after such
information is made generally known to the public through no breach of this
Agreement.
g. Non-Competition. Licensee agrees that during the Term and
for the twelve month period immediately following the date of expiration or
termination of this Agreement, Licensee shall not use Travel premiums
incorporating the Free Travel Concept, or a substantially similar travel offer,
in connection with marketing, advertising, publicity, promotion and sale of
products for services by the Licensee or its Affiliates for itself or as a
marketing agent for other third parties without the express written consent of
Licensor.
8
<PAGE> 9
7. Protection of the Licensed Property.
a. Enforcement of Licensed Property Rights. Each Party agrees
to assist the other in protecting the intellectual property rights with respect
to the Licensed Property as follows:
i. Registration. Licensor shall seek to obtain and
maintain a registration from the United States Patent and Trademark Office, the
United States Register of Copyrights, or appropriate state agencies within the
United States with respect to uses of the Licensed Property by either the
Licensee or Licensor or any modifications thereto or derivations thereof (the
"Registrations") and shall renew all such registrations, as required, maintain
notices of allowance and otherwise take all appropriate action relating to the
Registrations, including, without limitation, the filing of Statements of Use,
Requests for Extensions of Time to File Statements of Use, Affidavits of Use and
Affidavits of Incontestability. Licensor shall bear the cost of obtaining and
maintaining such Registration.
ii. Infringement. Licensor may commence or prosecute
any claims or suits with respect to any infringements or possible infringement
of the Licensed Property in its own name. If Licensor elects to prosecute any
such claim or suit, Licensor shall bear all costs and expenses, including legal
fees, incurred in connection with any such suits and Licensee shall not
institute any suit or take any action on account of any infringements or
possible infringements of the Licensed Property without first notifying and
consulting with Licensor. If Licensor elects not to prosecute any such claim or
suit within ten (10) days after the receipt of written notice of Licensee
requesting it to do so, then Licensee shall have the right to prosecute any such
infringement or possible infringement. If Licensee elects to do so, costs and
expenses, including legal fees, incurred in connection with any such suits shall
be borne by Licensee (subject to Section 8, to the extent applicable). If either
Party institutes a suit for infringement pursuant to this Agreement, the other
Party shall have the right to participate and represent its interest through
other counsel of its own choosing and at its cost and expense, including legal
fees, incurred in connection with such participation.
iii. Remedies. In the event that either Party obtains
any recovery as a result of any claims or suits commenced, prosecuted or
settled, the allocation of such recovery (net of the cost and expenses,
including legal fees, reasonably incurred in connection with any such suit or
claim) shall be allocated as follows: (A) in the event that either Party bears
all costs and expenses, including legal fees, incurred in connection with any
such claims or suit, such Party shall receive one hundred percent (100%) of any
such recovery, or (B) in the event that the Licensor and Licensee each bear a
portion of the costs and expenses, including legal fees, incurred in connection
with any such claims or suits, then such recovery shall be allocated between the
Licensor and Licensee in proportion to costs and expenses so incurred; provided,
however, that in no event shall Licensor receive less than fifty percent (50%)
of any such recovery.
9
<PAGE> 10
b. Notice of Infringement. Each Party agrees to notify the
other promptly in writing of any adverse use of the Licensed Property or other
designation similar to the Licensed Property of which such Party is or becomes
aware.
8. Indemnification, Insurance Coverage.
a. Indemnification; Insurance Coverage. Licensor shall
indemnify and hold harmless Licensee, its subsidiaries, sublicensees and their
respective officers, directors and employees from and against any and all
damages, costs and expenses (including reasonable attorney's fees) incurred by
any of them arising out of or in connection with (1) any breach by Licensor or
any of its officers, directors or employees (the "Licensor Affiliates") of the
representations and warranties in this Agreement, and (ii) any breach of any
covenant or agreement of the Licensor or the Licensor Affiliates with the
Licensee contained in this Agreement. The Parties acknowledge that Triad may be
sold, recapitalized, or enter into an extraordinary transaction, and upon the
consummation of any such transaction, all obligations of Triad, and of Licensor
with respect to Triad, shall be terminated without any liability to any Party
and all references to Triad in this Agreement shall be null and void.
b. Indemnification by Licensee. Licensee shall indemnify,
defend and hold harmless Licensor, its subsidiaries, sublicensees and their
respective officers, directors and employees from and against any and all
damages, costs and expenses (including reasonable attorney's fees) incurred by
any of them arising out of or in connection with (i) any breach by Licensee or
any of its officers, directors or employees (the "Licensee Affiliates") of the
representations and warranties in this Agreement, and (ii) any breach of any
covenant or agreement of the Licensee or the Licensee Affiliates with the
Licensor contained in this Agreement, and (iii) any claim or cause of action by
any third party arising out of or in connection with the sale or use of any
Covered Products, including by any customer of Licensee.
c. Indemnification Procedure. An indemnified party shall
provide written notice to each indemnifying party of any claim of such
indemnified party for indemnification under this Agreement promptly after the
date on which such indemnified party has actual knowledge of the existence of
such claim. Such notice shall specify the nature of such claim in reasonable
detail and the indemnifying parties shall be given reasonable access to any
documents or properties within the control of the indemnified party as may be
useful in the investigation of the basis for such claim. The failure to so
notify the indemnifying parties shall not constitute a waiver of such claim but
an indemnified party shall not be entitled to receive any indemnification with
respect to any losses that occurred directly as a result of the failure of such
indemnified party to give such notice.
10
<PAGE> 11
i. In the event any indemnified party seeks
indemnification hereunder based upon a claim asserted by a third party, the
indemnifying parties shall have the right (without prejudice to the right of any
indemnified party to participate at its expense through counsel of its own
choosing) to defend or prosecute such claim at its expense and through counsel
of its own choosing if it gives written notice of its intention to do so no
later than twenty (20) days following notice thereof by an indemnified party or
such shorter time period as required so that the interests of the indemnified
party would not be materially prejudiced as a result of its failure to have
received such notice; provided, however, that, if the indemnified party shall
have reasonably concluded that separate counsel is required because a conflict
of interest would otherwise exist, the indemnified party shall have the right to
select separate counsel (but not more than one law firm together with local
counsel, if necessary) to participate in the defense of such action on its
behalf, at the expense of the indemnifying party. If the indemnifying party does
not so choose to defend or prosecute any such claim asserted by a third party
for which any indemnified party would be entitled to indemnification hereunder,
then the indemnified party shall be entitled to recover from the indemnifying
party, all of the reasonable attorney's fees and other costs and expenses of
litigation of any nature whatsoever incurred in the defense of such claim.
Notwithstanding the assumption of the defense of any claim by an indemnifying
party pursuant to this paragraph, the indemnified party shall have the right to
approve the terms of any settlement of a claim (which approval shall not be
unreasonably delayed or withheld).
ii. The indemnifying party and the indemnified party
shall cooperate in furnishing evidence and testimony and in any other manner
which the other may reasonably request, and shall in all other respects have an
obligation of good faith dealing, one to the other, so as not to unreasonably
expose the other to undue risk of loss.
d. Limitation of Liability. Except as provided above, in no
event shall either Party be liable to the other Party for any incidental,
consequential, special, or punitive damages arising out of this Agreement or its
termination, whether liability is asserted in contract, tort (including
negligence or strict product liability) or otherwise, and irrespective of
whether such Party has been advised of the possibility of any such loss or
damage. Further, Licensor shall not be obligated to make any payment for
indemnification under this Section 8 in excess of the aggregate amount of the
License Fee, Package Fee and Sample Fee received by Licensor from Licensee.
9. Representations and Warranties of Licensee. Licensee hereby
represents and warrants as follows:
11
<PAGE> 12
a. Organization; Authority; Enforceability. Licensee is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Licensee, has
been duly authorized by all necessary corporate action, and constitutes the
legal, valid and binding obligation of Licensee enforceable in accordance with
its terms.
b. No Conflict or Breach. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof, will not (i) constitute, with or without the
giving of notice or passage of time, or both, a breach of any of the terms or
provisions of, or a default under any agreement, indenture or other instrument
to which Licensee is a party or by which it or any of its Property is bound,
(ii) cause, or give any person grounds to cause, with or without the giving of
notice or passage of time, or both, the maturity of any material liability or
obligation of Licensee to be accelerated, increased or otherwise affected, or
(iii) conflict with Licensee's Certificate of Incorporation, By-Laws, or any
judgment, decree, order or award of any court, governmental body or arbitrator
binding upon Licensee, or any law, rule, or regulation applicable to it.
c. Approvals. No consent, action, approval or authorization
prescribed by any law, rule or regulation, or by any agreement to which Licensee
is a party, is required in order to permit the consummation of the transactions
contemplated by this Agreement.
d. No Legal Bar. Licensee is not prohibited by any order,
writ, injunction or decree from consummating the transactions contemplated by
this Agreement, and no action or proceeding is pending or, to the best of
Licensee's knowledge, threatened against Licensee which questions the validity
of this Agreement or any of the actions which the Parties have taken in
connection herewith or which it is contemplated they shall take in connection
herewith.
c. Finder. Licensee has taken no action and has not dealt with
any person in any manner which will result in any liability to Licensor to pay
any brokerage fees or commissions or finder's fees with respect to this
Agreement or the transactions contemplated hereby.
10. Representations and Warranties of Licensor. Licensor represents and
warrants as follows:
12
<PAGE> 13
a. Organization and Authority. Licensor is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Florida, and has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Licensor, has been duly authorized by
all necessary corporate action on the part of Licensor, and constitutes the
legal, valid and binding obligation of Licensor, enforceable in accordance with
their respective terms.
b. No Conflict or Breach. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not (i) constitute, with or without the
giving of notice or passage of time, or both, a breach of any of the terms or
provisions of, or a default under, any agreement, indenture or other instrument
to which Licensor is a party or by which Licensor or any of its property is
bound or conflict with the terms of any license granted to any other person,
corporation or other entity, (ii) cause, or give any person grounds to cause,
with or without the giving of notice or passage of time, or both, the maturity
of any material liability or obligation of Licensor to be accelerated, increased
or otherwise affected, or (iii) conflict with Licensor's Certificate of
Incorporation or By-Laws, or any judgment, decree, order or award of any court,
governmental body or arbitrator binding upon Licensor, or any law, rule or
regulation applicable to Licensor.
c. Approvals. No consent, action, approval or authorization
prescribed by any law, rule or regulation or any agreement to which Licensor is
a party is required in order to permit the consummation of the transactions
contemplated by this Agreement.
d. No Legal Bar. Licensor is not prohibited by any order,
writ, injunction or decree from consummating the transactions contemplated by
this Agreement, and no action or proceeding is pending or, to the best of
Licensor's knowledge, threatened against either of them which questions the
validity of this Agreement or any of the actions which the Parties have taken in
connection herewith, or which it is contemplated they shall take in connection
herewith.
e. Finder. Licensor has not taken any action or dealt with any
person in any manner which will result in any liability to Licensee to pay any
brokerage fees or commissions or finder's fees with respect to this Agreement or
the transactions contemplated hereby or thereby.
f. Ownership. Licensor has all right, title, and interest in
and to the Licensed Property as required for the non-infringing use of the
Licensed Property. Schedule 1(a) is a complete and accurate list of all of the
Licensed Property owned or used by the Licensor which relate to the business of
the Licensor.
13
<PAGE> 14
11. Termination; Obligations on Expiration or Termination.
a. Termination for Breach. In the event of a material breach
of this Agreement, the non-breaching Party shall have the right to terminate
this Agreement, upon forty-five (45) days written notice specifying the nature
of the breach and provided that the breaching Party has not cured such breach
within such forty-five (45) day period.
b. Rights and Obligations on Termination. Upon expiration or
termination of this Agreement, Licensee shall cease use of the License, and any
sublicense shall terminate; provided, however that the Licensee shall have a
period of one hundred expiration or termination to use, on a non-exclusive
basis, its remaining inventory of Fly Free Packages in connection with the
marketing and sale of Covered Products (the "Sell-Off Period"). Upon the
expiration of the Sell-Off Period, the Licensee shall cease to use the Fly Free
Packages. In the event that this Agreement is terminated by the Licensee other
than by reason of a default of this Agreement by Licensor, the Escrow Amount (if
any) shall be immediately delivered to Licensor.
12. Arbitration. Except as provided in Section 13f, any and all
disputes between the Parties arising out of or in connection with the
negotiation, execution, interpretation, performance or nonperformance of this
Agreement shall be solely and finally settled by arbitration before a panel of
three (3) arbitrators, which shall be conducted in New York, New York or at such
other location as the Parties may agree in writing. The arbitrator shall conduct
the proceedings in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "Rules"). The arbitration proceeding shall
be initiated in accordance with the Rules. The Parties hereby renounce all
recourse to litigation and agree that any arbitration award shall be final and
subject to no judicial review. The arbitration shall be conducted before three
(3) arbitrators, chosen in accordance with the Rules. The arbitrators shall
decide the issues submitted in accordance with (i) the commercial purposes of
this Agreement; and (ii) what is just and equitable under the circumstances,
provided that all substantive questions of law (excluding principles of
conflicts of laws) shall be determined under the laws of the State of New York.
a. Facilitation. The Parties agree to facilitate the
arbitration by: (i) making available to one another and to the arbitrators for
examination, inspection and extraction all documents, books, records and
personnel under their control determined by the arbitrator to be relevant to the
dispute, (ii) conducting arbitration hearings to the greatest extent possible on
successive days; and (iii) observing strictly the time periods established by
the Rules, or by the arbitrators, for submission of evidence or briefs.
14
<PAGE> 15
b. Entry of Judgment Costs. Judgment on the award of the
arbitrator may be entered in any court having jurisdiction over the Party
against which enforcement of the award is being sought. All deposits and other
costs of arbitration, including without limitation attorneys' fees incurred in
connection with such arbitration, shall be borne by the non-prevailing Party
unless the arbitrators decide that they shall be allocated between parties in
particular proportions.
13. Miscellaneous.
a. No Waiver. No action taken by any Party shall be deemed to
constitute a waiver by such Party of compliance with any covenant or agreement
contained in this Agreement, no course of dealing between the Parties and no
failure or delay on the part of any Party in exercising any right, power, or
privilege hereunder shall operate as a waiver thereof and no single or partial
exercise of any right, power or privilege shall preclude any other or future
exercise thereof or the exercise of any other right, power or privilege.
b. Entire Agreement: Amendments. This Agreement, together with
the Exhibit and Schedules hereto, constitute the entire agreement, and
supersedes all prior and contemporaneous agreements and understandings, whether
oral or written, between the Parties with respect to the subject matter hereof.
No modification, amendment or waiver of any provision of this Agreement shall be
effective unless in writing and signed by the party or parties against whom
enforcement thereof is sought, and any such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
c. Assignment. The Parties may not assign the License or any
of their respective rights hereunder (other than Licensee may sublicense the
License to an Affiliate of Licensee with fifteen (15) days prior written notice
to Licensor, provided that such sublicense shall not relieve Licensee of its
financial obligations hereunder, which shall remain primary and direct) without
the prior written approval of the other Party, which approval may be withheld in
such Party's sole discretion. In addition, any such assignment shall not become
effective until such time as the assignee executes an instrument binding it to
the terms of this Agreement, and the assigning Party provides written notice of
such assignment to the other Party.
d. Sublicense. Licensee may not sublicense the License or any
of its rights hereunder without the prior written approval of Licensor, which
approval may be withheld in Licensor's sole discretion. In addition, any such
sublicense shall not become effective until such time as the, sublicensee
executes an instrument with respect to the Licensed Property which shall
include, without limitation, quality control provisions substantially similar to
those set forth in paragraph 6c hereof, and the Licensee provide written notice
of such sublicense to the Licensor.
15
<PAGE> 16
e. Survival. In addition to any provisions of this Agreement
providing for the continuation of fights or obligations after the termination of
this Agreement, the following Sections shall survive any termination of this
Agreement: Sections 2, 5, 6, 8, 9, 10, 11 and 13; and shall be specifically
enforceable in any court of competent jurisdiction. In no event shall a demand
for arbitration be made after the date when any applicable statute of
limitations, or period for claims under this Agreement, would bar institution of
a legal or equitable proceeding based on such dispute or subject matter in
question. Notwithstanding anything hereby to the contrary, if, prior to the
expiration of any indemnification period, either Licensor or Licensee shall have
been notified of a claim for indemnity hereunder, the substance of such claim to
be specified in reasonable detail to the extent available, and such claim shall
not have been finally resolved before the expiration of such period, any
representation, warranty, covenant or agreement that is the basis for such claim
shall continue to survive and shall remain a basis for indemnity as to such
claim until such claim is finally resolved.
f. Specific Performance. Licensor and Licensee each
acknowledge that the License is unique and that Licensor and/or Licensee may
have no adequate remedy at law for the failure by either of them to perform
their respective obligations hereunder. Accordingly, Licensor and Licensee each
agrees that in the event of any such failure, until the date of the final
judgment with respect to any such dispute pursuant to Section 12, the
non-breaching Party shall have the right to obtain an injunction against the
breaching party from any court having jurisdiction over the matter restraining
any such breach, and the non-breaching Party shall not oppose the granting of
such relief on the grounds that money damages are a sufficient remedy.
g. Notices. Except as otherwise specified herein, all notices,
requests, demands, consents and other communications required or permitted to be
given or made hereunder, including notice of change of address, shall be in
writing and shall be deemed to have been duly given or made when received,
either hand delivered, telexed or mailed, federal express courier, registered or
certified first class mail, postage prepaid, return receipt requested, to the
Party to whom the same is so given or made. is so given or made.
If to Licensor, {Confidential portion omitted and filed
separately with the Commission}
with a copy to: Charles I. Weissman
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022-9998
Fax: (212) 758-9526
If to Licensee: Jeffrey Schwartz
Quintelcomm, Inc.
16
<PAGE> 17
One Blue Hill Plaza
Pearl River, New York 10965
Fax: (212) 898-0492
with a copy to: Geoffrey A. Bass, Esq.
Feder, Kaszovitz, Isaacson, Weber, Skala &
Bass LLP
750 Lexington Avenue
New York, New York 10022-1200
h. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the Parties and their
respective successors, assigns, heirs and legal representatives.
i. Severability. The invalidity of all or part of any
paragraph of this Agreement shall not render invalid the remainder of such
paragraph or of this Agreement. If any provision of this Agreement is so broad
as to be unenforceable, such provision shall be interpreted to be only so broad
as is enforceable.
j. Headings. The headings of this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
k. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall be deemed to constitute a single instrument.
l. Governing Law. This Agreement shall be governed by, and
construed and interpreted in all respects in accordance with the laws of the
State of New York, without giving effect to the principles of conflict of laws
thereof.
m. Franchise. The Parties acknowledge and agree that this
Agreement is an intellectual property rights license agreement and does not
constitute, and shall not be construed as, a franchise agreement. The Parties
further acknowledge and agree that state and federal franchise laws do not and
will not apply to this Agreement or to the relationship between Licensee and
Licensor and their respective rights and obligations hereunder.
n. Further Assurances. The Parties hereby agree to execute and
deliver any further instruments, certificates and documents as may be reasonably
requested from each Party by any of the Parties in order to carry out the terms
and conditions of this Agreement.
17
<PAGE> 18
IN WITNESS WHEREOF, the Parties have executed and delivered, or have
caused this Agreement to be executed and delivered by their duly authorized
representative, as of the date first above written.
{Confidential portion omitted and filed
separately with the Commission}
QUINTELCOMM, INC.
By: /s/ Jeffrey Schwartz
---------------------------------------
Name: Jeffrey Schwartz
Title: CEO
18
<PAGE> 19
Schedule 1(a)
Trademark
1. Fly Free America(TM) (including, without limitation, the uses of Fly
Free Emetica(TM) set forth in the attached Fly Free Package).
19
<PAGE> 1
EXHIBIT 10.29.2
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of December 11, 1998 (this "Agreement"), by
and among Quintelcomm, Inc., a Delaware corporation ("Quintel"), {Confidential
portion omitted and filed separately with the Commission}, and Swidler Berlin
Shereff Friedman, LLP, as Escrow Agent (the "Escrow Agent").
RECITALS
WHEREAS, Quintel and {Confidential portion omitted and filed separately
with the Commission} have entered into a License Agreement (the "License
Agreement"), dated as of December __, 1998 and effective as of August 28, 1998,
whereby {Confidential portion omitted and filed separately with the Commission}
agrees to grant to Quintel a license to use the Licensed Property, and Quintel
agrees to make certain payments to {Confidential portion omitted and filed
separately with the Commission}, including the Prepaid License Fee (capitalized
terms used herein which are not otherwise defined shall have the respective
meanings ascribed thereto in the License Agreement);
WHEREAS, pursuant to Section 2 of the License Agreement, Quintel
desires to deposit {Confidential portion omitted and filed separately with the
Commission} (the "Escrow Deposit") of the Prepaid License Fee in the Escrow
Account (as defined herein) to be held in escrow until released in accordance
with the terms of this Agreement; and
WHEREAS, Quintel and {Confidential portion omitted and filed separately
with the Commission} desire that Swidler Berlin Shereff Friedman Hoffman, LLP
act as escrow agent to hold the Escrow Deposit in escrow pursuant to the terms
of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein,
intending to be legally bound hereby, the parties hereto agree as follows:
1. Appointment. Quintel and {Confidential portion omitted and filed
separately with the Commission} hereby appoint and designate the Escrow Agent,
and Escrow Agent agrees to serve, as escrow agent for the purposes set forth
herein.
2. Escrow. The Escrow Agent agrees to receive, as escrow agent, a check
or a wire transfer of immediately available funds from Quintel in an amount
equal to the Escrow Deposit, which shall be held in escrow in a special interest
bearing account designated by the Escrow Agent (the "Escrow Account"), in
accordance with the terms and provisions of this Agreement. Interest earned on
the Escrow Deposit shall be paid to the party entitled to receive the Escrow
Deposit as provided for herein, and the party receiving such interest shall pay
income taxes on any such interest payment.
3. Release of Escrow Deposit. The Escrow Agent shall hold the Escrow
Deposit until it delivers the Escrow Deposit, with interest, as provided in this
Section 3.
<PAGE> 2
3.1 Notification and Action. The Escrow Agent shall not make
any distributions of the Escrow Deposit except as specifically set forth below.
The Escrow Agent shall distribute the Escrow Deposit as follows:
(i) the principal sum of {Confidential portion omitted and
filed separately with the Commission}, together with any accrued interest
thereon, to {Confidential portion omitted and filed separately with the
Commission} from the Escrow Account on each of January 1, February 1, and March
1; provided, however, that the Escrow Agent shall not make any such distribution
if it has received written notice from Quintel (the "Default Notice") stating
that as of such date {Confidential portion omitted and filed separately with the
Commission} is in default in the performance of its obligations under the
License Agreement;
(ii) the entire Escrow Deposit (if any), with interest
thereon, to {Confidential portion omitted and filed separately with the
Commission} on the date of termination of the License Agreement by the Licensee,
pursuant to Section 11(b) of the License Agreement;
(iii) upon receipt of written instructions signed by a duly
authorized officer of each of Quintel and {Confidential portion omitted and
filed separately with the Commission} (the "Written Instructions"); and
(iv) upon receipt of an order of a court of competent
jurisdiction directing the distribution of the Escrow Deposit or a portion
thereof (a "Court Order").
In the event the Escrow Agent receives the Default Notice, the Escrow Agent
shall make further distributions of the Escrow Deposit only in accordance with
subsections (iii) and (iv) of this Section 3.1. Within five (5) days after
receipt by the Escrow Agent of the Written Instructions or the Court Order, the
Escrow Agent shall deliver the Escrow Deposit or any designated portion thereof,
to the party or parties in the manner set forth in the Written Instructions or
in the Court Order, as the case may be.
3.2 Conflicting Notification. In the event of conflicting
instructions from a duly authorized officer of Quintel and {Confidential portion
omitted and filed separately with the Commission}, the Escrow Agent shall, in
its sole and absolute discretion: (i) continue to hold the portion of the Escrow
Deposit which is the subject of such conflicting instructions until it shall
receive a copy of a final and unappealable court order from a court of competent
jurisdiction (in form and substance satisfactory to the Escrow Agent), directing
it to deliver such portion of the Escrow Deposit in accordance with the terms of
such court order, in which event the Escrow Agent shall deliver such portion of
the Escrow Deposit in accordance therewith, or (ii) at any time after receipt of
such conflicting instructions, deliver such portion of the Escrow Deposit into
the control of a court of competent jurisdiction in New York County or in a
federal court sitting in New York County, in which event the Escrow Agent shall
have no further obligations or responsibilities with respect thereto.
2
<PAGE> 3
4. Fees and Expenses. The Escrow Agent shall not be entitled to any fee
for acting as such, but shall be reimbursed for all out-of-pocket expenses
incurred in connection herewith, including, without limitation, legal fees and
expenses, which shall be borne equally by Quintel and {Confidential portion
omitted and filed separately with the Commission}.
5. Responsibilities of Escrow Agent. The Escrow Agent's acceptance of
its duties under this Agreement is subject to the following terms and
conditions, which shall govern and control with respect to its rights, duties,
liabilities and immunities:
(a) The Escrow Agent makes no representations or warranties
and has no responsibilities as to the correctness of any statement contained
herein, and the Escrow Agent shall not be required to inquire as to the
performance of any obligation under any agreement or document other than this
Agreement, including, without limitation, the License Agreement or any
agreements or documents referred to herein or therein.
(b) The Escrow Agent shall be protected in acting upon any
written notice, request, waiver, consent, receipt or other paper or document
from any of the parties hereto, not only as to its due execution and the
validity and effectiveness of its provisions, but also as to the truth of any
information therein contained and what it purports to be. The Escrow Agent shall
be entitled to rely upon any certification, instruction, notice or other writing
delivered to it in compliance with the provisions of this Agreement without
being required to determine the authenticity or the correctness of any fact
stated therein or the propriety or validity thereof. The Escrow Agent may act or
fail to act in reliance upon any instrument comporting with the provisions of
this Agreement or signature believed by it, without independent investigation,
to be genuine and may assume that any person purporting to give notice or advice
or make any statement or execute any document in connection with the provisions
hereof has been duly authorized to do so.
(c) The sole duty of the Escrow Agent, other than as herein
specified, shall be to receive the Escrow Deposit and hold it subject to
release, in accordance with the written instructions of Quintel and
{Confidential portion omitted and filed separately with the Commission}, or as
otherwise provided for herein, and the Escrow Agent shall be under no duty to
determine whether {Confidential portion omitted and filed separately with the
Commission} is complying with requirements of the License Agreement or any other
agreement or document. No implied covenants or obligations shall be inferred
from this Agreement against the Escrow Agent, nor shall the Escrow Agent be
bound by the provisions of any agreement beyond the specific terms hereof. The
Escrow Agent shall have no duties or except those expressly set forth herein and
shall neither be obligated to recognize nor have any liability or responsibility
arising under any other agreement to which the Escrow Agent is not a party, even
though reference thereto may be made herein. The Escrow Agent shall not be under
any obligation to take any legal action in connection with this Agreement or
towards its enforcement or performance or to appear in, prosecute or defend any
action or legal proceeding in connection herewith.
3
<PAGE> 4
(d) The Escrow Agent does not have any interest in the Escrow
Deposit, but is serving as escrow holder only and has only possession thereof.
(e) The Escrow Agent shall not be liable for any error of
judgment, or for any mistake of fact or law, or for anything which it may do or
refrain from doing in connection herewith, except as may result from its own
gross negligence or willful misconduct.
(f) The Escrow Agent may consult with legal counsel selected
by it (including any member of its firm), and shall not be liable for any action
taken or omitted by it in accordance with the advice of such counsel.
(g) Quintel and {Confidential portion omitted and filed
separately with the Commission}, jointly and severally, agree to indemnify the
Escrow Agent against and save it harmless from any and all claims, liabilities,
costs, payments and expenses, including reasonable fees and expenses of counsel
paid to retained attorneys (who may be selected by the Escrow Agent), incurred
as a result of or in connection with the performance of this Agreement, except
as a result of the Escrow Agent's own gross negligence or willful misconduct.
(h) The duties of the Escrow Agent hereunder are solely
ministerial in nature, and the Escrow Agent shall not have any liability under,
or duty to inquire into, the terms and provisions of any other agreement or
document. The participation of Swidler Berlin Shereff Friedman, LLP as Escrow
Agent is being undertaken as an accommodation to the parties hereto. The parties
acknowledge that the Escrow Agent, from time to time, has served as counsel to
{Confidential portion omitted and filed separately with the Commission}
including, without limitation, in connection with the negotiation, execution and
delivery of the License Agreement and any other agreements or documents
contemplated thereby. Quintel expressly waives any conflict of interest arising
on account of such representation by the Escrow Agent and its service as the
Escrow Agent hereunder. The participation of Swidler Berlin Shereff Friedman,
LLP as Escrow Agent shall in no way hinder or limit the present or future
ability of Swidler Berlin Shereff Friedman, LLP to act as counsel to
{Confidential portion omitted and filed separately with the Commission} with
respect to any matter including, but not limited to, disputes with regard to
this Agreement; provided, however, that such representation shall not affect the
Escrow Agent's obligations hereunder and shall be at the sole cost and expense
of {Confidential portion omitted and filed separately with the Commission}.
(i) In the event any property held by the Escrow Agent
hereunder shall be attached, garnished or levied upon under an order of court,
or the delivery thereof shall be stayed or enjoined by any order of court, or
any other writ, order, judgment or decree shall be entered or issued by any
court affecting such property, or any part thereof, or any act of the Escrow
Agent, the Escrow Agent is hereby expressly authorized to use its sole
discretion to obey and comply with all writs, orders, judgments or decrees so
entered or issued, whether with or without jurisdiction, and in the event the
Escrow Agent obeys and complies with any such writ, order, judgment or decree,
it shall not be liable to any person, firm or corporation by reason of such
compliance notwithstanding the fact that
4
<PAGE> 5
such writ, order, judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated.
(j) The Escrow Agent may, at any time, resign and be
discharged from its duties hereunder by providing written notice to Quintel and
{Confidential portion omitted and filed separately with the Commission} and
depositing the Escrow Deposit with a successor escrow agent jointly designated
by Quintel and {Confidential portion omitted and filed separately with the
Commission}. Upon receipt of the Escrow Agent's resignation, Quintel and
{Confidential portion omitted and filed separately with the Commission} shall
promptly appoint a successor escrow agent. If no successor shall have been
appointed within ten (10) days after the mailing of notice of resignation by the
Escrow Agent, the Escrow Agent shall be entitled to deposit any or all of the
Escrow Deposit with a court of competent jurisdiction in New York County or in a
federal court sitting in New York County.
6. Amendment and Termination. This Agreement may be amended or
terminated only by a writing signed by the Escrow Agent, Quintel and
{Confidential portion omitted and filed separately with the Commission}. Once
the Escrow Deposit has been fully distributed, this Agreement shall terminate
and the Escrow Agent shall have no further duties or responsibilities hereunder;
provided, however, that the fees and expenses provisions of Section 4 and the
exculpatory and indemnification provisions of Section 5 shall survive
termination.
7. Interpleading. Notwithstanding Section 3 hereof or anything to the
contrary herein, at any time the Escrow Agent shall have the right, in its sole
discretion, to deposit the Escrow Deposit with a court of competent jurisdiction
in New York County or in a federal court sitting in New York County, in which
event the Escrow Agent shall give written notice of such deposit to each of the
other parties hereto. Upon such deposit, the Escrow Agent shall be relieved and
discharged of all further duties and responsibilities with respect to the Escrow
Deposit.
8. Notices. Any notice, demand, request, waiver, or other communication
under this Agreement shall be in writing (including facsimile or similar
writing) and shall be deemed to have been duly given (i) on the date of service
if personally served, (ii) on the third day after mailing if mailed to the party
to whom notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid, or (iii) on the date sent if sent by mail as
aforesaid on the same date (or at such other address or facsimile number for a
party as shall be specified by like notice):
If to Quintel, to:
Jeffrey Schwartz
Quintelcomm, Inc.
One Blue Hill Plaza
Pearl River, NY 10965
Fax no.: (914) 620-1717
5
<PAGE> 6
with a copy to:
Geoffrey A. Bass
Feder, Kaszovitz, Isaacson, Neber, Skala & Bass LLP
750 Lexington Avenue
New York, NY 10022
Fax no.: (212) 888-7776
If to {Confidential portion omitted and filed separately with
the Commission} to:
{Confidential portion omitted and filed separately with the
Commission}
If to the Escrow Agent, to:
Charles I. Weissman, Esq.
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022
Fax No.: (212) 758-9526
9. Miscellaneous. This Agreement shall be binding upon the successors
and assigns of the parties hereto and shall inure to the benefit of and be
enforceable by each of them and their respective permitted successors and
assigns. The headings in this Agreement are for purposes of reference only and
shall not limit or define the meaning hereof. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
shall constitute one instrument. In the event that any provision of this
Agreement shall prove to be invalid or unenforceable, such provision shall be
deemed to be severable from the other provisions of this Agreement which shall
remain binding on all parties hereto.
10. Governing Law; Consent to Jurisdiction. This Agreement shall be
construed in accordance with, and governed by, the internal laws of the State of
New York as applied to contracts made and to be performed entirely within the
State of New York. Any legal action, suit or proceeding arising out of or
relating to this Agreement may be instituted in any state or federal court
located within the County of New York, State of New York, and each party hereto
agrees not to assert, by way of motion, as a defense, or otherwise, in any such
action, suit or proceeding, any claim that it is not subject personally to the
jurisdiction of such court as an inconvenient forum, that the venue of the
action, suit or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court. Each party hereto further
irrevocably submits to the jurisdiction of any such court in any such action,
suit or proceeding.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
Quintelcomm, Inc.
By: /s/ Jeffrey Schwartz
------------------------------------
Name: Jeffrey
Title: Chairman
{Confidential portion omitted and filed
separately with the Commission}
Swidler Berlin Shereff Friedman, LLP
as Escrow Agent
/s/ Swidler Berlin Shereff Friedman, LLP
---------------------------------------------
7
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF QUINTEL COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
STATE OF INCORPORATION
SUBSIDIARY OR ORGANIZATION
---------- ----------------------
<C> <S> <C>
1. Calling Card Company, Inc. ................................. New York
2. New Lauderdale L.C. ........................................ Florida
3. N.L. Corp. ................................................. Delaware
4. Creative Direct Marketing, Inc. ............................ Delaware
5. Quintel Hair Products, Inc. ................................ Delaware
6. Quintel Products, Inc. ..................................... Delaware
7. Quintelco., Inc. ........................................... Delaware
8. Quintel Psychic Zone, Inc. ................................. Delaware
9. Quintel LaBuick Products, LLC............................... Delaware
10. Quintel Cellular, LLC....................................... Delaware
11. Quintel Comm., Inc.......................................... Delaware
12. Quintel Financial Information Services, Inc................. Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE QUINTEL
ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENT AS
PRESENTED IN THE COMPANY'S FORM 10K FOR THE YEAR ENDED NOVEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 2,123,630
<SECURITIES> 15,019,233
<RECEIVABLES> 31,230,579
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 63,269,243
<PP&E> 1,661,429
<DEPRECIATION> 517,528
<TOTAL-ASSETS> 64,413,144
<CURRENT-LIABILITIES> 27,731,000
<BONDS> 0
0
0
<COMMON> 16,679
<OTHER-SE> 36,665,465
<TOTAL-LIABILITY-AND-EQUITY> 64,413,144
<SALES> 94,690,251
<TOTAL-REVENUES> 94,690,251
<CGS> 80,037,115
<TOTAL-COSTS> 80,037,115
<OTHER-EXPENSES> 34,049,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,218
<INCOME-PRETAX> (17,370,082)
<INCOME-TAX> (417,464)
<INCOME-CONTINUING> (19,396,299)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,952,618)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> (1.00)
</TABLE>
