<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GROUP LONG DISTANCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 4813 65-0213198
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
1451 WEST CYPRESS CREEK ROAD, SUITE 200
FORT LAUDERDALE, FLORIDA 33309
(954) 771-9696
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GERALD M. DUNNE, JR., PRESIDENT
GROUP LONG DISTANCE, INC.
1451 WEST CYPRESS CREEK ROAD, SUITE 200
FORT LAUDERDALE, FLORIDA 33309
(954) 771-9696
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Please send a copy of all communications to:
<TABLE>
<S> <C>
LAWRENCE B. FISHER, ESQ. ROBERT J. MITTMAN, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP TENZER GREENBLATT LLP
666 FIFTH AVENUE 405 LEXINGTON AVENUE
NEW YORK, NEW YORK 10103 NEW YORK, NEW YORK 10174
(212) 506-5000 (212) 885-5000
(212) 506-5151 (FAX) (212) 885-5001 (FAX)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. /x/
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS AMOUNT TO BE PER SHARE OF OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED COMMON STOCK(1) PRICE PER UNIT(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value (2).................... 1,437,500 $5.625 $ 8,085,938 $ 2450.28
Common Stock, no par value (1)(3)(4).............. 300,000 5.625 1,687,500 511.36
Common Stock, no par value (1)(3)(4).............. 50,000 5.625 281,250 85.23
Representative's Warrants......................... -- .0001 -- --
Common Stock, par value (3)(5).................... 125,000 6.19 773,750 234.47
Total..................................................................................................... $3,281.34
</TABLE>
(1) Pursuant to Rule 457(c) under the Securities Act, the maximum offering price
of the Common Stock has been calculated on the basis of the closing price
per share on December 9, 1996 of Common Stock as reported on the OTC.
(2) Includes shares of Common Stock included in the underwriters' over-allotment
option.
(3) Pursuant to Rule 416, this Registration Statement also covers such
indeterminable additional shares of Common Stock as may become issuable as a
result of anti-dilution provisions.
(4) Issuable upon exercise of Warrants issued to a certain lender that provided
financing to the Company.
(5) Reserved for issuance upon exercise of the Representative's Warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
GROUP LONG DISTANCE, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
Item and Caption in Form SB-2 Location in Prospectus
- ----------------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus........................... Forepart of the Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors; Selected Financial
Data
4. Use of Proceeds...................................... Use of Proceeds; Capitalization
5. Determination of Offering Price...................... Risk Factors; Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Concurrent Offering
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................ Management; Principal Stockholders
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders
12. Description of Securities............................ Description of Capital Stock
13. Interests of Named Experts and Counsel............... Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Management
15. Organization Within Last Five Years.................. The Company; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Certain Transactions
16. Description of Business.............................. Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.............................. Business
19. Certain Relationships and Related Transactions....... Certain Transactions; Principal Stockholders
20. Market for Common Equity and Related Stockholder
Matters............................................ Outside Front Cover Page of Prospectus; Prospectus
Summary; Price Range of Common Stock; Dividend
Policy; Dilution; Description of Capital Stock;
Shares Eligible for Future Sale
21. Executive Compensation............................... Management
22. Consolidated Financial Statements.................... Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Not Applicable
</TABLE>
i
<PAGE>
EXPLANATORY NOTE
This registration statement (the 'Registration Statement') contains two
prospectuses: one related to the offering of 1,250,000 shares of Common Stock
(the 'Common Stock') by Group Long Distance, Inc. (the 'Company') (the
'Prospectus'); and one relating to the offering of 350,000 shares of Common
Stock issuable upon the exercise of warrants (the 'Selling Shareholder
Prospectus'). Following the Prospectus are certain substitute pages of the
Selling Shareholder Prospectus, including alternate front outside and back
outside cover pages, an alternate 'The Offering' section of the 'Prospectus
Summary' and sections entitled 'Concurrent Offering' and 'Plan of Distribution.'
Each of the alternate pages for the Selling Shareholder Prospectus included
herein is labeled 'Alternate Page for Selling Shareholder Prospectus' or
'Additional Page for Selling Shareholder Prospectus.' All other sections of the
Prospectus, other than 'Underwriting' and 'Concurrent Offering,' are to be used
in the Selling Shareholder Prospectus. In addition, cross-references in the
Prospectus will be adjusted in the Selling Shareholder Prospectus to refer to
the appropriate sections.
ii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
SUBJECT TO COMPLETION DATED JANUARY , 1997
PROSPECTUS
[LOGO] Group Long Distance, Inc.
1,250,000 SHARES OF COMMON STOCK
------------------------
Prior to this offering, there has been a limited trading market
for the Common Stock, and there can be no assurance that any regular market will
develop. The Common Stock is traded on the OTC Bulletin Board under the symbol
'GLDT.' Application has been made to quote the Common Stock on the Nasdaq
SmallCap Market ('Nasdaq') under the symbol 'GLDI.' The last reported sale price
for the Common Stock on December 9, 1996, was $ . See 'Price Range of Common
Stock.' The offering price of the Common Stock will be determined pursuant to
negotiations between the Company and LT Lawrence & Co., Inc. (the
'Representative') and will not necessarily relate to the Company's book
value or any other established criteria of value. For a discussion of the
factors considered in determining the offering price, see 'Underwriting.'
Concurrently with this offering, 350,000 shares of Common Stock issuable
upon exercise of warrants are being registered at the Company's expense for sale
by a selling stockholder (the 'Selling Stockholder') pursuant to a separate
prospectus. The shares offered by the Selling Stockholder are not part of the
underwritten offering and may not be offered or sold prior to six months from
the date of this Prospectus. See 'Concurrent Offering.'
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE 'RISK FACTORS' BEGINNING ON PAGE 7 AND
'DILUTION.'
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
(1) In addition, the Company has agreed to pay to the Representative a 3%
nonaccountable expense allowance and to sell to the Representative warrants
(the 'Representative's Warrants') to purchase 125,000 shares of Common
Stock. The Company has also agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See 'Underwriting.'
(2) Before deducting expenses, including the nonaccountable expense allowance in
the amount of $ ($ , if the Underwriters' over-allotment option
is exercised in full), estimated at $ , payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an aggregate of
187,500 additional shares of Common Stock on the same terms as set forth
above, solely for the purpose of covering over-allotments, if any. If the
Underwriters' over-allotment option is exercised in full, the total price to
the public, underwriting discounts and commissions and proceeds to the
Company will be $ , $ and $ , respectively. See
'Underwriting.'
------------------------
The shares of Common Stock are being offered subject to prior sale, when,
as and if delivered to and accepted by the several Underwriters and subject to
approval of legal matters by counsel and to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify this offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the shares of Common Stock offered hereby will be made
against payment therefor at the offices of the Representative, 3 New York Plaza,
New York, New York 10004, on or about , 1997.
------------------------
LT LAWRENCE & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option or the Representative's Warrants. See 'Underwriting.'
THE COMPANY
Group Long Distance, Inc. (the 'Company') provides long distance telephone
and other telecommunications services and products to approximately 34,700
customers as of September 30, 1996. The Company's customers are primarily small
and medium-sized businesses with average monthly billings of $5,000 or less
located principally in the Southeastern United States. In addition to its basic
'1 plus' and '800' long distance services, the Company offers local, Internet,
international call-back, e-mail and data services and prepaid long distance
calling cards. As of September 30, 1996, the Company marketed its services and
products through 15 direct sales personnel, 4 in-house telemarketers, 57
independent distributors and independent agents and telemarketers. The Company's
sales increased by 30% to $12.4 million for the fiscal year ended April 30, 1996
from the prior fiscal year and increased by 79% to $5.7 million for the three
months ended July 31, 1996 from the corresponding prior period.
The Company has entered into agreements with long distance carriers and
other service providers, including Tel-Save, Inc. ('Tel-Save'), WorldCom/LDDS
Inc. ('WorldCom'), Intermedia Communications Inc. ('ICI') and UUNET
Technologies, Inc. ('UUNET'), to provide its customers with service rates which
the Company believes are generally less than those that can be obtained by its
customers directly from carriers. For the three months ended July 31, 1996,
approximately 74% of the Company's sales were generated by calls and services
carried on the AT&T network through Tel-Save utilizing AT&T's operator and
billing services. The Company has commenced placing new customers on Tel-Save's
newly acquired network of state-of-the-art AT&T 5 ESS 2000 digital switches,
which the Company believes will shorten the Company's provisioning (activation
of new customers) and billing and collection cycles.
In July 1996, the Company acquired all of the issued and outstanding
capital stock of Adventures-in-Telecom, Inc. ('AIT') in consideration of
$5,271,230 in cash and the issuance of 200,000 shares of Common Stock (the 'AIT
Acquisition'). The acquired assets consisted of a customer base of approximately
30,000 small businesses. In connection with the AIT Acquisition, the Company
entered into an agreement with Tel-Save pursuant to which the Company borrowed
$5,521,230 from Tel-Save primarily to finance the purchase price of the
acquisition (the 'Acquisition Loan'). The Company intends to use a portion of
the proceeds of this offering to repay $3.5 million of the Acquisition Loan. See
'Use of Proceeds.'
The domestic long distance market in the United States has experienced an
annual revenue growth rate of approximately 7.4% since 1984. The Company
believes that this growth is a result of increased usage resulting from
declining per minute costs, increased data transmission needs of customers and
businesses and the popularization of products such as facsimile machines, '800'
services and Internet access. The Company expects these factors to continue to
result in increased usage of long distance services in the future. In addition,
the Company believes that the Southeastern United States is continuing to
experience a high level of economic and population growth which the Company
anticipates will result in an overall increase in demand for long distance and
telecommunications services in this area.
The Company intends to actively pursue a strategy of continued growth and
will seek to expand the distribution of its services and products and maximize
penetration of new and existing geographic markets. Key elements of the
Company's growth strategy include:
o Expand Distribution Channels. The Company intends to expand its
marketing activities by adding up to 15 direct sales personnel and 6
in-house telemarketers as well as independent agents, distributors
and telemarketers. By expanding these distribution channels, the
Company will seek to maximize exposure of its services and products.
3
<PAGE>
o Emphasize Product and Service 'Bundling.' The Company has
increasingly emphasized bundling of its basic long distance services
with other services and products, such as local telecommunications
access, Internet access and fax broadcast services. The Company
believes that if it is successful in bundling services, it may
increase revenue per customer and decrease customer attrition. The
Company also believes that such bundling will be attractive to small
businesses seeking to obtain a variety of services from one
provider.
o Develop Strategic Marketing Relationships. The Company intends to
continue to develop strategic marketing relationships with entities
such as Scrip Plus Inc. ('Scrip'), a large fundraising and
educational consulting company, and with retail outlets to expand
distribution of its basic '1 plus' and '800' services as well as its
prepaid calling cards.
o Improve Operating and Network Efficiencies. The Company has agreed
to place new customers' domestic switched, '1 plus' and '800'
services on Tel-Save's One Better Network ('OBN'), which will
utilize the new AT&T 5 ESS 2000 digital switches. The Company
believes that the increased efficiency of these switches will
shorten the Company's provisioning, billing and collection cycles.
o Expand Through Acquisitions. The Company operates in a highly
fragmented segment of the telecommunications industry and regularly
evaluates possible acquisition opportunities. The Company may seek
to acquire smaller resellers and customer bases in order to expand
the distribution of its products and services and maximize
penetration in new and existing geographic markets. The Company
believes its existing infrastructure, including customer service,
collections, provisioning and carrier agreements, positions the
Company to acquire customer bases with little corresponding increase
in overhead costs.
Although the Company has identified potential areas for expansion, there
can be no assurance that the Company will be able to successfully expand its
operations.
The Company was incorporated under the laws of the State of Florida in
September 1995. The address of the Company's principal office is 1451 West
Cypress Creek Road, Suite 200, Fort Lauderdale, Florida 33309. The Company's
telephone number is (954) 771-9696. Unless otherwise indicated, all references
in this Prospectus to the Company include Group Long Distance, Inc., the
Company's predecessor, and the Company's wholly-owned subsidiaries. See
'Business--General.'
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered................................ 1,250,000 shares
Common Stock outstanding after the offering....... 3,507,348 shares(1)
Use of Proceeds................................... The Company Stock intends to use the net proceeds of this offering
for the partial repayment of the Acquisition Loan; expansion
of sales and marketing activities; and the balance for working
capital and general corporate purposes, including potential
acquisitions of resellers and customer bases. See 'Use of
Proceeds.'
Risk Factors...................................... The Common Stock offered hereby involves a high degree of risk and
immediate and substantial dilution. See 'Risk Factors' and
'Dilution.'
Proposed Nasdaq Symbol(2)
Common Stock.................................... GLDI
</TABLE>
- ------------------
(1) Does not include: (i) 350,000 shares of Common Stock issuable upon exercise
of outstanding warrants at a weighted average exercise price of $5.64 per
share; (ii) 76,216 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $2.23 per share;
(iii) 438,000 shares of Common Stock issuable upon exercise of options
granted, subject to shareholder approval, under the Company's stock option
plan (the 'Stock Option Plan') at an exercise price of $5.0625 per share;
and (iv) 162,000 shares reserved for the exercise of options available for
future grant under the Stock Option Plan. See 'Management--Stock Option
Plan.'
(2) The Common Stock is traded on the OTC Bulletin Board under the symbol
'GLDT.' In connection with this offering, application has been made to list
the Common Stock on Nasdaq. See 'Price Range of Common Stock.'
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY
FISCAL YEAR ENDED APRIL 30, 31,
------------------------------------------------------ ------------------------
1996 1996
-------------------------- ----------
PRO
1994 1995 ACTUAL(1) FORMA(2) 1995 ACTUAL(1)
---------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................... $7,784,112 $9,538,095 $12,364,643 $36,867,160 $3,190,144 $5,712,188
Cost of sales........................... 5,086,764 6,992,817 9,009,131 26,615,705 2,395,125 4,033,142
---------- ---------- ----------- ----------- ---------- ----------
Gross profit............................ 2,697,348 2,545,278 3,355,512 10,251,455 795,019 1,679,046
Selling, general and administrative..... 2,336,048 2,074,127 2,835,316 4,893,881 688,768 1,094,972
Depreciation and amortization........... 4,611 16,070 133,281 1,924,581 8,480 375,290
Interest expense, net................... 20,441 22,177 19,050 361,050 2,895 81,226
Earnings before income taxes............ 336,248 432,904 367,865 3,071,943 94,876 127,558
Income taxes............................ 136,653 151,000 169,900 1,362,202 34,000 61,993
Income before extraordinary item........ 199,595 281,904 197,965 1,709,741 60,876 65,565
Extraordinary item (3).................. 517,653 -- -- -- -- --
Net income.............................. $ 717,248 $ 281,904 $ 197,965 $ 1,709,741 $ 60,876 $ 65,565
---------- ---------- ----------- ----------- ---------- ----------
---------- ---------- ----------- ----------- ---------- ----------
Net income per share
Before extraordinary item............. $ .12 $ .15 $ .10 $ .77 $ .03 $ .03
Extraordinary item.................... .30 -- -- -- -- --
Total per share....................... $ .42 $ .15 $ .10 $ .77 $ .03 $ .03
---------- ---------- ----------- ----------- ---------- ----------
---------- ---------- ----------- ----------- ---------- ----------
Weighted average shares outstanding
(4)................................... 1,693,995 1,840,250 2,018,474 2,218,474 2,035,000 2,076,914
---------- ---------- ----------- ----------- ---------- ----------
---------- ---------- ----------- ----------- ---------- ----------
OTHER OPERATING DATA:
Number of customers at period end....... 4,704 9,021 11,991 41,000 10,000 34,700
EBITDA (5).............................. $ 361,300 $ 471,151 $ 520,196 $ 5,357,574 $ 106,251 $ 584,074
<CAPTION>
PRO
FORMA(2)
----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................... $7,262,076
Cost of sales........................... 5,153,587
----------
Gross profit............................ 2,108,489
Selling, general and administrative..... 1,265,829
Depreciation and amortization........... 524,565
Interest expense, net................... 109,465
Earnings before income taxes............ 208,630
Income taxes............................ 107,065
Income before extraordinary item........ 101,565
Extraordinary item (3).................. --
Net income.............................. $ 101,565
----------
----------
Net income per share
Before extraordinary item............. $ .05
Extraordinary item.................... --
Total per share....................... $ .05
----------
----------
Weighted average shares outstanding
(4)................................... 2,257,348
----------
----------
OTHER OPERATING DATA:
Number of customers at period end....... 34,700
EBITDA (5).............................. $ 842,660
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996
APRIL 30, ---------------------------
-------------------------------------- AS
1994 1995 1996 ACTUAL(1) ADJUSTED(6)
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ (8,779) $ 7,772 $ (851,072) $ (5,265,434)
Total assets.............................................. 1,400,570 1,849,880 2,740,411 10,850,869
Short-term debt........................................... 606,867 553,633 664,187 6,826,361
Long term debt............................................ 375,417 160,000 98,727 189,153
Stockholders' equity (deficit)............................ $ (375,892) $ (13,988) $ 188,641 $ 1,654,206
</TABLE>
- ------------------
(1) Includes the operations of AIT for June and July 1996.
(2) The unaudited pro forma consolidated financial statements have been prepared
to give effect to the AIT Acquisition as if it had occurred at the beginning
of each of the periods presented. The pro forma adjustments are based upon
preliminary estimates, available information and certain assumptions that
management deems appropriate. The unaudited pro forma consolidated financial
data presented herein should not be viewed as indicative of the results the
Company would have obtained had such events occurred at the beginning of the
period, as assumed, or of the future results of the Company. See 'Pro Forma
Statement of Operations.'
(3) This extraordinary item relates to settlement agreements with AT&T, which
resulted in a reduction in carrier trade payables and a corresponding gain
after taxes of $517,653. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
(4) See Note B to Notes to Financial Statements.
(5) As used herein, 'EBITDA' is defined as net income or loss plus depreciation
expense, amortization expense, interest expense, income taxes and other
non-cash charges, minus extraordinary income and gains and non-cash income,
if any, and plus extraordinary losses, if any.
(6) Adjusted to reflect the sale of the shares of Common Stock offered hereby at
an assumed public offering price of $ per share (after deducting estimated
offering expenses and underwriting discounts and commissions), and the
initial application of the estimated net proceeds therefrom, including the
partial repayment of the Acquisition Loan. See 'Use of Proceeds' and
'Capitalization.'
6
<PAGE>
RISK FACTORS
The Securities offered hereby involve a high degree of risk. Each
prospective investor should carefully consider the following risk factors before
making an investment decision.
Limited Profitability; Future Operating Results. The Company operates on a
low-margin basis and has achieved limited profitability. The Company's operating
expenses have increased and can be expected to increase significantly in
connection with the Company's expanded marketing and sales efforts (which will
require the Company to make significant up-front expenditures to add new
customers, finance receivables and pay salaries of additional personnel and
sales incentives to independent distributors, agents and telemarketers).
Accordingly, the Company's future profitability will depend upon corresponding
increases in revenues from operations. Future events, including unanticipated
expenses, increased price competition, uncollectible accounts, customer
attrition, service interruptions and changes in government regulation, could
have a material adverse effect on the Company's operating results. There can be
no assurance that the Company's rate of revenue growth will continue or that the
Company's future operations will be profitable. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and Financial
Statements.
Capital Requirements; Possible Need For Additional Financing. The
Company's capital requirements have been and will continue to be significant.
The Company is dependent on the proceeds of this offering or other financing to
repay $3.5 million of the Acquisition Loan, fund its cash requirements necessary
to finance its anticipated growth in accounts receivable and reduce its working
capital deficit. At July 31, 1996, the Company had a working capital deficit of
$5,265,434. Based on the Company's currently proposed plans and assumptions
relating to its operations, the Company believes that the proceeds of this
offering, together with projected cash flow from operations, will be sufficient
to satisfy its contemplated cash requirements for at least twelve months
following the consummation of this offering. In the event that the Company's
plans change, its assumptions change or prove to be inaccurate or if the
proceeds of this offering or projected cash flow prove to be insufficient to
fund operations (due to unanticipated expenses, operating difficulties or
otherwise), the Company could be required to seek additional financing or
curtail its expansion activities. While the Company has relied on advances from
Tel-Save in the past, the Company has no current arrangements with respect to,
or sources of, additional financing and Tel-Save has not committed to provide
any portion of the Company's future financing requirements. There can be no
assurance that any such additional financing will be available to the Company on
commercially reasonable terms, or at all. In light of the Company's limited
resources, its anticipated expenses and the competitive environment in which it
operates, any inability to obtain additional financing, if required, would have
a material adverse effect on the Company. See 'Use of Proceeds' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
Dependence on Third-Party Carriers; Possible Service Interruptions and
Equipment Failures. The Company does not own or operate any transmission
facilities and is dependent on a limited number of long distance carriers and
numerous regional and local telephone companies to provide access to long
distance telephone and Internet service on a cost-effective basis. The Company
has entered into agreements with long distance carriers to provide access to
telephone lines and transmission facilities necessary to transmit customer
calls. For the year ended April 30, 1996, long distance calls carried by
Tel-Save (through AT&T) and WorldCom accounted for approximately 61% and 31%,
respectively, of the Company's revenues. For the three months ended July 31,
1996, long distance calls carried by Tel-Save (through AT&T), WorldCom and ICI
accounted for approximately 74%, 23% and 1%, respectively, of the Company's
revenues. The Company's agreement with Tel-Save requires the Company, subject to
certain exceptions, to provide domestic switched, '1 plus' and '800' services to
all of the Company's new customers through Tel-Save's newly acquired AT&T
digital switching equipment, and grants Tel-Save the right to reprovision
certain of the Company's existing customers on its new network. Such
arrangements will significantly increase the Company's dependence on Tel-Save
for the transmission of customer calls. There can be no assurance that the
transition of the Company's customer base to Tel-Save's network will be
successful or that the Company will not be subject to material delays or other
difficulties in connection with such transition. Poor performance by Tel-Save or
a decline in Tel-Save's economic prospects could have an adverse affect on the
Company's future operating results. Although the Company believes that it
currently has sufficient access to transmission facilities and long distance
networks on favorable terms and believes that its relationships with its
carriers are satisfactory, any increase in the rates charged by carriers would
materially adversely affect the Company's operating margins. Failure to obtain
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continuing access to such facilities and networks would also have a material
adverse effect on the Company, including possibly requiring the Company to
significantly curtail its operations. In addition, the Company's operations
require that its carrier switching facilities and long distance networks operate
on a continuous basis. There can be no assurance that third-party switching
facilities and long distance networks will not from time to time experience
service interruptions or equipment failures or that Tel-Save's new switching
equipment, which employs new technologies that have not been used extensively,
will prove to be reliable in widespread commercial use. Service interruptions
and equipment failures resulting in material delays would adversely affect
consumer confidence as well as the Company's business operations and reputation.
See 'Business--Long Distance Service Providers.'
Dependence On Timely and Accurate Call Data Records; Possible Billing and
Payment Disputes. The Company is dependent upon the timely receipt and accuracy
of call data records provided to it by its carriers. There can be no assurance
that accurate information will consistently be provided by carriers or that such
information will be provided on a timely basis. Failure by carriers to provide
timely and accurate call detail would increase the length of the Company's
billing and collection cycles and adversely affect its operating results. Due
principally to numerous billing rates and discounts which must be applied by
carriers to the calls completed by the Company's customers and the timing of
customer addition and termination, the Company has had disagreements with its
carriers concerning the amounts invoiced for its customers' traffic. The Company
pays its long distance carriers according to the Company's calculation of the
charges applicable to the calls attributed to the Company based on computer tape
records of all such calls provided by carriers which may not always reflect
current rates. Accordingly, a carrier may consider the Company to be in arrears
in its payments until the amount in dispute is resolved. In particular, the
Company has had disputes with AT&T which resulted in a settlement pursuant to
which the Company's indebtedness to such carrier was reduced and committed to a
payment schedule. The Company is in default under its payment obligations to
AT&T and, as of September 30, 1996, owed AT&T approximately $548,000. The
Company unsuccessfully attempted to negotiate a new payment schedule or
settlement with AT&T and there can be no assurance that AT&T will not seek to
enforce its rights against the Company. In June 1996, the Company also converted
certain accounts payable to WorldCom into a promissory note in the principal
amount of $566,917 as a result of untimely billing and provisioning by WorldCom.
There can be no assurance that future disputes with carriers will not arise or
that such disputes will be resolved in a manner favorable to the Company. In
addition, the Company is required to maintain sophisticated billing and
reporting systems to service the large volume of calls placed over the WorldCom,
ICI and other long distance networks. There can be no assurance that the
Company's billing and management systems will be sufficient to provide the
Company with accurate and efficient billing and order processing capabilities.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' 'Business--Long Distance Service Providers' and '--Operations and
Customer Billing Service.'
Outstanding Accounts Receivable; Collection and Credit Risks. The
Company's accounts receivable, less allowance for doubtful accounts, were
$2,960,402 at July 31, 1996 as compared to $1,201,710 at April 30, 1996. Of the
Company's accounts receivable at July 31, 1996, approximately $369,000 were more
than 90 days outstanding. Accounts receivable averaged 45 days of sales for the
year ended April 30, 1996, as compared to 48 days through July 31, 1996.
Increased accounts receivable days outstanding could require the Company to use
substantial working capital to finance receivables as it seeks to expand its
level of operations. At July 31, 1996, the Company's allowance for doubtful
accounts was $512,000, as compared to $358,000 at April 30, 1996, which the
Company believes is currently adequate for the size and nature of its
receivables. Nevertheless, delays in collection or uncollectibility of accounts
receivable could have a material adverse effect on the Company's liquidity and
working capital position and could require the Company to increase its allowance
for doubtful accounts. Furthermore, as the Company seeks to expand its customer
base through internal growth and potential acquisitions, the Company will be
required to continually evaluate and assess the creditworthiness of new
customers. Any inability to properly assess potential credit risks could have a
material adverse effect on the Company's operating margins. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
Minimum Volume Commitments. The Company has entered into multiple-year
service agreements with Tel-Save, WorldCom and ICI and short-term agreements
with other suppliers of long distance telecommunication services. To obtain
favorable forward pricing from its underlying carriers, the Company has
committed to purchase certain minimum volumes of long distance services during
stated periods. For the year ended April 30,
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1996 and the three months ended July 31, 1996, these commitments aggregated
approximately $3,200,000 and $1,347,500, respectively. The Company's agreement
with Tel-Save currently requires the Company to commit to a minimum volume of
$100,000 per month or pay the amount billed plus a surcharge of $5,000 for such
month. Such minimum purchase commitment will increase to $3,000,000 per month
commencing November 1, 1997. Such commitment, coupled with the Company's
agreement to provide domestic switched, '1 plus' and '800 services' to new
customers through Tel-Save, could adversely affect the Company's ability to
satisfy minimum volume purchase commitments to other carriers in the future. The
Company's agreement with WorldCom requires the Company to pay the greater of the
actual amount billed or a minimum of $500,000 per month, increasing to $750,000
per month in April 1997 and $1,000,000 per month in August 1997. The Company's
agreement with ICI requires the Company to purchase a minimum volume of $200,000
per month through October 1996, increasing to $225,000 per month in November
1996 and $250,000 by December 1996. The Company has in the past obtained relief
from its carriers for shortfalls in meeting its volume commitments. There can be
no assurance that the Company will continue to satisfy minimum volume
commitments in the future or that its carriers will provide relief with respect
to any shortfalls. Failure to satisfy such commitments could have a material
adverse effect on the Company's operating margins and results of operations. In
addition, because the Company has commitments to purchase fixed volumes of use
at predetermined rates, if carriers were to lower the rates made available to
the Company's target market without a corresponding reduction in the Company's
rates, the Company could be materially adversely affected. See 'Business--Long
Distance Service Providers.'
Customer Attrition. The Company's operating results are significantly
affected by customer attrition rates. Customers are not obligated to purchase
any minimum usage and may discontinue service without penalty at any time. There
can be no assurance that customers will continue to purchase long distance or
other services through the Company in the future or that the Company will not be
subject to increased customer attrition rates. The Company believes that a high
level of customer attrition in the industry is primarily a result of national
advertising campaigns, telemarketing programs and customer incentives provided
by major competitors, as well as the termination of service for non-payment. The
Company typically experiences higher customer attrition rates during the first
year following the acquisition of a customer base from other resellers. The
Company believes that this is due to increased customer exposure to competitors
during the transition to the Company's services. The Company recently acquired a
customer base from AIT and recorded an asset of approximately $6.6 million at
July 31, 1996, of which approximately $5.9 million (net of receivables and
marketing advances to agents) is being amortized at the rate of 30%, 25%, 20%,
15% and 10%, respectively, over a five-year period. The Company experienced an
attrition rate of approximately 25% during the three month period ended August
31, 1996 relating to this customer base. There can be no assurance that the
assumed attrition rates underlying the Company's amortization schedule will
prove to be accurate or that customer attrition rates will not increase in the
future. Any significant increase in customer attrition rates resulting in
increased amortization expense could have a material adverse effect on the
Company's future operating results. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
Competition; Evolving Industry Standards, Technological Trends and Changing
Regulation. The Company faces intense competition in the marketing and sale of
its services and products. The Company's long distance, prepaid long distance
calling cards, Internet and other services and products compete for consumer
recognition with other long distance, calling card, Internet and other services
and products which have achieved significant international, national and
regional consumer loyalty. Many of these services and products are marketed by
companies which are well-established, have reputations for success in the
development and sale of services and products and have significantly greater
financial, marketing, distribution, personnel and other resources than the
Company. These resources 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
and products. Certain of these competitors, including AT&T, MCI
Telecommunications Corporation ('MCI') and Sprint Corporation ('Sprint'),
dominate the industry and have the financial resources to enable them to
withstand substantial price competition which has continued to increase. These
and other large telephone companies have also entered or have announced their
intention to enter into the prepaid phone card and Internet segments of the
telecommunications industry. Because the reseller segment of the
telecommunications industry has no substantial barriers to entry, competition
from smaller resellers in the Company's target markets is also expected to
continue to increase significantly. The markets for telecommunications services
and products are also characterized by rapidly changing technology and evolving
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industry standards, often resulting in product obsolescence or short product
life cycles. The proliferation of new telecommunications technologies, including
personal communication services, cellular telephone services and products and
prepaid phone cards employing alternative 'smart' card technologies, may reduce
demand for traditional land-line long distance telephone services generally and
the Company's services in particular. The Company's success will depend on the
Company's ability to anticipate and respond to these and other factors affecting
the industry, including changes in customer preferences, business and
demographic trends, unfavorable general economic conditions and discount pricing
strategies by competitors.
Recent regulatory changes may also result in significantly increased
competition. In October 1995, the FCC terminated AT&T's designation as a
dominant carrier, which will make it easier for AT&T to compete directly with
the Company for low volume commercial long distance customers. Also, the
recently adopted 1996 Telecommunications Act is designed to introduce increased
competition in domestic telecommunications markets by facilitating the entry of
any entity (including cable television companies and utilities) into both the
long distance and local telecommunications markets. Consequently, such act
increases the potential for increased competition by permitting long distance
and regional carriers to compete in local markets and well-established and
well-capitalized Regional Bell Operating Companies and local exchange carriers
to compete directly against the Company in long distance markets. There can be
no assurance that the Company will be able to continue to compete successfully,
particularly as it seeks to enter into new markets and market new services and
products. See 'Business--Competition' and '--Government Regulation.'
Regulatory Factors. Long distance telecommunications services are subject
to regulation by the Federal Communications Commission (the 'FCC') and by state
regulatory authorities. Among other things, these regulatory authorities impose
regulations governing the rates, terms and conditions for interstate and
intrastate telecommunications services and require the Company to file tariffs
for interstate and international service with the FCC and obtain approval for
intrastate service provided in most of the states in which it markets its
services. Changes in existing laws and regulations, particularly regulations
resulting in increased price competition, may have a significant impact on the
Company's business activities and on the Company's future operating results. The
Company provides long distance service in all or some portions of 50 states for
which the Company has filed a tariff with FCC. The Company is authorized,
pursuant to state regulations, certifications, tariffs or notifications or on an
unregulated basis, to provide intrastate service in 39 states and is in the
process of obtaining authorization in 6 additional states. There can be no
assurance that the Company will be able to obtain the required licenses or
approvals in the future or that the FCC or state regulatory authorities will not
require the Company to comply with more stringent regulatory requirements. The
Company is also subject to FCC and Federal Trade Commission regulation and other
federal and state laws relating to the promotion, advertising, telemarketing and
direct marketing of its services and products. Certain marketing practices,
including the means to convert a customer's long distance telephone service from
one carrier to another, have recently been subject to increased federal and
state regulatory review. Increased scrutiny could adversely affect proposed
telemarketing activities, the transitioning of customers and the acquisition of
new customer bases. Furthermore, amendments to existing statutes and regulations
or adoption of new statutes and regulations could require the Company to alter
methods of operation or obtain additional approvals. There can be no assurance
that the Company will be able to comply with applicable laws, regulations and
licensing requirements. Failure to comply with applicable laws, regulations and
licensing requirements could result in civil penalties, including substantial
fines, which could have a material adverse effect on the Company.
The tariffs of non-dominant carriers, such as the Company, are presumed
lawful and are seldom contested, although those tariffs and the rates and
charges they specify are subject to FCC review. Prior to a January 1995 court
decision, domestic non-dominant carriers were allowed by the FCC to file tariffs
with a 'reasonable range of rates' instead of the detailed schedules of
individual charges required of dominant carriers. After such court decision,
which required detailed rate schedules for domestic offerings in their tariffs,
the Company and most of its competitors relied on the FCC's past practice of
allowing relaxed tariff filing requirements for non-dominant carriers and did
not maintain the required detailed rate schedules. Until the two-year statute of
limitations expires, the Company could be held liable for damages for its
failure to do so, although it believes that such an outcome is highly unlikely
and would not have an adverse effect on it. In order to recover damages, a
competing telecommunications provider would need to demonstrate that the
Company's failure to file detailed rate schedules caused that other service
provider to lose customers and that the Company should be held liable for the
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damages. The possible extent of such damages, if any, cannot be determined by
the Company. See 'Business--Government Regulation.'
Risks Associated with Rapid Expansion and Acquisitions. The Company's
recent expansion has placed and is expected to continue to place a strain on its
management, administrative, operational, financial and other resources. The
Company's continued expansion will be largely dependent upon its ability to
maintain its operating margins, obtain competitive telecommunications network
services on a timely basis and on commercially reasonable terms, hire and retain
skilled management, marketing and other personnel and successfully manage growth
(including monitoring operations, controlling costs and maintaining effective
management and credit controls). The Company has limited experience in
effectuating rapid expansion and in managing a broader range of new services and
operations which are geographically dispersed. There can be no assurance that
the Company will be able to successfully expand its operations or manage growth.
To date, the Company's customer base has been concentrated in the Southeastern
United States. The Company's growth prospects will be significantly affected by
its ability to achieve greater penetration in new and existing geographic areas
and to acquire additional resellers and customer bases. The Company's prospects
could be adversely affected by a decline in the telecommunications industry
generally or in particular geographic markets or related market segments, which
could result in reduction or deferral of expenditures by prospective customers.
While the Company regularly evaluates possible acquisition opportunities, as of
the date of this Prospectus, the Company has no plans, agreements, commitments,
understandings or arrangements with respect to any such acquisition. There can
be no assurance that the Company will ultimately effect any acquisition or that
the Company will be able to successfully integrate into its operations any
business or customer base which it may acquire, including its newly acquired AIT
customer base. Any inability to do so, particularly in instances in which the
Company has made significant capital investments, would have a material adverse
effect on the Company.
The Company may determine, depending upon the opportunities available to
it, to seek additional debt or equity financing to fund the cost of continuing
expansion. To the extent that the Company finances an acquisition with a
combination of cash and equity securities, any such issuance of equity
securities would result in dilution to the interests of the Company's
stockholders. Additionally, to the extent that the Company incurs indebtedness
or issues debt securities in connection with any acquisition, the Company will
be subject to risks associated with incurring additional indebtedness and there
can be no assurance that cash flow will be sufficient to repay any such
indebtedness. See 'Use of Proceeds' and 'Business--Strategy.'
Single Market; Uncertainty of Market Penetration; Limited Marketing
Capabilities. The Company is dependent on sales of long distance services to
commercial customers generally characterized by telecommunications usage of
under $5,000 per month. As a result, the Company's growth prospects will be
largely dependent upon the Company achieving greater penetration of the low
volume commercial long distance market. Achieving greater penetration in this
market will require substantial marketing efforts and expenditure of significant
funds to increase customer awareness of the cost and other advantages of the
Company's services. The Company currently has limited financial, personnel and
other resources to independently undertake extensive marketing activities and
has been dependent upon distributors, agents and telemarketers for a portion of
its revenues. For the year ended April 30, 1996 and the three months ended July
31, 1996, distributors and agents in the aggregate accounted for approximately
20% and 10%, respectively, of the Company's revenues. The Company's agreements
with distributors and agents do not prevent them from selling competitive
services and products. Such distributors and agents often represent and deal in
various product lines generally and cannot be expected to increase their sales
efforts for the Company in the absence of increased incentives or demand. The
Company's ability to expand its customer base may be limited by the number of
distributors, agents and telemarketers it engages and will be dependent upon
their efforts. See 'Business--Marketing and Sales.'
Outstanding Indebtedness; Loan Covenants and Security Interests; Personal
Pledges. The Company has incurred substantial indebtedness in relation to its
equity capital. In connection with the AIT Acquisition in July 1996, the Company
entered into an agreement with Tel-Save pursuant to which it borrowed an
aggregate amount of $5,521,230 primarily to finance the purchase price of the
acquisition. At September 30, 1996, approximately $4.8 million was outstanding
under the Acquisition Loan. The Acquisition Loan originally required the Company
to repay such loan in equal monthly installments of $500,000 through July 1997,
with the entire principal amount and interest due and payable upon the
consummation of a public offering of the Company's securities. The
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Company's loan agreement with Tel-Save was amended in December 1996 to provide
for the repayment of $3.5 million of the Acquisition Loan upon the consummation
of this offering and the repayment of the balance of principal and interest in
equal monthly installments over the six-month period following the consummation
of this offering, provided that this offering is consummated by January 31,
1997. In the event that this offering is not consummated by such date, the loan
agreement would revert to the original terms and obligate the Company to pay the
difference between the aggregate amount of payments made and the aggregate
amount it would have paid had it made monthly payments of $500,000 since July
1996 and to continue to make monthly payments of $500,000 through July 1997.
There can be no assurances that the Company will have the financial resources to
satisfy such obligations. All of the Company's assets (including the capital
stock of AIT) are pledged to Tel-Save as collateral and the Company is
prohibited from creating liens or security interests on the Company's assets,
which could limit the Company's ability to secure future financing. In the event
of a default by the Company on its obligations to Tel-Save, Tel-Save could elect
to require the Company and its directors to cause Tel-Save's designees to be
appointed to and constitute a majority of the Board of Directors of the Company
and/or declare the Company's indebtedness to be immediately due and payable and
foreclose on the Company's assets, which would result in a change of control of
the Company. The Company was not in compliance with respect to its payment
obligations and certain provisions of its partition agreement with Tel-Save.
Tel-Save has waived such non-compliance and, as of the date of this Prospectus,
the Company is in compliance with its obligations or has otherwise obtained the
necessary waivers or consents from Tel-Save. The Company also is indebted to
WorldCom in the amount of approximately $523,000 at July 31, 1996, which is
secured by those of the Company's assets (including receivables) relating to the
provision of the long distance services by WorldCom to the Company's customers,
and owes AT&T approximately $548,000 at such date. The Company has not allocated
any portion of the proceeds of this offering to repay any such indebtedness,
although there can be no assurance that it will not be required to do so. To the
extent the Company is required to use a significant portion of such proceeds to
repay indebtedness, the Company will have less resources available to it for
other purposes, including any expansion activities which may be undertaken by
the Company.
Gerald M. Dunne, Jr., President and Chief Executive Officer of the Company,
has personally pledged all of the Common Stock of the Company owned by him to
secure repayment of the Company's indebtedness to Tel-Save and has personally
guaranteed the repayment of $81,666.68 to Gateway American Bank of Florida at
September 30, 1996. To the extent that the Acquisition Loan is repaid with the
proceeds of this offering, Mr. Dunne will benefit from a corresponding decrease
in his personal obligation to secure repayment of such loan. Neither Mr. Dunne
nor any other person has any obligation to make personal pledges or guarantees
available to the Company in the future, and there can be no assurance that the
absence of personal pledges will not adversely affect the Company's ability to
obtain future financing. See 'Use of Proceeds,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and 'Certain
Transactions.'
Dependence on Key Personnel. The success of the Company will be largely
dependent on the personal efforts of Gerald M. Dunne, Jr., its President and
Chief Executive Officer, and other key personnel. Although the Company has
entered into a two-year employment agreement with Mr. Dunne, the loss of the
services of such individual could have a material adverse effect on the
Company's business and prospects. The Company maintains 'key-man' insurance on
the life of Mr. Dunne in the amount of $1,000,000. The success of the Company is
dependent upon its ability to hire and retain additional qualified marketing,
financial and other personnel, including a Chief Financial Officer. Competition
for qualified personnel in the telecommunications industry is intense and there
can be no assurance that the Company will be able to hire or retain additional
qualified personnel. See 'Management.'
Authorization of Preferred Stock. The Company's Articles of Incorporation
authorize the issuance of up to 1,000,000 shares of preferred stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying, or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its authorized preferred stock, there can be no assurance that the
Company will not do so in the future. See 'Description of Securities.'
Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution of $ per share (or %) between the pro forma
net tangible book value per share after the offering and the public offering
price (based on an assumed public offering price of $ per share). See
'Dilution.'
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Limited Underwriting Experience. The Representative has engaged in limited
underwriting activities and has acted as a principal underwriter in four public
offerings. There can be no assurance that the Representative's lack of public
offering experience will not affect the proposed public offering or subsequent
development and maintenance of a trading market, if any, for the Securities. See
'Underwriting.'
No Assurance of Public Market; Possible Volatility of Market Price of
Common Stock; Representative's Potential Influence on the Market. Prior to this
offering, there has been a limited public trading market for the Common Stock.
The Common Stock has traded sporadically in limited volumes in the
over-the-counter market. There can be no assurance that a regular trading market
for the Common Stock will develop after this offering or that, if developed, it
will be sustained. The market price for the Company's securities following this
offering may be highly volatile as has been the case with the securities of
other small capitalization companies. Factors such as the Company's financial
results and introduction of new services by the Company or its competitors, and
various factors affecting the telecommunications industry generally, may have a
significant impact on the market price of the Company's securities.
Additionally, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many companies,
particularly of small capitalization companies, the common stock of which trade
in the over-the-counter market, have experienced wide price fluctuations which
have not necessarily been related to the operating performance of such
companies. Although it has no obligation to do so, the Representative intends to
make a market in the Common Stock and may otherwise effect transactions in the
Common Stock. If the Representative makes a market in the Common Stock, such
activities may exert a dominating influence on the market and such activity may
be discontinued at any time. The price and liquidity of the Common Stock may be
significantly affected to the extent, if any, that the Representative
participates in such market. See 'Price Range of Common Stock' and
'Underwriting.'
No Dividends. The Company has not paid any cash dividends to date. The
Company intends to retain earnings, if any, to finance the operation and
expansion of its business and does not expect to pay cash dividends in the
foreseeable future. See 'Dividend Policy.'
Shares Eligible for Future Sale. Upon consummation of this offering, the
Company will have 3,507,348 shares of Common Stock outstanding (assuming no
exercise of outstanding options or warrants), of which the 1,250,000 shares of
Common Stock offered hereby, 308,000 shares registered in a prior registration
statement and, subject to certain contractual restrictions as described below,
350,000 shares issuable upon exercise of warrants granted to Tel-Save, will be
freely tradable without restriction or further registration under the Securities
Act of 1933, as amended (the 'Securities Act'). Tel-Save has agreed not to sell
such securities for a period of six months from the date of this Prospectus
without the prior written consent of the Representative. All of the remaining
1,949,348 shares of Common Stock outstanding are 'restricted securities,' as
that term is defined under Rule 144 promulgated under the Securities Act and may
be sold without registration pursuant to such rule, at various times commencing
November 1997. The Company's officers, directors and holders of 3% or more of
the shares of Common Stock outstanding have agreed not to sell any securities of
the Company for a period of 12 months from the date of this Prospectus without
the Representative's prior written consent. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or even the availability of
such shares for sale will have on the market prices prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold in
the public market may adversely affect the prevailing market price for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities. See 'Principal Stockholders' and 'Shares Eligible
for Future Sale.'
Nasdaq Maintenance Requirements; Possible Delisting of Common Stock from
Nasdaq System; Risks Relating to Low-Priced Stocks. It is currently anticipated
that the Common Stock will be eligible for listing on Nasdaq upon the completion
of this offering. In order to continue to be listed on Nasdaq, however, the
Company must maintain $2,000,000 in total assets, a $200,000 market value of the
public float and $1,000,000 in total capital and surplus. In addition, continued
inclusion requires two market-makers and a minimum bid price of $1.00 per share;
provided, however, that if the Company falls below such minimum bid price, it
will remain eligible for continued inclusion on Nasdaq if the market value of
the public float is at least $1,000,000 and the Company has $2,000,000 in
capital and surplus. Nasdaq has recently proposed new maintenance criteria
which, if implemented, would eliminate the exception to the $1.00 per share
minimum bid price and require, among other things, $2,000,000 in net tangible
assets, $1,000,000 market value of the public float and adherence to certain
corporate governance provisions. The failure to meet these maintenance criteria
in the future may result in the
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delisting of the Common Stock from Nasdaq, and trading, if any, in the Common
Stock would thereafter be conducted in the non-Nasdaq over-the-counter market.
As a result of such delisting, an investor could find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Common Stock. In addition, if the Common Stock was to become delisted from
trading on Nasdaq and the trading price of the Common Stock were to fall below
$5.00 per share, trading in the Common Stock would also be subject to the
requirements of certain rules promulgated under the Exchange Act, which require
additional disclosure by broker-dealers in connection with any trades involving
a stock defined as a penny stock (generally, any non-Nasdaq equity security that
has a market price of less than $5.00 per share, subject to certain exceptions).
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage broker-dealers from effecting transactions in the Common Stock,
which could severely limit the market liquidity of the Common Stock and the
ability of purchasers in this offering to sell the Common Stock in the secondary
market. See 'Price Range of Common Stock.'
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
includes a Prospectus with respect to an offering of 350,000 shares of Common
Stock issuable upon the exercise of warrants held by Tel-Save Holdings, Inc., an
affiliate of Tel-Save (the 'Selling Shareholder'), all of which may be sold in
the open market, in privately negotiated transactions or otherwise, directly by
the Selling Shareholder. The Selling Shareholder has agreed with the
Representative not to sell any of such securities for six months from the date
of this Prospectus without the prior written consent of the Representative. The
Company will not receive any proceeds from the sale of such securities by the
Selling Shareholder, although it will receive proceeds from the exercise of the
warrants, if any. Expenses of the concurrent offering, other than fees and
expenses of counsel to the Selling Shareholder and selling commissions, will be
paid by the Company. Sales of such securities by the holders thereof or the
potential for such sales may have an adverse effect on the market price of the
Common Stock and the Redeemable Warrants offered hereby.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby are estimated to be approximately $ ($ if the
Underwriters' over-allotment option is exercised in full). The Company expects
to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
APPLICATION OF PROCEEDS DOLLAR AMOUNT PERCENTAGE
- -------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Partial repayment of Acquisition Loan(1).................................. $ 3,500,000 %
Marketing and sales(2).................................................... 1,800,000
Working capital and general corporate purposes............................
------------- -----------
$ 100.0%
------------- -----------
------------- -----------
</TABLE>
- ------------------
(1) Represents amounts to be used for the partial repayment of the Acquisition
Loan. The Acquisition Loan bears interest at the rate of 6.5% per annum with
$3,500,000 principal amount thereof repayable on the consummation of this
offering. The Company used the proceeds of the Acquisition Loan principally
in connection with financing the acquisition of the AIT customer base. As of
September 30, 1996, approximately $4.8 million remained outstanding under
the Acquisition Loan. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'
(2) Represents anticipated costs associated with marketing and sales, including
salaries for up to an additional fifteen direct sales personnel and up to
six additional in-house telemarketers, as well as the payment of sales
incentives to independent distributors and agents. See 'Business--Marketing
and Sales.'
If the Underwriters exercise the over-allotment option in full, the Company
will realize additional net proceeds of $ which will be added to working
capital.
The Company may use a portion of the proceeds of this offering to expand
its operations by acquiring resellers and/or customer bases. Any decision to
make an acquisition will be based upon the purchase price and other financial
terms of the transaction, the business prospects and competitive position of and
services and products provided by the acquisition candidate. While Company
regularly evaluates possible acquisition opportunities, as of the date of this
Prospectus, the Company has no plans, agreements, commitments, understandings or
arrangements with respect to any acquisition.
Based on currently proposed plans and assumptions relating to its
operations, the Company believes that the proceeds of this offering, together
with projected cash flow from operations, will be sufficient to satisfy its
contemplated cash requirements for at least twelve months following the
consummation of this offering. In the event that the Company's plans change (due
to changes in market conditions, competitive factors or new or different
business opportunities that may become available in the future), its assumptions
change or prove to be inaccurate or if the proceeds of this offering or cash
flow prove to be insufficient to fund operations (due to unanticipated expenses,
operating difficulties or otherwise), the Company may find it necessary or
desirable to reallocate a portion of the proceeds within the above-described
categories, use proceeds for other purposes, seek additional financing or
curtail its expansion activities. There can be no assurance that additional
financing, if required, will be available to the Company on commercially
reasonable terms, or at all. At the present time, the Company has not allocated
any portion of the proceeds to repay outstanding indebtedness to AT&T and
WorldCom. To the extent the Company uses a portion of the proceeds to repay
outstanding indebtedness, the Company will have less resources available to it
for other purposes.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
15
<PAGE>
PRICE RANGE OF COMMON STOCK
Since April 1, 1996, the Common Stock has traded on a limited basis on the
OTC Bulletin Board, under the symbol 'GLDT.' The following table sets forth, for
the periods indicated, high and low bid information for the Common Stock. Such
high and low bid information reflects inter-dealer quotations, without retail,
mark-up, mark down or commissions and may not represent actual transactions. In
connection with this offering, application has been made to quote the Common
Stock on Nasdaq under the symbol 'GLDI'.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Fiscal Year Ended April 30, 1996
Fourth Quarter (commencing April 1, 1996)........................................ $5.0625 $4.875
Fiscal Year Ended April 30, 1997
First Quarter.................................................................... $ 7.50 $ 3.25
Second Quarter................................................................... $ 9.50 $5.125
Third Quarter (through December 3, 1996)......................................... $ 6.00 $ 4.50
</TABLE>
On December 9, 1996, the last reported sale price for the Common Stock was
$5.625. As of October 15, 1996, the Company had approximately 129 stockholders
of record.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at July
31, 1996 and as adjusted to reflect the sale of the Common Stock offered hereby
and the initial application of the estimated net proceeds therefrom after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company. The information set forth below should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1996
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Short-term debt and current portion of long-term debt....................... $6,826,361 $
---------- -----------
---------- -----------
Long-term debt, net of current portion...................................... 189,153
Stockholders' equity(1):
Preferred Stock--no par value; 1,000,000 shares authorized; no shares
issued and outstanding................................................. -- --
Common Stock--no par value; 5,000,000 shares authorized; 2,257,348 shares
issued and outstanding actual; 3,507,348 shares issued and outstanding
as adjusted............................................................ -- --
Additional paid-in capital................................................ 1,668,364
Retained earnings (deficit)............................................... (14,158)
---------- -----------
Total stockholders' equity............................................. 1,654,206
---------- -----------
Total capitalization...................................................... $1,843,359 $
---------- -----------
---------- -----------
</TABLE>
- ------------------
(1) Does not include: (i) 350,000 shares of Common Stock issuable upon exercise
of outstanding warrants at a weighted average exercise price of $5.64 per
share; (ii) 76,216 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $2.23; (iii)
438,000 shares of Common Stock issuable upon exercise of options to be
granted, subject to shareholder approval, under the Stock Option Plan; and
(iv) 162,000 shares reserved for the exercise of options available for
future grant under the Stock Option Plan. See 'Management--Stock Option
Plan.' In connection with this offering, the Company is in the process of
seeking shareholder approval to increase its authorized capital stock to
12,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock,
which is a condition to consummation of this Offering.
17
<PAGE>
DILUTION
At July 31, 1996, the Company had a negative net tangible book value of
$ , or approximately $ per share. Net tangible book value per share
represents the total amount of tangible assets less total liabilities divided by
the number of shares of Common Stock issued and outstanding. After giving effect
to the sale of the 1,250,000 shares of Common Stock offered hereby at an assumed
public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the net tangible book value of the Company at July 31, 1996 would have
been $ , or approximately $. per share. This represents an immediate
increase in net tangible book value of $ per share to existing stockholders
and an immediate dilution in net tangible book value of $ per share to new
investors. The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................................. $
Net tangible book value (deficiency) before offering................... $(2.32)
Increase per share attributable to new investors.......................
------
Net tangible book value after offering...............................................
-----
Dilution to new investors............................................................ $
-----
-----
</TABLE>
The following table sets forth, as of July 31, 1996, with respect to the
Company's existing shareholders and new investors, a comparison of the number of
shares of Common Stock acquired from the Company, the percentage ownership of
such shares, the total consideration paid, the percentage of total consideration
and the average price per share.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
-------------------- --------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................................... 2,257,348 64.4% $1,673,521 % $ .74
New Investors............................................. 1,250,000 35.6
--------- ------- ---------- -------
Total................................................ 3,507,348 100.0% 100.0%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
The above table assumes no exercise of the Underwriters' over-allotment
option. If the Underwriters' over-allotment is exercised in full, new investors
will have paid $ for 1,437,500 shares of Common Stock, representing
% of the total consideration for % of the total number of shares of
Common Stock outstanding. The foregoing also assumes no exercise of outstanding
warrants or options. See 'Management--Stock Option Plan' and 'Underwriting.'
18
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial information
for the Company for the fiscal years ended April 30, 1994, 1995 and 1996, which
have been derived from the Company's audited consolidated financial statements
and notes thereto included elsewhere in this Prospectus and pro forma
information reflecting the AIT Acquisition. The financial information set forth
below for the three months ended July 31, 1995 has been derived from unaudited
financial statements of the Company and for the three months ended July 31, 1996
has been derived from unaudited consolidated financial statements of the
Company. In the opinion of management, the unaudited financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, which consist only of normal recurring adjustments, necessary
for a fair presentation of the financial position and the results of operations
for these periods. Operating results for the three months ended July 31, 1996
are not necessarily indicative of the results that may be expected for the full
year. The following financial information should be read in conjunction with
'Pro Forma Statement of Operations' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED APRIL 30, JULY 31,
----------------------------------------------------- ---------------------------------------
1996 1996
------------------------- -------------------------
PRO PRO
1994 1995 ACTUAL(1) FORMA(2) 1995 ACTUAL(1) FORMA(2)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................... $ 7,784,112 $ 9,538,095 $12,364,643 $36,867,160 $ 3,190,144 $ 5,712,188 $ 7,262,076
Cost of sales................. 5,086,764 6,992,817 9,009,131 26,615,705 2,395,125 4,033,142 5,153,587
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................. 2,697,348 2,545,278 3,355,512 10,251,455 795,019 1,679,046 2,108,489
Selling, general and
administrative.............. 2,336,048 2,074,127 2,835,316 4,893,881 688,768 1,094,972 1,265,829
Depreciation and
amortization................ 4,611 16,070 133,281 1,924,581 8,480 375,290 524,565
Interest expense, net......... 20,441 22,177 19,050 361,050 2,895 81,226 109,465
Earnings before income
taxes....................... 336,248 432,904 367,865 3,071,943 94,876 127,558 208,630
Income taxes.................. 136,653 151,000 169,900 1,362,202 34,000 61,993 107,065
Income before extraordinary
item........................ 199,595 281,904 197,965 1,709,741 60,876 65,565 101,565
Extraordinary item(3)......... 517,653 -- -- -- -- -- --
Net income.................... $ 717,248 $ 281,904 $ 197,965 $ 1,709,741 $ 60,876 $ 65,565 $ 101,565
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per share
Before extraordinary item... $ .12 $ .15 $ .10 $ .77 $ .03 $ .03 $ .05
Extraordinary item.......... .30 -- -- -- -- -- --
Total per share............. $.42 $.15 $.10 $.77 $.03 $.03 $.05
Weighted average shares
outstanding(4).............. 1,693,995 1,840,250 2,018,474 2,218,474 2,035,000 2,076,914 2,257,348
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
OTHER OPERATING DATA:
Number of customers at period
end......................... 4,704 9,021 11,991 41,000 10,000 34,700 34,700
EBITDA(5)..................... $ 361,300 $ 471,151 $ 520,196 5,357,574 $ 106,251 $ 584,074 $ 842,660
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
--------------------------------------- JULY 31,
1994 1995 1996 1996(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................................... $ (8,779) $ 7,772 $ (851,072) $(5,265,434)
Total assets...................................................... 1,400,570 1,849,880 2,740,411 10,850,869
Short-term debt................................................... 606,867 553,633 664,187 6,826,361
Long term debt.................................................... 375,417 160,000 98,727 189,153
Stockholders' equity (deficit).................................... $ (375,892) $ (13,988) $ 188,641 $ 1,654,206
</TABLE>
- ------------------
(1) Includes operations of AIT for June and July 1996.
(2) The unaudited pro forma consolidated financial statements have been prepared
to give effect to the AIT Acquisition as if it had occurred at the beginning
of each of the periods presented. The pro forma adjustments are based upon
preliminary estimates, available information and certain assumptions that
management deems appropriate. The unaudited pro forma consolidated financial
data presented herein should not be viewed as indicative of the results the
Company would have obtained had such events occurred at the beginning of the
period, as assumed, or of the future results of the Company. See 'Pro Forma
Statement of Operations.'
(3) This extraordinary item relates to settlement agreements with two long
distance carriers, principally AT&T, which resulted in a reduction in
carrier trade payables and a corresponding gain after taxation of $517,653.
See 'Management's Discussion and Analysis of Financial Condition and Results
of Operations.'
(4) See Note B to Notes to Financial Statements.
(5) As used herein, 'EBITDA' is defined as net income or loss plus depreciation
expense, amortization expense, interest expense, income taxes and other
non-cash charges, minus extraordinary income and gains and non-cash income,
if any, and plus extraordinary losses, if any.
19
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements have
been prepared to give effect to the AIT Acquisition. The unaudited pro forma
consolidated statement of operations of the Company for the year ended April 30,
1996 and the three months ended July 31, 1996 give effect to the AIT Acquisition
as if it occurred on May 1, 1994 and May 1, 1995, respectively. No pro forma
balance sheet has been presented since the AIT Acquisition occurred prior to
July 31, 1996. The unaudited pro forma consolidated financial statements are
based upon available information and certain assumptions that the Company
believes are reasonable under the circumstances.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma consolidated financial statements presented herein should
not be viewed as indicative of the results the Company would have obtained had
such events occurred at the beginning of the periods, as assumed, or of the
future results of the Company. The pro forma consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus.
20
<PAGE>
GROUP LONG DISTANCE, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GROUP LONG ADVENTURES IN PRO FORMA TOTAL
DISTANCE INC. TELECOM INC. ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues........................................... $ 12,364,643 $ 24,502,517 $ -- $36,867,160
Cost of sales...................................... 9,009,131 17,606,574 -- 26,615,705
------------- ------------- ----------- -----------
Gross profit..................................... 3,355,512 6,895,943 -- 10,251,455
------------- ------------- ----------- -----------
Selling, general and administrative expenses....... 2,968,597 -- 600,000(1) 6,818,462
735,076(2)
153,141(3)
205,348(4)
365,000(5)
1,791,300(6)
Interest expense (net)............................. 19,050 -- 342,000(7) 361,050
------------- ------------- ----------- -----------
Earnings before income taxes..................... 367,865 6,895,943 (4,191,865) 3,071,943
Income tax expense................................. 169,900 -- 1,192,302(8) 1,362,202
------------- ------------- ----------- -----------
Net earnings..................................... $ 197,965 $ 6,895,943 $(5,384,167) $ 1,709,741
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
Earnings per common and common equivalent share.... $ .10 $ .77
------------- -----------
------------- -----------
Weighted average number of shares outstanding...... 2,018,474 200,000 2,218,474
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
- ------------------
(1) To record commission expense payable to agents on '800' and '1 plus'
revenues.
(2) To record provision for bad debt on additional revenues. This provision is
based on the Company's historical experience of 3% of revenues.
(3) In connection with the AIT Acquisition, the Company entered into a
management contract with Telscape International, Inc. ('Telscape'),
pursuant to which the Company paid a fee of 1.5% of gross monthly billing
to Telscape for management services, including handling of inbound customer
service calls, processing of customer adjustments, calculation of
commissions and coordination of agent accounts. The management contract was
terminated in September 1996. The pro forma presentation has been adjusted
to record a management fee expense equal to 1.5% of revenues in accordance
with the management contract. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and 'Business--Recent
Acquisitions.'
(4) To record payroll expense for new customer service, accounting and
management employees to be hired after the expiration of the management
contract (see 3 above).
(5) To record miscellaneous selling, general and administrative expenses. This
amount includes estimates for telephone system upgrades and related
charges, computer system upgrades, advertising, professional fees and other
items.
(6) To record amortization expense of customer base acquisition cost.
(7) To record interest on the Acquisition Loan.
(8) To record taxes on additional pre-tax income.
21
<PAGE>
GROUP LONG DISTANCE, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
STATEMENT ADVENTURES
OF IN TELECOM, PRO FORMA TOTAL
OPERATIONS INC. ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues.............................................. $5,712,188 $ 1,549,888 $ -- $7,262,076
Cost of sales......................................... 4,033,142 1,120,445 -- 5,153,587
---------- ----------- ----------- ----------
Gross profit..................................... 1,679,046 429,443 -- 2,108,489
---------- ----------- ----------- ----------
Selling, general and administrative expenses.......... 1,470,262 -- 70,692(1) 1,790,394
46,497(2)
23,248(3)
30,420(4)
149,275(5)
Interest expense, net................................. 81,226 -- 28,239(6) 109,465
---------- ----------- ----------- ----------
Earnings before income taxes..................... 127,558 429,443 (348,371) 208,630
Income tax expense.................................... 61,993 -- 45,072(7) 107,065
---------- ----------- ----------- ----------
Net earnings..................................... $ 65,565 $ 429,443 $(393,443) $ 101,565
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Earnings per common and
common equivalent share............................. $ .03
$ .05
----------
---------- ----------
----------
Weighted average number
of shares outstanding............................... 2,076,914 180,434 2,257,348
---------- ----------- -----------
---------- ----------- ----------
</TABLE>
- ------------------
(1) To record commission expense payable to agents on '800' and '1 plus'
revenues.
(2) To record provision for bad debt on additional revenues. This provision is
based on the Company's historical experience of 3% of revenues.
(3) In connection with the AIT Acquisition, the Company entered into a
management contract with Telscape, pursuant to which the Company paid a fee
of 1.5% of gross monthly billing to Telscape for management services. The
management contract was terminated in September 1996. The pro forma
presentation has been adjusted to record a management fee expense equal to
1.5% of revenues in accordance with the management contract. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business--Recent Acquisitions.'
(4) To record miscellaneous selling, general and administrative expenses. This
amount includes estimates for telephone system upgrades and related
charges, computer system upgrades, advertising, professional fees and other
items.
(5) To record amortization expense of customer base acquisition cost.
(6) To record interest on the Acquisition Loan.
(7) To record taxes on additional pre-tax income.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and the other financial information appearing
elsewhere in this Prospectus. Except for historical information, this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Prospectus contain forward-looking
information which involves risks and uncertainties. The Company's actual results
could differ materially from those anticipated by such forward-looking
information. Factors that may cause such differences include, but are not
limited to, those discussed under 'Risk Factors' and elsewhere in this
Prospectus.
OVERVIEW
The Company provides long distance telephone and other telecommunications
services to commercial customers. The Company does not own or operate any
transmission facilities and is dependent on a limited number of long distance
carriers and numerous regional and local telephone companies to provide long
distance telephone and Internet service on a cost-effective basis. The Company
has entered into agreements with Tel-Save, WorldCom, ICI and other long distance
carriers which provide access to phone lines and transmission facilities
necessary to transmit customer calls. For the year ended April 30, 1996 and the
three months ended July 31, 1996, basic '1 plus' and '800' long distance
services accounted for approximately 97% and 94%, respectively, of the Company's
revenues.
The Company, through Tel-Save, offers billing services provided by AT&T and
AT&T's College and University Systems ('ACUS'), a wholly-owned subsidiary of
AT&T. ACUS processes call details and bills the Company's customers directly.
Customers remit payment to a lock-box designated by Tel-Save. The Company also
offers direct billing services to customers serviced by WorldCom and ICI. The
Company receives monthly records from its carriers which detail the calls made
by its customers. The Company then rates the calls and bills its customers
directly. The Company is dependent upon the timely receipt and accuracy of call
data records provided by its carriers.
The Company has historically experienced delays in provisioning (activating
new customers) by its carriers. The Company has agreed to provide domestic
switched, '1 plus' and '800' services to the Company's new customers through
Tel-Save's newly acquired network of AT&T digital switching equipment, which the
Company believes will shorten the Company's provisioning and billing and
collection cycles. There can be no assurance, however, that the transition of
the Company's customer base to Tel-Save's network will be successful or that the
Company will be able to successfully shorten customer provisioning or billing
and collection cycles.
To obtain favorable rates from its carriers, the Company has committed to
purchase certain minimum volumes of long distance services during stated
periods, whether or not such volumes are used. For the year ended April 30, 1996
and the three months ended July 31, 1996, these commitments aggregated
approximately $3,200,000 and $1,347,500, respectively. Pursuant to its current
agreements with Tel-Save and other carriers, the Company's volume commitments
are expected to increase substantially during the next two years. Failure to
satisfy volume purchase commitments or price increases by carriers could
adversely affect the Company's future operating results.
The Company's operating results are significantly affected by customer
attrition rates. The Company believes that a high level of customer attrition in
the industry is primarily a result of national advertising campaigns,
telemarketing programs and customer incentives provided by major competitors, as
well as the termination of service for non-payment. The Company recently
acquired a customer base from AIT and recorded an asset of approximately $6.6
million at July 31, 1996, of which $5.9 million (net of receivables and
marketing advances) is being amortized on an accelerated basis at the rate of
30%, 25%, 20%, 15% and 10%, respectively, over a five-year period. The Company
experienced an attrition rate of approximately 25% during the three-month period
ended August 31, 1996 relating to this customer base. Based upon the Company's
experience, the attrition rate may be significant during the first year
following such acquisition with such attrition rate declining and the customer
base stabilizing in subsequent years. The effect of any such attrition may be a
decrease in revenues and profitability from such customer base. Such attrition
and the consequence thereof have previously been considered by the Company in
connection with the purchase price paid for the customer accounts and the
amortization by the Company of the customer base acquisition costs over their
useful life. There can be no assurance that assumed attrition rates underlying
the Company's amortization schedule will prove to be accurate or that customer
attrition rates will not increase in the future. Any significant increase in
customer attrition rates resulting in increased amortization expense could have
a material adverse effect on the Company's future
23
<PAGE>
operating results. In the event that attrition rates increase as a result of
increased competition, the purchase of poorly performing customer bases or the
inability to manage the existing customer base due to transitional difficulties
onto Tel-Save's network, the Company may incur charges that adversely affect
earnings.
The Company is dependent on independent distributors and agents for a
portion of its revenues. For the year ended April 30, 1996 and the three months
ended July 31, 1996, distributors and agents combined accounted for
approximately 20% and 10%, respectively, of the Company's revenues. The
Company's ability to expand its operations is dependent upon the Company's
ability to continue to maintain satisfactory relationships with existing
distributors and agents and establish relationships with additional distributors
and agents. The Company intends to use a portion of the proceeds of this
offering to expand its sales and marketing activities, including by hiring up to
fifteen additional direct sales personnel and six additional in-house
telemarketers as well as engaging additional independent telemarketers, and by
paying sales incentives to independent distributors and agents.
RECENT ACQUISITIONS
In July 1996, the Company consummated the AIT Acquisition in consideration
of $5,271,230 in cash and the issuance of 200,000 shares of Common Stock. The
acquired assets consisted of a customer base of approximately 30,000 small
businesses. In connection with the AIT Acquisition, the Company entered into a
management contract with Telscape, pursuant to which the Company paid a fee of
1.5% of gross monthly billing to Telscape for management services. The
management contract was terminated in September 1996. See 'Business--Recent
Acquisitions.'
In May 1996, the Company acquired all of the issued and outstanding capital
stock of Gulf Communications, Inc. ('Gulf') in consideration of $25,000 in cash
and the assumption of a promissory note in the principal amount of $182,000 (the
'Gulf Acquisition'). Such note is payable in equal monthly installments of
$10,000 until February 1, 1998. Gulf operates switching equipment in Fort
Lauderdale, Florida, which allows it to act as an international call back and
call through provider, and offers prepaid long distance calling cards. See
'Business--Recent Acquisitions.'
Amortization expense has continued to increase substantially because of the
significant increase in purchased accounts and customer base acquisitions.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages of
total sales represented by certain items reflected in the Company's consolidated
statements of operations:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
APRIL 30, JULY 31,
-------------------------------------- ------------------
1995 1996 1995
----------------- ----------------- ------------------
<S> <C> <C> <C>
Total sales............................................... 100% 100% 100%
Cost of sales............................................. 73 73 75
Gross profit.............................................. 27 27 25
Selling, general and administrative expenses.............. 22 23 22
Depreciation and amortization expense..................... * * *
Interest expense, net..................................... * * *
Earnings before income taxes.............................. 5 3 3
Income tax expense........................................ 2 1 1
Net earnings.............................................. 3 2 2
<CAPTION>
1996
------------------
<S> <C>
Total sales............................................... 100%
Cost of sales............................................. 71
Gross profit.............................................. 29
Selling, general and administrative expenses.............. 19
Depreciation and amortization expense..................... 7
Interest expense, net..................................... 1
Earnings before income taxes.............................. 3
Income tax expense........................................ 1
Net earnings.............................................. 1
</TABLE>
- ------------------
* Less than one percent
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COMPARISON OF THREE MONTHS ENDED JULY 31, 1996 TO THREE MONTHS ENDED JULY
31, 1995.
Sales. The Company's sales for the three months ended July 31, 1996 were
$5,712,188 compared to $3,190,144 for the three months ended July 31, 1995, an
increase of $2,522,044, or 79%. The increase in sales resulted from the AIT
Acquisition which was effective June 1, 1996 and accounted for $2,705,683 of
revenues for the three months ended July 31, 1996.
Cost of Sales. Cost of sales for the three months ended July 31, 1996 was
$4,033,142 compared to $2,395,125 for the three months ended July 31, 1995, an
increase of $1,638,017, or 68%. The increase in cost of sales resulted from an
increase in sales due to the AIT Acquisition and the Gulf Acquisition. Cost of
sales as percentage of total sales was 71% for the three months ended July 31,
1996 compared to 75% for the three months ended July 31, 1995. The decrease in
cost of sales as a percentage of total sales was primarily attributable to
increased operating efficiencies from a larger customer base.
Gross Profit. Gross profit for the three months ended July 31, 1996 was
$1,679,046 compared to $795,019 for the three months ended July 31, 1995, an
increase of $884,027, or 111%. The increase in gross profit was the result of an
increase in sales due to the AIT Acquisition and the Gulf Acquisition. Gross
profit as a percentage of total sales was 29% for the three months ended July
31, 1996 compared to 25% for the three months ended July 31, 1995. The increase
in gross profit as a percentage of sales was primarily attributable to increased
operating efficiencies from a larger customer base.
Selling, General and Administrative Expense. Selling, general and
administrative expenses ('SG&A') were $1,094,972 for the three months ended July
31, 1996 compared to $688,768 for the three months ended July
31, 1995, an increase of $406,204, or 59%. This increase in SG&A was due
primarily to increases in commissions paid to agents and distributors in
connection with the AIT customer base and payroll costs resulting from the
employment of additional customer service, collections and provisioning staff to
handle the increased business. SG&A as a percentage of total sales was 19% for
the three months ended July 31, 1996 compared to 22% for the three months ended
July 31, 1995. This decrease in SG&A as a percentage of total sales was
primarily attributable to increased operating efficiencies from a larger
customer base.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $375,290 for the three months ended July 31, 1996 compared to $8,480
for the three months ended July 31, 1995, an increase of $366,810. As a
percentage of total sales, depreciation and amortization was 7% for the three
months ended July 31, 1996 compared to less than 1% for the three months ended
July 31, 1995. The increase in depreciation and amortization expense both in
absolute dollars and as a percentage of sales was attributable to the
acquisition of the AIT customer base.
Interest Expense, Net. Interest expense, net was $81,226 for the three
months ended July 31, 1996 compared to $2,895 for the three months ended July
31, 1995, representing an increase of $78,331. This increase in interest
expenses was attributable to interest payments made in connection with the
Acquisition Loan. In addition, imputed interest in accordance with APB 16 of
$37,866 was included in the three months ended July 31, 1996.
Income Taxes. Income tax expense was $61,993 for the three months ended
July 31, 1996 compared to $34,000 for the three months ended July 31, 1995, an
increase of $27,993, or 82%. The increase was attributable to the increase in
revenue from the larger customer base. The Company recorded its tax provision
using an estimated annual effective rate of 48.6% for the three months ended
July 31, 1996 compared to the 46.2% effective rate for the fiscal year ended
April 30, 1996. This rate is higher than the statutory rate of 36.7% which was
used for the three months ended July 31, 1995 due to the valuation allowance of
$37,000 established for the deferred tax assets relating to the amortization of
the customer acquisition costs. The expected valuation allowance for the fiscal
year ended April 30, 1997 is 33% of this specific deferred tax asset, which is
the reduction from the 100% valuation allowance applied in the fiscal year ended
April 30, 1996. The allowance percentage was reduced based upon estimated
additional revenues to be generated from the AIT customer base. However, there
can be no assurance that the Company will continue to be profitable, or that the
attrition on the AIT customer base will not be higher than expected, and
therefore the Company has provided a 33% valuation allowance. This allowance
will be reviewed upwards or downwards based upon the Company's results of
operations during the remainder of the fiscal year ended April 30, 1997. Such
adjustments will cause the Company's effective rate to change from the 48.6%
rate provided in the three months ended July 31, 1996. See Note F to Notes to
Financial Statements.
Net Earnings. Net earnings were $65,565 for the three months ended July
31, 1996 compared to $60,876 for the three months ended July 31, 1995, an
increase of $4,689, or 8%. This change is attributable to the increase
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in revenues, primarily a result of the acquisition of the AIT customer base.
Earnings per share were $.03 in the three months ended July 31, 1996 and for the
three months ended July 31, 1995.
COMPARISON OF YEAR ENDED APRIL 30, 1996 TO YEAR ENDED APRIL 30, 1995.
Sales. The Company's sales were $12,364,643 for the fiscal year ended
April 30, 1996 ('Fiscal 1996') compared to $9,538,095 for the fiscal year ended
April 30, 1995 ('Fiscal 1995'), an increase of $2,826,548, or 30%. This increase
in sales was primarily attributable to increased sales and marketing efforts
during the year. The Company also began marketing additional services such as
Internet access service and international call back service in the second half
of 1995, although such services's impact on revenues were nominal through April
1996.
Cost of Sales. Cost of sales was $9,009,131 for Fiscal 1996 compared to
$6,992,817 for Fiscal 1995, an increase of $2,016,314, or 29%. The increase in
cost of sales is attributable to the increase in sales. Cost of sales, as a
percentage of sales, was 73% for Fiscal 1996 and Fiscal 1995. There were no
significant price changes during Fiscal 1996.
Selling, General and Administrative Expense. SG&A was $2,835,316 in Fiscal
1996 compared to $2,074,127 in Fiscal 1995, an increase of $761,189, or 37%.
This increase was due primarily to increases in payroll costs resulting from the
employment of additional sales and customer service staff, increased commissions
paid to agents and distributors and an increase in bad debt expense, which is
related to the Company's corresponding increase in revenues. SG&A, as a
percentage of total sales, was 23% in Fiscal 1996 and 22% in Fiscal 1995.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $133,281 for Fiscal 1996 compared to $16,070 for Fiscal 1995, an
increase of $117,211. As a percentage of total sales, depreciation and
amortization was 1.1% for Fiscal 1996 compared to 0.2% for Fiscal 1995. The
increase was due to the acquisition of the TouchTone customer base during the
year.
Interest Expense, Net. Interest expense, as a percentage of total sales,
for Fiscal 1996 and Fiscal 1995 remained at less than 1%.
Income Taxes. Income taxes on operations, as a percentage of total sales,
was 1.4% for Fiscal 1996 and 1.6% for Fiscal 1995.
Net Earnings. Net earnings were $197,965 for Fiscal 1996 compared to
$281,904 in Fiscal 1995, a decrease of $83,939, or 30%. This resulted in
earnings per share of $.10 in Fiscal 1996 compared to $.15 in Fiscal 1995,
representing a decrease of approximately 33%. This decrease is largely
attributable to the increase in SG&A during Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements have been to fund the acquisition
of customer bases and increased levels of accounts receivable, which have
required substantial working capital. The Company has historically satisfied its
working capital requirements principally through cash flow from operations and
borrowings.
At July 31, 1996, the Company had a working capital deficit of $5,265,434,
as compared to working capital deficit of $851,072 at April 30, 1996. The
decrease in working capital was primarily attributable to the AIT Acquisition.
Net cash provided by operating activities was $215,518 for the three months
ended July 31, 1996, as compared to net cash provided by operating activities of
$326,379 for the three months ended July 31, 1995. The decrease in cash provided
by operating activities is primarily attributable to increases in accounts
receivable. Net cash used in investing activities was $5,630,989 for the three
months ended July 31, 1996, as compared to $170,131 for the three months ended
July 31, 1995. The significant increase is attributable to the acquisition of
the AIT customer base in July 1996. Net cash provided by financing activities
was $5,372,508 for the three months ended July 31, 1996, as compared to net cash
used in financing activities of $41,932 for the three months ended July 31,
1995. The increase in cash provided by financing activities is primarily
attributable to the proceeds of the Acquisition Loan. At July 31, 1996, the
Company had cash of $35,804.
Net cash provided by operating activities was $950,158 for the year ended
April 30, 1996, as compared to net cash provided by operating activities of
$381,217 for the year ended April 30, 1995. The increase in cash provided by
operating activities is primarily attributable to a decrease in accounts
receivable, an increase in amortization of customer acquisition costs and an
increase in accounts payable. Net cash used in investing
26
<PAGE>
activities was $952,398 for the year ended April 30, 1996, as compared to
$146,006 for the year ended April 30, 1995. The increase is attributable to the
acquisition of customer bases and the purchase of property and equipment. Net
cash used in financing activities was $42,046 for the year ended April 30, 1996,
as compared to $188,651 for the year ended April 30, 1995. The decrease in cash
used in financing activities is primarily attributable to the proceeds from the
exercise of options and a $100,000 loan from one of the Company's directors and
an unaffiliated third party, less repayment of debt of $132,822.
In June 1993, the Company entered into a Release and Settlement Agreement
with AT&T pursuant to which AT&T agreed to accept $1,200,000 from the Company
(which was further reduced to $1,042,500) in full satisfaction of the Company's
then outstanding accounts payable to AT&T of $1,548,642. The agreement obligated
the Company to pay AT&T in varying monthly installments until April 3, 1995. The
Company paid AT&T $165,000 during Fiscal 1995 and $10,000 during Fiscal 1996.
The Company is in default under its payment obligations to AT&T and, at August
31, 1996, the Company owed AT&T approximately $548,000.
In connection with the AIT acquisition in July 1996, the Company entered
into an agreement with Tel-Save pursuant to which it borrowed an aggregate of
$5,521,230 primarily to finance the purchase price of the acquisition. At
September 30, 1996, approximately $4.8 million was outstanding under the
Acquisition Loan. The Acquisition Loan originally required the Company to repay
such loan in equal monthly installments of $500,000 through July 1997, with the
entire principal amount and interest due and payable upon the consummation of a
public offering of the Company's securities. As of December 1996, the loan
agreement was amended to provide for $3.5 million to be repaid with a portion of
the proceeds of this offering, and for the balance to be payable in equal
monthly installments over the six month period following the consummation of
this offering, provided that this offering is consummated before January 31,
1997. In the event that this offering is not consummated by such date, the loan
agreement would revert to its original terms and obligate the Company to pay the
difference between the aggregate amount of payments made and the aggregate
amount it would have made had it made monthly payments of $500,000 since July
1996 and to continue to make monthly payments of $500,000 through July 1997. The
amended loan agreement also amended the Company's services agreement with
Tel-Save to provide for an increase in the minimum volume commitment to
$3,000,000 per month beginning November 1, 1997, and to require the Company and
Tel-Save to enter into a new services agreement by December 31, 1997, which
shall incorporate the terms of and supersede the existing services agreement.
All of the Company's assets (including the capital stock of AIT) are
pledged to Tel-Save as collateral for the Acquisition Loan and the Company is
prohibited from creating liens or security interests in the Company's assets,
which could limit the Company's ability to secure future financing. Gerald M.
Dunne, Jr., President and Chief Executive Officer of the Company, has personally
pledged all of the Common Stock of the Company owned by him to secure the
repayment of the Company's Acquisition Loan. In connection with the Acquisition
Loan, the Company issued a five-year warrant to TS Investment, Inc. ('TS'), an
affiliate of Tel-Save, to purchase 300,000 shares of Common Stock at an exercise
price of $5.50 per share. In connection with the amendment to the loan agreement
with Tel-Save, the Company issued a five-year warrant to TS to purchase 50,000
shares of Common Stock at an exercise price of $5.00 per share. See 'Certain
Transactions.'
In May 1996, the Company entered into an agreement with Gateway American
Bank of Florida ('Gateway') pursuant to which it borrowed $50,000, of which
$41,666.68 was outstanding at September 30, 1996. The loan bears interest at the
prime rate plus 2% and matures on May 2, 1997. In August 1996, the Company
entered into an agreement with Gateway which provides for a line of credit of up
to $50,000, of which $40,000 was outstanding at September 30, 1996. The line of
credit bears interest at the prime rate plus 1% and matures on August 1, 1997.
Repayment of the loan and the line of credit is secured by all of the Company's
equipment, machinery, furniture and general intangibles and is personally
guaranteed by Gerald M. Dunne, Jr., President and Chief Executive Officer of the
Company. See 'Certain Transactions.'
In September 1995, the Company issued a promissory note to John L.
Tomlinson, a director of the Company, and Phillip C. Cezeaux, an unaffiliated
third-party, in the aggregate principal amount of $100,000. The interest rate on
the promissory note adjusts semi-annually based on the prime rate plus 2% and
principal and interest are payable in equal monthly installments of $2,600 until
September 1997. At July 31, 1996, approximately $84,000 was outstanding under
such note. As an inducement for the loan, the Company issued options to Messrs.
Tomlinson and Cezeaux to purchase 47,635 shares of Common Stock at a price of
$3.15 per share. These options expire on September 30, 1997. See 'Certain
Transactions.'
In June 1996, the Company converted certain accounts payable to WorldCom
into a promissory note in the principal amount of $566,917 bearing interest a
rate of 15% per annum. The promissory note provides for the
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<PAGE>
Company to make equal monthly payments of $51,169 to WorldCom until June 6,
1997. At September 30, 1996, approximately $523,000 was outstanding under such
note. In connection with the issuance of such promissory note, the Company
entered into an agreement with WorldCom which grants WorldCom a security
interest in certain assets of Company, including accounts receivable, customer
lists, contractual rights and records relating to a services agreement entered
into by the Company and WorldCom in February 1994.
In July 1996, Global Telecom Network ('GTN'), a company controlled by
Gerald M. Dunne, Sr., the father of Gerald M. Dunne, Jr., President and Chief
Executive Officer of the Company, converted accounts payable to the Company for
long distance services provided into a promissory note in the principal amount
of $182,050 bearing interest at a rate of 15% per annum. The outstanding
principal amount of and accrued interest on the note is payable monthly and
matures on June 15, 1997. Gerald M. Dunne, Sr. has pledged 50,000 shares of the
Company's Common Stock owned by him to secure repayment of such promissory note.
See 'Certain Transactions.'
At July 31, 1996, the Company owed an aggregate of approximately
$ to stockholders of the Company. See 'Business--Legal Proceedings' and
Financial Statements.
The Company's accounts receivable, less allowance for doubtful accounts, at
July 31, 1996 were approximately $2,960,402, as compared to approximately
$1,201,710 at April 30, 1996. Of the Company's accounts receivable at July 31,
1996, approximately $369,000 were more than 90 days outstanding. Accounts
receivable averaged 45 days of sales for the year ended April 30, 1996, as
compared to 48 days through July 31, 1996. Increased accounts receivable days
outstanding could require the Company to use substantial working capital to
finance receivables as the Company seeks to expand its level of operations.
At July 31, 1996, the Company's allowance for doubtful accounts was
$512,000, as compared to $358,000 at April 30, 1996, which the Company believes
is currently adequate for the size and nature of its receivables. Nevertheless,
delays in collection or uncollectibility of accounts receivable could have a
material adverse effect on the Company's liquidity and working capital position
and could require the Company to increase its allowance for doubtful accounts.
Bad debt expense accounted for 3% of the Company's revenues for the year ended
April 30, 1996 and the three months ended July 31, 1996.
The Company's capital requirements have been and will continue to be
significant. The Company is dependent on the proceeds of this offering or other
financing to repay $3,500,000 of indebtedness to Tel-Save, fund its cash
requirements necessary to finance its anticipated growth in accounts receivable
and reduce its working capital deficit. Based on the Company's currently
proposed plans and assumptions relating to its operations, the Company believes
that the proceeds of this offering, together with projected cash flow from
operations, will be sufficient to satisfy its contemplated cash requirements for
at least twelve months following the consummation of this offering. In the event
that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of this offering or projected cash flow prove to
be insufficient to fund operations (due to unanticipated expenses, operating
difficulties or otherwise), the Company would be required to seek additional
financing sooner than anticipated or curtail its expansion activities. There can
be no assurance that any such additional financing will be available to the
Company on commercially reasonable terms, or at all.
EFFECTS OF INFLATION
The Company does not believe that inflation has had a significant impact on
its operations.
ACCOUNTING PRONOUNCEMENTS
In November 1995, the Financial Accounting Standards Board issued FASB No.
123 'Accounting for Stock-Based Compensation.' This standard encourages, but
does not require, recognition of compensation expense based on the fair value of
equity instruments granted to employees. The Company does not plan to adopt the
recognition provisions of this standard. The disclosures required by this
standard will be included in a note to the Company's financial statements for
the year ending April 30, 1997.
28
<PAGE>
BUSINESS
GENERAL
The Company provides long distance telephone and other telecommunications
services and products to approximately 34,700 customers as of September 30,
1996. The Company's customers are primarily small and medium-sized businesses
with average monthly billings of $5,000 or less located principally in the
Southeastern United States. In addition to its basic '1 plus' and '800' long
distance services, the Company offers local, Internet, international call-back,
e-mail and data services and prepaid long distance calling cards. As of
September 30, 1996, the Company marketed its services and products through 15
direct sales personnel, 4 in-house telemarketers, 57 independent distributors
and independent agents and telemarketers. The Company's sales increased by 30%
to $12.4 million for the fiscal year ended April 30, 1996 from the prior fiscal
year and increased by 79% to $5.7 million for the three months ended July 31,
1996 from the corresponding prior period.
The Company was incorporated under the laws of Florida in September 1995 by
ITC Integrated Systems, Inc. ('ITC'), an unaffiliated third party, under the
name Second ITC Corporation ('Second ITC') as the successor to the business of
Group Long Distance, Inc. ('GLD'), which was incorporated under the laws of
Florida in July 1990. In November 1995, GLD was merged into Second ITC in a
transaction in which 94% of the shares of Common stock of Second ITC were issued
to the stockholders of GLD and 6% of the shares of common stock of Second ITC
were distributed to the stockholders of ITC. Second ITC simultaneously changed
its name to Group Long Distance, Inc.
INDUSTRY BACKGROUND
The U.S. long distance industry is dominated by the nation's three largest
long distance carriers, AT&T, MCI and Sprint, which together accounted for 83%
of the $67 billion in aggregate revenues generated by all U.S. long distance
carriers in 1994 according to a December 1995 FCC report. Other long distance
carriers, some with national transmission capabilities, accounted for the
remainder of the market.
The telecommunications industry's structure has until recently been formed
by a 1984 court decree (the 'Consent Decree') between AT&T and the United States
Department of Justice which required the divestiture by AT&T of its Bell
operating companies and divided the country into 201 Local Areas and Transport
Areas ('LATAs'). The 22 Bell operating companies, which were combined into seven
Regional Bell Operating Companies ('RBOCs'), were allowed to provide local
telephone service, local access service to long distance carriers and service
within LATAs ('intraLATA service'). However, the right to provide service
between LATAs ('interLATA service') was restricted to AT&T and other long
distance carriers.
To encourage competition in the long distance market, the Consent Decree
and certain FCC regulations require most RBOCs and other local exchange carriers
('LECs') to provide access to local exchange services that is 'equal in type,
quality and price' to that provided to AT&T and with the opportunity to be
selected by customers as their preferred long distance carrier. These 'equal
access' provisions are intended to prevent preferential treatment of AT&T by
LECs and, with other regulatory, judicial and technological factors, have helped
smaller companies to become competitive alternatives to AT&T, MCI and Sprint for
long distance services. A December 1995 FCC report stated that as of December
31, 1994 there were 465 long distance carriers purchasing equal access services
from LECs in the United States. Included in these carriers are the 'first tier'
of AT&T, MCI and Sprint, a 'second tier' of somewhat smaller carriers, such as
WorldCom, Allnet Communications Services, Inc., Cable & Wireless Communications
and LCI International, and a 'third tier' of the remaining companies.
Major long distance carriers have historically charged higher rates to
small and medium-sized business customers than to large business customers.
Large business customers are often able to commit to large volumes of traffic
and so are able to negotiate low rates under individualized contracts, unlike
smaller businesses. The combination of FCC policy and economics has given rise
to 'resellers,' such as the Company, who negotiate low rates from carriers in
return for large volume commitments, and then either resell those services to
small and medium-sized businesses at a lower rate than these customers would
have otherwise paid, or resell the services to another reseller who then sells
them to the end-user.
Companies in the long distance industry are further differentiated by their
technological capabilities. Facilities-based carriers maintain switching
equipment, which is necessary to direct calls or data over the
29
<PAGE>
appropriate transmission line. Some smaller non-facilities-based providers,
known as 'switchless resellers,' gain the use of switches as part of their
contracts with facilities-based carriers. Other non-facilities-based providers,
known as 'switch-based resellers,' install their own switches in those areas
where they have sufficient volume to justify the capital expense and maintenance
costs.
The long distance industry may be significantly altered in the future by
two recent regulatory enactments. First, in October 1995 the FCC terminated
AT&T's previous price cap regulations regarding service to residences and small
businesses and now allows AT&T to file effective rate schedules on one day's
notice, thereby limiting competitors' previous ability to protest such tariffs.
These changes give AT&T increased flexibility that may permit it to compete more
effectively with smaller long distance service providers, such as the Company,
particularly in regard to the small business customers who compose the vast
majority of the Company's customer base. Second, on February 8, 1996, the
President signed the Telecommunications Act, designed to introduce more
competition into U.S. telecommunications markets. The Act increases the
potential for competition in both the long distance services market, by removing
the prohibitions against RBOCs providing long distance services, and in the
local services market by requiring LECs to permit interconnection to their
networks, thus allowing long distance and regional carriers to compete in local
markets. Due to these changes, the Company may be forced to compete with both
RBOCs and long distance carriers to a greater degree than in the past. See
'--Government Regulation' and '--Competition.'
The Company believes that the rapid evolution of the resale industry
presents an opportunity for consolidation of third-tier companies in general,
and resellers, in particular. Many of these companies are, in the Company's
opinion, undercapitalized and may have difficulty providing their services
profitably. The Company believes that many of the carriers that provide resale
products, particularly first-tier carriers, would welcome a consolidation of
resellers that would decrease the number of companies with whom they contract,
leaving only quality, well capitalized resellers with whom to deal.
Consolidation with other resellers could, in the Company's opinion, achieve
additional economies in both pricing with underlying carriers and in operating
costs such as customer service. Such economies are not certain and cannot be
adequately predicted. The Company does not have any current understanding
arrangement or agreement to consolidate with other resellers.
STRATEGY
The Company intends to actively pursue a strategy of continued growth and
will seek to expand the distribution of its services and products and maximize
penetration of new and existing geographic markets. Key elements of the
Company's growth strategy include:
Expand Distribution Channels. The Company intends to expand its marketing
activities by adding up to 15 direct sales personnel and 6 in-house
telemarketers as well as independent distributors, agents, and telemarketers. By
expanding these distribution channels, the Company will seek to maximize
exposure of its services and products.
Emphasize Product and Service 'Bundling.' The Company has increasingly
emphasized bundling of its basic long distance services with other services and
products, such as local telecommunications access, Internet access and fax
broadcast services. The Company believes that, if it is successful in bundling
services, it may increase revenue per customer and decrease customer attrition.
The Company also believes that such bundling will be attractive to small
businesses seeking to obtain a variety of services from one provider.
Develop Strategic Marketing Relationships. The Company intends to continue
to develop strategic marketing relationships with entities such as Scrip, a
large fundraising and educational consulting company, and with retail outlets to
expand distribution of its basic '1 plus' and '800' services as well as prepaid
calling cards and other products.
Improve Operating and Network Efficiencies. The Company has agreed to
place new customers' domestic switched, '1 plus' and '800' services on
Tel-Save's One Better Network, which will utilize the new AT&T 5 ESS 2000
digital switches. The Company believes that the increased efficiency of these
switches will shorten the Company's provisioning and billing and collection
cycles.
Expand Through Acquisitions. The Company operates in a highly fragmented
segment of the telecommunications industry and regularly evaluates possible
acquisition opportunities. The Company may seek to acquire smaller resellers and
customer bases in order to expand the distribution of its services and products
and maximize penetration in new and existing geographic markets. The Company
believes its existing infrastructure,
30
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including customer service, collections, provisioning and carrier agreements,
positions the Company to acquire customer bases with little corresponding
increase in overhead costs.
SERVICES AND PRODUCTS
Basic '1 plus' and '800' long distance services have historically accounted
for substantially all of the Company's revenues. For the year ended April 30,
1996 and the three months ended July 31, 1996, such services accounted for
approximately 97% and 94%, respectively, of the Company's revenues. The Company
has increasingly emphasized its other services and products which the Company
believes may generate higher margins than basic long distance service, and may
increase customer loyalty.
The Company currently offers the following services and products, which in
the aggregate accounted for 3% and 6%, respectively, of the Company's revenues
for the year ended April 30, 1996 and the three months ended July 31, 1996:
Prepaid Long Distance Calling Cards. The Company sells its 'EZ Call'
prepaid long distance calling cards directly to its customers. The Company's
calling card is paid for in advance and may also have additional time added to
it by using a major credit card. EZ Call limits a customer's liability for
stolen, lost, or cards abused by employees, since the minutes are pre-programmed
and added to each card in limited quantities at the direction of the customer.
The Company has also acted as a procuring agent for GTN in connection with
GTN's provision of prepaid calling cards to Target Stores ('Target'), a division
of Dayton Hudson Corporation ('Dayton Hudson'), a chain of retail department
stores, to be sold in their stores. In February 1996, GTN agreed to pay to the
Company 50% of all profits derived from sales to Target and Dayton Hudson. This
agreement generated approximately $176,000 and $44,000 of the Company's revenues
for the year ended April 30, 1996 and the three months ended July 31, 1996,
respectively.
In August 1996, the Company entered into an Independent Marketing
Distributor Agreement with Scrip Plus, Inc. ('Scrip'), a fundraising and
educational consulting company. The agreement grants Scrip the right to market
the Company's services and products, primarily the Company's prepaid calling
cards, to end users. The agreement provides for the Company to pay commissions
based on the services sold by Scrip. Beginning in August 1998, Scrip must sell a
minimum of $3,000,000 per month of the Company's services in order to receive
maximum commissions from the Company. Beginning in February 1998, if Scrip sells
less than $200,000 per month, it will be charged an administrative fee. The term
of the agreement is seven years and is automatically renewable for additional
one year terms unless either party notifies the other 45 days prior to the
expiration of the initial or any renewal term.
The Company also believes that a number of significant opportunities exist
for additional sales of prepaid calling cards though various distribution
channels, including retail outlets and large organizations, such as rental car
companies, airline travel organizations and restaurant chains. The Company will
seek to market the cards to end users through these organizations as well as
affinity groups such as the AFL/CIO and large service organizations such as
National Rental Car, which distribute the cards in connection with promotional
activities.
IntraLATA Toll Service. IntraLATA calls are non-local toll calls made
within a state. IntraLATA toll service allows IntraLATA calls to be billed by
the Company rather than the local telephone companies. Recent regulatory changes
permit customers to choose one company to provide both IntraLATA and long
distance service, meaning that the Company is able to add IntraLATA service for
existing long distance customers, enabling them to initiate their IntraLATA toll
calls in the same manner that a normal long distance call is initiated. By
offering this service, the Company believes it may be able to generate
additional revenues from current customers.
Internet Access. The Company has packaged a service which includes
Internet domain registration and services (e.g., design, placement and
advertising), Web sites, monthly access to the Internet for dial-up and
dedicated usage, and a discounted '800' service to respond and/or reply to the
customers' eventual order flow. The bundling of these services represents a
'one-stop-shopping' arrangement for the small and medium-sized business users
that do not employ computer/software specialists to serve their systems needs,
or that are managed by individuals who may not be skilled in the use of the
Internet. This package also includes E-mail, Web browser, Internet dialer and
search engines. The Company also offers facsimile-related services that allow a
user
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to send a facsimile to many destinations simultaneously (Fax Broadcast) and to
store and retrieve facsimiles in a manner similar to electronic mail (Fax
Mailbox).
International Service. The Company recently acquired switching facilities
in connection with the Gulf Acquisition that enable it to originate and transmit
international traffic worldwide. The Company's international services consist of
call through and call back services. Call through service utilizes programming
that allows an international caller to be connected via a U.S. based operator to
a U.S. based line at a lower rate than would be available in the country of
origin. Call back service is an alternate way of allowing international callers
to pay lower rates than would be available in their country of origin. The
caller places a call from outside the United States to the Company's switching
facilities. The switching program instantly disconnects the call, then recalls
the customer at a pre-designated number and switches the call to the ultimate
intended receiver, utilizing a lower United States rate. Currently, the
Company's primary marketing efforts are in the Caribbean basin, certain Latin
American countries, and Europe. The Company will seek to broaden its scope of
operations to include offering international switching services to
facilities-based resellers.
ACQUISITIONS
The Company has historically expanded its operations through the
acquisitions of customer bases. In June 1994 the Company acquired a customer
base of approximately 200 small businesses from ACTI, Inc. in consideration of
$80,000. In February 1995, the Company acquired a customer base of approximately
350 small businesses from Rockwell Communications, Inc. in consideration of
$37,045. In October 1995, the Company acquired a customer base of approximately
1,000 small businesses from Touchtone Network, Inc. in consideration of
$553,223.
In May 1996, the Company acquired all of the issued and outstanding capital
stock of Gulf in consideration of $25,000 in cash and the assumption of a
promissory note in the principal amount of $182,000. Such note is payable in
equal monthly installments of $10,000 and is due February 1, 1998. Gulf operates
switching equipment which allows it to act as an international call back and
call through provider. In addition, Gulf offers prepaid long distance calling
cards, Internet access, voice mail and facsimile broadcast services. Gulf's
assets included approximately 200 commercial customers.
In July 1996, the Company acquired all of the issued and outstanding
capital stock of AIT, including certain assets of DNS Communications, Inc.
('DNS'), a division of MATRIX Telecom, Inc. ('MATRIX'). Prior to the
acquisition, MATRIX had entered into long distance service agreements with
Tel-Save through DNS. On June 28, 1996, MATRIX assigned to AIT all of its
rights, duties and obligations to those DNS service agreements, including DNS's
customer base, in consideration of $5,271,230. Shortly thereafter, the Company
purchased all of the issued and outstanding stock of AIT, as well as the DNS
customer base, in consideration of $5,271,230 in cash and the issuance of
200,000 shares of the Company's Common Stock (of which 25% are subject to
certain holdback provisions for a six month period from the date of closing in
connection with certain indemnity provisions in favor of the Company). This
AIT/DNS customer base consisted of more than 30,000 small businesses at the time
of the acquisition.
LONG DISTANCE SERVICE PROVIDERS
The Company has entered into multiple-year service agreements with
Tel-Save, WorldCom and ICI and short-term agreements with other suppliers of
long distance telecommunication services. To obtain favorable forward pricing
from its underlying carriers, the Company has committed to purchase certain
minimum volumes of long distance services during stated periods. For the year
ended April 30, 1996 and the three months ended July 31, 1996, these commitments
aggregated approximately $3,200,000 and $1,347,500, respectively. Pursuant to
the Company's current agreements with Tel-Save and other carriers, the Company's
minimum volume commitments are expected to increase substantially during the
next two years.
For the year ended April 30, 1996 long distance calls carried by Tel-Save
(through AT&T) and WorldCom accounted for approximately 61% and 31%,
respectively, of the Company's revenues. For the three months ended July 31,
1996, long distance calls carried by Tel-Save (through AT&T), WorldCom and ICI
accounted for approximately 74%, 23% and 1%, respectively, of the Company's
revenues. The Company has entered into the following services agreements or
arrangements with long distance carriers which provide access to phone lines and
transmission facilities necessary to transmit customer calls.
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Tel-Save Agreement. In February 1993, the Company entered into a Partition
Agreement with Tel-Save, which was amended in July and November 1996. Pursuant
to such agreement, Tel-Save has agreed to provide long distance service to the
Company's customers through its AT&T partitions until the later of August 31,
1999 or the date that all of the Company's obligations to Tel-Save have been
satisfied. The Company's agreement with Tel-Save requires the Company, subject
to certain exceptions, to provide domestic switched, '1 plus' and '800' services
to all of the Company's new customers through Tel-Save's newly acquired AT&T
digital switching equipment. The agreement also provides that Tel-Save may
reprovision certain of the Company's existing customers onto Tel-Save's network.
Under the agreement, the Company is currently required to commit to a
minimum volume of $100,000 per month or pay the actual amount billed plus a
surcharge of $5,000 for such month. This minimum increases to $3,000,000 per
month commencing November 1, 1997. The agreement prohibits the Company from
incurring indebtedness for borrowed money (unless the Company has given Tel-Save
notice and the opportunity to provide any such financing), creating any liens or
security interests on its assets or properties or, subject to certain
exceptions, merging with another corporation or selling all or substantially all
of its assets. The agreement also prohibits the Company's directors, principals,
shareholders, agents and employees from engaging in certain competitive
activities during the term of the agreement and for a period of two years
thereafter. Tel-Save may terminate the agreement upon the happening of certain
events, including failure by the Company to pay amounts billed or demanded by
Tel-Save or any other debt when due or a judgment in excess of $20,000 is
entered against the Company.
WorldCom Agreement. In February 1996, the Company entered into a Rebiller
Service Agreement with WorldCom, pursuant to which WorldCom has agreed to
provide 'WorldOne' long distance services to the Company's customers pursuant to
applicable FCC and state tariffs through July 31, 2000, unless otherwise
terminated by either party upon thirty days' prior written notice. The Company's
agreement with WorldCom requires the Company to pay the actual amount billed or
a minimum of $500,000 per month, increasing to $750,000 per month in April 1997
and $1,000,000 per month in August 1997. In the event it fails to satisfy such
minimum commitment, the Company is required to pay a deficiency charge equal to
the difference between actual charges and the minimum commitment. WorldCom may,
upon 90 days' prior written notice, increase the rates charged to the Company to
offset an increase in the costs of providing service as a result in a change in
applicable regulations.
ICI Agreement. In April 1996, the Company entered into a Switched Reseller
Services Agreement with Phone One, Inc., a wholly owned subsidiary of ICI. The
agreement provides that ICI will supply long distance service to the Company and
its customers pursuant to applicable FCC and state tariffs. The agreement
requires that the Company purchase a minimum commitment of service from ICI of
$200,000 per month increasing to $225,000 per month in November 1996 and
$250,000 per month beginning in December 1996. If the Company fails to meet such
minimum commitment for any period of three consecutive months, the Company must
pay a deficiency charge equal to the difference between actual charges and the
minimum commitment.
UUNET Agreement. In February 1996, the Company entered into a Network
Services Agreement with UUNET pursuant to which UUNET agreed to provide
telecommunications services to interconnect the Company's customers to the
Internet. The term of the agreement is one year and is automatically renewable
for additional one year terms, unless terminated by either party upon not less
than 60 days notice prior to the end of any current term. The Company has agreed
to commit to purchase a minimum of $7,500 per month of service and is entitled
to receive certain discounted rates commensurate with higher commitment levels.
The Company's carriers rely on numerous regional and local telephone
companies to provide call origination and termination services to the Company's
customers.
MARKETING AND SALES
The Company markets its services and products through three distinct
channels: direct sales personnel; independent agents, distributors and
telemarketers; and on a wholesale basis, smaller resellers. The Company targets
commercial customers with telecommunications usage of under $5,000 per month.
The Company believes that AT&T, MCI and Sprint historically have chosen not to
concentrate their direct selling effort on this segment of the market. The
Company's target customers generally do not qualify for the major carriers'
volume discounts or for the level of support services made available to higher
volume users.
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Direct Sales. The Company relies on its direct sales and field service
personnel for a substantial portion of its revenues. The Company's direct sales
personnel receive an initial commission for securing a sale and a residual
commission so long as that customer and the direct sales personnel remain with
the Company. The Company's field service personnel follow up with existing
customers by offering them new value-added services, for which the personnel
also receive a commission. As of September 30, 1996, the Company had 15 direct
sales personnel and 4 in-house telemarketing personnel. The Company intends to
use a portion of the proceeds from this offering to hire up to 15 additional
direct sales personnel and 6 additional in-house telemarketers. Sales of long
distance and other services by the Company's direct sales personnel and from
acquisitions accounted for approximately 73% and 89%, respectively, of the
Company's revenues for the year ended April 30, 1996 and the three months ended
July 31, 1996.
Distributors and Agents. The Company supplements its direct sales efforts
by marketing through a nationwide network of approximately 57 independent
distributors and agents, which generally include distributors of office
equipment and supplies. These distributors and agents enter into agreements
providing for commissions on business generated for the Company. The Company
typically grants a nonexclusive right to solicit customers and requires its
distributors to maintain a minimum quota. Some of the Company's new distributors
have substantial telemarketing programs, and the Company believes that sales
through this channel may increase the number of small volume customers. Although
there are higher costs associated with sales to smaller customers, sales to such
customers generally have higher margins. Sales of long distance and other
services through distributors and agents combined accounted for approximately
20% and 10%, respectively, of the Company's revenues for the year ended April
30, 1996 and the three months ended July 31, 1996.
Resellers. In April 1995, the Company commenced offering
telecommunications services on a wholesale basis to small resellers of long
distance services. Although gross margins on sales to resellers are generally
lower than the Company's average, sales through this channel enable the Company
to enter markets with minimal cost or risk where small resellers have already
built strong direct relationships with their customers. The Company believes
that reseller customers also provide opportunities for growth as candidates for
acquisitions. Sales of long distance and other services through resellers
accounted for approximately 7% and 1%, respectively, of the Company's revenues
for the year ended April 30, 1996 and the three months ended, July 31, 1996.
COMPETITION
The Company faces intense competition in the marketing and sale of its
services and products. The Company's long distance, prepaid long distance
calling cards, Internet and other services and products compete for consumer
recognition with other long distance, calling card, Internet and other services
and products which have achieved significant international, national and
regional consumer loyalty. Many of these services and products are marketed by
companies which are well-established, have reputations for success in the
development and sale of services and products and have significantly greater
financial, marketing, distribution, personnel and other resources than the
Company. These resources 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
and products. Certain of these competitors, including AT&T, MCI
Telecommunications Corporation ('MCI') and Sprint Corporation ('Sprint'),
dominate the industry and have the financial resources to enable them to
withstand substantial price competition which has continued to increase. These
and other large telephone companies have also entered or have announced their
intention to enter into the prepaid phone card and Internet segments of the
telecommunications industry. Because the reseller segment of the
telecommunications industry has no substantial barriers to entry, competition
from smaller resellers in the Company's target markets is also expected to
continue to increase significantly. The markets for telecommunications services
and products are also characterized by rapidly changing technology and evolving
industry standards, often resulting in product obsolescence or short product
life cycles. The proliferation of new telecommunications technologies, including
personal communication services, cellular telephone services and products and
prepaid phone cards employing alternative 'smart' card technologies, may reduce
demand for traditional land-line long distance telephone services generally and
the Company's services in particular. The Company's success will depend on the
Company's ability to anticipate and respond to these and other factors affecting
the industry, including changes in customer preferences, business and
demographic trends, unfavorable general economic conditions and discount pricing
strategies by competitors.
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Recent regulatory changes may also result in significantly increased
competition. In October 1995, the FCC terminated AT&T's designation as a
dominant carrier, which will make it easier for AT&T to compete directly with
the Company for low volume commercial long distance customers. Also, the
recently adopted 1996 Telecommunications Act is designed to introduce increased
competition in domestic telecommunications markets by facilitating the entry of
any entity (including cable television companies and utilities) into both the
long distance and local telecommunications markets. Consequently, such act
increases the potential for increased competition by permitting long distance
and regional carriers to compete in local markets and well-established and
well-capitalized Regional Bell Operating Companies and local exchange carriers
to compete directly against the Company in long distance markets. There can be
no assurance that the Company will be able to continue to compete successfully,
particularly as it seeks to enter into new markets and market new services and
products.
GOVERNMENT REGULATION
The Company's provision of telecommunications services is subject to
government regulation. Federal law regulates domestic interstate and
international telecommunications, and state law regulates telecommunications
that originate and terminate within the same state. Furthermore, in February
1996 the President signed the 1996 Telecommunications Act, which affects both
local and long distance telecommunications.
The 1996 Telecommunications Act. The President signed the 1996
Telecommunications Act into law in February 1996. The legislation is designed to
increase competition in both the local and long distance telecommunications
markets. The legislation opens the local markets by requiring LECs to permit
interconnection to their networks by long distance and regional services
providers and through creating LEC obligations regarding unbundled access,
dialing parity, access to rights-of-way, resale, number portability, mutual
compensation and other matters. Additionally, the legislation codifies the LECs'
equal access and nondiscrimination obligations and preempts inconsistent state
law. Through these requirements, the legislation allows long distance and
regional services providers to enter the local services markets.
The legislation also removes the prohibitions against RBOCs providing
InterLATA long distance services. The new provisions allow a RBOC to provide
these services 'out-of-region' (where it is not the LEC) immediately after
obtaining any state and/or federal regulatory approvals necessary to the
provision of long distance service. A RBOC may also provide long distance
service 'in-region' after it obtains FCC approval by showing that
facilities-based competition is present in its market and that it has entered
into interconnection agreements which satisfy a 14-point checklist of
competitive requirements. The legislation defines in-region service to include
every state, in its entirety, in which the RBOC provides local exchange service,
even if the RBOC is not the incumbent local exchange provider in all parts of
that state.
The Company will face new competition from the RBOCs that are able to
obtain the required state or FCC approvals to provide in-region or out-of-region
InterLATA long distance services. However, the legislation does establish
certain safeguards to prevent anticompetitive abuse by RBOCs. The legislation
restricts the ability of RBOCs to market jointly InterLATA long distance
services together with local services. RBOCs may engage in such efforts only
through separate subsidiaries with separate books and records, management,
financing and employees. RBOCs also may not package local and long distance
services unless they permit competitors to offer similar packages. Moreover,
RBOCs must obtain in-region long distance authority before they may market local
and long distance services jointly in a state. The adequacy of these safeguards
against anticompetitive abuse by RBOCs and any effect of such conduct on the
Company cannot be determined.
Federal Regulation. Both domestic and international non-dominant carriers
must maintain tariffs on file with the FCC. The tariffs of non-dominant
carriers, such as the Company, are presumed lawful and are seldom contested,
although those tariffs and the rates and charges they specify are subject to FCC
review. Prior to a 1995 court decision, domestic non-dominant carriers were
allowed by the FCC to file tariffs with a 'reasonable range of rates' instead of
the detailed schedules of individual charges required of dominant carriers.
After such court decision, which required detailed rate schedules for domestic
offerings in their tariffs, the Company and most of its competitors relied on
the FCC's past practice of allowing relaxed tariff filing requirements for
non-dominant carriers and did not maintain the required detailed rate schedules.
Until the two-year statute of limitations expires, the Company could be held
liable for damages for its failure to do so, although it believes that such an
outcome is highly unlikely and would not have an adverse effect on it. In order
to recover damages, a competing telecommunications provider would need to
demonstrate that the Company's failure to file detailed rate
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schedules caused that other service provider to lose customers and that the
Company should be held liable for the damages. The possible extent of such
damages, if any, cannot be determined by the Company.
In March 1996 the FCC proposed to eliminate the requirement that
nondominant interstate carriers such as the Company file tariffs with the FCC
for domestic interstate services. The FCC also requested public comment on
whether any other regulations presently imposed on nondominant carriers be
eliminated. It is not known when the FCC will act on this proposal.
AT&T was previously classified as a dominant carrier, but the FCC in
October 1995 granted AT&T nondominant status in the domestic market. As a
result, past price cap restrictions on AT&T's service to residences and small
business have been terminated, which could result in greater price competition
for the Company. Moreover, the FCC also now allows AT&T to file effective
tariffs on one day's notice, thereby limiting competitors' previous ability to
protest such tariffs.
Among domestic local carriers, only the current LECs are presently
classified by the FCC as dominant carriers for the provision of interstate
access services. This means that the FCC regulates many of the LECs' rates,
charges and services to a larger degree than the Company's. The FCC's regulation
of LECs is expected to decrease over time, especially given the 1996
Telecommunications Act. The FCC has proposed that RBOCs that provide
out-of-region long distance services be regulated as nondominant carriers.
State Regulation. The intrastate long distance operations of the Company
are also subject to various state laws and regulations, including prior
certification, notification and registration requirements. The vast majority of
states require the Company to apply for certification to provide intrastate
telecommunications services, or at least to register or be found exempt from
regulation, before commencing intrastate services. Most states also require the
Company to file and maintain detailed tariffs listing their rates for intrastate
service. Many states also impose various reporting requirements and/or require
prior approval for transfers of control of certified carriers, assignment of
carrier assets, including customer bases, carrier stock offerings and incurrence
by carriers of significant debt obligations. Certificates of authority can
generally be conditioned, modified, cancelled, terminated or revoked by state
regulatory authorities for failure to comply with state law and/or the rules,
regulations and policies of the state regulatory authorities. Fines and other
penalties may also be imposed for such violations.
The Company provides long distance service in all or some portions of 50
states for which the Company has filed a tariff with FCC. The Company is
authorized, pursuant to state regulations, certifications, tariffs or
notifications or on an unregulated basis, to provide intrastate service in 39
states and is in the process of obtaining approvals in 6 additional states. The
Company expects to obtain authority to operate in each jurisdiction where
authority is required, but there can be no assurance that one or more of these
jurisdictions will not deny the Company's request for operating authority.
OPERATIONS AND CUSTOMER BILLING SERVICE
Total Order Processing System ('TOPS') is the Company's customer operations
and information management system. The system provides efficient processing of
new customer orders from the Company's sales personnel and independent
telemarketers, distributors and agents to the Company's long distance services
carriers.
The processing of new customer orders begins with the sale of the Company's
services to the customer by the Company's direct sales personnel or independent
distributors, agents or telemarketers. The orders are sent to the TOPS system,
which processes the orders for entry into the Company's database. The Company
executes a credit check on orders based on certain criteria and rejects those
that fail to meet the Company's qualifications. The TOPS system formats and
electronically forwards each order to the appropriate long distance carrier.
Upon successful activation of the new customers' accounts by the carriers
and LECs, customers can utilize the Company's services. The Company, through
Tel-Save, offers billing services provided by AT&T and AT&T's ACUS, a
wholly-owned subsidiary of AT&T. ACUS processes call details and bills the
Company's customers directly. Customers remit payment to a lock-box designated
by Tel-Save. The Company also offers direct billing services to customers
serviced by WorldCom and ICI. The Company receives monthly records from its
carriers which detail the calls made by its customers, and checks the carriers'
records against its own records for accuracy. The Company initiates collection
calls to resolve nonpayment by customers, and engages third party collection
agencies if such efforts are unsuccessful.
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The Company strives to reduce initial attrition rates and develop long-term
customer relationships through continuous communication with its customer base.
Customers solicited by the Company's telemarketers are contacted to verify their
orders, and the Company's customer service personnel conduct periodic audits of
new customers to evaluate their satisfaction with the Company's services.
Customer service personnel also field customer-initiated calls regarding billing
questions and problems to provide immediate resolution of issues and inquiries.
EMPLOYEES
As of September 30, 1996, the Company employed 54 persons on a full-time
basis, with 22 in sales and marketing, 19 in customer service, collection and
provisioning, 8 in administration and 5 in senior management. The Company
considers relations with its employees to be satisfactory.
FACILITIES
The Company's executive offices are located at 1451 West Cypress Creek
Road, Suite 200, Fort Lauderdale, Florida 33309. The Company has entered into a
four-year lease which expires in March 2000, for 7,950 square feet. The Company
pays approximately $8,000 per month, and the rent is subject to a 4% adjustment
on an annual basis. The Company also has a sales office in Orlando located at
1555 Howel Branch Road, Suite C208, Winter Park, Florida 32789. The Company has
entered into a three-year lease, expiring on December 31, 1998 for 925 square
feet. The Company pays $1,020 per month, and the rent is subject to a 4%
adjustment on an annual basis.
LEGAL PROCEEDINGS
Nortel, Inc. ('Nortel') and Accutel Communications, Inc. ('Accutel') have
filed combined suits against the Company alleging causes of action for
anticipatory breach of contract and breach of contract arising from the
termination by the Company of service under a service contract and independent
marketing distributor agreement with each party. The Company terminated the
telephone services of Nortel and terminated the distributor relationship with
Accutel for breaches of contract, including the failure to comply with the
payment terms of their contracts. Nortel and Accutel claim that the Company
anticipatorily and wrongfully terminated their contracts, and Accutel claims
that the Company owes it $89,663.91 in unpaid commissions. Nortel sued for an
injunction against the Company's termination of telephone services and was
awarded an ex-parte temporary injunction, but at a hearing for dissolution of
the order the Court immediately ordered the dissolution of the prior injunction
and ordered all parties to attend mediation. The Company believes it was
justified in terminating service in accordance with the contracts and intends to
vigorously defend its position. However, there can be no assurance as to the
possible outcome of this action.
Between October 1991 and June 1991, the Company borrowed an aggregate of
approximately $125,000 from Mr. Harold L. Sutton, a stockholder of the Company.
As of April 30, 1996, the Company owed Mr. Sutton approximately $17,069. In
connection with such borrowings the Company at various times pledged securities
to secure its obligations. The Company and Mr. Sutton currently are in dispute
with respect to the ownership of 100,000 shares of Common Stock originally
pledged to secure the Company's borrowings from Mr. Sutton. While neither the
Company nor Mr. Sutton has commenced legal proceedings in connection with this
matter, there can be no assurance as to the outcome of such dispute.
The Company is from time to time the subject of complaints or litigation in
the ordinary course of its business. The Company believes that the lawsuits,
claims and other legal matters to which it has become subject are not material
to the Company's financial condition or results of operations, but an existing
or future lawsuit or claim resulting in an adverse decision against the Company
could have a material adverse effect on the Company's financial condition and
results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Gerald M. Dunne, Jr............................. 34 President, Chief Executive Officer, Chief
Financial Officer, and Director
Andrea A. Morey................................. 38 Vice President--Administration and Secretary
Michael A. Mueller.............................. 39 Vice President--Marketing
Jeffrey A. Ullman............................... 36 Vice President--Sales
Sam D. Hitner................................... 39 Controller
Edward Harwood.................................. 70 Director
C. Shelton James................................ 57 Director
Glenn S. Koach.................................. 41 Director
John L. Tomlinson............................... 48 Director
</TABLE>
Gerald M. Dunne, Jr. has been President, Chief Executive Officer, Chief
Financial Officer, and a director of the Company since February 1992. From May
1989 to February 1992, Mr. Dunne was Senior Vice President and Vice President of
Sales of the Company. From January 1986 to September 1988, Mr. Dunne was in the
Accounting Department at the Battery Products Division of Union Carbide. Mr.
Dunne is a member of the Telecommunications Resellers Association.
Andrea A. Morey has been Vice President--Administration of the Company
since November 1994 and Secretary since April 1991. Ms. Morey joined the Company
in 1989 as an account representative and became Director of Operations in 1991.
From 1986 to 1989, Ms. Morey was Director of Administration of the South Florida
law firm of Tew, Jorden & Schulte.
Michael A. Mueller has been Vice President of Marketing of the Company
since February 1992. From August 1991 to February 1992, Mr. Mueller was the
Company's Director of National Sales. From December 1990 to June 1991, Mr.
Mueller was the General Manager of the Traditional Products Division of MODCOMP,
an industrial automation company. From December 1984 to September 1987, Mr.
Mueller was a Product Marketing Manager at Gould Electronics Corporation
('Gould'), a computer manufacturing company.
Jeffrey A. Ullman has been Vice President of Sales of the Company since
October 1994. From May 1993 to October 1994, Mr. Ullman was the Company's
Regional Sales Manager and, from April 1992 to May 1993, Mr. Ullman was the
Company's Sales Manager in the Orlando office. From May 1991 to May 1992, Mr.
Ullman owned and managed Phymed Services, Inc., a medical supply company.
Sam D. Hitner has been the Controller of the Company since August 1995.
From November 1994 to August 1995, Mr. Hitner was employed with John L.
Tomlinson C.P.A., P.A. as a tax consultant. From September 1992 to July 1994,
Mr. Hitner was Controller of the sales and marketing division of South African
Druggists, a publicly held pharmaceutical manufacturer and distributor. From
October 1989 to September 1992, Mr. Hitner was Controller of the sales and
marketing division of Protea Electronics, a division of Protea Technology, a
publicly held corporation, which division was involved in the sale and repair of
sophisticated electronic equipment. Mr. Hitner is qualified as a Chartered
Accountant (S.A.) in South Africa.
Edward Harwood has been a director of the Company since September 1995. Mr.
Harwood retired in 1989. For the 19 years prior thereto, Mr. Harwood held
various executive positions with Gould.
C. Shelton James has been a director of the Company since September 1995.
Mr. James has been Chairman and Chief Executive Officer of Elcotel, a publicly
traded corporation and manufacturer of telecommunications equipment, since May
1991. Mr. James also serves as a director of the following public corporations:
NAI
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Technologies, a manufacturer of computers, SK Technologies, a point of sale
software company, Cyberguard Corporation, an Interest Security company,
Concurrent Computer Systems, a real time computer company and CSPI a
manufacturer of high performance computers. Mr. James also has been the
President and Director of Fundamental Management, an investment management
company, since 1990. From 1980 to 1989, Mr. James served as Executive Vice
President of Gould and as President of its computer systems division.
Glenn S. Koach has been a director of the Company since September 1995.
Since 1984, Mr. Koach has been a Principal and Investment Manager of Riverside
Capital Advisors, an investment company based in South Florida. Mr. Koach also
has served as Chairman of the Board of Metro Airlines from since 1994.
John L. Tomlinson has been a director of the Company since November 1995.
Mr. Tomlinson is a Certified Public Accountant and has been in private practice
since 1990. Prior to 1990, Mr. Tomlinson was the Vice President of Finance for
All Metals Service and Warehousing, Inc. Mr. Tomlinson also serves as a director
of Gateway American Bank of Florida.
The Company has a classified Board of Directors currently consisting of
five members. The directors are divided into three classes. The term of office
of the directors expires following the date of this Prospectus as follows: Class
1, at the first annual meeting of stockholders, Class 2, at the second annual
meeting of shareholders; and Class 3, at the third annual meeting of
stockholders. Thereafter, the term of office of each director will expire at the
third annual meeting of stockholders following his or her election. Mr. John
Tomlinson is a Class 1 director. Messrs. Edward Harwood and C. Shelton James are
Class 2 directors and Messrs. Glenn S. Koach and Gerald M. Dunne, Jr. are Class
3 directors. Having a classified Board of Directors may be viewed as inhibiting
a change of control of the Company and having a possible anti-takeover effect
because it would take at least two annual meetings to change control of the
Board of Directors by stockholder vote.
The Company has also agreed, for a period of three years following
consummation of this offering, if so requested by the Representative, to
nominate and use its best efforts to elect a designee of the Representative as a
director of the Company, or, at the Representative's option, as a non-voting
adviser to the Company's Board of Directors subject to execution of a
confidentiality agreement with such non-voting adviser. [The Company's officers,
directors and certain principal stockholders have agreed to vote their shares in
favor of such designee.] The Representative has not yet exercised its right to
designate such a person. The Representative's designee elected will be a Class 1
director.
The Company intends to hire a Chief Financial Officer following
consummation of this offering.
The Company maintains a life insurance policy in the amount of $1,000,000
on Gerald M. Dunne, Jr., its Chief Executive Officer. The proceeds of the policy
are payable to the Company.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee is composed of Glenn Koach, C.
Shelton James and John Tomlinson. Mr. Tomlinson is the Chairman. The Audit
Committee is responsible for recommending to the Board of Directors the
engagement of independent auditors of the Company and reviewing with the
independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors.
Compensation Committee. The Compensation Committee is composed of C.
Shelton James and Edward Harwood. Mr. James is the Chairman. The Compensation
Committee is responsible for reviewing and approving all compensation
arrangements for officers and executive management of the Company.
EMPLOYMENT AGREEMENT
Effective upon consummation of this offering, the Company and Gerald M.
Dunne, Jr. will enter into a two-year employment agreement providing for his
employment as the Company's President and Chief Executive Officer with an annual
base salary of $130,000 for the first year, increasing to $150,000 for the
second year. The agreement will also provide for a bonus based on certain
earnings criteria. The agreement provides that in the event of termination: (i)
without cause or by Mr. Dunne for cause, or by either party in connection with a
change in control of the Company, Mr. Dunne will receive a lump sum severance
pay equal to his then annual base
39
<PAGE>
salary and disability, accident and health insurance benefits substantially
similar to those insurance benefits Mr. Dunne is receiving immediately before
the termination for cause; (ii) as a result of the incapacity of Mr. Dunne, Mr.
Dunne shall be entitled to continue to receive 60% of his salary for a two-year
period from the date of termination; and (iii) as a result of the death of Mr.
Dunne, Mr. Dunne (or his estate) shall be entitled to any benefits accrued under
the Company's death, disability or other benefit plan and shall be entitled to
receive a lump sum payment equal to his then annual base salary. The agreement
also includes a one-year noncompete covenant commencing on the date of
termination.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities paid to the Company's
Chief Executive Officer during the fiscal year ended April 30, 1996. No other
executive officer received a total salary, bonus and other compensation in
excess of $100,000 during such year.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------------
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING
FISCAL OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (#) COMPENSATION
- -------------------------------------------- ------ ------- ------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gerald M. Dunne, Jr.
President, Chief Executive Officer and
Chief Financial Officer................... 1996 $93,000 $41,808(1) $38,126(2) -- --
All Directors as a Group (3)................ 1996 0.00 0.00 0.00 -- --
</TABLE>
- ------------------
(1) Comprised of subjective and profitability bonuses. The subjective bonus was
composed of qualitative performance objectives set by the Board of
Directors. The profitability bonus was earned by the attainment of
prescribed revenue and profit levels.
(2) Comprised of commission and royalty income of $30,926 earned from sales
generated, reimbursements of automobile expenses and approximately $2,000
per annum for premium payments on the Company's Group HMO Health and
Dental policy. No other employee received automobile reimbursements to
this extent although other employees were reimbursed for some automobile
related expenses.
(3) Through April 30, 1996, no Board member received compensation for his role
on the Board. John L. Tomlinson, C.P.A., P.A., an accounting firm owned by
and managed by Mr. John L. Tomlinson, a director of the Company, received
$14,060 in connection with accounting services rendered by such firm to the
Company during the 1996 fiscal year.
The following table sets forth certain information for the executive
officers with respect to the exercise of options to purchase Common Stock during
the fiscal year ended April 30, 1996 and the number and value of securities
underlying unexercised options held by the executive officers as of April 30,
1996.
AGGREGATED OPTION/SAR EXERCISES IN THE YEAR ENDED
APRIL 30, 1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD IN-THE-MONEY OPTIONS
SHARES AT APRIL, 1996(#) AT APRIL, 1996($)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald M. Dunne, Jr................ 47,635 $ 0.00 0 0 0 0
</TABLE>
40
<PAGE>
STOCK OPTION PLAN
In October 1996, the Company's board of directors approved a Stock Option
Plan (the 'Plan'). The Plan will be submitted for approval by the shareholders
of the Company. The Plan permits the granting of stock options to eligible
participants. The Plan permits the granting of both incentive stock options
(which are entitled to certain favorable treatment under the Internal Revenue
Code of 1986) and nonqualified stock options (i.e., options which are not
intended to be incentive stock options). A total of 600,000 shares of Common
Stock will be available for issuance. Employees and consultants of the Company
and its subsidiaries are eligible to be selected to receive options. The Plan
also provides for the automatic grant of stock options to nonemployee members of
the Company's Board of Directors although the Board of Directors has not yet
determined the number and terms of such options. Nonemployee director options
will be granted pursuant to an automatic, nondiscretionary formula.
The Plan is administered by a committee of nonemployee members of the Board
of Directors (the 'Committee'). Subject to the terms of the Plan, the Committee
has the sole discretion to determine the employees and consultants to whom
options will be granted and the terms and conditions of such options. The
exercise price of stock options and stock appreciation rights granted under the
Plan cannot be less than 100% of the fair market value (on the date of grant) of
the shares covered by the option (110% of fair market value in the case of
certain incentive stock options granted to a 10% shareholder).
OUTSTANDING OPTIONS AND WARRANTS
To date, the Company has granted options to purchase 514,216 shares of
Common Stock. Of such options, options to purchase 438,000 shares of Common
Stock were issued at an exercise price of $5.0625 per share under the Plan.
These options are exercisable for a period of five years. As to options to
purchase an aggregate of 300,000 shares of Common Stock, granted to Mr. Dunne,
Jr. and other directors such options vest 50% immediately upon grant and 50% one
year later. As to the remaining options issued to employees of the Company to
purchase 138,000 shares of Common Stock, such options vest incrementally on a
quarterly basis over a three year period. In addition, options to purchase an
aggregate 76,216 shares of Common Stock, which were issued to directors,
employees and other shareholders, are exercisable at a weighted average exercise
price of $2.23 per share. These options which were issued outside the Plan
expire at various times through September 30, 1997. The Company has issued
350,000 warrants at a weighted average exercise price of $5.64.
INDEMNIFICATION
The Company's by-laws provide for indemnification rights of officers,
directors, and others and limited the personal liability of directors for
monetary damages to the extent permitted by Florida law. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted for directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock as of September 30, 1996 and as adjusted to
reflect the sale of Common Stock offered hereby by (i) all shareholders who
beneficially own, to the knowledge of the Company, 5% or more of the Common
Stock, (ii) each executive officer of the Company, (iii) each director of the
Company, and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OWNERSHIP
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
- --------------------------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Mr. Gerald M. Dunne, Jr.(3)...................................................... 322,754 13.7% 8.9%
Ms. Andrea Morey(4).............................................................. 28,649 1.3 *
Mr. Michael A. Mueller(4)........................................................ 20,074 * *
Mr. Jeffrey A. Ullman(4)......................................................... 16,527 * *
Mr. Sam D. Hitner(5)............................................................. 1,250 * *
Mr. C. Shelton James
4101 N. Ocean Blvd.
Apt. 405D
Boca Raton, Florida 33431(6)................................................... 106,698 4.7 3.0
Mr. Edward Harwood
4100 Galt Ocean Drive
Apt. 614
Ft. Lauderdale, Florida 33308(6)............................................... 79,451 3.5 2.3
Mr. Glenn S. Koach
2320 N.E. 9th Street
Suite 300
Ft. Lauderdale, Florida 33304(6)............................................... 50,966 2.2 1.4
Mr. John L. Tomlinson
500 West Cypress Creek Rd.
Suite 455
Fort Lauderdale, Florida 33309(6)(7)........................................... 62,779 2.7 1.8
Gerald M. Dunne, Sr. Trust
2502 S.W. Racquet Club Dr.
Palm City, Florida 34990(8).................................................... 303,013 13.4 8.6
Tel-Save Holdings, Inc.
c/o Tel-Save, Inc.
6805 Route 202
New Hope, Pennsylvania 18938(9)................................................ 350,000 13.4 9.1
All directors and executive officers as a group (9 persons)(3)(6)(7)(10)......... 689,148 28.0 18.6
</TABLE>
- ------------------
* Represents beneficial ownership of less than 1%.
(1) The address of each person listed, unless otherwise indicated, is c/o Group
Long Distance, Inc., 1451 West Cypress Creek Road, Suite 200, Fort
Lauderdale, Florida 33309.
(2) As used in this table 'beneficial ownership' means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to have 'beneficial ownership' of any security
that such person has a right to acquire within 60 days of the date of this
Prospectus. Any security that any person named above has the right to
acquire within 60 days is deemed to be outstanding for purposes of
calculating the ownership percentage of such person but is not deemed to be
outstanding for purposes of calculating the ownership percentage of any
other person. Unless otherwise noted, each person listed has the
(Footnotes continued on next page)
42
<PAGE>
(Footnotes continued from previous page)
sole power to vote, or direct the voting of, and power to dispose, or direct
the disposition of, all of such shares.
(3) Includes 100,000 shares of Common Stock issuable upon exercise of presently
exercisable options (the grant of which remains subject to shareholder
approval) at an exercise price of $5.0625 per share and having an expiration
date in 2001.
(4) Includes 2,500 shares of Common Stock issuable upon exercise of options (the
grant of which remains subject to shareholder approval) exercisable within
60 days from the date hereof at an exercise price of $5.0625 per share and
having an expiration date in 2001.
(5) Includes 1,250 shares of Common Stock issuable upon exercise of options (the
grant of which remains subject to shareholder approval) exercisable within
60 days from the date hereof at an exercise price of $5.0625 per share and
having an expiration date in 2001.
(6) Includes 10,000 shares of Common Stock issuable upon exercise of presently
exercisable options issued to each of the non-employee directors (the grant
of which remains subject to shareholder approval). The options expire in
1998 and are exercisable at an exercise price of $5.0625 per share.
(7) Includes 47,635 shares of Common Stock underlying an option previously
granted to Mr. Tomlinson and an unaffiliated third party exercisable at
$3.15 per share through September 30, 1997.
(8) The Trustors and beneficiaries of the Trust are Mr. Gerald M. Dunne, Sr. and
Ms. Paulette Dunne. Ms. Dunne also owns 5,716 shares of Common Stock
individually. Mr. Dunne, Sr. and Ms. Dunne are the parents of Gerald M.
Dunne, Jr., the Chief Executive Officer and President of the Company. Mr.
Dunne, Jr. is neither a Trustor, nor a beneficiary, nor a Trustee of the
Trust. Four Voting Trustees--Mr. C. Shelton James, a director and
shareholder of the Company, Mr. Ronald Assaf, a shareholder of the Company,
Mr. Murdock MacGregor, a shareholder of the Company, and Mr. Patrick
Rickard, a shareholder of the Company-- together retain sole voting rights
on all matters on which stockholders of the Company may vote. Mr. James, Mr.
Assaf and Mr. MacGregor have each executed Powers of Attorney appointing Mr.
Rickard as their attorney and granting Mr. Rickard full authority to execute
stock option agreements with regard to the Trust.
(9) Represents 300,000 shares of Common Stock issuable upon exercise of a
warrant (presently held by TS Investment, Inc.) to purchase common stock at
an exercise price of $5.75 per share, and 50,000 shares of Common Stock
issuable upon exercise of a warrant to purchase common stock at an exercise
price of $5.00 per share, until October 31, 2001.
(10) Includes an aggregate of 196,385 shares of Common Stock issuable upon
exercise of presently exercisable options or options exercisable within 60
days from the date hereof at an exercise price of $5.0625 per share.
CERTAIN TRANSACTIONS
In 1991, the Company entered into a royalty agreement with Gerald M. Dunne,
Sr., a principal shareholder of the Company and the father of Gerald M. Dunne,
Jr., the Company's President and Chief Executive Officer. In consideration for
certain sales and marketing activities to be conducted by Gerald M. Dunne, Sr.
on behalf of the Company, the agreement provides for monthly royalty payments to
be paid by the Company to him based on a percentage (1% to .4%) of the Company's
monthly net revenues. Royalties paid for the years ended April 30, 1995 and 1996
and the three months ended July 31, 1996 were approximately $91,300, $111,810
and $25,766, respectively. Such agreement terminates on the consummation of this
offering.
In January 1992, in connection with such royalty agreement, Gerald M.
Dunne, Sr. entered into Assignment of Royalty Agreements with Edward Bleckner,
Glenn Koach, a director of the Company, Thomas Ryan, and Edward Harwood, a
director of the Company, pursuant to which Mr. Dunne, Sr. assigned to each of
those individuals all of his right, title and interest to 1% of the royalties in
excess of $10,000 per month payable to Mr. Dunne, Sr. by the Company. No monies
were paid to the Assignees for the years ended April 30, 1995 and 1996 or the
three months ended July 31, 1996, as the royalties payable to Mr. Dunne, Sr.
never exceeded $10,000 per month during those periods.
In September 1995, the Company issued a promissory note to John L.
Tomlinson, a director of the Company, and Phillip C. Cezeaux, an unaffiliated
third-party, in the aggregate principal amount of $100,000. The interest rate on
the promissory note adjusts semi-annually based on the prime rate plus 2% and
principal and interest is payable in equal monthly installments of $2,600 until
September 1997. At July 31, 1996,
43
<PAGE>
approximately $84,000 was outstanding under such note. As an inducement for the
loan, the Company issued options to Messrs. Tomlinson and Cezeaux to purchase
47,635 shares of Common Stock at a price of $3.15 per share. These options
expire on September 30, 1997.
In February 1996, GTN agreed to pay the Company 50% of all profits derived
from sales of prepaid long distance calling cards by GTN to Target. GTN is
controlled by Gerald M. Dunne, Sr., who is a shareholder of the Company and the
father of Gerald M. Dunne, Jr., the President and Chief Executive Officer of the
Company.
In July 1996, in connection with the Acquisition Loan, Gerald M. Dunne,
Jr., President and Chief Executive Officer of the Company, personally pledged
all of the Common Stock owned by him to secure repayment of the Company's
indebtedness to Tel-Save. To the extent the Acquisition Loan is repaid from the
proceeds of this offering, Mr. Dunne will benefit from a corresponding decrease
in his personal obligation to secure repayment of the loan.
In July 1996, in connection with the Acquisition Loan, the Company issued a
five-year warrant to TS Investment, Inc., an affiliate of Tel-Save, to purchase
300,000 shares of Common Stock at an exercise price of $5.75 per share which was
subsequently assigned to Tel-Save Holdings, Inc., another affiliate of Tel-Save.
In December 1996, in connection with an amendment of the Acquisition Loan and of
the Company's services agreement with Tel-Save, the Company issued a five-year
warrant to Tel-Save Holdings, Inc. to purchase 50,000 shares of Common Stock at
an exercise price of $5.00.
In July 1996, in connection with the Acquisition Loan, Mr. Gerald M. Dunne,
Jr., Mr. C. Shelton James, Mr. Edward Harwood, Mr. Glenn Koach, Mr. John
Tomlinson and Ms. Andrea Morey (the 'Stockholders') and the Company entered into
an agreement with Tel-Save pursuant to which, as amended, the Stockholders and
the Company agreed that for so long as Tel-Save or an affiliate of Tel-Save
holds the warrants granted in connection with the Acquisition Loan or any other
warrant issued by the Company to Tel-Save (or an affiliate of Tel-Save) or any
shares of Common Stock issued pursuant thereto, no Stockholder shall sell or
transfer any shares of Common Stock owned by him or her to any person, with
certain exceptions, unless: (i) Tel-Save is given notice of the proposed sale
and the purchaser purchases from Tel-Save the lesser of the number of shares it
purchases from the selling stockholder or the number of shares that bears the
same relation to the aggregate number owned by Tel-Save as the shares being sold
by the Stockholder to the aggregate owned by the Stockholder; and (ii) the
purchaser acknowledges that it is a 'Stockholder' under the agreement and its
shares shall be bound by the terms of this agreement. These covenants do not
apply when (i) all amounts due and owing Tel-Save under the Acquisition Loan
have been satisfied and (ii) there is an effective registration statement
covering the resale by Tel-Save of the shares underlying the warrants it holds.
The Stockholders also agreed that so long as any amount is outstanding and
payable under the Acquisition Loan, each of the Stockholders will use his or her
best efforts to cause Tel-Save's designees to constitute a majority of the
Company's Board of Directors upon the occurrence of an event of default under
the Acquisition Loan.
In July 1996, GTN, a company controlled by Gerald M. Dunne, Sr., the father
of Gerald M. Dunne, Jr., President and Chief Executive Officer of the Company,
converted accounts payable to the Company for long distance services into a
promissory note in the principal amount of $182,050 bearing interest at a rate
of 15% per annum. The outstanding principal amount of and accrued interest on
the note is payable monthly and matures on June 15, 1997. Gerald M. Dunne, Sr.
has pledged 50,000 shares of the Company's Common Stock owned by him to secure
repayment of such promissory note.
In May 1996, the Company entered into an agreement with Gateway pursuant to
which it borrowed $50,000. In August 1996, the Company entered into an agreement
with Gateway, which provides for a line of credit of up to $50,000. Repayment of
the loan and the line of credit is secured by all of the Company's equipment,
machinery, furniture and general intangibles and is personally guaranteed by
Gerald M. Dunne, Jr., President and Chief Executive Officer of the Company. Mr.
John L. Tomlinson, a director of the Company, is also a director of Gateway.
Future transactions between the Company and its officers and directors and
their affiliates will be on terms no less favorable than could have been
obtained from unaffiliated third parties and will be approved by a majority of
the independent and disinterested members of the Board of Directors.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 5,000,000 shares of
Common Stock, no par value and 1,000,000 shares of 'blank check' Preferred
Stock, no par value. The Company is in the process of seeking shareholder
approval to increase its authorized stock to 12,000,000 shares of Common Stock
and 2,000,000 shares of Preferred Stock. As of the date of this Prospectus,
2,257,348 shares of Common Stock are outstanding. After giving effect to the
sale of the shares of Common Stock offered hereby, there will be 3,507,348
shares of Common Stock outstanding (3,694,848 shares if the Underwriters'
over-allotment option is exercised in full).
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders. The holders of
Common Stock do not have preemptive rights to purchase additional shares of
Common Stock or other subscription rights and have no cumulative voting rights
with respect to the election of directors. Under the Florida Business
Corporations Act, all shares of Common Stock are entitled to share equally in
dividends from sources legally available therefor when, as and if declared by
the Board of Directors and, upon liquidation or dissolution of the Company,
whether voluntary or involuntary, to share equally in the assets of the Company
available for distribution to Common Stock holders. The rights of the
shareholders of Common Stock to participate in dividends and in assets upon
liquidation or dissolution may be subordinate to the rights of the shareholders
of the Company's Preferred Stock. All of the outstanding shares of Common Stock
are, and all shares of Common Stock offered hereby, will be duly authorized,
validly issued, fully paid and nonassessable. The Board of Directors is
authorized to issue additional shares of Common Stock, not to exceed the amount
authorized by the Company's Certificate of Incorporation, and to issue options
and warrants for the purchase of such Common Stock, on such terms and conditions
and for such consideration as the Board of Directors may deem appropriate
without further stockholder action.
PREFERRED STOCK
Assuming receipt of shareholder approval prior to this offering to
authorize 2,000,000 shares of Preferred Stock, the Board of Directors will have
the authority in the Company's Restated Articles of Incorporation without
further action by the shareholders, to issue up to 2,000,000 shares of preferred
stock in one or more series and to fix the number of shares in each series, the
designation thereof and the relative rights, preferences and limitations of each
series, and specifically the Board of Directors is authorized to fix with
respect to each series (a) the dividend rate; (b) redeemable features, if any;
(c) rights upon liquidation; (d) whether or not the shares; (e) whether or not
the shares of such series shall be convertible into or exchangeable for shares
of any other class and, if so, the rate of conversion or exchange; (f)
restrictions, if any, upon the payment of dividends on the Common Stock; (g)
restrictions, if any, upon the creation of indebtedness; (h) voting powers, if
any, of the shares of each series; and (i) such other rights, preferences and
limitations as shall not be inconsistent with the laws of the State of Florida.
The Board of Directors, without, shareholder approval, can issue preferred stock
with voting, conversion or other rights that could adversely affect the voting
power and other rights of the Common Stock. Preferred stock could thus be issued
quickly with terms calculated to delay or prevent a change in control of the
Company or make removal of management more difficult. Additionally, the issuance
of preferred stock may have the effect of decreasing the market price of the
Common Stock, and may adversely affect the voting and other rights of the
holders of Common Stock. At present, there are no shares of preferred stock
outstanding and the Company has no plans to issue any of the preferred stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,507,348 shares of
Common Stock outstanding (3,694,848 if the Underwriters' over-allotment option
is exercised in full). Of these shares, the 1,250,000 shares (1,437,500 shares
if the Underwriters' over-allotment option is exercised in full) sold in this
offering and an additional 308,000 shares and, subject to certain contractual
restrictions described below, 350,000 shares issuable by an exercise of warrants
granted to affiliates of Tel-Save, will be freely tradeable without restriction
or registration under the Securities Act by persons other than 'affiliates' of
the Company, as defined under the Securities Act. The remaining 1,949,348 shares
of Common Stock outstanding upon completion of the Offering will be 'restricted
shares' as that term is defined by Rule 144 as promulgated under the Securities
Act. The Company has also issued options to purchase 676,216 shares of Common
Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed 'affiliates' of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements, and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least three years, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above.
Under Rule 144 (and subject to the conditions thereof), 1,949,348 shares
will be eligible for sale commencing in November 1997. All officers, directors
and stockholders beneficially owning 3% or more of the Common Stock of the
Company have agreed that they will not, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose of any shares of Common Stock or other capital stock
of the Company, or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company without the prior written consent of the Representative, for a period of
12 months after the date of this Prospectus, provided, however, that (i) any
such person may make private sales or bona fide gifts of securities of the
Company during such period if the proposed transferee agrees to be bound by the
above restrictions and (ii) such restrictions shall not apply with respect to
the laws of descent and distribution.
Tel-Save has agreed not to sell its shares of Common Stock received upon
exercise of any warrant issued to it by the Company for a period of no more than
six months from the date of this Prospectus without the prior written consent of
the Representative.
No prediction can be made as to the effect, if any, that the sales of
Common Stock and of Common Stock underlying outstanding options and warrants or
the availability of such shares for sale in the public market will have on the
market price for the Common Stock prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market and/or upon
the exercise of outstanding options and warrants after the restrictions
described above lapse could adversely affect prevailing market prices for the
Common Stock and impair the ability of the Company to raise capital through an
offering of its equity securities in the future.
46
<PAGE>
UNDERWRITING
The Underwriters named below, for which LT Lawrence & Co., Inc. is acting
as Representative, have agreed, severally, not jointly, subject to the terms and
conditions contained in the Underwriting Agreement, to purchase 1,250,000 shares
of Common Stock from the Company. The number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
LT Lawrence & Co., Inc...........................................................
---------
1,250,000
---------
---------
</TABLE>
The Underwriters are committed to purchase and pay for all of the shares of
Common Stock offered hereby if any of such securities are purchased. The shares
of Common Stock are being offered by the Underwriters subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
approval of certain legal matters by counsel and to certain other conditions.
Through the Representative, the Underwriters have advised the Company that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering prices set forth on the cover page of this Prospectus. The
Underwriters may allow certain dealers who are members of the NASD concessions
not in excess of $. per share of Common Stock, of which is not in excess of
$. per share of Common Stock may be reallowed to other dealers who are members
of the NASD.
The Company has granted to the Underwriters an option, exercisable during
the 45-day period from the date of this Prospectus, to purchase up to 187,500
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less underwriting discounts and commissions. The
Underwriters may exercise this option in whole, or from time to time, in part,
solely for the purpose of covering over-allotments, if any, made in connection
with the sale of the shares of Common Stock offered hereby.
The Company has agreed to pay the Representative, individually and not as
the representative of the several Underwriters, a non-accountable expense
allowance of 3% of the gross proceeds of this offering of which $50,000 has been
paid as of the date of this Prospectus. The Company has also agreed to pay all
expenses in connection with qualifying the shares of Common Stock offered hereby
for sale under the laws of such states as the Representative may designate,
including expenses of counsel retained for such purpose by the Representative.
The Company has agreed to sell to the Representative and its designees, for
an aggregate of $ , warrants (the 'Representative Warrants') to purchase
up to 125,000 shares of Common Stock at an exercise price equal to 110% of the
public offering price per share. The Representative's Warrants may not be sold,
transferred, assigned or hypothecated for one year from the date of this
Prospectus, except to officers and partners of the Representative, the several
Underwriters, and members of the selling group, and are exercisable during the
five-year period commencing on the date of this Prospectus (the 'Warrant
Exercise Term'). During the Warrant Exercise Term, the holders of the
Representative's Warrants are given, at nominal cost, the opportunity to profit
from a rise in the market price of the Company's Common Stock. To the extent
that the Representative's Warrants are exercised, dilution of the interests of
the Company's stockholders will occur. Further, the terms on which the Company
will be able to obtain additional equity capital may be adversely affected since
the holders of the Representative's Warrants can be expected to exercise them at
any time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
Representative's Warrants. Any profit realized by the Representative on the sale
of the Representative's Warrants or the underlying shares of Common Stock may be
deemed additional underwriting compensation. Subject to certain limitations and
exclusions, the Company has agreed, at the request of the holders of a majority
of the Representative's Warrants, at the Company's expense, to register the
Representative's Warrants and the shares of Common Stock issuable upon exercise
of the Representative's Warrants under the Securities Act on one occasion during
the Warrant Exercise Term and to include the Representative's Warrants and such
underlying
47
<PAGE>
shares in any appropriate registration statement which is filed by the Company
during the seven years following the date of this Prospectus.
The Company has also agreed, for a period of three years following
consummation of this offering, if so requested by the Representative, to
nominate and use its best efforts to elect a designee of the Representative as a
director of the Company, or, at the Representative's option, as a non-voting
adviser to the Company's Board of Directors subject to execution of a
confidentiality agreement with such non-voting adviser. [The Company's officers,
directors and certain principal stockholders have agreed to vote their shares in
favor of such designee.] The Representative has not yet exercised its right to
designate such a person.
All of the Company's officers, directors and current stockholders
beneficially owning three percent or more of the Company's Common Stock have
agreed not to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them for a period of twelve months from the date of this
Prospectus without the prior written consent of the Representative.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Representative was organized in February 1992 and was registered as a
broker-dealer in 1993. Prior to this offering, the Representative has
participated as a sole or co-manager in four public offerings.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Kipnis Tescher
Lippman Valinsky & Kain, Fort Lauderdale, Florida. Orrick, Herrington &
Sutcliffe LLP, New York, New York has acted as counsel to the Company in
connection with this offering. Tenzer Greenblatt LLP, New York, New York has
acted as counsel to the Underwriters in connection with this offering.
EXPERTS
The consolidated financial statements of the Company as of April 30, 1996,
and for the fiscal year then ended, appearing in this Prospectus and
Registration Statement have been audited by Grant Thornton LLP, Independent
Certified Public Accountants, as set forth in their report thereon appearing
herein and in the Registration Statement and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of the Company as of April 30, 1994 and 1995, and
for the fiscal years then ended, appearing in this Prospectus and Registration
Statement have been audited by Timothy M. Hohl Company P.A., Certified Public
Accountants, independent auditors, as set forth in their report thereon
appearing herein and in the Registration Statement and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
On June 5, 1996, the Company dismissed Timothy M. Hohl Company P.A.
('Hohl'). The dismissal of Hohl was approved by the Board of Directors. The
Company believes, and has been advised by Hohl that it concurs in such belief,
that during the fiscal years ended April 30, 1994 and 1995, the Company and Hohl
did not have any disagreement on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Hohl, would have caused it
to make reference in connection with its reports on the Company's financial
statements to the subject matter of the disagreement. No report of Hohl on the
Company's financial statements contained an adverse opinion or a disclaimer of
opinion, or was modified as to uncertainty, audit scope or accounting
principles. On June 5, 1996, the Company engaged Grant Thornton LLP to audit its
financial statements for the fiscal year ended April 30, 1996.
48
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission'), Washington, D.C. 20549, a registration statement on Form SB-2
(together with all amendments and exhibits thereto, the 'Registration
Statement') under the Securities Act of 1933, as amended (the 'Securities Act').
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted from this Prospectus
in accordance with the Commission's rules and regulations. For further
information, reference should be made to the Registration Statement and to the
exhibits filed thereto. For further information with respect to the Company and
the Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto which may be inspected without charge or copied
at the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Commission's
Public Reference Section at prescribed rates. Registration statements
transmitted through the Commission's Electronic Data Gathering, Analysis and
Retrieval System are also publicly available through the Commission's Internet
site on the World Wide Web (http://www.sec.gov). Descriptions contained in this
Prospectus as to the contents of any contract or other documents filed as an
exhibit to the Registration Statement are not necessarily complete and each such
description is qualified by reference to such contract or document. In addition,
it is anticipated that the Common Stock will be quoted on the Nasdaq Small Cap
Market under the symbol 'GLDT.' Reports and other information concerning the
Company may be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent public accounting firm
and such other reports as the Company may determine to be appropriate or as may
be required by law. The Company's fiscal year ends on April 30.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statement of Stockholders' Equity (Deficit)................................................................ F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
Report of Independent Certified Public Accountants......................................................... F-17
Historical Statements of Income and Direct Operating Expenses Exclusive of Items
Not Comparable to the Proposed Future Operations of the Customer Base.................................... F-18
Pro Forma Financial Statements............................................................................. F-19
Pro Forma Statement of Operations For the Year Ended April 30, 1996........................................ F-20
Pro Forma Statement of Operations For the Three Months Ended July 31, 1996................................. F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Group Long Distance, Inc.
We have audited the accompanying balance sheet of Group Long Distance, Inc. (the
'Company') as of April 30, 1996, and the related statements of earnings,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Group Long Distance, Inc. as of
April 30, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Fort Lauderdale, Florida GRANT THORNTON LLP
July 26, 1996
F-2
<PAGE>
GROUP LONG DISTANCE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, APRIL 30,
1995 1996
---------- ---------- JULY 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash................................................................ $ 123,051 $ 78,767 $ 35,804
Accounts receivable less allowance for doubtful accounts of
$568,000, $358,000 and $512,000 at April 30, 1995, 1996 and July
31, 1996, respectively........................................... 1,368,345 1,201,710 2,960,402
Note receivable--related party...................................... -- 96,956 125,739
Deferred tax assets................................................. 214,000 147,900 176,291
Prepaid expenses and other current assets........................... 6,244 76,638 443,840
---------- ---------- -----------
1,711,640 1,601,971 3,742,076
---------- ---------- -----------
Note receivable--related party, net of current portion................ -- 85,094 49,531
Property and equipment net of accumulated depreciation of $20,582,
$29,647 and $49,279 at April 30, 1995, 1996, and July 31, 1996,
respectively........................................................ 31,581 77,276 349,414
Customer acquisition costs, net of accumulated amortization of
$10,386, $134,602 and $493,532 at April 30, 1995, 1996 and
July 31, 1996....................................................... 106,659 886,917 6,570,478
Deferred offering costs............................................... -- 73,478 136,570
Other assets.......................................................... -- 15,675 2,800
---------- ---------- -----------
Total assets..................................................... $1,849,880 $2,740,411 $10,850,869
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Line of credit...................................................... $ -- $ 47,920 $ 87,836
Accounts payable.................................................... 1,059,356 1,543,718 1,750,583
Accrued expenses and other liabilities.............................. 90,879 245,138 430,566
Current portion of long-term debt................................... 486,550 609,811 6,723,536
Current portion of long-term debt--related party.................... 67,083 -- --
Current portion of capital lease obligations........................ -- 6,456 14,989
---------- ---------- -----------
1,703,868 2,453,043 9,007,510
Long-term debt, net of current portion................................ 160,000 83,159 157,564
Capital lease obligations, net of current portion..................... -- 15,568 31,589
---------- ---------- -----------
Total liabilities................................................ $1,863,868 $2,551,770 $ 9,196,663
---------- ---------- -----------
---------- ---------- -----------
Commitments and contingencies......................................... $ -- $ -- $ --
Stockholders' equity (deficit)
Preferred stock, no par value, 1,000,000 shares authorized;
no shares issued and outstanding................................. -- -- --
Common stock, no par value, 5,000,000 shares authorized; 1,761,000,
2,057,348 and 2,257,348 shares issued and outstanding, as of
April 30, 1995, 1996 and July 31, 1996, respectively............. -- -- --
Additional paid-in capital.......................................... 263,700 268,364 1,668,364
Accumulated deficit................................................. (277,688) (79,723) (14,158)
---------- ---------- -----------
Total stockholders' equity (deficit)............................. (13,988) 188,641 1,654,206
---------- ---------- -----------
Total liabilities and stockholders' equity....................... $1,849,880 $2,740,411 $10,850,869
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
GROUP LONG DISTANCE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY
YEAR ENDED APRIL 30, 31,
------------------------ -----------------------
1995 1996 1995 1996
---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales......................................................... $9,538,095 $12,364,643 $3,190,144 $5,712,188
Cost of sales................................................. 6,992,817 9,009,131 2,395,125 4,033,142
---------- ----------- ---------- ----------
Gross profit................................................ 2,545,278 3,355,512 795,019 1,679,046
Selling, general and administrative expenses.................. 2,074,127 2,835,316 688,768 1,094,972
Depreciation and amortization................................. 16,070 133,281 8,480 375,290
Interest expense, net......................................... 22,177 19,050 2,895 81,226
---------- ----------- ---------- ----------
Earnings before income taxes................................ 432,904 367,865 94,876 127,558
Income tax expense............................................ 151,000 169,900 34,000 61,993
---------- ----------- ---------- ----------
Net earnings................................................ $ 281,904 $ 197,965 $ 60,876 $ 65,565
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Earnings per common and common equivalent share............... $ .15 $ .10 $ .03 $ .03
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
GROUP LONG DISTANCE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED APRIL 30, 1996 AND THREE MONTHS ENDED
JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
SHARES OF ADDITIONAL STOCKHOLDERS'
COMMON COMMON PAID-IN ACCUMULATED EQUITY
STOCK STOCK CAPITAL DEFICIT (DEFICIT)
---------- ------ ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1994.......................... 1,755,500 $-- $ 183,700 $(559,592) $ (375,892)
Issuance of common stock...................... 32,000 -- 17,500 -- 17,500
Issuance of common stock for exercise of stock
options..................................... 179,500 -- 94,500 -- 94,500
Common stock reacquired and retired........... (42,000) -- (32,000) -- (32,000)
Net income.................................... -- -- -- 281,904 281,904
Balance, April 30, 1995....................... 1,925,000 -- 263,700 (277,688) (13,988)
Exercise of options........................... 132,348 -- 110,000 -- 110,000
Costs of registering shares................... -- -- (105,336) -- (105,336)
Net earnings.................................. -- -- -- 197,965 197,965
Balance, April 30, 1996....................... 2,057,348 -- 268,364 (79,723) 188,641
Issuance of common stock...................... 200,000 -- 1,400,000 -- 1,400,000
Net earnings for the period (unaudited)....... -- -- -- 65,565 65,565
Balance, July 31, 1996 (unaudited)............ $2,257,348 $-- $1,668,364 $ (14,158) $1,654,206
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
GROUP LONG DISTANCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED APRIL 30, JULY 31,
-------------------- --------------------------
1995 1996 1995 1996
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings................................................ $281,904 $197,965 $ 60,876 $ 65,565
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization............................ 16,070 133,281 8,480 375,290
Provision for bad debts.................................. 301,203 404,480 79,000 184,930
Changes in assets and liabilities
Increase in accounts receivable........................ (723,413) (237,845) (239,414) (1,643,622)
(Increase) decrease in notes receivable................ -- (182,050) -- 6,780
(Increase) decrease in deferred tax asset.............. 146,000 66,100 -- (28,391)
(Increase) decrease in prepaid expenses and other
current assets...................................... 3,396 (70,394) (288) 45,673
Increase (decrease) in accounts payable................ 358,155 484,362 265,846 1,023,865
Increase (decrease) in accrued expenses and other
liabilities......................................... (2,098) 154,259 151,879 185,428
-------- -------- ----------- -----------
Net cash provided by operating activities........... 381,217 950,158 326,379 215,518
-------- -------- ----------- -----------
Cash flows from investing activities
Acquisitions of property and equipment...................... (28,961) (32,249) (7,020) (113,498)
Acquisitions of customer bases.............................. (117,045) (904,474) (163,111) (5,517,491)
Increase in other assets.................................... -- (15,675) -- --
-------- -------- ----------- -----------
Net cash used in investing activities............... (146,006) (952,398) (170,131) (5,630,989)
-------- -------- ----------- -----------
Cash flows from financing activities
Net borrowings under line of credit agreement............... -- 47,920 -- 50,000
Proceeds from loan originations............................. 17,210 112,159 -- 5,478,619
Principal repayments of long-term debt...................... (309,861) (132,822) (41,932) (90,044)
Principal repayments of capital lease obligations........... -- (487) -- (2,975)
Proceeds from the sale of common stock...................... 112,000 110,000 --
Offering costs incurred..................................... -- (178,814) -- (63,092)
Common stock repurchased and retired........................ (8,000) -- -- --
-------- -------- ----------- -----------
Net cash (used in) provided by financing
activities........................................ (188,651) (42,046) (41,932) 5,372,508
Net increase (decrease) in cash............................... $ 46,560 $(44,284) $ 114,316 $ (42,963)
Cash at beginning of year..................................... 76,491 123,051 123,051 78,767
-------- -------- ----------- -----------
Cash at end of year........................................... $123,051 $ 78,767 $ 237,367 $ 35,804
-------- -------- ----------- -----------
-------- -------- ----------- -----------
Noncash investing and financing activity:
The Company acquired a customer base partially with common
stock with a value of $1,400,000 during the three month
period ended July 31, 1996.
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE A--FORMATION AND OPERATIONS OF THE COMPANY
In November 1995, Group Long Distance, Inc. (the 'Company') (which was
originally incorporated in July 1990) merged into Second ITC Corporation, the
surviving corporation, whose name was changed to Group Long Distance, Inc. The
existing stockholders of Group Long Distance retained 94% of the issued and
outstanding stock of the merged company. For accounting purposes, the
acquisition has been treated as a recapitalization of Group Long Distance with
Group Long Distance as the acquired (reverse acquisition), and the financial
statements of Group Long Distance are considered to be the financial statements
of the Company. Historical stockholders' equity of Group Long Distance prior to
the merger has been retroactively restated.
The Company is a nonfacilities based reseller of long distance
telecommunication services. The Company utilizes services contracts to provide
its customers with switched, dedicated and private line services to various long
distance telecommunications networks such as AT&T and Worldcom/LDDS.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
Principles of Consolidation
The financial statements at July 31, 1996 and for the three months period
ended July 31, 1995 represents the consolidated results of the Company and its
wholly-owned subsidiaries Gulf Communication Services, Inc., and
Adventures-in-Telecom, Inc., which were acquired in May and July 1996,
respectively (see Note O). All intercompany balances have been eliminated in
consolidation. The financial statements as of April 30, 1995 and 1996 and for
the years then ended only included the operations of the Company without any
subsidiaries.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less, when purchased, to be cash equivalents.
Property and Equipment
Additions and major renewals to property and equipment are recorded at
cost. Maintenance and repairs are charged to expense when incurred. The cost and
accumulated depreciation of assets sold or retired are removed from the
respective accounts and any resulting gain or loss is reflected in income. The
Company provides for depreciation using the straight-line method over an
estimated useful life of five years for office equipment, furniture and fixtures
and leasehold improvements.
Customer Acquisition Costs
Customer acquisition costs represent the cost of purchased customer
accounts which are amortized over five years utilizing an accelerated method.
The Company's amortization method and life are based on estimated attrition
rates and attempt to match these costs with the corresponding revenues.
F-7
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income Taxes
Deferred income taxes have been provided for elements of income and expense
which are recognized for financial reporting purposes in periods different than
such items are recognized for income tax purposes. The Company accounts for
deferred taxes utilizing the liability method, which applies the enacted
statutory rates in effect at the balance sheet date to differences between the
book and tax basis of assets and liabilities. The resulting deferred tax
liabilities and assets are adjusted to reflect changes in tax laws.
Earnings Per Share
Earnings per share are based upon the weighted average number of common and
common equivalent shares outstanding during each year. The total number of such
weighted average shares was 2,018,474 and 1,840,250 for the years ended April
30, 1996 and 1995, respectively, and 2,122,487 and 2,035,000 for the three
months ended July 31, 1996 and 1995, respectively. Stock options and warrants
are considered common stock equivalents unless their inclusion would be
antidilutive.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, 'Disclosures About
Fair Value of Financial Instruments,' requires disclosure of estimated fair
values of financial instruments. These estimated fair values are to be disclosed
whether or not they are recognized in the balance sheet, provided it is
practical to estimate such values. The Company estimates that the fair value of
its financial instruments approximates the carrying value of its financial
instruments at April 30, 1996.
Accounting For Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121, 'Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,'
requires that long-lived assets and certain intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. This
statement had no impact on the Company's results of operations or financial
position upon adoption in May 1996.
Stock Options
Options granted under the Company's Stock Option Plan are accounted for
under APB 25, 'Accounting for Stock Issued to Employees,' and related
interpretations. In October 1995, the Financial Accounting Standards Board
issued Statement 123, 'Accounting for Stock-Based Compensation,' which will
require additional proforma disclosures for companies that will continue to
account for employee stock options under the intrinsic
F-8
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
value method specified in APB 25. The Company plans to continue to apply APB 25
and the only effect of adopting Statement 123 in May 1996 will be the new
disclosure requirement.
Interim Financial Information
The financial statements at July 31, 1996 and for the three month periods
ended July 31, 1995 and 1996 are unaudited and prepared on the same basis as the
audited consolidated financial statements included herein.
In the opinion of management, such interim financial statements include all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the results for such periods. The results of operations for the three
months ended July 31, 1996 are not necessarily indicative of the results to be
expected for the full year or any other interim period.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform with the current year presentation.
NOTE C--CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of accounts and notes receivable which are
due from businesses primarily located in the Southeastern United States. The
Company continually evaluates the creditworthiness of its customers; however, it
generally does not require collateral.
The majority of the Company's revenues are derived from calls placed
through AT&T's reseller, Tel-Save, Inc. ('Tel-Save'). Such revenues represented
61% and 67% of total revenues in fiscal 1996 and 1995, respectively.
NOTE D--LINE OF CREDIT
On December 11, 1995, the Company entered into a $50,000 line of credit
agreement with a financial institution. The line of credit was renewed in August
1996, matures on August 1997 and bears interest at prime plus 2%. The line of
credit is collateralized by all the Company's equipment, machinery, furniture
and intangibles and is personally guaranteed by the Company's president.
F-9
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE E--LONG-TERM DEBT
Long-term debt is comprised of the following at April 30, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Unsecured non-interest bearing settlement payable to AT&T. The Company
has been and continues to be in default under this obligation. See
also Note L......................................................... $557,500 $547,500
Unsecured promissory note payable to a director of the Company and an
unaffiliated third party. The note, which matures on September 25,
1997, is due in 24 equal monthly payments $2,600 and bears interest
at prime plus 2%. See also Note J................................... -- 91,428
Unsecured non-interest bearing note payable to an individual. The
note, which matures on April 1, 1997, is due in equal monthly
principal payments of $1,000........................................ 24,000 11,000
Unsecured 11% interest bearing note which is payable in monthly
installments of $1,000 and matures in fiscal 1998................... 32,093 25,973
18% interest bearing note payable to an individual. The note is
collateralized by 100,000 shares of the Company's common stock...... 32,957 17,069
11% interest bearing notes payable to stockholders. The notes were
repaid on December 31, 1995......................................... 67,083 --
-------- --------
713,633 692,970
Less current portion of long-term debt................................ 553,633 609,811
-------- --------
$160,000 $ 83,159
-------- --------
-------- --------
</TABLE>
Principal maturities of long-term debt at April 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
APRIL 30
- --------------------------------------------------------------
<S> <C>
1997.......................................................... $609,811
1998.......................................................... 38,876
1999.......................................................... 44,283
2000 and thereafter........................................... --
--------
$692,970
--------
--------
</TABLE>
NOTE F--INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes' which
requires the use of the 'liability method' of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using statutory federal income tax rates in effect for the year.
F-10
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE F--INCOME TAXES--(CONTINUED)
The Company, at April 30, 1996, has an alternative minimum tax credit
carryforward for federal income tax purposes of approximately $13,000, which is
available to offset future income liabilities.
The provision for income taxes consists of the following at April 30,:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current............................................................... $ 5,000 $103,800
Deferred.............................................................. 146,000 66,100
-------- --------
$151,000 $169,900
-------- --------
-------- --------
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable statutory federal income tax rates to
pretax income as a result of the following differences at April 30, 1995 and
1996:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Provision for income taxes, at 34%.................................... $147,100 $125,800
Increase (decrease) in tax resulting from:
Amortization........................................................ -- 33,400
Nondeductible items................................................. 6,000 7,700
Alternative minimum tax credits..................................... (5,000) (13,000)
Effect of graduated tax rates....................................... (14,100) (1,800)
State taxes, net of federal tax benefit............................. 17,000 13,700
Other............................................................... -- 4,100
-------- --------
$151,000 $169,900
-------- --------
-------- --------
</TABLE>
Deferred tax assets are comprised of the following at April 30, 1995 and
1996.
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Allowance for doubtful accounts....................................... $210,405 $134,700
Customer acquisition costs............................................ -- 37,000
Accrued bonus......................................................... -- 13,200
Alternative minimum tax credits....................................... 3,595 --
-------- --------
214,000 184,900
Less valuation allowance.............................................. -- 37,000
-------- --------
$214,000 $147,900
-------- --------
-------- --------
</TABLE>
NOTE G--LEASES
The Company leases various office facilities under noncancellable operating
leases which expire at various dates through March 2000. The leases contain
renewal options and provide for rental increases by either index or
renegotiation. Further, some of the leases require payment of common area
maintenance and utilities. Rent expense for the years ended April 30, 1996 and
1995 totaled approximately $74,800 and $73,500.
F-11
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE G--LEASES--(CONTINUED)
Approximate future minimum lease payments applicable to noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
APRIL 30
- --------------------------------------------------------------
<S> <C>
1997.......................................................... $ 88,728
1998.......................................................... 91,118
1999.......................................................... 89,096
2000 and thereafter........................................... 73,266
--------
$342,208
--------
--------
</TABLE>
The Company leases certain equipment under capital lease agreements. The
economic substance of these agreements is that the Company is financing the
acquisition of assets. The net book value of the equipment leased is $22,511.
The following is a schedule of the future minimum annual lease payments due
under the leases:
<TABLE>
<CAPTION>
YEAR ENDING
APRIL 30
- --------------------------------------------------------------
<S> <C>
1997.......................................................... $ 9,265
1998.......................................................... 9,265
1999 and thereafter........................................... 8,494
--------
Total minimum future lease payments........................... 27,024
Less amounts representing interest............................ 5,000
--------
Present value of future minimum lease payments................ 22,024
Less current portion.......................................... 6,456
--------
$ 15,568
--------
--------
</TABLE>
NOTE H--COMMITMENTS AND CONTINGENCIES
Certain of the Company's network service agreements contain provisions for
guaranteed monthly volume and network usage which is the basis for determining
volume discounts and other special billing features. If the Company is unable to
achieve the guaranteed monthly volume, the agreements provide for various
surcharges.
Effective upon consummation of the offering (see Note O), the Company and
Gerald M. Dunne, Jr. will enter into a two-year employment agreement providing
for his employment as the Company's President and Chief Executive Officer with a
base salary of $130,000 and a bonus based on certain earnings criteria. In
addition, Mr. Dunne will be granted options to purchase 200,000 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
the date of grant.
Nortel, Inc. ('Nortel') and Accutel Communications, Inc. ('Accutel') have
filed combined suits against the Company alleging causes of action for
anticipatory breach of contract and breach of contract arising from the
termination by the Company of service under a service contract and independent
marketing distributor agreement with each party. The Company terminated the
telephone services of Nortel and terminated the distributor relationship with
Accutel for breaches of contract, including the failure to comply with the
payment terms of their contracts. Nortel and Accutel claim that the Company
anticipatorily and wrongfully terminated their contracts, and Accutel claims
that the Company owes it $89,663.91 in unpaid commissions. Nortel sued for an
injunction against the Company's termination of telephone services and was
awarded an ex-parte temporary injunction, but at a hearing for dissolution of
the order the Court immediately ordered the dissolution of the prior injunction
and
F-12
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE H--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
ordered all parties to attend mediation. The Company believes it was justified
in terminating service in accordance with the contracts and intends to
vigorously defend its position. However, there can be no assurance as to the
possible outcome of this action.
Between October 1991 and June 1991, the Company borrowed an aggregate of
approximately $125,000 from Mr. Harold L. Sutton, a stockholder of the Company.
As of April 30, 1996 the Company owed Mr. Sutton $17,069. In connection with
such borrowings the Company at various times pledged securities to secure its
obligations. The Company and Mr. Sutton currently are in dispute with respect to
the ownership of 100,000 shares of Common Stock originally pledged to secure the
Company's borrowings. While neither the Company nor Mr. Sutton has commenced
legal proceedings in connection with this matter, there can be no assurance as
to the outcome of such dispute.
The Company is from time to time the subject of complaints or litigation in
the ordinary course of its business. The Company believes that the lawsuits,
claims and other legal matters to which it has become subject are not material
to the Company's financial condition or results of operations, but an existing
or future lawsuit or claim resulting in an adverse decision against the Company
could have a material adverse effect on the Company's financial condition and
results of operations.
NOTE I--RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with a related party which
provides for monthly royalty payments based upon a sliding scale percentage of
the Company's monthly net revenues. Royalties paid for the years ended April 30,
1996 and 1995 totaled approximately $111,800 and $91,300. This agreement
terminates at the earliest of the following occurrences: (a) the closing of an
initial public offering of the Company's common stock in excess of $4,000,000,
(b) the sale of substantially all of the Company's assets or common stock to
third party, or certain other conditions.
NOTE J--STOCK OPTIONS
The following option information has been adjusted to reflect the change
required by the merger of Second ITC Corporation in November 1995. In November
1993, as an inducement to loan the Company $190,000, the Company issued stock
options to purchase 90,505 shares of the Company's common stock for $1.05 per
share. Options to purchase 80,978 shares of the Company's common stock have been
exercised as of April 30 ,1996. The remaining options expire in November 1997.
In February 1994, the Company issued stock options to purchase 19,054
shares of common stock for $.53 per share to employees of the Company. None of
these options were exercised during the year ended April 30, 1996.
In February 1994, the Company issued stock options to purchase 47,635
shares of common stock for $.50 per share to an officer of the Company. These
options were exercised during the year ended April 30, 1996.
In September 1995, as an inducement to loan the Company $100,000, the
Company issued stock options to a director and an unaffiliated third party to
purchase 47,635 shares of the Company's common stock at $3.15 per share. These
options expire on September 30, 1997. None of these options were exercised at
April 30, 1996. See also Note E.
F-13
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE J--STOCK OPTIONS--(CONTINUED)
At April 30, 1996, there were unexercised options to purchase 76,216 shares
of the Company's common stock outstanding (all of which were exercisable) as
follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISE
DATE OPTIONS GRANTED OUTSTANDING PRICE
- ----------------------------------------------------------------------- ----------- --------
<S> <C> <C>
November, 1993......................................................... 9,527 $ 1.05
February, 1994......................................................... 19,054 $ .53
September, 1995........................................................ 47,635 $ 3.15
-----------
76,216
-----------
-----------
</TABLE>
NOTE K--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Cash paid during the year for interest.............................. $ 37,612 $ 21,687
-------- ----------
-------- ----------
Cash paid during the year for taxes................................. $ 8,312 $ 5,000
-------- ----------
-------- ----------
Noncash financing activities:
Purchase of stock................................................. $ 32,000 $ --
Less: Debt incurred............................................... 24,000 --
-------- ----------
Cash payments for the purchase of stock........................ $ 8,000 $ --
-------- ----------
-------- ----------
Property and equipment acquired under capital lease obligations... $ -- $ 25,511
-------- ----------
-------- ----------
Issuance of 200,000 shares in connection with acquisition of AIT
(see Note O)...................................................... $ -- $1,400,000
-------- ----------
-------- ----------
</TABLE>
NOTE L--SETTLEMENT AGREEMENTS
In June 1993, the Company settled certain billing disputes with AT&T and
executed a settlement agreement which resulted in a gain of approximately
$500,000. The Company then paid down the agreed upon balance in fiscal 1994 and
1995 to the present balance of approximately $548,000. The Company has not made
payments in over six months and is in default.
NOTE M--EQUITY
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock,
none of which has been issued. The preferred stock, if and when issued, is
entitled to receive a noncumulative dividend of $1.00 per share, and no
dividends may be paid on the common stock during any fiscal year until such
$1.00 per share dividend has been declared to preferred stockholders.
F-14
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE N--RISKS AND UNCERTAINTIES
The Company's operations are based upon agreements with a limited number of
long-distance carriers who provide access to phone lines and transmission
facilities. The carriers also provide call data records, and in the case of
Tel-Save, the carrier also bills the Company's customers on the Company's
behalf. The Company is dependent upon such carriers for such services, and there
is a reasonable possibility that there could be equipment failures or other
service interruptions that could materially affect the Company. Such delays
could result in postponed or possibly lost sales, which could adversely affect
operating results.
The Company's amortization method for customer acquisition costs is based
on management's best estimate of the period of time and amounts of revenue to be
derived from each applicable customer base. The Company cannot predict customer
attrition rates with absolute certainty so it is reasonably possible that such
amortization may need to be increased in the future.
NOTE O--SUBSEQUENT EVENTS
Stock Option Plan
In October 1996, the Company's board of directors approved a Stock Option
Plan (the 'Plan'). The Plan has been submitted for approval by the shareholders
of the Company. The Plan permits the granting of stock options to eligible
participants. The Plan permits the granting of both incentive stock options
(which are entitled to certain favorable treatment under the Internal Revenue
Code of 1986) and nonqualified stock options (i.e., options which are not
intended to be incentive stock options). A total of 600,000 shares of Common
Stock will be available for issuance. Employees and consultants of the Company
and its subsidiaries are eligible to be selected to receive options. The Plan
also provides for the automatic grant of stock options to nonemployee members of
the Company's Board of Directors. Nonemployee director options will be granted
pursuant to an automatic, nondiscretionary formula. Options to purchase an
aggregate of 438,000 shares of Common Stock have been issued under the Plan.
Acquisitions
In May 1996, the Company purchased, for $207,000, the stock and assets,
including the customer base, of Gulf Communications Service, Inc. ('Gulf') in
consideration of $25,000 in cash and the assumption of a promissory note in the
principal amount of $182,000. Gulf has switching equipment which allows it to
act as an international call back and call through provider. The promissory note
of $182,000 is payable monthly installments of $10,000 through February 1, 1998.
In July 1996, the Company entered into a Purchase Agreement and Plan of
Exchange with Adventures-in-Telecom, Inc. ('AIT') whereby the Company purchased
100% of the common stock of AIT. AIT is a non-facilities based reseller of long
distance communication services. The purchase price was comprised of $5,271,230
in cash and 200,000 restricted shares of common stock of the Company (of which
25% are subject to certain holdback provisions for a six month period from the
date of closing in connection with certain indemnity provisions in favor of the
Company).
F-15
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TWO YEARS ENDED APRIL 30, 1996 AND FOR THE THREE
MONTHS ENDED JULY 31, 1995 AND 1996
(INFORMATION RELATING TO THE THREE MONTHS ENDED
JULY 31, 1995 AND 1996 IS UNAUDITED)
NOTE O--SUBSEQUENT EVENTS--(CONTINUED)
Acquisition Financing
The Company, to finance the AIT acquisition, issued a note payable to
Tel-Save in July 1996 for $5,521,230. This note bears interest at 6.5% per annum
and matures in July 1997. Included in the face of the note are amounts due to
the lending corporation at April 30, 1996 that aggregate $250,000. These amounts
are reflected in accounts payable--carrier at April 30, 1996. To induce Tel-Save
to provide the financing needed to purchase AIT, the Company issued a warrant to
purchase 300,000 shares of common stock of the Company at $5.75 per share and a
warrant to purchase 50,000 shares of common stock of the Company at $5.00 per
share. Both warrants are exercisable through July 2001 and subject to certain
registration rights.
Accounts Payable Conversion
The Company converted approximately $567,000 of accounts payable into a
note payable to a vendor. The note requires monthly payments, bears interest at
15%, and comes due in June 1997.
Public Offering
The Board has authorized the filing of a registration statement relating to
a public offering of 1,250,000 shares of Common Stock. In addition to the
issuance and sale of 1,250,000 shares of Common Stock, up to 187,500 additional
shares may be sold by the underwriters pursuant to an over-allotment option.
Note Payable
In May 1996, the Company entered into an agreement with a financial
institution to borrow $50,000. The loan bears interest at the prime rate plus 2%
and matures on May 2, 1997. The loan is collateralized by all the Company's
equipment, machinery, furniture and intangibles and is personally guaranteed by
the Company's president.
F-16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Group Long Distance, Inc.
We have audited the accompanying Historical Statements of Income and Direct
Operating Expenses exclusive of items not comparable to the proposed future
operations of the customer base of Adventures in Telecom, Inc. for each of the
two years in the period ended April 30, 1996. These statements are the
responsibility of the management of Group Long Distance, Inc. Our responsibility
is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying statements were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in the registration statement on Form SB-2 of Group Long Distance, Inc.) as
described in Note A and are not intended to be a complete presentation of
Adventures in Telecom, Inc.'s revenues and expenses.
In our opinion, the statements referred to above present fairly, in all material
respects, the operating income and direct operating expenses described in Note A
of Adventures in Telecom, Inc. for each of the two years in the period ended
April 30, 1996 in conformity with generally accepted accounting principles.
Fort Lauderdale, Florida GRANT THORNTON LLP
OCTOBER 4, 1996
F-17
<PAGE>
ADVENTURES IN TELECOM, INC.
HISTORICAL STATEMENTS OF INCOME AND DIRECT OPERATING
EXPENSES EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE
PROPOSED FUTURE OPERATIONS OF THE CUSTOMER BASE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL
30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues........................................................................... $24,502,517 $11,256,362
Direct operating expenses
Telephone expense................................................................ 17,606,574 8,295,237
----------- -----------
Operating income exclusive of items not comparable to the proposed future
operations of the property.................................................... $ 6,895,943 $ 2,961,125
----------- -----------
----------- -----------
</TABLE>
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION
Adventures-in-Telecom, Inc. ('AIT') is a corporation formed to hold a
customer base (which is broken down by groups called 'partitions') that was
acquired from a division of another telecommunications company. These operations
are not divisible from the larger entity, and complete financial information is
not readily available for AIT's operations nor is it comparable to the proposed
future operations of this customer base. Accordingly, it is impracticable to
prepare the full financial statements required by Regulation S-X. The audited
statements include only the direct income and direct operating expense of
servicing this customer base. Amounts of selling general, and administrative
expenses expected after the acquisition are reflected in the pro forma
statements of operations.
NOTE B--REVENUES
In 1995, the servicing of certain customer partitions began at different
times throughout the year. However, during 1996 the majority of these customer
partitions were serviced for the entire year. As a result, revenues increased
significantly in 1996 as compared to 1995.
F-18
<PAGE>
GROUP LONG DISTANCE, INC.
PRO FORMA FINANCIAL STATEMENTS
In July 1996, Group Long Distance, Inc. ('GLD') acquired
Adventures-in-Telecom, Inc., ('AIT') whose assets consisted of a customer base
of approximately 30,000 customers and related accounts receivable.
The following unaudited pro forma statement of operations for the year
ended April 30, 1996, and the three months ended July 31, 1996 are presented as
if Group Long Distance had acquired AIT on May 1, 1995. Selling, general, and
administrative expenses have been adjusted to reflect the incremental costs to
operate this customer base within GLD's organizational structure. No pro forma
balance sheet has been presented since the acquisition occurred prior to July
31, 1996.
Pro forma information is not necessarily indicative of what the Company's
results of operations actually would have been if these transactions had in fact
occurred on the dates indicated.
F-19
<PAGE>
GROUP LONG DISTANCE, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GROUP LONG ADVENTURES
DISTANCE IN TELECOM PRO FORMA TOTAL
INC. INC. ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues......................................... $12,364,643 $24,502,517 $ -- $36,867,160
Cost of sales.................................... 9,009,131 17,606,574 -- 26,615,705
----------- ----------- ----------- -----------
Gross profit................................... 3,355,512 6,895,943 -- 10,251,455
----------- ----------- ----------- -----------
Selling, general and administrative expenses..... 2,968,597 -- 600,000(1) 6,818,462
735,076(2)
153,141(3)
205,348(4)
365,000(5)
1,791,300(6)
Interest expense (net)........................... 19,050 -- 342,000(7) 361,050
----------- ----------- ----------- -----------
Earnings before income taxes................... 367,865 6,895,943 (4,191,865) 3,071,943
Income tax expense............................... 169,900 -- 1,192,302(8) 1,362,202
----------- ----------- ----------- -----------
Net earnings................................... $ 197,965 $ 6,895,943 $(5,384,167) $ 1,709,741
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per common and common equivalent
share.......................................... $ .10 $ .77
----------- -----------
----------- -----------
Weighted average number of shares outstanding.... 2,018,474 200,000 2,218,474
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------
1) To record commission expense payable to agents on '800' and '1
plus'revenues.
2) To record provision for bad debt on additional revenues. This provision is
based on the Company's historical experience of 3% of revenues.
3) In connection with the AIT Acquisition, the Company entered into a
management contract with Telscape International, Inc. ('Telscape'), pursuant
to which the Company paid a fee of 1.5% of gross monthly billing to Telscape
for management services, including handling of inbound customer service
calls, processing of customer adjustments, calculation of commissions and
coordination of agent accounts. The management contract was terminated in
September 1996. The pro forma presentation has been adjusted to record a
management fee expense equal to 1.5% of revenues in accordance with the
management contract.
4) To record payroll expense for new customer service, accounting and
management employees to be hired after the expiration of the management
contract (see 3 above).
5) To record miscellaneous selling, general and administrative expenses. This
amount includes estimates for telephone system upgrades and related charges,
computer system upgrades, advertising, professional fees and other items.
6) To record amortization expense of customer base acquisition cost.
7) To record interest on the Acquisition Loan.
8) To record taxes on additional pre-tax income.
F-20
<PAGE>
GROUP LONG DISTANCE, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
STATEMENT ADVENTURES IN PRO FORMA TOTAL
OF OPERATIONS TELECOM, INC. ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues.............................................. $ 5,712,188 $ 1,549,888 $ -- $7,262,076
Cost of sales......................................... 4,033,142 1,120,445 -- 5,153,587
------------- ------------- ----------- ----------
Gross profit........................................ 1,679,046 429,443 -- 2,108,489
------------- ------------- ----------- ----------
Selling, general and administrative expenses.......... 1,470,262 -- 70,692(1) 1,790,394
46,497(2)
23,248(3)
30,420(4)
149,275(5)
Interest expense, net................................. 81,226 -- 28,239(6) 109,465
------------- ------------- ----------- ----------
Earnings before income taxes........................ 127,558 429,443 (348,371) 208,630
Income tax expense.................................... 61,993 -- 45,072(7) 107,065
------------- ------------- ----------- ----------
Net earnings........................................ $ 65,565 $ 429,443 $ (393,443) $ 101,565
------------- ------------- ----------- ----------
------------- ------------- ----------- ----------
Earnings per common and common equivalent share....... $ .03
$ .05
------------- ----------
------------- ----------
Weighted average number of shares outstanding......... 2,076,914
180,434 2,257,348
------------- ----------- ----------
------------- ----------- ----------
</TABLE>
- ------------------
1) To record commission expense payable to agents on '800' and '1 plus'
revenues.
2) To record provision for bad debt on additional revenues. This provision is
based on the Company's historical experience of 3% of revenues.
3) In connection with the AIT Acquisition, the Company entered into a
management contract with Telscape, pursuant to which the Company paid a fee
of 1.5% of gross monthly billing to Telscape for management services. The
management contract was terminated in September 1996. The pro forma
presentation has been adjusted to record a management fee expense equal to
1.5% of revenues in accordance with the management contract.
4) To record miscellaneous selling, general and administrative expenses. This
amount includes estimates for telephone system upgrades and related charges,
computer system upgrades, advertising, professional fees and other items.
5) To record amortization expense of customer base acquisition cost.
6) To record interest on the Acquisition Loan.
7) To record taxes on additional pre-tax income.
F-21
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Concurrent Offering............................ 14
Use of Proceeds................................ 15
Price Range of Common Stock.................... 16
Dividend Policy................................ 16
Capitalization................................. 17
Dilution....................................... 18
Selected Financial Data........................ 19
Pro Forma Financial Statements................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
Business....................................... 29
Management..................................... 38
Principal Stockholders......................... 42
Certain Transactions........................... 43
Description of Capital Stock................... 45
Shares Eligible for Future Sale................ 46
Underwriting................................... 47
Legal Matters.................................. 48
Experts........................................ 48
Additional Information......................... 49
Index to Financial Statements.................. F-1
</TABLE>
------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
[Logo] Group Long Distance, Inc.
1,250,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
LT LAWRENCE & CO., INC.
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
[(ALTERNATE PAGES FOR SELLING SHARE HOLDER PROSPECTUS)]
SUBJECT TO COMPLETION DATED , 1997
PROSPECTUS
[Logo] Group Long Distance, Inc.
350,000 SHARES OF COMMON STOCK
------------------------
All of the 350,000 shares of Common Stock (the 'Common Stock') of Group
Long Distance, Inc. (the 'Company') offered hereby are being sold by a Selling
Shareholder named herein. The Company will not receive any of the proceeds from
the sale of the shares offered hereby.
There has been a limited trading market for the Common Stock, and there can
be no assurance that any regular market will develop. The Common Stock is traded
on the OTC Bulletin Board under the symbol 'GLDT.' Application has been made to
quote the Common Stock on the Nasdaq SmallCap Market ('Nasdaq') under the symbol
'GLDI'. The last reported sale price for the Common Stock on December 9, 1996,
was $ . See 'Price Range of Common Stock.'
The distribution of shares of Common Stock, offered hereby by the Seller
Shareholder may be effected in one or more transactions that may take place on
the over-the-counter market, including ordinary broker's transactions, privately
negotiated transactions or through sales to one or more dealers for sale of such
securities as principals, at market prices prevailing at the time of sale, at
prices relating to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Shareholder.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE 'RISK FACTORS' BEGINNING ON
PAGE 7 AND 'DILUTION.'
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Selling Shareholder and intermediaries through whom such securities are
sold may be deemed 'underwriters' within the meaning of the Securities Act of
1933, as amended (the 'Securities Act') with respect to the securities offered,
and any profits realized or commissions received may be deemed underwriting
compensation.
The Company will not receive any of the proceeds from the sale of the
shares of the Common Stock, by the Selling Shareholder, although it will receive
proceeds from the exercise of the Warrants. Expenses of this offering, other
than fees and expenses of counsel to the Selling Shareholder and selling
commissions, will be paid by the Company. See 'Plan of Distribution.'
On the date of this Prospectus, a registration statement including a
prospectus of even date filed under the Securities Act with respect to an
underwritten public offering by the Company of 1,250,000 shares of Common Stock
and up to an additional 187,5000 shares of Common Stock to cover
over-allotments, if any, was declared effective by the Securities and Exchange
Commission (the 'Commission'). The Company will receive net proceeds of
approximately $ from the sale of the shares of Common Stock included in
the underwritten public offering, and will receive approximately $ in
additional net proceeds if the over-allotment option is exercised in full after
payment of underwriting discounts and commissions and estimated expenses of the
underwritten public offering. See 'Concurrent Offering.'
<PAGE>
[ALTERNATE]
THE OFFERING
<TABLE>
<S> <C>
Securities offered................................ 350,000 shares of Common Stock.
Common Stock outstanding.......................... 3,857,348 shares(1)
Use of Proceeds................................... The Company intends to use the net proceeds of this offering
for the partial repayment of the Acquisition Loan; expansion
of sales and marketing activities; and the balance for working
capital and general corporate purposes, including potential
acquisitions of resellers and customer bases. See 'Use of
Proceeds.'
Risk Factors...................................... The Common Stock offered hereby involve a high degree of risk
and immediate and substantial dilution. See 'Risk Factors' and
'Dilution.'
Proposed Nasdaq Symbol(2)
Common Stock.................................... GLDI
</TABLE>
- ------------------
(1) Assumes the issuance of 1,250,000 shares of Common Stock to be issued in
connection with an underwritten public offering by the Company. Does not
include: (i) 76,216 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $2.23 per share;
(ii) 438,000 shares of Common Stock issuable upon exercise of options to be
granted, subject to shareholder approval, under the Company's stock option
plan (the 'Stock Option Plan') at an exercise price of $5.0625 per share;
and (iii) 62,000 shares reserved for the exercise of options available for
future grant under the Stock Option Plan. See 'Management--Stock Option
Plan.'
(2) The Common Stock is traded on the OTC Bulletin Board under the symbol
'GLDT.' In connection with this offering, application has been made to list
the Common Stock on Nasdaq. See 'Price Range of Common Stock.'
<PAGE>
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement including a
prospectus of even date filed under the Securities Act with respect to an
underwritten public offering by the Company of 1,250,000 shares of Common Stock
and up to an additional 187,5000 shares of Common Stock to cover
over-allotments, if any, was declared effective by the Securities and Exchange
Commission (the 'Commission'). The Company will receive net proceeds of
approximately $ from the sale of the shares of Common Stock included in
the underwritten public offering, and will receive approximately $ in
additional net proceeds if the over-allotment option is exercised in full after
payment of underwriting discounts and commissions and estimated expenses of the
underwritten public offering.
[ALTERNATE]
PLAN OF DISTRIBUTION
The Selling Shareholder has advised the Company that it may from time to
time sell all or a portion of the Shares offered hereby in one or more
transactions in the over-the-counter market, on the NASDAQ SmallCap Market, on
any exchange on which the Common Stock may then be listed, in negotiated
transactions or otherwise, or a combination of such methods of sale, at market,
prices prevailing at the time of sale or prices related to such prevailing
market prices or at negotiated prices. The Selling Shareholder may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholder and/or purchasers of the
Shares for whom they may act as agent (which compensation may be in excess of
customary commissions). In connection with such sales, the Selling Shareholder
and any broker-dealers or agents participating in such sales may be deemed to be
underwriters as that term is defined under the Securities Act. Neither the
Company nor the Selling Shareholder can presently estimate the amount of
commissions or discounts, if any, that will be paid by the Selling Shareholders
on account of their sales of the Shares from time to time. The Shares are
subject to an agreement between the holders thereof and the Representative
restricting the sale thereof within the six months from the date of this
Prospectus without the prior written consent of the Representative.
Under the securities laws of certain states, the Shares may be sold in such
states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
Shares may not be sold therein unless the Shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and satisfied.
The Company will pay certain expenses in connection with this offering,
estimated to be approximately $ , but will not pay for any underwriting
commissions and discounts, if any, or counsel fees or expenses of the Selling
Shareholder. The Company has agreed to indemnify the Selling Shareholder, its
directors, officers, agents and representatives, and any underwriters, against
certain liabilities, including certain liabilities under the Securities Act.
The Selling Shareholder has also agreed to indemnify the Company, its
directors, officers, agents and representatives against certain liabilities,
including liabilities under the Securities Act. The Selling Shareholder and
other persons participating in the distribution of the Shares offered hereby are
subject to the applicable requirements of Rule 10b-6 promulgated under the
Exchange Act in connection with sales of the Shares.
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLING SHAREHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Concurrent Offering............................ 14
Use of Proceeds................................ 15
Price Range of Common Stock.................... 16
Dividend Policy................................ 16
Capitalization................................. 17
Dilution....................................... 18
Selected Financial Data........................ 19
Pro Forma Financial Statements................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
Business....................................... 29
Management..................................... 38
Principal Stockholders......................... 42
Certain Transactions........................... 43
Description of Capital Stock................... 45
Shares Eligible for Future Sale................ 46
Plan of Distribution........................... 47
Legal Matters.................................. 48
Experts........................................ 48
Additional Information......................... 49
Index to Financial Statements.................. F-1
</TABLE>
------------------------
------------------------------------------------------
------------------------------------------------------
[ALTERNATE]
------------------------------------------------------
------------------------------------------------------
[Logo]
350,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Articles of Incorporation provide that the
Registrant shall indemnify and may insure its officers and directors to the
fullest extent not prohibited by law. The Registrant has also entered into an
agreement (the form of which is filed as Exhibit 10.25 hereto) with each of its
directors and executive officers wherein it has agreed to indemnify each of them
to the fullest extent permitted by law. In general, Florida law permits a
Florida corporation to indemnify its directors, officers, employees and agents,
and persons serving at the corporation's request in such capacities for another
enterprise, against liabilities arising from conduct that such persons
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriter has agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the offering, including
certain liabilities under the Securities Act of 1933, as amended.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC Registration Fee....................................... $ 3,281.34
NASD Filing Fee............................................ 1,582.84
Nasdaq Listing Fee......................................... 10,000.00
Printing Costs............................................. 60,000.00
Legal Fees and Expenses.................................... 150,000.00
Accounting Fees and Expenses............................... 80,000.00
Blue Sky Fees and Expenses................................. 40,000.00
Transfer Agent and Registrar Fees.......................... 5,000.00
Miscellaneous.............................................. $ 25,135.82
-----------
Total................................................. $375,000.00
-----------
-----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In July 1996, the Company acquired all of the common stock of
Adventures-in-Telecom, Inc. ('AIT'). The Company paid $5,271,230 and agreed to
issue up to 200,000 shares of the Company's Common Stock (150,000 of which have
been issued to date). In connection with the acquisition of AIT, the Company
obtained a loan from Tel-Save, Inc. In connection with the loan, the Company
issued a warrant to Tel-Save Holdings, Inc., an affiliate of Tel-Save, to
purchase 300,000 shares of Common Stock at an exercise price of $5.75 per share,
exercisable until July 2001. In November 1996, in connection with an amendment
of the loan and of the Company's services agreement with Tel-Save, the Company
issued a five-year warrant to Tel-Save Holdings, Inc. to purchase 50,000 shares
of Common Stock at an exercise price of $5.00 per share.
In September 1995, as an inducement to loan the Company $100,000, the
Company issued stock options to a director and an unaffiliated third party to
purchase 47,635 shares of the Company's Common Stock at $3.15 per share. These
options expire on September 30, 1997.
In September of 1995 through January of 1996, the Company issued an
aggregate of 80,798 unregistered shares of Common Stock to shareholders pursuant
to the exercise of options granted in November of 1991 for aggregate gross
proceeds of $85,000.
II-1
<PAGE>
In September of 1995 through January of 1996, the Company issued an
aggregate of 19,054 unregistered shares of Common Stock to shareholders pursuant
to the exercise of options granted in July 15, 1991 for aggregate gross proceeds
of $10,000.
In October of 1995, the Company issued 47,635 unregistered shares of Common
Stock to Gerald M. Dunne, Jr., the Company's President and Chief Executive
Officer, in consideration of services rendered.
In February of 1995, the Company issued 9,527 unregistered shares of Common
Stock to a director of the Company pursuant to the exercise of options granted
in July of 1993 for gross proceeds of $10,000.
In January of 1995, the Company issued 953 unregistered shares of Common
Stock to a director of the Company pursuant to the exercise of options granted
in January 1992 for gross proceeds of $1,000.
In January through February of 1995, the Company issued an aggregate of
39,060 unregistered shares of Common Stock to shareholders pursuant to the
exercise of options granted in January of 1992 for aggregate gross proceeds of
$21,000.
In December of 1994, the Company issued 11,432 unregistered shares of
Common Stock to a shareholder for gross proceeds of $15,000.
In June through October of 1994, the Company issued an aggregate of 4,287
unregistered shares of Common Stock to shareholders pursuant to the exercise of
options granted in November of 1991, for aggregate gross proceeds of $4,500.
In April through December of 1994, the Company issued an aggregate of
114,323 unregistered shares of Common Stock to shareholders pursuant to options
granted in June of 1991 for aggregate gross proceeds of $60,000.
The issuances described above were deemed exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Company, to information about the
Registrant.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
++1.1 -- Form of Underwriting Agreement.
*2.1 -- Plan and Agreement of Merger of Group Long Distance, Inc. into Registrant.
*2.2 -- Articles of Merger of Group Long Distance, Inc. into the Company.
2.3 -- Amended and Restated Articles of Merger of Group Long Distance, Inc. into the Company.
*3.1 -- Articles of Incorporation of the Company.
++3.2 -- Proposed Amended and Restated Articles of Incorporation of the Company.
*3.3 -- By-laws of the Company.
++3.4 -- Proposed Amended and Restated By-laws of the Company.
++4.1 -- Form of Representative's Warrant Agreement including Form of Warrant Certificates.
++5.1 -- Opinion of Kipnis Tescher Lippman Valinsky & Kain with respect to the legality of the Common
Stock.
***10.1 -- Partition Agreement between Registrant and Tel-Save, Inc. dated February 3, 1993 (including
Security and Assignment Agreement and Lock Box Agreement).
10.2 -- Purchase and Sale Agreement between Registrant and Rockwell Communications, Inc. dated February
24, 1994.
10.3 -- Purchase Agreement between Registrant and ACTI, Inc. dated June 1994.
****10.4 -- Reseller Agreement between Registrant and Touchtone Network, Inc. dated March 30, 1995.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
**10.5 -- Reseller agreement between Registrant and ARN Communications Corporation dated April 13, 1995.
**10.6 -- Loan Agreement between Registrant and Gateway American Bank of Florida dated June 7, 1995.
**10.7 -- Promissory Note payable to John L. Tomlinson and Philip C. Cezeaux, dated September 25, 1995.
10.8 -- Purchase Agreement between Registrant and Touchtone Network, Inc. dated October 11, 1995.
10.9 -- Addendum to the Purchase Agreement between Registrant and Touchtone Network, Inc. dated November
21 and 22, 1995.
10.10 -- Lease Agreement between Registrant and Chantilly Management Corporation regarding 1555 Howell
Branch Road, Winter Park, Florida dated December 31, 1995.
**10.11 -- Commission Agreement between Registrant and Global Telecom Network, Inc. regarding Target
Stores, a division of Dayton Hudson Corporation, dated February 1, 1996.
10.12 -- Second Amendment and Renewal of Lease between Registrant and Gateway Investments Corporation
regarding 1451 West Cypress Creek Road, Fort Lauderdale, Florida dated February 5, 1996.
***10.13 -- Network Services Agreement between Registrant and UUNET Technologies, Inc. dated February 9,
1996.
10.14 -- Rebiller Services Agreement between Registrant and WorldCom, Inc. dated February 22, 1996.
10.15 -- Acknowledgement, Agreement and Release between Registrant and Touchtone Network, Inc. dated
March 1996.
10.16 -- Switched Reseller Services Agreement between Registrant and Phone One, Inc. (Intermedia
Communications Inc.) dated April 10, 1996.
10.17 -- Purchase Agreement between Registrant and Mr. Larry C. Cornwell regarding Gulf Communications
Services, Inc. dated May 1, 1996.
10.18 -- Loan Agreement between Registrant and Gateway American Bank of Florida dated May 2, 1996.
10.19 -- Promissory Note payable to Registrant by WorldCom, Inc. dated June 6, 1996.
****10.20 -- Purchase Agreement and Plan of Exchange between Registrant and Adventures-in-TeleCom, Inc. dated
July 3, 1996.
****10.21 -- Loan Agreement between Registrant and Tel-Save Inc. dated July 11, 1996.
10.22 -- Consent and Amendment between Tel-Save, Inc., and Registrant dated December 2, 1996.
10.23 -- Common Stock Purchase Warrant to purchase 50,000 Shares of Common Stock granted to Tel-Save Holdings, Inc.
by Registrant, dated December 2, 1996.
10.24 -- Line of Credit Agreement between Registrant and Gateway American Bank of Florida dated August 1,
1996.
++10.25 -- Employment agreement of Gerald M. Dunne, Jr. with Registrant.
10.26 -- 1996 Stock Option Plan.
++10.27 -- Form of Indemnification Agreement between Registrant and each of its directors and executive
officers.
11.1 -- Statement re: computation of per share earnings.
+16.1 -- Letter on change in certifying accountant.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Grant Thornton LLP, certified public accountants.
23.2 -- Consent of Timothy Hohl Company P.A., certified public accountants.
23.3 -- Consent of Orrick, Herrington & Sutcliffe LLP.
++23.4 -- Consent of Kipnis Tescher Lippman Valinsky & Kain (included in Exhibit Number 5.1).
27.1 -- Financial Data Schedule.
27.2 -- Financial Data Schedule.
</TABLE>
(Footnotes on next page)
II-3
<PAGE>
(Footnotes from previous page)
- ------------------
* Filed as an Exhibit to the Company's Registration Statement on Form SB-2
(No. 33-99998) and incorporated by reference herein.
** Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (No. 33-99998) and incorporated by reference
herein.
*** Filed as an Exhibit to Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (No. 33-99998) and incorporated by reference
herein.
**** Filed as an Exhibit to the Company's report on Form 10-KSB dated August
12, 1996.
+ Filed as an Exhibit to the Company's report on Form 8-K dated June 10,
1996.
++ To be filed by amendment.
(b) Financial Statement Schedules
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the 'Act'), the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act, may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 10th
day of December, 1996.
GROUP LONG DISTANCE, INC.
By: /s/ Gerald M. Dunne, Jr.
------------------------
Gerald M. Dunne, Jr.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that the persons whose signatures appear
below each severally constitutes and appoints Gerald M. Dunne, Jr., as true and
lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for them in their name, place and stead, in any and all
capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement, any registration
statement relating to the same offering as this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all which said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do, or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ ------------------------
<S> <C> <C>
/s/Gerald M. Dunne, Jr.
----------------------------- Chief Executive Officer December 10, 1996
Gerald M. Dunne, Jr. (Principal Executive Officer
and Principal Financial Officer)
/s/ Andrea A. Morey
---------------------------- Vice Presiden December 10, 1996
Andrea A. Morey
/s/ Edward Harwood
----------------------------- Director December 11, 1996
Edward Harwood
/s/ C. Shelton James
----------------------------- Director December 10, 1996
C. Shelton James
/s/ Glenn S. Koach
----------------------------- Director December 10, 1996
Glenn S. Koach
/s/ John L. Tomlinson
----------------------------- Director December 10, 1996
John L. Tomlinson
</TABLE>
II-5
<PAGE>
GROUP LONG DISTANCE, INC.
AMENDMENT
WHEREAS, pursuant to a Plan and Agreement of Merger dated November 14, 1995,
Group Long Distance, Inc., a Florida corporation ("Old GLD"), was merged with
and into Second ITC Corporation (the "Corporation");
WHEREAS, the Corporation filed articles of merger ("Articles of Merger") with
the Secretary of State of the State of Florida (the "Secretary of State") on
November 16, 1995;
WHEREAS, the Board of Directors and shareholders of Old GLD and the Corporation
approved an amendment to the Corporation's Articles of Incorporation to change
the name of the Corporation to "Group Long Distance, Inc." and to increase the
number of shares of common stock the Corporation is authorized to issue to
5,000,000;
WHEREAS, pursuant to Section 607.1106 of the Florida Business Corporation Act
(the "Act"), the Articles of Merger amended the Corporation's Articles of
Incorporation to change the name of the Corporation to "Group Long Distance,
Inc.", but due to a typographical error in the Articles of Merger, an ambiguity
was created with respect to the increase in the number of shares of authorized
common stock;
WHEREAS, the Corporation desires to file this amendment (the "Amendment") with
the Secretary of State in order to eliminate the ambiguity in the Articles of
Merger;
WHEREAS, the Board of Directors of the Corporation has recommended by unanimous
written consent dated as of November 21, 1996 that the shareholders of the
Corporation approve, and the shareholders having the voting power prescribed in
Section 607.1003(5) of the Act have approved by written consent dated as of
November 21, 1996, this Amendment;
NOW THEREFORE, BE IT RESOLVED, that the Articles of Merger are hereby amended as
follows:
FIRST: ARTICLE FOUR of the Articles of Merger is hereby amended by adding the
following as paragraph (f) of Section 2 of ARTICLE FOUR:
"(f) Upon the effective date of the merger, Article III of the Articles
of Incorporation of the surviving corporation shall be amended to read
in its entirety as follows:
The Corporation is authorized to issue two classes of shares, designated
respecfully "Common Stock" and "Preferred Stock." Five million
(5,000,000) shares of Common Stock may be issued. One million
(1,000,000) shares of Preferred Stock may be issued. The Common Stock
has voting rights. The Preferred Stock has no voting rights.
<PAGE>
The Preferred Stock is entitled to receive dividends on a noncumulative
basis at the rate of One Dollar ($1.00) per share, as and when declared
by the board of directors out of funds legally available therefor. No
dividends or other distributions may be made for the Common Stock during
any fiscal year of the Corporation until dividends on the Preferred
Stock in the total amount of One Dollar ($1.00) per share during that
fiscal year have been declared and paid, or set apart for payment."
SECOND: The foregoing Amendment was recommended for approval by unanimous
written consent of the board of directors of the Corporation dated as of
November 21, 1996, and shareholders of the Corporation having the
voting power prescribed in Section 607.1003(5) of the Act have approved
this Amendment by written consent dated as of November 21, 1996.
THIRD: All other provisions of the Articles of Merger shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned President of the Corporation has executed
this instrument as of this 21st day of November, 1996.
/s/ Gerald M. Dunne, Jr.
-----------------------------------
Gerald M. Dunne, Jr., President
<PAGE>
GROUP LONG DISTANCE INC.
A NETWORK MANAGEMENT COMPANY
UTILIZING THE AT&T NETWORK
February 20, 1994
Mr. Paul Shattner
Rockwell Communications, Inc.
1001 West Cypress Creek Road
Suite #302
Ft. Lauderdale, FL 33309
Re: Purchase and Sale Agreement by and between Group
Long Distance Inc. and Rockwell Communications, Inc.
Dear Paul,
The following will serve as a formal agreement for the purchase by Group
Long Distance Inc. (GLD) of the below specified data partition from Rockwell
Communications, Inc. (Rockwell).
GLD intends to purchase all of Rockwell's rights and interests to
customers, billings, receivables, etc. relating to the segregated block of
business presently performed by Rockwell associated with the AT&T tariff program
and the Software Defined Network (hereinafter, said data base partition will be
referred to as the "Rockwell Partition"). Payments due to Rockwell for the
monthly statement Dated 3/2/95 are excluded from this agreement.
GLD intends to purchase the Rockwell Partition for the total sum of two (2)
times the average monthly billings derived from the Rockwell Partition plus
$3,500.00 for March commissions and $3,500.00 for credits and adjustments to
past billings (the "Purchase Price") equaling a total of $44,045.00. The average
monthly billings are calculated based upon the monthly average derived from
October 1994, and November 1994 actual customer retail billing amounts less any
and all taxes (calculated at 7.4%), credits, discounts, and/or adjustments
provided to those actual billings (the "Average Monthly Billings"). Based upon
the above formula two times the Average Monthly Billings equals $37,075.00.
Payment of the Purchase Price will be made as follows:
1. One payment of $3,500.00 will be paid February 24, 1995, as a good
faith deposit.
2. One payment of $18,522.50 will be made on March 2, 1995.
<PAGE>
3. The remaining balance to be paid as follows: $18,522.50 on April 2, 1995
and the April commission in the amount of $3,500.00 will be paid on April 5,
1995.
The closing date for this transaction shall be March 2, 1995.
Rockwell agrees that this transaction can be voided by GLD and all of the
Purchase Price immediately returned to GLD if:
1. Rockwell or its agents competes with GLD or solicits to the customers
under the Rockwell Partition for any telecommunications related
services of any kind during a three (3) year period after the closing
date; or
2. Rockwell is held by a court of competent jurisdiction to have
misrepresented or omitted to clearly represent all details involving
agreements, liabilities and/or obligations pertaining to the Rockwell
Partition or the Rockwell Partition's customers.
Rockwell hereby represents and warrants that the customers being obtained
by GLD pursuant to its purchase of the Rockwell Partition do not have any liens,
encumbrances, special promissory notes, credits and/or customized and
nondisclosed billing or credit arrangements. Rockwell will indemnify and hold
harmless GLD from any liability and will defend GLD from all claims, suits and
actions associated with any nondisclosed agreements entered into by Rockwell.
Rockwell will clearly disclose in writing all circumstances which do or may
affect the calculation of the Average Monthly Billings.
Rockwell will agree to assist GLD in any way possible in making the
transition of the Rockwell Partition from Rockwell to GLD.
The laws of the State of Florida will control the interpretation of this
Purchase and Sale Agreement and the parties agree that judicial venue will lie
in Broward County, Florida.
This Agreement shall ensure to the benefit of, and shall be binding upon,
the parties hereto and their respective successors and assigns. This Agreement
sets forth the entire understanding between the parties concerning the matter
hereof, and supersedes all prior negotiations and understandings with respect
thereto. No change to this Agreement shall be binding upon either
<PAGE>
party unless in writing an signed by the party to be charged.
The individuals executing this Agreement warrant that they are authorized
to do so by their respective corporations. This Agreement may be executed in
counterparts, and a facsimile transmission of an executed Agreement shall be
considered binding upon the party signing same, all of which together shall be
deemed the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the 24th
day of February, 1995.
Very truly yours,
GROUP LONG DISTANCE, INC.
Witness: /s/ Andrea F. Morey By:/s/ Gerald M. Dunne, Jr.
-------------------------
Gerald M. Dunne Jr.
President
ROCKWELL COMMUNICATIONS, INC.
By: /s/ Paul Shattner
- -----------------------------
, President
<PAGE>
LETTER PURCHASE AGREEMENT
This Agreement by and between ATCI, Inc., a Delaware corporation ("ATCI")
and Group Long Distance, Inc., a Florida corporation ("GLD"), shall memorialize
the agreement between the parties with respect to GLD's purchase of all traffic
transferred by ATCI to GLD pursuant to that certain Distributorship Agreement
and Blanket Agency Agreement Letter of even date (the "Telecommunications
Traffic"), as follows:
1. GLD shall purchase the Telecommunications Traffic at a purchase price
equal to the average monthly revenue generated by the Telecommunications Traffic
for the months of August, September, and October 1994 (determined in accordance
with the rates set forth in Exhibit "A" attached hereto) times a multiple of 1.7
(the "Purchase Price"). The Telecommunications Traffic utilized to determine
the Purchase Price shall not include traffic generated from investor accounts
identified in Exhibit "B" (the "Investor Accounts"), or any Telecommunications
Traffic attributable to ATCI's main corporate billing account, which number is
presently identified as (406) 756-5940 (the "Excluded Traffic").
2. GLD shall provide long distance service for the Excluded Traffic at
rates set forth in Exhibit "A". To the extent that GLD has any indebtedness to
ATCI towards payment of the Purchase Price, the amounts owed by ATCI to GLD in
consideration for providing service for the Excluded Traffic shall be deducted
from the Purchase Price. There shall be deducted from the Purchase Price an
amount of $6,000.00, which amount represents advance payment of
1
<PAGE>
billing and collection services associated with providing long distance service
to the twenty (20) subscribers listed in the Investor Accounts from August 19,
1994, for a period of sixty (60) months. GLD shall, for a period of sixty (60)
months from August 19, 1994, provide the twenty (20) subscribers listed in the
Investor Accounts with a discount on other long distance service equal to fifty
percent (50%) of GLD's standard SDN rates, up to a maximum monthly discount of
$100.00 per month. To the extent that any investor's long distance usage exceeds
$200.00 per month from August 19, 1994 and each month thereafter (calculated at
GLD's customary SDN rates), such investor shall be responsible for all long
distance charges (calculated at GLD's customary SDN rates). Such excess amount
shall be paid by the individuals listed in the Investor Accounts or, at ATCI's
option, by ATCI. ATCI acknowledges its ultimate responsibility for the payment
of all long distance indebtedness incurred with respect to the Excluded Traffic
(calculated on the basis of GLD's customary SDN rates). Failure to keep monthly
billings current by any individual investors or with respect to the Excluded
Traffic, shall result in the customary collection activities by GLD without any
preferential treatment for such service.
3. All amounts lent to ATCI by GLD pursuant to any Promissory Note(s)
shall serve as a reduction of the Purchase Price, together with interest accrued
on such Promissory Note(s). The parties acknowledge that, as of September 6,
1994, the amount
2
<PAGE>
of loans from GLD to ATCI, together with accrued interest, is equal to
$80,000.00.
4. In view of GLD's determination to purchase the Telecommunications
Traffic, CLD shall have no obligation to ATCI with respect to the payment of
commissions transitionally provided for in the Distributorship Agreement.
5. Upon consummation of the purchase of the Telecommunications Traffic,
GLD shall cause all UCC-3 filings with respect to Econocall's assets to be
removed at GLD's sole expense.
6. The purchase price provided for herein shall be paid by December 1,
1994.
7. GLD and ATCI will, at each other's request, execute and deliver all
such further assignments, endorsements and other documents as may be reasonably
requested in order to comply with the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Letter
Purchase Agreement this ______ day of ____________________, 1994.
Attest: ATCI, INC.
By: _________________________ By: _________________________ (Seal)
President
Attest: GROUP LONG DISTANCE, INC.
By: _________________________ By: _________________________ (Seal)
President
3
<PAGE>
GLD GROUP LONG DISTANCE, INC.
A NETWORK MANAGEMENT COMPANY
UTILIZING THE AT&T NETWORK
"EXHIBIT A"
AT&T's F.C.C. TARIFF # 1
INTERSTATE RATES FOR
AT&T SOFTWARE DEFINED NETWORK
MILAEAGE DAY EVE NIGHT
BANDS WEEKEND
- --------------------------------------------------------------------------------
0 - 55 $0.129 $0.178 $0.178
- --------------------------------------------------------------------------------
56 - 292 $0.198 $0.178 $0.178
- --------------------------------------------------------------------------------
293 - 430 $0.211 $0.178 $0.178
- --------------------------------------------------------------------------------
431 - 925 $0.219 $0.178 $0.178
- --------------------------------------------------------------------------------
925 + $0.231 $0.178 $0.178
- --------------------------------------------------------------------------------
ALL CALLS ARE BILLED IN 0.1 MINUTE (6 SECOND) INCREMENTS WITH AN INITIAL 0.3
MINUTE (18 SECOND) MINIMUM BILLING FOR ONLY COMPLETED CALLS.
[LOGO]
CUSTOMER SERVICE 800-521-5422
All rates subject to changes in AT&T's F.C.C. Tariff #1
<PAGE>
ATCI ECONO CALL INVESTORS
1. JERRY SURMAN
2. JAMES FLOWERS CRAWFORD
3. OTT PATE
4. PAUL WILDE
5. FINATLANTIC CORP
6. LEO ENGLESON
7. LARRY MIX
8. PAM DUVALL
9. TONY DIMENTO
10. RICHARD CARLSEN
11. MAX MILES
12. BIODEVELOPMENT CORP.
13. GARY GIBERSON
14. DR. DW FAWLEY
15. QUIN FLOWERS JR
16. RICHARD KRAMERER
17. THE ADLER NETWORK
18. ROBERT THEIBAULT
"EXHIBIT B"
<PAGE>
Mr. Ken Grossfeld
Touchtone Network, Inc.
3550 Biscayne Blvd.
Miami, FL 33137
October 11, 1995
Dear Ken,
This letter is intended to outline an offer by Group Long Distance, Inc.
(hereinafter referred to as "GLD") to purchase the current long distance
customer base currently on the GLD system of Touchtone Network, Inc.
(Hereinafter referred to as "Touchtone"). With respect to this customer base, we
understand you warrant that the following is true and accurate.
- Touchtone is hereby selling to GLD all right, title and interest in the
customer base meeting the conditions stated herein which is currently
carried under the GLD/LDDS Reseller Agreement with Touchtone.
- Total billing volume is approximately $130,170.23 per month.
- No sales commission is owed on any part of the customer base.
- No carrier obligation for volume and/or term will be assumed by GLD
Network
- The base consists of approximately 1,000 active accounts with an average
usage of $130/month
- Touchtone owns verbal or written LOA's for every customer
- Less than 10% of the customer base uses account codes; 3 and 4 digit
verified and non-verified accounting codes are used
- Touchtone makes an average gross margin of approximately 35% on its
international traffic
- All information presented in Touchtone's "book" sent to GLD and dated
September 15th
- Touchtone shall remain responsible for all debts, accounts payable, and
all liabilities associated with the customer base arising prior to, created
or incurred prior to the end of the October 1995 billing period. GLD does
not assume any liability or obligation not specifically expressed in this
agreement and Touchtone promises to indemnify and hold harmless GLD from
any and all liabilities owed by Touchtone to third parties if those
liabilities are not expressly identified herein.
1) GLD will purchase this customer base for an amount equal to a multiple of
gross monthly billings. Billings is defined as all interstate, intrastate,
international, calling card, and monthly recurring fees including late fees and
all taxes.
2) Upon receiving a magnetic tape of the customer billing information (estimated
October 15, 1995) GLD will pay Touchtone an amount equal to 4.25 time August
billings (September invoice) of $130,170.23. The total purchase price is
$553,223.47 (4.25 x $130,170.23) and based on 3% or less monthly attrition.
$154,904.37 to be paid October 31, 1995, the proposed date of closing. The
balance of $398,319.10 will be placed in escrow with the law firm of Manuel A.
Avila on or about October 31, 1995. All interest earned on the escrow account
will be paid to Touchtone as part of the final payment. The schedule of payments
will be as follows:
$139,904.37 to be paid October 31, 1995, the proposed date of closing
$120,095.63 to be paid on or about November 18, 1995*
$75,000 to be paid on or about December 18, 1995*
$75,000 to be paid on or about January 18, 1996*
$75,000 to be paid on or about February 18, 1996*
$25,000 to be paid on or about March 18, 1996*
The balance of $28,223.47 to be paid on or about May 18, 1996*
*Within two business days of GLD receiving the LDDS paper bill which is received
on or about the 18th of each month or within 5 days of receiving a tape,
whichever is earlier and in no event later than the end of the month.
Page 1 of 3
<PAGE>
The formula to be used for attrition is outlined below. In the event monthly
attrition exceeds 3%, the monthly payments will be adjusted accordingly.
Attrition in Billing Dollars (Month 1-6) Revenue Multiple
- ---------------------------------------- ----------------
0% - 3% Monthly Attrition 4.25 x Monthly Billings
3.0% - 4.0% 4.00 x Monthly Billings
4.0% - 5.0% 3.50 x Monthly Billings
5.0% - 6.0% 3.00 x Monthly Billings
6.0% - 7.0% 2.50 x Monthly Billings
7.0% - 7.5% 2.00 x Monthly Billings
>7.5% 1.50 x Monthly Billings
3) Attrition will be measured by comparing the billing dollars from the
customers' August billing ($130,170.23 approximately) to the first full bill
month with GLD (November traffic, December invoice) with the billing dollars
from the sixth full months invoices (seventh actual month; April traffic, May
invoice) and then converted into a monthly attrition figure (six months of
billing for the denominator). If attrition is at 8% or above for two consecutive
months, GLD will revise the payment schedule according to the attrition in
billing dollars formula in Item 2. Attrition is defined as any customer who is
no longer billing with GLD. Attrition will also take into consideration the
number of business days in each month (i.e. 25 business days in August versus
20.5 business days in November will result in a .1087 decline in usage which is
based on the number of business days and not attrition. Reasons may include, but
not be limited to: changed carrier, canceled service, and bad debt. Bad debt
will be defined as any customer who has gone more than three full bill months
without making a full months' payment (90+days past due). GLD will provide
monthly reports to Touchtone either on disk or paper specifically showing each
account that GLD lists as cancelled.
4) GLD desires to buy only those customers who are less than 90 days past due.
If Touchtone wants to sell to GLD customers who are more than 90 days past due,
GLD will bill these customers and buy them as they become current according to
the aforementioned revenue multiple. If Touchtone decides to sell to GLD
customers who are more than 90 days past due, Touchtone will assume all the bad
debt risk from these customers. In other words, for any customer who is more
than 90 days past due at the time of sale and goes bad debt, Touchtone will pay
to GLD the GLD bad debts total.
5) Upon billing the first month traffic, GLD will also bill all unpaid balances.
On a weekly basis, as the unpaid balances are paid, GLD will forward the monies
due to Touchtone on a first in, first out basis, on all usage prior to November
1, 1995. GLD will provide weekly reports to Touchtone and pay Touchtone 100% of
all collected unpaid balances. If any unpaid balances are not paid, Touchtone
will refer this client to its own attorney and collect the money itself.
6) Touchtone agrees to work closely with GLD during the customer transition
period. It is the intention of GLD and Touchtone to personally contact the
larger customers, and send out a letter to all of the affected customer. Soon
after the transition, GLD will attempt to sign-up these customers on term
agreements by offering them a price discount for a two year commitment. GLD
intends to keep all of the customers on their current rate programs. The
underlying carrier will remain LDDS WORLDCOM. For purposes of measuring
attrition, GLD will use the prediscounted customer usage, for all customers who
have placed on GLD term plans.
7) Touchtone will still be obligated to pay GLD for usage during the August,
September and October 1995 billing periods. GLD will continue to post to
Touchtone against the usage amounts due, any credits issued by LDDS WorldCom for
usage through October 1995. If credit is received after the October 1995 invoice
remittance date, GLD will forward the credit account on a timely basis to
Touchtone. Touchtone also reserves the right to continue to submit business
under a similar agreement (GLD/LDDS Reseller Agreement with Touchtone) to GLD
for new LDDS business submitted after October 31, 1995.
Page 2 of 3
<PAGE>
8) Touchtone agrees that it will not attempt to sell long distance to any of
those purchased customers for a period of five years from the signing of this
agreement. If Touchtone signs up a purchased customer account(s), Touchtone will
immediately transfer the customer back to GLD and pay GLD all profits generated
by those accounts. GLD will not attempt to transfer those customers to any of
its other services.
9) The prevailing parties in any suit or litigation arising from this agreement
shall be entitled to recovery of all costs, expenses, and reasonable attorneys
fees incurred through all appeals.
10) Provisions contained under the GLD Reseller Agreement with Touchtone under
Paragraph 17, Sections C, I and K shall be considered part of this agreement as
if fully written herein.
Ken, we would like to complete this transaction as soon as possible, in order to
begin the traffic transfer during the first few weeks of October. Please review
this letter and sign and date it so we can proceed.
/s/ Gerald M. Duane, Jr. /s/ Kenneth Grossfeld
- -------------------------------------- ____________________________________
Gerald M. Duane, Jr., President Kenneth Grossfeld, President
on behalf of Group Long Distance, Inc. on behalf of Touchtone Network, Inc.
10/18/95
- -------------------------------------- ____________________________________
Date Date
ADDENDUM
The following is an addendum to the contract between Group Long Distance
Inc. and Touchtone Network, Inc. for GLD purchase of TNI customer base.
SECTION 1
1) Whereas Group Long Distance (GLD) owes Touchtone Network, Inc.
(TNI) $120,095.63 under the terms of the contract for the purchase of
Touchtone's customer base. Payment was due on November 18, 1995.
2) And whereas TNI will owe GLD approximately $85,000 for long
distance usage for the month of September, 1995 which will be due
approximately November 28, 1995.
Therefore, the parties, TNI and GLD mutually agree as follows:
3) GLD agrees to offset the approximate $85,000 that will be due GLD
from TNI against the $120,095.63 GLD currently owes TNI.
4) This $85,000 offset is hereby considered payment in full for
Touchtone's September 1995 long distance usage. Additionally, GLD will
pay TNI $35,000 which represents the balance remaining of the
$120,095.63 that GLD owes Touchtone. Payment of $35,000 by GLD to be
made Monday, November 27, 1995. Trus-up and settlement on actual amounts
due will be done by November 28, 1995.
SECTION II
1) GLD agrees to pay Touchtone the sum of $13,000 on December 18, 1995.
The extra $13,000 will be paid as additional consideration to Touchtone
for the time delays caused by GLD.
2) GLD will pay for the billing and related client charges (Centillion
and State Tax Resource Group) for the TNI billing for the November 18,
1995 bill cycle (for the usage for the month of November) and any
additional months until GLD has fully funded the escrow account.
3) GLD agrees to increase the attrition formula in the original contract
by 1% in TNI's favor if GLD has not fully funded the escrow account
by December 18, 1995.
Agreed and Accepted:
/s/ Kenneth Grossfeld /s/ Gerald Dunne
- --------------------------- ---------------------------
Kenneth Grossfeld, President Gerald Dunne, President
Touchtone Network, Inc. Group Long Distance, Inc.
Date: 11/21/95 Date: 11/22/95
<PAGE>
CHANTILLY COURT
LEASE AGREEMENT
THIS AGREEMENT, made and entered into as of the 31 day of December, 1995, by and
between CHANTILLY MANAGEMENT CORPORATION (hereinafter called Lessor), and GROUP
LONG DISTANCE, INCORPORATED, (hereinafter called Lessee
WITNESSETH:
1. PREMISES
THAT: For and in consideration of the mutual covenants and agreements
hereinafter set forth, Lessor does hereby Lease to Lessee the following
described real estate situated in Winter Park, Florida at 1555 Howell
Branch Road, to wit:
An office area consisting of approximately 925 square feet. A copy
of the space plan is attached hereto as EXHIBIT "A" and incorporated
herein by this reference.
together with all other appurtenances and privileges and/or attached
thereto, hereinafter referred to as the Premises. TO HAVE AND TO HOLD the
premises for the term set forth in Paragraph 2 hereof.
2. TERM USE
The term of this Lease shall be 36 months to commence on January 1, 1996,
or when all tenant improvements called for under the Lease are completed,
whichever is first; to end 36 months after inception; unless sooner
terminated as herein provided. The leased premises shall be continuously
used and occupied during the full term of this Lease and for no other
purpose than general offices, without written consent of Lessor first had
and obtained.
3. BASE RENT AND SECURITY DEPOSIT
Lessee shall pay to Lessor as base rent for the demised premises, without
notice or demand, the sum of SEE ADDENDUM TO LEASE, SPECIAL PROVISIONS,
PARA. 1. RENT SCHEDULE payable the first day of each month, for the term
of this Lease, without deduction or set offs. In the event any such
monthly rental payment is not paid on the fifth (5th) day, a late charge
of $30.00 (Thirty Dollars) per day will be assessed against the Lessee,
and will be due and payable with the rent. The annual base rent shall be
subject to increases in accordance with provisions contained in Paragraph
4 hereof, and applicable Florida State Sales Tax, currently at six percent
(6%).
The parties agree that notwithstanding the fact that this Lease is
entered into as of December 1995, the base rent for purposes of Paragraph
4 is to be that rental charged for the subject premises in 1996.
Tenant has deposited with Landlord cash deposits in the amount of NINE
HUNDRED SIXTY-THREE & 54/100----- ($963.54) Dollars. SEE ADDENDUM TO
LEASE, SPECIAL PROVISIONS, PARA. 2. SECURITY DEPOSIT. Said sum shall be
held by Landlord as security for the faithful performance by Tenant of all
the terms, covenants, and conditions of this Lease. During the term
hereof, if tenant defaults with respect to any provision of this Lease,
including but not limited to, the provisions relating to the payment of
rent, Landlord may, but shall not be required to, use, apply or retain all
or any part of this security deposit for the payment of any rent or any
other sum in default, or for the payment of any amount which Landlord may
spend or become obligated to spend [illegible]
<PAGE>
compensate Landlord for any other loss or damage which landlord may suffer
by reason of tenants default. If any portion of said deposit is so used or
applied, Tenant shall, within five (5) days after written demand
therefore, deposit cash with Landlord in an amount sufficient to restore
the security deposit to its original amount and Tenant's failure to do so
shall be a material breach of this Lease. Landlord shall not be required
to keep this security deposit separate from its general funds, and Tenants
shall not be entitled to interest on such deposit. If Tenant shall fully
and faithfully perform every provision of this Lease to be performed by
it, the security deposit or any balance thereof shall be returned to
Tenant (or, at Landlord's option, to the last assignee of Tenant's
interest hereunder) at the expiration of the Lease term. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer
said deposit to Landlord's successor in interest.
4. INCREASE OF BASE RENT
The base rent shall be increased for each calendar year following the year
1996 (such calendar year being hereinafter called the base year and the
particular subsequent calendar year hereinafter called the comparison
year) by the Lessee's prorata share of any increase for the comparison
year in "operating expenses." The term "operating expenses" is defined and
comprised of the following:
A. ALL TAXES - (excluding interest the penalties) applicable to the
operation of the building. Lessee shall, however,
not be obligated for taxes on or related to the
net income of said building.
B. INSURANCE - including liability and comprehensive coverage of
subject property.
C. UTILITY CHARGE - including water, exterior lighting, sanitary
assessment, etc.
D. MAINTENANCE EXPENSE - including the wages and salaries of all
employees engaged in the operating and maintenance of the building
exterior and grounds, including the employer's social security taxes
and any other taxes which may be levied on such wages and salaries.
Lessee's prorata share of any increase shall be determined by the
ratio that the gross rental area of the demised premises hereby
fixed at 925 square feet, bears to the total gross rentable area of
the building hereby fixed at 28,460 square feet which ratio shall be
multiplied by the increase in "operating expenses" to determine the
increase in base rent to be paid by Lessee.
5. FRACTIONAL PERIOD
If the term of this Lease shall terminate on a date other than December
31, the base rent shall be increased for an increase in "operating
expenses" for the months of the fraction portion of the calendar years.
6. STATEMENTS
Statements for the amount of Lessee's prorata share of "operating
expenses" to be paid by Lessee shall be rendered to Lessee as soon as such
expenses are established for the first comparison year and each ensuing
comparison year thereafter. On request, Lessor shall exhibit to Lessee
appropriate operating statements for the base year and subsequent
comparison years. Payments will then be made on a monthly basis with
payments made retroactively to the first of the year to bring payment to
current status.
7. PAYMENT OR CREDIT
All sums payable by Lessee as its pro rata share of operating expenses
shall be deemed to be additional rent and shall be payable within twenty
(20) days after statements therefore have been rendered. All such
increases shall be paid retroactively to the first of the calendar year.
<PAGE>
8. SERVICES TO BE FURNISHED BY LESSOR
For the aforesaid consideration, Lessor agrees to furnish Lessee, while
occupying the premises, water at those points of supply provided for
general use of its Lessees. Lessor will maintain and repair air
conditioning equipment at such times and frequencies as are determined by
Lessor to be standard or required. Exterior parking and site lighting
service will be furnished by the Lessor, and at the cost of Lessor, to the
rented premises and for all public and special service area in the manner
and to the extent deemed by the Lessor to be standard. Building grounds
maintenance and exterior repairs and maintenance will be provided by
Lessor at such intervals as are considered by Lessor to be standard.
Failure by Lessor to any extent to furnish, or any stoppage of, these
defined services resulting from causes beyond the control of Lessor shall
not render Lessor liable in any respect for damages to either person or
property, nor be construed as an eviction of Lessee nor work an abatement
of rent, nor relieve Lessee from fulfillment of any covenant or agreement
hereof. Should any equipment or machinery break down or for any cause
cease to function properly, Lessor shall use reasonable diligence to
repair the same promptly, but Lessee shall have no claim for rebate of
rent or damages on account of any interruptions in service occasioned
thereby or resulting therefrom.
9. PROPERTY TAXES
Lessee shall pay, or cause to be paid, before delinquency, any and all
taxes levied or assessed in which become payable during the term hereof
upon all Lessee's leasehold improvements, equipment, furniture, fixtures
and personal property located in the premises; except that which has been
paid for by Lessor, and is the standard of the Building. In the event any
or all of the Lessee's leasehold improvements, equipment, furniture,
fixtures and personal property shall be assessed and taxed with the
Building, Lessee shall pay to Lessor its share of such taxes within ten
(10) days after delivery to Lessee by Lessor of a statement in writing
setting forth the amount of such taxes applicable of Lessee's setting
forth the amount of such taxes applicable to Lessee's property.
10. PEACEFUL ENJOYMENT
Lessee shall and may peaceable have, hold and enjoy the demised premises
subject to the other terms hereof and provided Lessee pays the rentals
herein recited and performs all of his covenants and agreements herein
contained.
11. PAYMENTS
Lessee agrees to pay all rents and sums provided to be paid to Lessor
hereunder at the times an in the manner herein provided on the first of
each month.
12. REPAIRS AND RE-ENTRY
Lessee will, at Lessee's own cost and expense, repair or replace any
damage or injury done to the building, or any part thereof, caused by
Lessee or Lessee's agents, employees, invitees, or visitors. If Lessee
fails to make such repairs or replacements promptly, or within fifteen
(15) days of occurrence, Lessor may, at its option, make such repairs or
replacements, and Lessee shall repay the cost thereof to Lessor on demand.
Lessee will not commit or allow any waste or damage to be committed on any
portion of the demised premises, and shall, at the termination of this
Lease, by lapse of time or otherwise, deliver up said premises to Lessor
in as good condition as at date of possession of Lessee, ordinary wear and
tear and damage by fire or windstorm alone excepted, and upon such
termination of Lease, Lessor shall have the right to re-enter and resume
possession of the demised premises.
<PAGE>
13. ASSIGNMENT OF RELETTING
Lessee will not assign this Lease, or allow the same to be assigned by
operation of law or otherwise, or sublet the demised premises, or any part
thereof, or use or permit the same to be used for any their purpose than
stated in the use clause hereof, without written permission of Lessor
first had and obtained. Said permission shall not be unreasonably
withheld.
14. ALTERATIONS, ADDITIONS AND IMPROVEMENTS
Lessee will not make or allow to be made any alterations or physical
additions, in or to the demised premises without written consent of Lessor
first had and obtained. Any and all such alterations, physical additions,
improvements, and repair and replacement of carpeting when made to the
demised premises by the Lessee shall be at the Lessee's cost and expense.
Any and all such alterations, physical additions or improvements except
removable fixtures or furniture of the Lessee shall at once become the
property of the Lessor and shall be surrendered to the Lessor upon the
termination in any manner of this Lease.
15. LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE
Lessee will not occupy or use, or permit any portion of the demised
premises to be occupied or used for any business or purpose which is
unlawful in part of in whole or deemed to be disreputable in any manner,
or extra-hazardous, or permit anything to be done which will in any way
increase the rate of insurance on said building and/or its contents, and
in the event that, by reason of acts of Lessee, there shall be any
increase in rate of insurance by Lessee's acts or conduct of business,
then Lessee hereby agrees to pay all such increases.
16. LAWS AND REGULATIONS
Lessee will keep and maintain the demised premises in a clean healthful
condition and comply with all laws, ordinances, order, rules and
regulations (State, Federal, Municipal and other Eastern Underwriters
Association for the prevention of fires) with reference to use, conditions
or occupancy of the demised premises.
17. INDEMNITY LIABILITY
Lessor will provide all risk coverage on the building and equipment
pertaining to the service of the building. The Lessee is responsible to
provide insurance for all loss or damage to any and all personal property
in the premises including betterments and improvements.
18. RULES OF BUILDING
Lessee and Lessee's agents, employees, invites and visitors will comply
fully with all requirements and rules of the building which are attached
hereto and made a part hereof as though fully set out herein. Lessor shall
at all times have the right to change such rules and regulations or to
amend them in any reasonable manner which may be deemed advisable by
Lessor for the safety, care and cleanliness of the demised premises and
for preservation of good order therein, all of which changes and
amendments will be sent by Lessor to Lessee in writing and shall be
thereafter carried out and observed by Lessee.
19. ENTRY FOR REPAIRS
Lessee will permit Lessor or its officers, agents or representatives the
right to enter into and upon any and all parts of the demised premises at
any time during the normal business hours, unless an emergency condition
exists, to inspect same or clean or make repairs or alteration or
additions as Lessor may deem necessary or desirable, and Lessee shall not
be entitled to any abatement or reduction or rent by reason thereof.
<PAGE>
20. NUISANCE
Lessee will conduct his business, and control his agents, employees,
invitees and visitors in such a manner as not to create any nuisance, or
interfere with, annoy, or disturb any other Lessee or Lessor in its
management of the building.
21. CONDEMNATION
In the event the whole or any part of the building, other than a part not
interfering with the maintenance or operation thereof, shall be taken or
condemned for any public or quasi-public use or purpose, the Lessor may at
its option terminate this Lease from the time title to or right to
possession shall vest in or be taken for such public or quasi-public use
or purpose, and the Lessor shall be entitled to any and all income, rent,
awards or any interest therein whatsoever which may be paid or made in
connection therewith. Nothing shall, however, prevent Lessee's recovery
for the loss of fixtures or leasehold improvements, provided such recovery
shall not lessen Lessor's award.
22. LOSS OR DAMAGE
Lessor shall not be liable or responsible for any loss or damage to any
property or person occasioned by theft, fire, water, act of God, public
enemy, injunction, riot, strike, insurrection, war, court order,
requisition or order of governmental body or authority, or other matter
beyond the control of Lessor, or for any damage or inconvenience which may
arise through repair or alteration of any part of the building, its
equipment or mechanical systems, or failure to make any such repairs or
from any cause whatever unless caused by Lessor's gross negligence.
23. LIEN FOR RENT
In consideration of the mutual benefits arising under this contract,
Lessee does hereby pledge and assign unto Lessor all property of Lessee
now or hereafter placed in or upon the demised premises (except such part
of any property or merchandise as may be exchanged, replaced or sold from
time to time in ordinary course of operations or trade), and such property
is hereby subjected to a lien in favor of Lessor and shall be and remain
subject to such lien of Lessor for payment of all rents and other sums
agreed to be paid by Lessee herein. Said liens shall be in addition to and
cumulative of the Landlord's liens provided by law.
24. ABANDONMENT
If the Lessee shall abandon or vacate said premises before the end of the
term of the Lease, or shall suffer the rent to be in arrears, the Lessor
may, at its option, forthwith cancel this Lease, or it may enter said
premises as the agent of the Lessee, by force or otherwise, without being
liable in any way therefore, and relet the premises with or without any
furniture that may be therein, as the agent of the Lessee, at such price
and upon such terms and for such duration of time as the Lessor may
determine and receive the rent therefore, applying the same to the payment
of the rent due by these presents, and if the full rental herein provided
shall not be realized by Lessor over and above the expenses to Lessor in
such reletting, including but not limited to the cost of renovating,
altering and decorating for a new occupant, the said Lessee shall pay any
deficiency, and if more than full rental is realized Lessor will pay over
to said Lessee the excess on demand; or Lessor may sue the Lessee as each
installment of rent matures or for the whole rent when it becomes due.
<PAGE>
25. HOLDING OVER.
In case of holding over by Lessee after expiration or termination of this
Lease, Lessee will pay as liquidated damages double rent for the entire
holdover period. No holding over by Lessee after the term of this Lease,
either with or without consent and acquiescence of Lessor, shall operate
to extend the Lease for a longer period than one month; and any holding
over with the consent of Lessor in writing shall thereafter constitute
this Lease from month to month.
26. FIRE CLAUSE
Lessee shall, in case of fire, give immediate notice thereof to Lessor. In
the event of damage by fire or other causes resulting from fault or
negligence of Lessee or Lessee's agents, employees, invitees or visitors,
the same shall be repaired by and at the expense of Lessee under the
direction and supervision of Lessor. If the demised premises, without
fault or neglect of Lessee, his agents, employees, invitees or visitors,
shall be partially destroyed by fire or other casualty so as to render the
premises untenable, the rental herein recited shall cease thereafter until
such time as the demised premises are made tenable by Lessor. In case of
the total destruction of the demised premises without fault or neglect of
Lessee, his agents, employees, invitees or visitors, or if from such cause
the same shall be so damaged that Lessor shall decide not to rebuild, then
all rental due up to the time of such destruction or termination shall be
paid by Lessee, and thenceforth this Lease shall cease and come to an end.
27. ATTORNEY'S FEES
In case Lessee defaults in the performance of any of the terms, covenants,
agreements or conditions contained in this Lease and Lessor places the
enforcement of this Lease, or any part thereof, or the collection of any
rent due, or to become due hereunder, or recovery of the possession of the
demised premises in the hands of an attorney, or files suite upon the
same, Lessee agrees to pay Lessor reasonable attorney fees and court
costs, and payment of the same shall be secured in like manner as is
herein provided, as to security for rent. Likewise, Lessee shall be
entitled to an award of reasonable attorney fees and costs in the event it
is the prevailing party.
28. AMENDMENT OF LEASE
This agreement may not be altered, changed or amended, except by an
instrument in writing, signed by both parties hereto.
29. TRANSFER OF LESSOR'S RIGHTS
Lessor shall have the right to transfer and assign, in whole or in part,
all and every feature of its rights and obligations hereunder and in
building and property referred to herein. Such transfers or assignments
may be made either to a corporation, trust company, individual or group of
individuals, and, howsoever made, are to be in all things respected and
recognized by Lessee.
30. DEFAULT BY LESSEE
Default on the part of Lessee in paying said rent or any installment
thereof, as hereinafter provided, or default in Lessee's part in keeping
or performing any other term, covenant, or condition of this Lease, shall
authorize Lessor, at its option at any time after such default, and after
ten (10) days written notice thereof to Lessee, to declare this Lease
terminated and upon occurrence of any one or more of such defaults Lessor
immediately, or at any time thereafter, may re-enter said premises and
remove all persons therefrom with or without legal process, and without
prejudice to any of its other legal rights, and all claims for damages by
reason of such re-entry are expressly waived, as also are all claims for
damages by reasons of any distress, warrants or proceedings by way of
sequestration which Lessor may employ to recover said rents, or possession
of said premises, provided that Lessor shall not have the right to
[illegible].
<PAGE>
31. WAIVER
Failure of Lessor to declare any default immediately upon occurrence
thereof or delay in taking any action in correction therewith shall not
waive such default, but Lessor shall have the right to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, either in law or in equity.
32. POSSESSION
If, for any reason, the demised premises shall not be ready for occupancy
by Lessee at the time of commencement of this Lease, this Lease shall not
be affected thereby, nor shall Lessee have any claim against Lessor by
reason thereof, but not rent shall be payable for the period during which
the premises shall not be ready for occupancy; and all claims for damages
arising out of such delay are waived and released by Lessee.
33. BANKRUPTCY
If voluntary bankruptcy proceedings be instituted by Lessee, or if
proceedings be instituted by anyone else to adjudge Lessee as bankrupt, or
if Lessee makes an assignment for the benefit of his creditors or if
execution be issued against him, or if the interest of Lessee in this
contract pass by operation of law to any person other than Lessee, this
Lease may, at the option of Lessor, be terminated by notice addressed to
Lessee.
34. ASSIGNMENT BY LESSOR
This Lease shall also inure to the benefit of the successors and assigns
of Lessor, and with the written consent of Lessor first had and obtained,
but not otherwise, to the benefit of the heirs, executors, and/or
administrators, successors and assigns of Lessee.
35. PRONOUNS AND GENDER
When this contract is executed by more than one person it shall be
construed as though Lessee were written "Lessees" and the words in their
number were changed to correspond; and pronouns of the masculine gender,
whenever used herein shall include persons of the female sex, and
corporations and associations of every kind and character.
36. SUBORDINATION CLAUSE
This Lease is hereby made expressly subject and subordinate at all times
to any and all mortgages, deeds of trust, ground or underlying Leases
affecting the demised premises which have been executed and delivered, and
any and all extensions and renewals thereof and substitutions therefore,
and to any and all advances made or to be made under or upon said
mortgages, deeds of trust, ground or underlying Leases. Lessee agrees to
execute any instrument or instruments which the Lessor may deem necessary
or desirable to effect the subordination of this Lease to any or all such
mortgages, deeds of trust, ground or underlying Leases and, in the event
the Lessee shall refuse after reasonable notice to execute such instrument
or instruments, the Lessor may, in addition to any right or remedy
accruing hereunder, terminate this Lease without incurring any liability
whatsoever, and the state hereby granted is expressly limited accordingly.
37. TIME OF THE ESSENCE
It is understood and agreed between the parties that time is of the
essence of this contract, and this applies to all terms and conditions
contained herein.
<PAGE>
OFFICE IMPROVEMENTS (SEE ADDENDUM TO LEASE, SPECIAL PROVISIONS
PARA. 3, LESSOR'S IMPROVEMENTS)
Lessee shall accept the demised premises as is, provided, however, the Lessor
shall make reasonable modification to the demised premises to suit the needs of
the Lessee. Said modification shall be mutually agreed to by the Lessee and
Lessor. Upon execution of this Lease Agreement and the mutual agreement of
modification to the demised premises, Lessee shall be permitted occupancy of the
premises.
RADON GAS
Radon is a naturally occurring radioactive gas that, when it has accumulated in
a building in sufficient quantities, may present health risks to persons who are
exposed to it over time. Levels of radon that exceed Federal and State
guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your County Public Health
Unit.
WITNESSES: LESSOR: CHANTILLY MANAGEMENT
CORPORATION
BY: /s/ Vince Chanyi
- ----------------------------- -----------------------------
Vince Chanyi
- ----------------------------- President
Date: January 18, 1996
---------------------------
LESSEE: GROUP LONG DISTANCE INCORPORATED
/s/ Cynthia N. Wade BY: /s/ Jeffrey A. Ullman
- ----------------------------- -----------------------------
CYNTHIA N. WADE Print Name: JEFFREY A. ULLMAN
- ----------------------------- ---------------------
DATE: 12-31-95
---------------------------
AGENT FOR LESSOR
SANDRA F. REPPERT, Licensed
Real Estate Broker
By: /s/ Sandy Reppert
- ----------------------------- -----------------------------
DATE: 12/21/95
- ----------------------------- ---------------------------
DATE:
---------------------------
<PAGE>
EXHIBIT "A"
[FLOOR PLAN FOR SPACE]
<PAGE>
[LAYOUT SPACE FOR UPPER LEVEL]
<PAGE>
ADDENDUM TO LEASE AGREEMENT
SPECIAL PROVISIONS
LESSOR: Chantilly Management Corp.
LESSEE: Group Long Distance Inc.
DATED: December 31, 1995
PREMISES: Chantilly Court Office Building
1555 Howell Branch Road, Suite C-208
Winter Park, FL 32789
1. RENT SCHEDULE:
Year 1 (1/1/96 - 12/31/96) $ 963.54/Month + FL Sales Tax
Year 2 (1/1/97 - 12/31/97) $1,002.08/Month + FL Sales Tax
Year 3 (1/1/98 - 12/31/98) $1,040.63/Month + FL Sales Tax
NOTE: Florida Sales Tax currently at 6%
2. SECURITY DEPOSIT:
Lessor hereby acknowledges that it currently holds a security deposit from
Group Long Distance in the amount $1,797.00. Lessor hereby agrees to
retain $963.54 of that amount as deposit on the new Lease Agreement for
Suite C-208, and apply the balance of $833.46 against January 1996, as
prepaid rental.
3. LESSOR'S IMPROVEMENTS:
Lessor hereby agrees to make the following improvements to the leased
premises, at Lessor's sole expense, prior to Lessee's occupancy:
- Install new carpet, base & vinyl in office areas.
- Install new vinyl tile on restroom floor.
- Paint office area throughout, including door frames and woodwork.
- Install new bathroom door and frame
- Clean windows, blinds and A/C registers, etc.
- Provide tenant signage over front entry door per building standard
Please Initial: Please Initial:
LESSOR: /s/ CNW LESSEE: /s/ JAU
-------------------------- -----------------------------
<PAGE>
Second Amendment and Renewal of Lease
This Second Amendment and Renewal of Lease made and entered into February
5, 1996, by and between GATEWAY INVESTMENTS CORP., a Florida corporation
("Landlord"), and GROUP LONG DISTANCE, INC., a Florida corporation ("Tenant).
W I T N E S S E T H:
Landlord and Tenant are parties to that certain Crown Center Lease
Agreement dated March 16, 1992 (the "Original Lease"), as amended and renewed
pursuant to Amendment and Renewal of Lease dated November 22, 1994 (the "First
Amendment"; together with the Original Lease, the "Lease").
Landlord and Tenant desire to amend and renew the Lease on the terms and
conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and of the
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
1. The Lease is hereby ratified, confirmed and approved on the terms and
conditions set forth in the Lease except as otherwise provided herein.
2. Tenant hereby exercises the renewal option set forth in Section 31.1
of the Original Lease, as amended by Section 7 of the First Amendment, and the
Lease is hereby renewed for a term of two years, commencing March 19, 1998, and
expiring March 18, 2000.
3. Effective as of February 1, 1996, the "Second Expansion Space," known
as Suite 204, will be added to the Leased Premises. Landlord shall provide new
building standard carpeting and painting of the Second Expansion Space prior to
February 1, 1996. Effective on February 1, 1996, Section 1.2 of the Lease shall
be amended to read in its entirety as follows:
1.2 Rentable Area. The Leased Premises consists of 7,948 rentable square
feet and constitutes 11.90 percent of rentable square footage of the
building.
Effective as of February 1, 1996, Exhibit B to the Lease shall be amended by
adding thereto the floor plan of the Second Expansion Space attached hereto as
Exhibit B-2.
4. Effective as of the date hereof, Section 2.1 of the Lease, is hereby
amended by adding thereto the following:
<PAGE>
2
With respect to all the Leased Premises other than the Second Expansion
Space, the Annual Rental for the period from March 19, 199S, through March
18, 1999, shall be at the rate of $10.45 per rentable square foot and for
the period from March 19, 1999, through March 18, 2000, shall be at the
rate of $10.85 per rentable square foot.
With respect to the Second Expansion Space, the Annual Rental for the
period from February 1, 1996, through March 18, 2000, shall be at the rate
of $8.25 per rentable square foot, plus operating expenses and taxes, as
hereinafter provided, and net of Tenant electricity.
Thus, the Annual Rental per rentable square foot for (i) 4,481 rentable
square feet of the Leased Premises shall be calculated at the rates of
$9.24 for the period ending February 29, 1996; $9.65 for the period from
March 1, 1996, through February 28, 1997; $10.05 for the period from March
1, 1997, through March 18, 1998; $10.45 for the period from March 19, 1998,
through March 18, 1999; and $10.85 for the period from March 19, 1999,
through March 18, 2000; and (ii) 3,467 rentable square feet of the Leased
Premises shall be calculated at the rate of $8.25 for the period from
February 1, 1996, through March 18, 2000.
Concurrently with the execution of this Second Amendment and Renewal of
Lease, Tenant shall pay the first monthly installment of Annual Rental for
the Second Expansion Space.
5. Section 2.2(c) is hereby added to the Lease to read in its entirety as
follows:
(c) Notwithstanding Sections 2.2(a) and (b) hereof (which provide, as
to 4,481 rentable square feet, that Tenant shall pay its pro rata share of
increases in real estate taxes and insurance premiums over base year
amounts therefor), with respect to the Second Expansion Space of 3,467
rentable square feet, Tenant's responsibility for Basic Operating Expenses
(as hereinafter defined) is as follows:
<PAGE>
3
(i) Commencing February 1, 1996, with respect to the Second
Expansion Space, in addition to the Annual Rental, Tenant shall pay to
Landlord simultaneously with the payment of Annual Rental, Tenant's
proportionate share (which is 5.19% with respect to the 3,467 rentable
square feet in the Second Expansion Space) of Basic Operating
Expenses. (Basic Operating Expenses are estimated to have been $4.00
per rentable square foot for the year 1995.)
(ii) The term "Basic Operating Expenses" shall mean any and all
operating costs and expenses associated with the Common Area and/or
the building in which the Leased Premises is located and such
operating costs and expenses as are associated with all buildings
comprising Crown Center (the "Buildings") and the Crown Center
development (the "Development") to the extent not chargeable to a
specific tenant. All Basic Operating Expenses shall be determined on
an accrual basis in accordance with generally accepted accounting
principles which shall be consistently applied. Without limiting the
generality of the foregoing, such Basic Operating Expenses shall
include, but not be limited to, the following:
(1) Wages and salaries of all employees engaged in direct
operation and maintenance of the Common Area, the Buildings, and
the Development, employer's social security taxes, unemployment
taxes or insurance, and any other taxes which may be levied on
such wages and salaries, the cost of disability and
<PAGE>
4
hospitalization insurance and pension or retirement benefits for
such employees;
(2) All supplies and materials used in the operation and
maintenance of the Common Area, the Buildings and the
Development;
(3) Cost of all utilities for the Common Area, including the
cost of water, lighting, air-conditioning and ventilating, but
excluding the cost of electricity for premises leased to a
specific tenant;
(4) Cost of all maintenance and service agreements for the
Common Area, the Buildings, and the Development, the equipment
therein and grounds, including janitorial service, security
service, landscape maintenance, alarm service, window cleaning
and elevator maintenance;
(5) Cost of all insurance relating to the Common Area, the
Building, and the Development, including casualty and liability
insurance, insurance of Landlord's personal property used in
connection therewith and rent insurance;
(6) Real estate taxes, including all taxes and assessments
and
<PAGE>
5
governmental charges, whether Federal, State, County or Municipal
and whether they be by taxing districts or authorities presently
taxing the Leased Premises or by others, subsequently created or
otherwise, and any other taxes and assessments attributable to
the Common Area, the Buildings and the Development or the
operation thereof excluding, however, Federal and State taxes on
income and ad valorem taxes on Tenant's personal property and on
the value of Tenant leasehold improvements to the extent that the
same exceeds standard building allowances;
(7) Cost of repairs and general maintenance (excluding such
repair and general maintenance paid by insurance proceeds or by
Tenant and other third parties and alterations attributable
solely to tenants of the Buildings other than the Tenant);
(8) Legal expenses, accounting expenses and management fees
incurred by the Landlord in connection with the operation of the
Development;
(9) Costs incurred in compliance with new or revised
Federal or State laws or Municipal ordinances or codes or
<PAGE>
6
regulations promulgated under any of the same;
(10) Amortization of the cost of installation of capital
investment items which are primarily for the purpose of reducing
(or avoiding increases in) operating costs or which may be
required by governmental authority. All such costs shall be
amortized over the reasonable life of the applicable items, with
the amortization schedule being determined in accordance with
generally accepted accounting principles and in no event to
extend beyond the reasonable life of the Buildings.
Basic Operating Costs shall not include (i) expenditures
classified as capital expenditures for Federal Income Tax purposes
(except as set forth in (10) above, (ii) costs for which Landlord is
entitled to specific reimbursement by Tenant, any other tenant of the
Buildings, or any other third party, (iii) costs of initial
construction of the Buildings, (iv) cost of renovating or modifying
space in the Buildings for lease to other tenants, (v) leasing
commissions, ground rentals, and all non-cash expenses (including
depreciation), (vi) debt service on any indebtedness secured by the
Buildings, and (vii) legal costs incurred in connection with the
making or enforcement of leases or the defense of any action brought
by a tenant in connection with its lease.
6. Section 31.1 of the Original Lease, as amended by Section 7 of the
First Amendment, is hereby deleted.
<PAGE>
7
7. Commencing on February 1, 1996, Tenant shall increase the security
deposit held by Landlord under the Lease by the payment of six consecutive
monthly installments of $1,000.00 each.
8. Tenant represents and warrants that there are no brokers involved in
this transaction except The Langhorne Company. Tenant agrees to indemnify,
defend and hold Landlord harmless from and against all costs, claims,
liabilities, expenses or damages of any kind whatsoever (including, but not
limited to, attorneys' fees and costs at all tribunal levels) arising from any
such brokerage claim made by any one other than the above-named broker,
including, without limitation, any claim, debt or demand which may be made
against Landlord or The Langhorne Company, and/or their respective agents and
employees, by Scott Minchew and/or Scott Minchew & Company.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
and Renewal of Lease in several counterparts, each of which shall be deemed an
original as of the day and year first above written.
WITNESSES: GATEWAY INVESTMENTS CORP.
- -----------------------------
by /s/Richard M. Langhorne, Voting Trustee
- ----------------------------- ---------------------------------------
Richard M. Langhorne
Voting Trustee
GROUP LONG DISTANCE, INC.
/s/ [Illegible]
- -----------------------------
/s/Donna H. Dunne by /s/ Andrea Morey
- ----------------------------- ---------------------------------------
Its: V.P. Administration
---------------------------------------
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 1 of 15
LDDS
WORLDCOM
Voice Data Video
WorldCom REBILLER SERVICE AGREEMENT
This Agreement is made this 22 day of February, 1996, ("Effective Date") by
and between WorldCom Inc., located at 515 East Amite, Jackson Mississippi 39201-
2702 ("WorldCom") and Group Long Distance, Incorporated, ("Customer") located at
1451 West Cypress Creek Road, #200, Fort Lauderdale, Florida 33309. In
consideration of the mutual promises and covenants set forth in this Agreement,
the parties agree as follows:
1. Service:
1.1 WorldCom will provide its WorldOne Service, (the "Service") to Customer
pursuant to WorldCom Inc. Tariff FCC No. 1 and No. 2 and applicable
state tariffs, all as may be amended from time to time (the "Tariffs").
All of the terms and conditions of the Tariffs now or hereafter in
effect are incorporated in this Agreement. In the event that any
provision set forth in this Agreement conflicts with the terms and
conditions of any of the Tariffs, the provisions set forth in this
Agreement will govern.
1.2 Upon execution of this Agreement, the Customer has ninety (90) days from
the date Service is made available in which to notify WorldCom in
writing, either by certified or registered mail (return receipt
requested), of the Customer's desire to cancel this Agreement without
further obligation.
1.3 Customer may terminate this agreement without incurring further
liability to WorldCom upon at least thirty (30) days written notice to
WorldCom if the service quality becomes sub-optimal. Sub-optimal
service includes such items as prolonged set-up time, noise impairment,
lack of trunk supervision, dropped calls, incomplete calls, or other
performance issues resulting from WorldCom provided service provided
that Customer notifies WorldCom in writing of such performance issues
and WorldCom fails to correct within 30 days of receipt of such notice.
2. Term; Termination; Start of Service;
2.1 Except as provided below, the term of this Agreement will commence on
March 1, 1996, the Effective Date and terminate on July 31, 2000 (the
"Term"). Thereafter, the Term will continue on a month-to-month basis
until this Agreement is terminated by either party on at least thirty
(30) days prior written notice to the other party.
2.2 Notwithstanding the Term as defined in paragraph 2.1 of this Agreement,
WorldCom may at any time and in its sole and absolute discretion
terminate this Agreement, effective immediately if:
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 2 of 15
2.2.1 Customer fails on three (3) separate occasions to act as
WorldCom requests after making a misrepresentation to WorldCom
or to an End User;
2.2.2 Customer becomes insolvent, files a petition in bankruptcy or
makes an assignment for the benefit of creditors;
2.2.3 Customer applies for or consents to the appointment of a
trustee or receiver, or a trustee or receiver is appointed for
either party; or
2.2.4 bankruptcy, insolvency or liquidation proceedings are
commenced against Customer and such proceedings are not
discharged or dismissed within thirty (30) days after such
commencement.
3. Rates:
3.1 During the Term, rates for the Services will be as set forth on Schedule
A.
3.2 WorldCom may, upon ninety (90) days prior written notice to Customer,
increase any rate set forth on Schedule A so as to offset an increase to
WorldCom in the costs of providing the Service that is caused by change
in the rules, regulations or operating procedures of any governmental or
regulatory authority. In the event that WorldCom provides Customer with
such notice, Customer will have thirty (30) days from the date of its
receipt of such notice to elect to terminate this Agreement without
further liability to WorldCom. If Customer elects to so terminate this
Agreement, it must provide WorldCom with at least thirty (30) days prior
written notice of such election.
4. Minimum Usage Commitments:
4.1 Commencing May 1, 1996 and continuing through September 30, 1996,
Customer agrees to maintain at least two hundred fifty-thousand dollars
($250,000) in monthly revenue, for Service provided hereunder
("Customer's Minimum Commitment"). In the event Customer does not
maintain Customer's Minimum Commitment in the months indicated, then for
those month(s) only, Customer will pay WorldCom the difference between
Customer's Minimum Commitment and Customer's actual charges for the
month(s) in question (the "Deficiency Charge"). The Deficiency Charge
will be due at the same time payment is due for Service provided to
Customer, or immediately in an amount equal to Customer's Minimum
Commitment for the unexpired portion of the Term, if WorldCom terminates
the Agreement based on Customer's default.
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 3 of 15
4.2 Commencing October 1, 1996 and continuing through March 31, 1997,
Customer agrees to maintain at least five hundred-thousand dollars
($500,000) in monthly revenue, for Service provided hereunder
("Customer's Minimum Commitment"). In the event Customer does not
maintain Customer's Minimum Commitment in the months indicated, then for
those month(s) only, Customer will pay WorldCom the difference between
Customer's Minimum Commitment and Customer's actual charges for the
month(s) in question (the "Deficiency Charge"). The Deficiency Charge
will be due at the same time payment is due for Service provided to
Customer, or immediately in an amount equal to Customer's Minimum
Commitment for the unexpired portion of the Term, if WorldCom terminates
the Agreement based on Customer's default.
4.3 Commencing April 1, 1997 and continuing through July 31, 1997, Customer
agrees to maintain at least seven hundred fifty-thousand dollars
($750,000) in monthly revenue, for Service provided hereunder
("Customer's Minimum Commitment"). In the event Customer does not
maintain Customer's Minimum Commitment in the months indicated, then for
those month(s) only, Customer will pay WorldCom the difference between
Customer's Minimum Commitment and Customer's actual charges for the
month(s) in question (the "Deficiency Charge"). The Deficiency Charge
will be due at the same time payment is due for Service provided to
Customer, or immediately in an amount equal to Customer's Minimum
Commitment for the unexpired portion of the Term, if WorldCom terminates
the Agreement based on Customer's default.
4.4 Commencing August 1, 1997 and continuing through July 31, 2000, or any
extension thereof, Customer agrees to maintain at least one million
dollars ($1,000,000) in monthly revenue, for Service provided hereunder
("Customer's Minimum Commitment"). In the event Customer does not
maintain Customer's Minimum Commitment in the months indicated, then for
those month(s) only, Customer will pay WorldCom the difference between
Customer's Minimum Commitment and Customer's actual charges for the
month(s) in question (the "Deficiency Charge"). The Deficiency Charge
will be due at the same time payment is due for Service provided to
Customer, or immediately in an amount equal to Customer's Minimum
Commitment for the unexpired portion of the Term, if WorldCom terminates
the Agreement based on Customer's default.
5. Billing and Payment of Charges:
5.1 Customer agrees that it is responsible for (i) all charges incurred by
WorldCom to change the PIC of End Users to the WorldCom network, (ii)
all charges incurred by WorldCom to change End Users back to their
previous PIC arising from disputed transfers to the WorldCom network
plus an administrative charge equal to twenty percent (20%) of such
charges, and (iii) any other damages suffered by or awards against
WorldCom resulting
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 4 of 15
from disputed transfers. WorldCom will have no obligation to resolve a
dispute involving a PIC Charge.
5.2 WorldCom will bill Customer for the Service, PIC Charges and other
amounts on a monthly basis. Customer will pay all charges billed by
WorldCom within forty-five (45) days after the receipt date of the
[ILLEGIBLE] invoice. Customer will pay for such charges by certified
check, wire transfer, cash, company check, or other instrument deemed
acceptable by WorldCom.
5.3 Customer's obligation to pay all undisputed charges billed by WorldCom
is absolute and unconditional under any and all circumstances.
5.4 WorldCom may offset any amounts that it may owe to Customer pursuant to
this Agreement or any agreement that it may have with Customer against
any amounts that Customer may owe to WorldCom pursuant to this
Agreement.
5.5 Customer will provide WorldCom with all necessary tax exemption
certificates in a form acceptable to the applicable taxing authority or
pay all necessary taxes at such time as such taxes become due.
6. Activation of ANIs; End User Traffic Profile:
6.1 PIC Charges. WorldCom will credit fifty percent (50%) of LEC pic
charges. LEC back up must be provided to WorldCom in order for Customer
to receive these credits.
6.2 Start of Service. WorldCom's obligation to provide and Customer's
obligation to accept and pay for non-usage sensitive charges for Service
shall be binding to the extent provided for in this Agreement upon the
submission of an acceptable Service Request to WorldCom by Customer.
Customer's obligation to pay for usage sensitive charges for Switched
Services shall commence with respect to any Service as of the earlier of
(i) the "Requested Service Date" set forth in each Service Request, or
(ii) the date the Service in question is made available to Customer and
used ("Start of Service"). Start of Service for particular Services
shall be further described in the Service Schedule relevant to the
Switched Service in question.
6.3 Service Schedules. Service to be provided under this Agreement shall be
described in the WorldCom Service Schedule which is subscribed to by
authorized representatives of WorldCom and Customer (collectively
referred to as the "Service Schedules"). Each Service Schedule shall
become part of this Agreement to the extent that it describes the
particular Services therefor, specific terms and other information
necessary or appropriate for WorldCom to provide such Service(s) to
Customer.
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 5 of 15
6.4 Service Requests. Customer's request to initiate or cancel Services
shall be described in an appropriate WorldCom Service Request ("Service
Requests"). Service Requests may consist of machine readable tapes,
facsimiles or other means approved by WorldCom. Further, Service
Requests shall specify all reasonable information, as determined by
WorldCom, necessary or appropriate for WorldCom to provide the
Service(s) in question, which shall include without limitation, the
type, quantity and end point(s) (when necessary) or circuits comprising
a Service Interconnection as described in the applicable Service
Schedules, or automatic number identification ("ANI") information
relevant to the Service(s), the Requested Service Date, and charges, if
any, relevant to the Services described in the Service Request. After
WorldCom's receipt and verification of a valid Service Request for
SWITCHED Service (as defined in the Service Schedule) requiring a change
in the primary interexchange carrier ("PIC"), WorldCom agrees to (i)
submit the ANI(s) relevant to such Service Requests to the following
local exchange carriers ("LECs") (with which WorldCom currently has
electronic interface capabilities) within ten (10) days: Ameritech, Bell
Atlantic, BellSouth, Nynex, Pacific Bell, Southwestern Bell, US West,
GTE and United, and (ii) submit the ANI(s) relevant to such Service
Requests to those LECs with which WorldCom does not have electronic
interface capabilities within a reasonable time.
6.5 During the Term, Customer will not make a Submission that contains
nonconforming ANIs and/or LEC-rejected ANIs. Customer will pay to
WorldCom the sum of twenty-five cents ($.25) for each ANI in a
Submission that is rejected for any reason by either WorldCom or LEC.
6.6 Customer will not transmit a Service activation or Service termination
order to a LEC. Customer will exercise reasonable business efforts to
ensure that no End User transmits such an order.
6.7 EXCEPT AS PROVIDED OTHERWISE IN THIS AGREEMENT, WORLDCOM MAKES NO
REPRESENTATIONS OR WARRANTIES AS TO ITS ABILITIES TO PROCESS SERVICE
ACTIVATION SUBMISSIONS. WORLDCOM WILL EXERCISE REASONABLE BUSINESS
EFFORTS TO PROCESS SUCH SUBMISSIONS IN A TIMELY MANNER.
6.8 Before Customer's initial order for Service, Customer shall provide
WorldCom with a forecast regarding the number of minutes expected to be
terminated or originated in various LATAs and/or Tandems, so as to
enable WorldCom to configure optimum network arrangements. In the event
Customer's Service traffic volumes result in a lower than industry
standard completion rate or otherwise adversely affect the WorldCom
network, WorldCom reserves the right to block the source of such adverse
traffic at any
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 6 of 15
time. Customer will provide WorldCom with additional forecasts from
time to time upon WorldCom's request which shall not be more frequent
than once every three (3) months.
7.0 Customer's End Users:
7.1 Customer will obtain and upon WorldCom's request provide WorldCom
(within two (2) business days of the date of the request) a written
Letter of Agency ("LOA") acceptable to WorldCom [or with any other means
approved by the Federal Communications Commission ("FCC")], for each ANI
indicating the consent of the end users of Customer ("End Users") to be
served by Customer and transferred (by way of change of such End User's
designated PIC) to the WorldCom network prior to order processing. Each
LOA will provide, among other things, that the End Users have consented
to the transfer being performed by Customer or Customer's designee.
When applicable, Customer will be responsible for notifying End Users,
in writing (or by any other means approved by the FCC) that (i) a
transfer charge will be reflected on their LEC bill for effecting a
change in their primary interexchange carrier ("PIC"), (ii) the entity
name under which their interstate, intrastate and/or operator services
will be billed (if different from Customer), and (iii) the "primary"
telephone number(s) to be used for maintenance and questions concerning
their long distance service and/or billing. Customer agrees to send
WorldCom a copy of the documentation Customer uses to satisfy the above
requirements promptly upon request of WorldCom. WorldCom may change the
foregoing requirements for Customer's confirming orders and/or for
notifying End Users regarding the transfer charge at any time in order
to conform with applicable FCC and state regulations. Provided,
however, Customer will be solely responsible for ensuring that the
transfer of End Users to the WorldCom network conforms with applicable
FCC and state regulations, including without limitation, the regulations
established by the FCC with respect to verification of orders for long
distance service generated by telemarketing as promulgated in 47 C.F.R.,
Part 64, Subpart K, Section 64.1100 or any successor regulation(s).
7.2 Excluded ANIs. WorldCom has the right to reject any ANI supplied by
Customer for any of the following reasons: (i) WorldCom is not
authorized to provide or does not provide long distance services in the
particular jurisdiction in which the ANI is located, (ii) a particular
ANI submitted by Customer is not in proper form, (iii) Customer is not
certified to provide long distance services in the jurisdiction in which
the ANI is located, (iv) Customer is in default of this Agreement, (v)
Customer fails to cooperate with WorldCom in implementing reasonable
verification processes determined by WorldCom to be necessary or
appropriate in the conduct of business, or (vi) any other circumstance
reasonably determined by WorldCom which could adversely affect
WorldCom's performance under this Agreement or WorldCom's general
ability to transfer its other customers or other end users to the
WorldCom network, including without limitation, WorldCom's ability to
electronically effect PIC changes with the LECs. In the event
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 7 of 15
WorldCom rejects an ANI, WorldCom will notify Customer as soon as
possible of its decision specifically describing the rejected ANI and
the reason(s) for rejecting that ANI, and will not incur any further
liability under this Agreement with regard to that ANI. Further, any
ANI requested by Customer for Switched Service may be deactivated by
WorldCom if no Switched Service billings relevant thereto are generated
in any three (3) consecutive calendar month/billing periods. WorldCom
will be under no obligation to accept ANIs within the three (3) full
calendar month period preceding the scheduled expiration of the Term.
7.3 Records. Customer will maintain documents and records ("Records")
supporting Customer's re-sale of Switched Service, including, but not
limited to, appropriate and valid LOAs from End Users for a period of
not less than 12 months or such other longer period as may be required
by applicable law, rule or regulation. Customer shall indemnify
WorldCom for any costs, charges or expenses incurred by WorldCom arising
from disputed PIC selections involving Switched Service to be provided
to Customer for which Customer cannot produce an appropriate LOA
relevant to the ANI and PIC charge in question, or when WorldCom is not
reasonably satisfied that the validity of a disputed LOA has been
resolved.
7.4 Customer Service. Customer will be solely responsible for billing the
End Users and providing the End Users with customer service. Customer
agrees to immediately notify WorldCom in the event an End User notifies
Customer of problems associated with the Service, including without
limitation, excess noise, echo, or loss of Service.
8. Customer Responsibilities:
8.1 In the event Customer request expeditious Service and WorldCom agrees to
such request, WorldCom will pass the charges assessed by any supplying
parties (e.g. local access providers) involved at the same rate to
customer. WorldCom may further condition its performance of such
request upon Customer's payment of additional charges to WorldCom.
8.2 Customer shall indemnify and hold harmless WorldCom from all costs,
expenses, claims or actions arising from fraudulent calls of any nature
which may comprise a portion of the Service to the extent the party(s)
claiming the calls in question to be fraudulent is (or had been at the
time of the call) an End User of the Service through Customer or an end
User of the Service through Customer's distribution channels. Customer
shall not be excused from paying WorldCom for Service provided to
Customer or any portion thereof on the basis that fraudulent calls
comprised a corresponding portion of the Service. In the event WorldCom
discovers fraudulent calls are being made (or reasonably believes
fraudulent calls are being made), nothing contained herein shall
prohibit WorldCom from taking
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 8 of 15
immediate action (without notice to customer) that is reasonably
necessary to prevent such fraudulent calls from taking place, including
without limitation, denying Service to particular ANIs or terminating
Service to or from specific locations.
9. Liability, General Indemnity, Reimbursement:
9.1 IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO THE OTHER PARTY FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL LOSSES OR DAMAGES,
INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF CUSTOMERS, LOSS
OF GOODWILL, OR LOSS OF PROFITS ARISING IN ANY MANNER FROM THIS
AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS
HEREUNDER.
9.2 In the event parties other than Customer (e.g. Customer's End Users)
shall have use of the Service through Customer, the Customer agrees to
forever indemnify and hold WorldCom, its affiliated companies and any
third party provider or operator of facilities employed in the provision
of the Service harmless from and against any and all claims, demands,
suits, actions, losses, damages, assessments or payments, which those
parties may assert arising out of or relating to any defect in the
Service.
9.3 Customer agrees to reimburse WorldCom for all reasonable costs and
expenses incurred by WorldCom due to WorldCom's direct participation
(either as a party or a witness) in any administrative, regulatory, or
criminal proceeding concerning Customer if WorldCom's involvement in
said proceeding is based solely on WorldCom's provision of Service to
Customer.
10. Rights and Obligations Upon Customer's Breach:
10.1 Except as provided in paragraph 2.2 of this Agreement or in the Tariffs,
in the event that Customer breaches any provision of this Agreement,
WorldCom will provide Customer with written notice of such breach.
10.2 Except as provided in paragraph 2.2 and 10.3 of this Agreement or in the
Tariffs, Customer must cure any breach of this Agreement to WorldCom's
satisfaction within fifteen (15) days of Customer's receipt of notice of
such breach.
10.3 Customer must cure a breach of any payment obligation that is set forth
in section 5. of this Agreement to WorldCom's satisfaction within three
(3) days of Customer's receipt of notice of such breach.
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 9 of 15
10.4 If Customer does not timely and adequately cure a breach of this
Agreement, WorldCom may do any one or more of the following:
10.4.1 terminate this Agreement; or
10.4.2 terminate any other agreement it may have with Customer; or
10.4.3 contact each End User directly for the purpose of notifying
such End User that WorldCom will no longer provide long
distance telephone services to Customer, that WorldCom will
provide long distance telephone service to it pursuant to the
Tariffs and that WorldCom will continue to provide such
service unless such End User notifies its LEC to change its
long distance telephone service to another primary
interexchange carrier.
11. Confidential Information:
11.1 Each party understands that in performing this Agreement it may have
access to private or confidential information relating to the other
party or such other party's customers ("Confidential Information").
Each party agrees that the Confidential Information will:
11.1.1 remain the exclusive property of the disclosing party;
11.1.2 not to be copied, published or disclosed to others;
11.1.3 be used solely in the performance of this Agreement; and
11.1.4 be returned to the disclosing party upon termination of this
Agreement.
Violation by a party of the foregoing provisions shall entitle the
nondisclosing party at its option, to obtain injunctive relief without a
showing of irreparable harm or injury and without bond.
12. Regulatory Requirements:
12.1 Customer represents and warrants that it has obtained a valid
Certificate of Public Necessity in all required jurisdictions. Customer
warrants that in all jurisdictions in which it provides long distance
services that require certification, it has obtained the necessary
certification from the appropriate governmental authority. Further, if
required by WorldCom, Customer agrees to provide proof of such
certification acceptable to WorldCom. In the event Customer is
prohibited, either on a temporary or permanent basis, from conduction
telecommunications operation in a given state, Customer shall (i)
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 10 of 15
immediately notify WorldCom by facsimile, and (ii) send written notice
to WorldCom within twenty-four (24) hours of such prohibition.
12.2 Customer will submit to WorldCom, before making any Submission, copies
of any and all Certificates of Public Necessity or other related
documentation that WorldCom may request, including, but not limited to,
that for the State of Florida should Customer seek to serve End Users in
that State.
12.3 Interstate/Intrastate Service. Except with respect to Switched Service
specifically designated as intrastate Service or international Service,
the rates provided to Customer in a Service Schedule are applicable only
to Switched Service if such Service is used for carrying interstate
telecommunications (i.e., Service subject to FCC jurisdiction).
WorldCom shall not be obligated to provide Switched Service with end
points within a single state or Switched Service which
originates/terminates at points both of which are situated within a
single state. In those states where WorldCom is authorized to provide
intrastate service (i.e., telecommunications transmission services
subject to the jurisdiction of state regulatory authorities), WorldCom
will, at is option, provide intrastate Service pursuant to applicable
state laws, regulations and applicable tariff, if any, filed by WorldCom
with state regulatory authorities as required by applicable law.
13. Authorized Use of WorldCom Name:
13.1 Without WorldCom's prior written consent, Customer shall not (i) refer
to itself as an authorized representative of WorldCom whenever it refers
to the Service in promotional, advertising or other materials, or (ii)
use WorldCom's logos, trademarks, service marks, or any variations
thereof in any of its promotional, advertising or other materials.
Additionally, customer shall provide to WorldCom for its prior review
and written approval all promotions, advertising and other materials or
activity using or displaying WorldCom's name or the Service to be
provided by WorldCom. Customer agrees to change or correct, at the
Customer's expense, any material or activity which WorldCom, in its sole
judgement, determines to be inaccurate, misleading, or otherwise
objectionable.
14. Notices:
14.1 Any notice required by this Agreement will be effective and deemed
delivered three (3) business days after posting with the United States
Postal Service when mailed by certified mail, return receipt requested,
properly addressed and with the correct postage, one (1) business day
after pick-up by the courier service when sent by overnight courier,
properly addressed and prepaid or one(1) business day after the date of
the sender's electronic confirmation of receipt when sent by facsimile
transmission.
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 11 of 15
14.2 Notices will be sent to the addresses or FAX numbers set forth in this
Agreement, unless either party notifies the other in writing of an
address or FAX number change.
15. General:
15.1 Customer may not assign this Agreement except to a person or entity that
is controlled, controlling or controlled in conjunction with Customer
and upon at least forty-five (45) days prior written notice to WorldCom.
15.2 Customer may not subcontract with other persons or entities to undertake
any of Customer's obligations that are set forth in this Agreement.
15.3 This Agreement shall be construed under the laws of the State of
Mississippi without regard to choice of law principles except to the
extent that the Communications Act of 1934, as amended and as
interpreted by the Federal Communications Commission, applies.
15.4 Neither party will be liable for failure to perform its obligations
hereunder due to causes beyond its control, including accidental damage
to WorldCom's network, acts of God, laws or requirements of any
government or national emergencies.
15.5 If any of the provisions of this Agreement are determined to be invalid,
the remaining provisions will still be valid.
15.6 Headings are used in this Agreement for convenience only and are not to
be used to interpret this Agreement or any of its provisions.
15.7 This Agreement will be deemed effective only upon full execution of this
Agreement by each of the parties. This Agreement may be modified only
pursuant to a writing that is signed by each of the parties.
15.8 This Agreement is subject to all applicable existing and future laws,
rules and regulations of any governmental authority.
15.9 Each party represents and warrants that it has the full legal and
regulatory authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement, and that this Agreement is
not in conflict with any other agreement to which such party is bound.
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 12 of 15
15.10 In any action arising out of or relating to this Agreement, the
prevailing party will be entitled to recover its reasonable attorneys'
fees and other costs in addition to any other relief that may be
awarded.
15.11 Except as otherwise specifically provided for herein, the remedies set
forth in this Agreement comprise the exclusive remedies available to
either party at law or in equity.
15.12 This Agreement contains the full understanding of the parties and
supersedes any prior agreements between the parties.
IN WITNESS WHEREOF, the parties have signed this Agreement and the
individuals signing below represent that they have the authority to sign for and
on behalf of the respective parties.
ACCEPTED BY: ACCEPTED BY:
GROUP LONG DISTANCE, WORLDCOM, INC.
INCORPORATED
BY: /s/Gerald M. Dunne, Jr. BY: /s/Frank Grillo
------------------------------- -------------------------------
NAME: Gerald M. Dunne, Jr. NAME: Frank Grillo
----------------------------- -----------------------------
TITLE: President TITLE: V.P., Marketing
----------------------------- -----------------------------
DATE: 2/22/86 DATE: 2/23/96
----------------------------- -----------------------------
FAX: 305-771-9910 FAX: 601-974-8377
----------------------------- -----------------------------
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 13 of 15
Schedule A
------------------------
MCC* CALLING CARD
$0.16 PER MINUTE
*Metromedia Calling Card
------------------------
------------------------
$1.50
MONTHLY RECURRING CHARGE
PER 800 NUMBER
------------------------
- --------------------------------------------------------------------------------
WorldForce(TM) International Promotion: ALL CALLING OPTIONS
[X] Canada, Mexico & Japan [X] Eastern Europe
[X] Middle East [X] South America
[X] Central America & Caribbean [X] Europe
[X] Pacific Rim [X} World Trade
Rest of the World receives WorldOne International Rates, discounted 22%
- --------------------------------------------------------------------------------
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 14 of 15
Schedule A (continued)
-----------------------------------
INTERSTATE RATES
-----------------------------------
Switched Outbound/800 $0.09
Dedicated Outbound/800 $0.0520
-----------------------------------
- --------------------------------------------------------------------------------
INTRASTATE RATES - FLORIDA
- --------------------------------------------------------------------------------
DEDICATED DEDICATED SWITCHED SWITCHED
OUTBOUND 800 OUTBOUND 800
- --------------------------------------------------------------------------------
PEAK $0.0725 $0.0825 $0.1255 $0.1255
- --------------------------------------------------------------------------------
OFFPEAK $0.0725 $0.0825 $0.1255 $0.1255
- --------------------------------------------------------------------------------
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
Group Long Distance, Incorporated/WorldCom Service Agreement
SA #R103GLD50711
Page 15 of 15
Schedule A (continued)
-----------------------------------
WorldOne(SM) Ultimate Advantage
Promotion
-----------------------------------
INTERSTATE RATES
-----------------------------------
ACCEPTED BY: ACCEPTED BY:
GROUP LONG DISTANCE, WORLDCOM, INC.
INCORPORATED
BY: /s/Gerald M. Dunne, Jr. BY: /s/Frank Grillo
------------------------------- -------------------------------
NAME: Gerald M. Dunne, Jr. NAME: Frank Grillo
----------------------------- -----------------------------
TITLE: President TITLE: V.P., Marketing
----------------------------- -----------------------------
DATE: 2/22/86 DATE: 2/23/96
----------------------------- -----------------------------
Terms and conditions contained herein will be offered for forty-five (45) days
from February 21, 1996
Mail Originals to: LDDS WorldCom, Sales Contracts Admin., 4730 I-55 N., 5th
Floor, Jackson, MS 39211
<PAGE>
ACKNOWLEDGEMENT, AGREEMENT AND RELEASE
THIS ACKNOWLEDGEMENT, AGREEMENT AND RELEASE dated this _______ day of
March, 1996, by and between GROUP LONG DISTANCE, INC. (the "Buyer") and
TOUCHTONE NETWORK, INC. (the "Seller")
WITNESSETH THAT:
WHEREAS, the Buyer and the Seller entered into an agreement dated October
11, 1995, (the "First Agreement") pursuant to which the Seller sold to the Buyer
its customer base consisting of certain long distance telephone accounts (the
"Accounts") and
WHEREAS, the Buyer is a certified long distance company, is experienced in
purchasing customer bases similar to the one purchased from the Seller, has done
its "due diligence" investigations in every regard with respect to the customer
base purchased from the Seller, has received all documentation requested by
Buyer from the Seller; and
WHEREAS, the total price is Five Hundred Forty-Five thousand ($545,000.00)
Dollars allocated as follows: $415,000.00 for customer base; $25,000.00 in
commissions; and $105,000.00 in expenses; and
WHEREAS, the Buyer and the Seller entered into an Addendum to the First
Agreement dated November 21, 1995 by the Seller and November 22, 1995 by the
Buyer (the "Amendment") pursuant to which the Buyer agreed to an amended payment
schedule; and
WHEREAS, each of the parties have now fully discharged their obligations
and duties to each other pursuant to the First Agreement and the Amendment; and
1
<PAGE>
WHEREAS, certain disagreements have arisen regarding Buyer's performance of
its obligations which actions have caused damages to Seller; and
WHEREAS, the Buyer and the Seller have agreed to settle, relinquish and
resolve all outstanding issues between them as hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. Recitals. The above recitals are true and correct and are incorporated
herein by reference, upon the performance of the following obligations by the
parties:
a) Seller shall, within 24 hours of execution of this agreement, deliver to
Buyer all contracts data and software controlling all Accounts and deliver
to Buyer all legal right to the customer base identified in the prior
agreements and identified herein as Accounts.
b) Concurrent with Seller's delivery to the Buyer of the Accounts and
related contracts, data and software, Buyer releases to Seller the total
price identified in the Recitals above.(1)
2. Past Due Accounts. The Buyer agrees to pay to the Seller all amounts
from collection from the Accounts for the period prior to November 1, 1995. Any
monies owed for usage prior to November 1, 1995 belong to Seller. The Seller
shall be entitled to the first amounts collected by the Buyer from such Accounts
and pay to the Seller immediately after collection thereof by the buyer. The
Buyer shall not enter into settlement or credit agreements with any Accounts for
monies due prior to November 1, 1995, without the prior written consent of the
Seller. The Buyer agrees to give periodic accountings, not less than once every
week, to the Seller indicating the amounts of any such collections. Each such
accountings shall be certified as true and correct by the Chief Financial
Officer of the Buyer.
3. Seller's Obligations Fulfilled. The Seller hereby warrants that with the
exception of providing more specific information accurately derived from the
Centillion Data Systems green bar reports at Buyer's request, the Seller has not
in any
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(1) Upon the performance of the following obligations by the parties:
a) Seller shall, within 24 hours of execution of this agreement, deliver to
Buyer all contracts data and software controlling all Accounts and deliver
to Buyer all legal right to the customer base identified in the prior
agreements and identified herein as Accounts.
b) Concurrent with Seller's delivery to Buyer of the Accounts and related
contracts, data and software, Buyer releases to Seller the total price
identified in the Recitals above.
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manner changed or amended any information regarding total dollars and minutes
billed provided to either Seller or Buyer from Centillion Data Systems. Buyer
hereby acknowledges the Seller does not in any manner warrant the accuracy of
the information or work created by Centillion Data Systems and Seller in no way
will be liable for any inaccurate information provided to the [ILLEGIBLE] by
Centillion Data Systems, which company is an independent entity which in no way
is a party to this agreement. Provided the Seller is in compliance with the
above specified warranties, the Buyer hereby acknowledges that each and every
breach by the Seller, if any, of the First Agreement and the Amendment is hereby
irreversibly waived. Buyer hereby releases Seller from any and all claims
arising prior to this Acknowledgment. Seller warrants that the balances due from
customers are correct. Based upon the above, the Buyer hereby acknowledges that
each and every representation of the Seller contained in the First Agreement and
the Amendment as well as all documents produced by Seller [ILLEGIBLE] Buyer have
been true and correct. The Buyer further warrants that the Seller is not and has
not been in default of any of its obligations or representations or warranties
and that each and every such breach, if any, is hereby irrevocably waived.(2)
4. Buyer's Obligations Fulfilled. Seller hereby acknowledges that Buyer has
fulfilled each and every obligation contained in the First Agreement and the
Amendment and has paid its obligations in full. Except for the obligations set
forth herein, Seller releases Buyer from any and all claims.
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(2) Except for the obligations set forth herein, Buyer releases Seller from
any and all claims.
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5. Mutual Releases. Buyer and Seller hereby acknowledge, release and waive
any discrepancy or errors in the collection and distribution of accounts
relating to payment of the purchase price set forth above and agree to hold each
other harmless from underpayment or overpayment. Seller hereby notifies Buyer
that if accounting errors were made in accounting for payments received from
customers, Seller will stand responsible for the accuracy of each customer bill
and should a customer receive an inaccurate bill due to Seller's accounting
error, Seller agrees to be responsible for such errors and make Buyer whole to
the extend such a bill is reduced or has been previously paid. Other than as set
forth herein, Buyer and Seller each generally mutually release the other from
any and all manner of claims, causes of action or other liability with respect
to the sale of Seller's customer base and Buyer's payment. Buyer and Seller
agree that neither owes the other any money or accounting.
6. Billing and Billing Systems. The billing for the Accounts to be sent out
approximately March 25, 1996, will be done by the Seller using Centillion Data
Systems as its billing company. The Buyer will pay all Centillion Data Systems
charges for February usage (March billing) in connection with such billing for
the Accounts and the Buyer will also pay State Tax Resource Group its fee each
month beginning with the February usage (March billing) to continue to do the
tax calculations for their customers. The Buyer may at any time choose to cease
using Centillion Data Systems or State Tax Resource Group, but until such time,
it will pay all
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costs associated with the billing and collection and remittance of taxes, as
well as the tax payments themselves. Buyer hereby acknowledges this undertaking
and hereby indemnifies Seller from any liability in connection with any
obligation to Centillion Data systems or State Tax Resource Group arising
subsequent to the November, 1995 usage. Buyer shall also obtain acknowledgments
from Centillion Data Systems and State Tax Resource Group releasing Seller from
any liability for costs and/or fees beginning with the February usage (March
billing).
7. LDDS/WorldCom. Nothing in this Agreement shall be construed or deemed to
release any claims that the Buyer may have against LDDS/WorldComm.
8. Miscellaneous
(a) Time is of the Essence. Time is of the essence to all terms of this
Agreement.
(b) Counterparts. This agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) Attorneys' Fees and Costs. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties shall be entitled
to recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, including those related to appeals, in
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addition to any other relief to which it or they may be entitled.
(d) Notices. All notices, demands or requests made pursuant to, under or
by virtue of this Agreement must be transmitted by facsimile transmission, or
Federal Express, as follows:
To Seller: Group Long Distance, Inc.
1451 W. Cypress Creek Road, Suite 200
Fort Lauderdale, FL 33309
Fax #(954) 771-9910
To Buyer: Touchtone Network, Inc.
3550 Biscayne Boulevard, Penthouse
Miami, FL 33137
Fax #(305) 576-6170)
or to such other address as may be hereafter designated by written notice.
Notice shall be deemed to be completed at the time it is delivered by hand or by
facsimile transmission as shown above.
(e) Entire Agreement. This Agreement contains all of the terms agreed upon
between the parties with respect to the subject matter hereof, and all prior
agreements between the parties are deemed to be null and void. Specifically and
without limitation, all representations and warranties made or allegedly made by
the Buyer to Seller, whether oral or written, including without limitation any
in the First Agreement and the Amendment, are hereby deemed fulfilled and hereby
terminated and of no further force or effect.
(f) Amendments. The Agreement may not be changed, modified or terminated,
except by an instrument executed by the parties hereto who are or will be
affected by the terms of such instruments.
(g) Waiver. No waiver by any party or any failure or refusal to comply with
obligations of any other party shall be deemed a
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waiver of any other or subsequent failure or refusal to so comply.
(h) Successors and Assigns. The provisions of this Agreement shall inure to
the benefit of, and shall bind, the heirs, executors, administrators, successors
and assigns of the respective parties.
(i) Partial Invalidity. If any term or provision of this Agreement or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
[ILLEGIBLE] invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law.
(j) Section Headings. The headings of the various sections of this
Agreement have been inserted only for the purpose of convenience, and are not
part of this Agreement and shall not be deemed in any manner to modify, expand
or restrict any of the provisions of this Agreement.
(k) Governing Law. This agreement shall be construed and enforced in
accordance with the laws of the State of Florida, and this Agreement shall not
be construed more strictly against one party than against the other, merely by
virtue of the fact that it may have been prepared by counsel for one of the
parties, it being recognized that all of the parties have contributed
substantially and materially to the preparation of this Agreement.
(l) Venue. The exclusive venue for any litigation in
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connection with this Agreement shall be in Dade County, Florida.
(m) Plural, Singular. Where appropriate, the use of the singular herein
shall include and be deemed to be the plural and the use of the plural herein
shall include and be deemed to be the singular.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as to the day and year set forth above.
"BUYER"
GROUP LONG DISTANCE, INC.
/s/ [ILLEGIBLE] BY: /s/ Gerald M. Dunne, Jr.
- -------------------------- ----------------------------
Witness
- --------------------------
Witness
"SELLER"
TOUCHTONE NETWORK, INC.
/s/ Moshe Stein BY: /s/ Kenneth Grossman
- ----------------------- ----------------------------
Witness PRESIDENT
- -----------------------
Witness
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SWITCHED RESELLER SERVICES AGREEMENT
This Agreement dated April 10, 1996, is between Phone One, Inc. ("Phone One"), a
Florida corporation with its principal offices at 135 West Central Boulevard,
Suite 1050, Orlando, Florida 32801, and Group Long Distance, Inc.,
("Customer"), a Florida corporation with its principal offices at 1451 W.
Cypress Creek Road, Suite 200, Ft. Lauderdale, Florida 33309.
RECITALS
Phone One is in the business of providing long distance telecommunication
services to commercial and reselling the same to commercial and residential
customers; and
The parties desire to enter into a business arrangement whereby Phone One
provides its long distance services to Customer for Customer's resale in
accordance with the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the covenants and obligations contained
herein the parties hereto agree as follows:
1. Service Availability.
1.1 Commencing on such dates (after the date first set forth above) as may
be mutually agreed upon by the parties hereto, Phone One shall make certain
telecommunication services (which are defined in Section 2 below and which
collectively are called the "Services") available to Customer and/or customers
of Customer (such customers of Customer hereinafter referred to as "End-Users"),
in those areas where Phone One, in its sole discretion, determines the Services
to be available. Phone One shall provide the Services in accordance with the
terms and conditions of service set forth in the Phone One Federal Tariff and
any applicable state tariffs, which are incorporated herein by reference (the
"Terms"), as the Terms may be modified by this Agreement.
1.2 The Customer understands and agrees that the Services do not include
any billing reports that Phone One makes available to its customer base. Phone
One and ICI agree to allow Customer to sell Private Label Dial Tone. Frame
Relay, Internet and Special Access Services. These services will be covered
under separate agreements and made available as soon as ICI can reasonably do
so.
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2. Service Definitions.
2.1 "Dedicated Services" consist of switched long distance traffic
delivered by Customer to a Phone One Point of Presence ("POP") via dedicated
facilities and terminated by Phone One over the Phone One network. If Customer
elects to subscribe to the Dedicated Services, Customer shall be subject to the
requirements set forth herein, including Section 8.
2.2 "Switched Services" consist of switched long distance traffic
generated by End-Users of Switched Services, are not connected to Phone One or
to Customer's carrier identification code. Customer understands and agrees that
End-Users, whose telephone lines are presubscribed to Phone One, may be
requested to call 1-700-555-4141 to confirm their long distance carrier and that
they will hear a recording identifying Phone One as their long distance carrier.
2.3 "Calling Card Services" consist of calling card traffic, other than
Ancillary Services (defined at Subsection 2.6), generated via calling card
authorization codes assigned by Phone One to Customer that originates and
terminates over the Phone One Network. If Customer elects to subscribe to the
Calling Card Services, Customer shall be subject to the requirements set forth
herein, including Section 6.
2.4 "International Services" consist of International traffic generated
via the Dedicated, Switched or Calling Card Services.
2.5 "Directory Assistance Services" consist of directory assistance
traffic generated via the Dedicated, Switched and International Services.
2.6 "Switched 800 Services" consist of inbound 800 traffic generated via
800 telephone numbers assigned by Phone One to Customer that originates and
terminates over the Phone One network.
2.7 "Dedicated 800 Services" consist of inbound 800 traffic generated via
800 telephone numbers assigned by Phone One to Customer that originates on the
Phone One network and is terminated by Phone One onto an End-User's dedicated
facilities.
2.8 The Switched 800 and Dedicated 800 Services are collectively referred
to as the "Inbound Services". If Customer elects to subscribe to the Inbound
Services, Customer shall be subject to the requirements set forth herein,
including Section 7.
2.9 For purposes of the Agreement, "month" shall equal the Phone One
billing cycle described in Subsection 4.2.A.
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3. Operator Services. Operator Services which are made available to End-Users
by Phone One shall be billed at standard Phone One charges directly by Phone One
either on the bill an End-User receives from its local exchange carrier (the
"LEC") or from a Phone One billing agent. Phone One shall not bill Customer for
any Operator Services provided to, and calls made by, End-users and any revenues
for such services and calls received by Phone One shall be retained solely by
Phone One. Operator Services are defined to be calls made via 00, 0- or 0+
calling that require the assistance of an operator to complete, such as, but not
limited to, collect calls and bill-to-a-third-number calls. Operator Services
specifically exclude operator assisted calling card calls which are deemed to be
part of the Ancillary Services. Phone One reserves the right to revise its rates
for Operator Services at any time.
4. Rates and Call Detail Records.
4.1 Customer shall purchase and pay for Domestic Services at the rates set
forth in the attached Exhibit 2, and International Services as set forth in
Exhibit 3. Exhibits 2 and 3 are made a part hereof.
4.2 Customer shall receive call detail records for usage of the Services
("CDR") on a monthly basis. Within ten business days following the end of the
monthly Phone One billing cycle to which Customer's account has been assigned,
Phone One shall deposit with an overnight delivery service for delivery to
Customer, a magnetic tape containing CDR for the Services in the format set
forth on Exhibit 4.2.A attached hereto and made a part hereof (the "CDR Tape").
Each billing cycle represents "monthly" usage (approximately thirty days of
usage) of the Services. The CDR Tapes will rate the Services at the standard
Phone One rates in effect at the time the Services were provided. Phone One
shall provide the initial COR Tape Set Up at no charge. There will be a $50.00
charge for each CDR Tape delivered to Customer. Customer shall pay a one-time
CDR Tape set-up charge of $500.00 for each change to the CDR Tape Format after
the initial setup.
4.3 Customer acknowledges and agrees that Phone One billing system inputs
and outputs, including without limitation, the CDR and answer supervision, shall
be deemed accurate and shall be binding on Customer. Phone One represents that
the aforesaid billing system inputs and outputs used for the Services will be
substantially the same as those used by Phone One for its other customers
utilizing services similar to those provided to Customer hereunder. Customer
further agrees that, except with respect to the bedicated Services, it shall not
charge End-Users utilizing any of the Services for more minutes of Services
usage than is contained in the CDR provided by Phone One to Customer except
those differences associated with minimum billing units. Phone One acknowledges
that Customers Billing Increments are a minimum 30 seconds and then six second
increments.
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4.4 Phone One reserves the right to change the rates upon sixty days
written notice to Customer. If Customer chooses not to accept the new rates,
this agreement will be null and void, provided the customer has given Phone One
first right of refusal to match any competing bid. Notice from both parties must
be in writing.
5. Order Processing.
5.1 Customer shall not be obligated to subscribe to all of the Services
being made available by Phone One hereunder. At the time Customer requests
subscription to any of the Services, Phone One shall supply Customer with a
Subscription Checklist and information sheet that must be completed by Customer
prior to implementation of the requested Services (the "Subscription
Checklist"). The Subscription Checklist shall require Customer to provide
traffic and volume information deemed necessary by Phone One for it to determine
estimated usage volumes for the selected Services.
5.2 Customer shall utilize Facsimile transmission as the media, by which
it will transmit to Phone One orders for the issuance of Codes and 800 number.
Customer will use a Bulletin Board to turn-up End User ANIs. Phone One and
Customer's operations departments will agree on the Bulletin Board Number and
procedures to follow regarding the transfer of information between Phone One and
Customer.
The Phone One facsimile number and contact person to be used shall be CIS
Department: 407-425-4760. Phone One may change its facsimile number or contact
person upon prior written notice to Customer. If, during any month this option
is in use, the number of Codes, 800 Numbers or ANIs ordered by Customer exceed
400, then upon written notice Phone One may, in its sole discretion, require
Customer to select other transmission options to be provided at time of notice.
Upon receipt of such written notice, Customer shall have thirty days to make
such selection. If Customer fails to timely make such election, Phone One shall
not be obligated to accept any further orders from Customer until such selection
has been made and implemented.
5.3 At the time Customer orders the assignment of an 800 Number, Customer
shall furnish Phone One, via facsimile transmission, with an LOA and a Phone One
Resporg.
5.4 Phone One shall activate use of calling card authorization codes (the
"Codes"), 800 telephone numbers (the "800 Numbers") and End-User telephone
numbers ("ANIs") presubscribed to Phone One in accordance with the following
time frames:
A. For Codes, within five business days of receipt by Phone One of
complete and accurate End-User Information. If the End-User Information
submitted by Customer is not complete and accurate, Phone One shall return the
same to Customer for correction and resubmission.
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B. For 800 Numbers, within fifteen business days of receipt by Phone
One of complete and accurate End-User Information. If the End-User Information
submitted by Customer is not complete and accurate, Phone One shall return the
same to Customer for correction and resubmission.
C. Customer understands and agrees that activation of End-User ANIs
is subject to the End-User Information associated with such ANIs complying with
LEC established criteria. Assuming receipt of End-User Information that complies
with said LEC established criteria, End-User ANIs shall be activated within ten
business days of receipt by Phone One of such End-User Information. If the End-
User Information does not comply with said LEC criteria, Phone One shall attempt
to correct non-complying End-User Information to the extent Phone One is able
based on any additional information that Customer may have submitted to Phone
One with respect to the End-User ("Error Correction"). If Phone One is unable to
perform Error Correction within a reasonable period of time not to exceed ten
business days after receipt of the LEC rejection notice, it shall resubmit the
noncomplying End-User Information to Customer for Customer's correction and
resubmission.
D. If 20% or more of the End-User Information for End-User ANIs
submitted by Customer in any month fails to comply with the aforesaid LEC
criteria1 Phone One shall have the right in its sole discretion to (i) cease
providing Error Correction and require Customer to perform this function, and/or
(ii) require Customer to provide a Phone One training session covering
compliance with LEC criteria to appropriate Customer personnel. Such training
shall be at a location designated by Customer and Customer shall pay Phone One a
training fee of $25.00 per hour for the trainer, plus the trainer's travel and
ancillary expenses.
5.5 In the event the volume of End-User ANIs, Codes or 800 Numbers
requested to be added to the Phone One network by Customer is such that Phone
One determines, in its sole discretion, that a delay in processing such requests
is required, Phone One shall have the right to delay such processing for such
period of time as Phone One deems necessary in its sole discretion. Any such
delays in adding Codes to the network shall not, however, adversely impact
Customer for the purpose of determining whether Customer has met its minimum
usage requirements under Subsection 6.3 and Phone One agrees to adjust the time
frame set forth in said Subsection 6.3 to reflect such delays attributable to
Phone One.
6. Calling Card Requirements.
6.1 Upon~Customer's submission of a fully completed Subscription Checklist
for the Calling Card Services, Phone One shall commence implementing generic
Calling Card Services by End-Users.
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6.2 After the Program has been implemented, upon receipt of Customer's
order and the End-User Information sent via the media pursuant to Subsection 5.2
for the assignment of Codes, Phone One shall assign the Codes to Customer for
issuance to End-Users, subject to the following. Customer shall be responsible
for all costs associated with the design, production and distribution of all
calling cards to be issued to End-Users. Phone One reserves the right in its
reasonable discretion to limit the number of Codes it assigns to Customer.
Customer acknowledges and agrees that once Phone One assigns the Codes to
Customer, the Codes will not be activated and Customer must call Phone One to
activate them. Once activated, Customer further agrees that it shall be
responsible for (i) all charges associated with the usage of the Codes assigned
to Customer hereunder, including without limitation, charges for Call Abuse
(defined at Subsection 9.1), and (ii) all claims by third parties, including End
Users, associated with the Codes assigned to Customer hereunder, including
without limitation, claims regarding Call Abuse, regardless of whether or not
Customer issues such Codes to End-Users.
6.3 During the term of this Agreement, Customer shall not resell the
Calling Card Services, the Ancillary Services or the Codes, or make the same
available, to resellers or aggregators of long distance services, or to other
long distance carriers without prior concurrence from Phone One.
7. 8XX Number Requirements.
7.1 Upon receipt by Phone One of Customer's order and the End-User
Information sent via the media pursuant to Subsection 5.2, for the assignment of
8XX Numbers for use of the Inbound Services, Phone One shall assign the 8XX
Numbers to Customer for issuance to End-Users, subject to the following.
Customer's order shall include the specific End-User ANI to which an 8XX Number
will be translated. Phone One does not guarantee the availability of any
particular 8XX Number requested by Customer. Customer agrees that it shall be
subject to and shall abide by the terms and conditions set forth in the Phone
One 8XX Service Order Form as the same may be modified by Phone One from time to
time in its sole discretion. Customer further agrees that is shall be
responsible for (i) all charges associated with the usage of the 5Xx Numbers
assigned to Customer hereunder, including without limitation, charges for Call
Abuse, and (ii) all claims by third parties, including End-Users, associated
with the 8XX Numbers assigned to Customer hereunder, including without
limitation, claims regarding Call Abuse, regardless of whether or not Customer
issues such 8XX Numbers to End-Users.
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7.2 If usage of an 8XX Number assigned to Customer impacts the Phone One
network in such a manner that the unbillable calls for such 8XX Number in any
month are greater than 5% of the billable calls for such 800 Number in that
month, Customer shall reduce the percentage to less than 5% within thirty days
of written notice from Phone One to do so. If Customer has not made such
reduction during such thirty day period, Phone One may upon written notice, in
its sole discretion commence charging Customer a non-discountable $0.50 for each
unbillable call for each subsequent month in which unbillable calls are greater
than 5% of the billable calls.
8. Dedicated Services Requirements.
8.1 Prior to Phone One being obligated to provide the Dedicated Services,
Customer shall provide Phone One with a three month forecast for its estimated
usage of the Dedicated Services setting forth (i) the traffic distribution by
NPA for call and (ii) the number of minutes of peak traffic for call
termination. Customer shall provide Phone One with a quarterly update of such
forecast. Phone One shall supply Customer with appropriate forecasting forms. At
its discretion, Phone One may accept a Subscription Checklist in lieu of said
forecast.
8.2 Dedicated service will be provided via T-1 access only. The dedicated
pricing is subject to customer utilizing Phone One/ICI access where available.
Phone One/ICI will waive the T-1 installation charges subject to a $4,000
minimum monthly usage commitment and a twelve month term per T-1. If the T-1
fails to bill the minimum $4,000, then Phone One will bill Customer for the
installation of the T-1.
8.3 Customer shall be responsible, at its sole expense, for all ordering
of, and charges for, dedicated facilities and equipment required to maintain
access, interconnection and interface with Phone One equipment and the Phone One
network. Technical specifications for such interconnection and interface are set
forth in the Terms.
9. Service Blockage and Cancellation.
9.1 Upon Customer's request sent via the media pursuant to Subsection 5.2,
Phone One shall use reasonable efforts to immediately block or cancel the
Services to a specific End-User ANI, Code or 800 Number, but in no event later
than twenty-four hours after receipt of said request. Except in instances of its
willful misconduct, Phone One shall not be liable to Customer or End-Users for
any damages, costs or charges with respect to the failure of Phone One to block
or cancel the Services in accordance with Customer's request. Customer shall be
solely responsible for and shall hold Phone One harmless from any claims by End-
Users and other third parties related to the blocking of, or cancellation of the
Services to, and End-User ANI, Code or 800 Number by Phone One at the request
of Customer.
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9.2 If an 800 Number assigned to Customer is blocked or canceled in
accordance with the terms of this Agreement, then after such blockage or
cancellation, Phone One shall at Customer's expense re-translate such 800 Number
to either, at Customer's option, (i) Customer's customer service telephone
number, or (ii) to a Phone One voice mail box ordered by Customer. Phone One
shall provide Customer with written notice of the re-translation. Custbmer shall
inform Phone One in writing as to which of the above re-translation options
Customer selects. If Customer does not make such selection within ten calendar
days of the date of said written notice from Phone One, Customer shall be deemed
to have selected option (i).
10. Call Abuse Monitoring.
10.1 Phone One monitors its network in an attempt to detect unauthorized
usage ("Call Abuse") of a telephone number, Code or 800 Number ("Standard
Monitoring"). Customer authorizes Phone One to apply Standard Monitoring to End-
User ANIs and to Codes and 800 Numbers assigned to Customer. Customer
understands and agrees that Phone One shall not be obligated to provide any type
of Call Abuse monitoring for the Dedicated Services. If, pursuant to its
Standard Monitoring, Phone One determines that Call Abuse is or may be
occurring, Phone One shall have the right, but not the obligation, to block
usage of the Services from any ANI, Code or 800 Number associated with the
suspected Call Abuse. If Phone One elects to block the Services it shall use
reasonable efforts to immediately notify Customer of such blockage via
facsimile, but in no event later than twenty-four hours after the blockage.
Phone One shall remove a blockage or replace a Code within twenty-four hours of
Customer's written request. In lieu of blocking the Services, Phone One may at
its sole option, contact Customer by facsimile and request Customer to
substantiate authorization for the suspected Call Abuse. With twenty-four hours
from its receipt of the Phone One facsimile, Customer shall inform Phone One by
facsimile as to what action, if any, it wishes Phone One to take regarding such
suspected Call Abuse.
10.2 Except in instances of its willful misconduct, Phone One shall not be
liable to Customer or an End-User for damages, costs or charges, including
charges for Call Abuse, arising from acts or omissions of Phone One in applying
or failing to adhere to its Standard Monitoring practices. Customer shall be
solely responsible for and shall hold Phone One harmless from all expenses,
charges and costs for usage attributable to End-User ANIs, the Codes and 800
Numbers assigned to Customer, including all charges for Call Abuse.
10.3 The Phone One facsimile number and contact person to be used for the
pumoses set forth in this Section 10 shall be 407-425-4760. Attention: CIS
Department. Either party may change its respective facsimile number or contact
person upon prior written notice to the other party.
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11. Additional Customer Obligations.
11.1 Customer hereby represents and warrants that (i) it has been assigned
a Carrier identification Code by BellCore; and/or (ii) that it is certified to
do business and, if required, certified by the proper regulatory agencies to
provide interstate, intrastate and international long distance services to End-
Users in those states where such services are to be provided by Customer.
11.2 Customer shall be responsible for obtaining valid authorization from
end-user for the change in underlying Interexchange Carrier. Customer shall
comply with all Public Service Commission requirements pertaining to such
authorizations and shall agree to indemnify and hold harmless Phone One for any
and all action which might arise from complaint or action by the PSC for an
unauthorized PIC change acceptance of the authorization form is in the sole
discretion of Phone One. Such approval will not be unreasonably withheld.
Customer shall retain the signed authorizations and promptly make the originals
available upon the request of Phone One or an LEC. Customer shall be ultimately
responsible for LEC Primary Interexchange Carrier change charges ("PIC Charges")
that may be imposed on Phone One as a result of Customer's inability or refusal
to provide original End-User LOAs to Phone One or an LEC. My such PIC Charges
shall be billed to Customer periodically on a Customer Invoice. Customer
understands and agrees that if an End-User presubscribed to Phone One is subject
to any PlC Charges that the Phone One name will appear on such End-User's LEC
bill as the End-User's long distance carrier.
11.3 Customer shall be responsible for all customer service functions for
the End-Users and shall supply Phone One with a toll-free telephone number to
which Phone One can refer End-Users that call Phone One with customer service
issues. A list of the phone One network recordings that either identify Phone
One as an End-User's carrier or that reference the Phone One customer service
telephone number are set forth in Exhibit 11.3 attached hereto and made a part
hereof. Customer understands and agrees that Phone One shall not be obligated
to change said recordings to identify Customer as the carrier or to reference
Customer's customer service telephone number.
11.4 Customer shall be responsible for and pay all expenses in connection
with its business and its performance of this Agreement. To the extent Customer
makes any statements or representations to third parties (including End-Users)
with regard to Phone One the Services, or the terms of this Agreement, such
statements or representations shall be true, accurate and not misleading and
shall conform to and be consistent with the terms of this Agreement.
Initials ____ ____
<PAGE>
12. Payment Terms and Obligations.
12.1 Customer shall pay Phone One monthly for the Services in accordance
with the following.
12.2 Customer agrees to pay Phone One within sixty calendar days of receipt
of the Mag Tape. In the event Customer fails to fully pay any Customer Invoice
within the applicable sixty calendar day period, Customer shall be in breach
hereunder.
12.3 Customer acknowledges and agrees that time is of the essence with
respect to the payment of Customer Invoices and that it shall have no
opportunity to cure any failure by it to timely and fully pay any Customer
Invoice. Customer further acknowledges and agrees to the following with respect
to termination of this Agreement by Phone One for Customer's non-payment:
A. That Customer shall not seek legal or equitable remedies,
including without limitation, injunctive relief, that would require Phone One to
continue providing the Services to Customer and/or End-Users while the Customer
Invoices remain unpaid.
B. That upon termination of this Agreement, Phone One has the right
to cancel or block the Services to End-Users; that such cancellation or blockage
may have an adverse impact on an End-User's business; and that Customer shall be
solely responsible for all claims asserted by End-Users or other third parties
associated with such blocking or cancellation of the Services by Phone One.
C. That cancellation or blockage of the Services to Customer and/or
End-Users will have a negative impact on Customer's business for which Phone One
shall have no liability.
12.4 This agreement is subject to review and acceptance by the Phone
One/ICI Credit Department.
12.5 At the sole discretion of Phone One, the customer shall be responsible
for payment of, or reimbursement to Phone One (if or when, same applies to Phone
One) of Universal Service Fund and Lifeline Assistance Charges (monthly
presubscribed line charges) as set forth in the National Exchange Carrier
Association (NECA) Tariff FCC #5, sections 8:5.1, 8.5.2 and 17.1.4 (A) & (B), as
the same may be amended from time to time, or any successor tariffs or sections.
Said charges shall be included on Customer Invoices and shall be calculated
based on the number of End-User ANIs presubscribed to Phone One.
Initials ____ ____
<PAGE>
EXHIBIT 1
PHONE ONE, INC and GROUP LONG DISTANCE
April 10, 1996
MONTHLY MINIMUM COMMITMENT
The shortfall of the monthly minimum will be reconciled based on three (3)
months usage. If in any consecutive three (3) months, the total actual usage is
equal to or greater than the three (3) month minimum total, there will be no
minimum usage penalty. If however the actual usage for any consecutive three (3)
months is less than the minimum commitment, the difference will be assessed as a
minimum usage penalty. The following is the monthly minimum usage commitment for
Group Long Distance:
Apr 96 May 96 Jun 96 Jul 96 Aug 96 Sep 96
------ ------ ------ ------ ------ ------
$0 $50K $100K $125K $150K $175K
Oct 96 Nov 96 Dec 96 Jan 97 Feb 97 Mar97
------ ------ ------ ------ ------ -----
$200K $225K $250K $250K $250K $250K
All Phone One and ICI products and services will contribute to obtainment of the
monthly minimum.
Initials ____ ____
<PAGE>
EXHIBIT 2
PHONE ONE, INC
INTERMEDIA COMMUNICATIONS, INC
GROUP LONG DISTANCE, INC.
4/10/96
TYPE TIME SWITCHED DEDICATED
PRICING PRICING
CPM CPM
OUT INTRASTATE ALL $ 0.105 $ 0.065
OUT INTERSTATE ALL $ 0.090 $ 0.052
800 INTRASTATE ALL $ 0.110 $ 0.061
800 INTERSTATE ALL $ 0.110 $ 0.070
DIR. ASSISTANCE Per Call Per Call
INTRASTATE ALL $ 0.390 $ 0.390
INTERSTATE ALL $ 0.450 $ 0.450
TRAVEL CARD CPM
800 ACCESS ALL $ 0.120
WICIC ACCESS
INTRASTATE ALL $ 0.105
INTERSTATE ALL $ 0.090
Validated Account Codes. $5.00 one time set up fee per account and table set up.
If GLD converts a block of accounts at one time, this fee will be waived on that
block of accounts.
800 service may not exceed 20% of the total monthly billing under this
agreement. If 800 service exceeds 20% of the total billing, there will be a 25%
surcharge on the revenue exceeding 20%. ie: account bills $500k, 800 svc = $110K
exceeds 20% by $1OK penalty = $2,500
No stand alone 800 Service.
Page 1
<PAGE>
Phone One Inc
April 10, 1996
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
COUNTRY CC RC BEST GLD PH-1 GLD-DIF BEST-DIF
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Afghanistan 93 5 1.29 1.29 1.0989 14.81% 14.81%
Albania 355 4 0.85 1.2166 0.5328 56.21% 37.32%
Algeria 216 3 0.6911 0.9282 0.6305 32.07% 8.77%
American Samoa 884 1 0.718 0.8112 0.7804 6.27% -5.90%
Andorra (France) 33 5 0.319 0.4134 0.2331 43.61% 26.93%
Angola 244 3 1.04 1.443 1.0545 26.92% -1.39%
Anguilla (Barbuda) 809 2 0.457 0.702 0.4689 33.21% -2.60%
Antarctica (Casey) 672 1 0.86 1.2636 0.5728 54.67% 33.40%
Antarctica (Scott) 672 1 0.86 1.2636 0.5728 54.67% 33.40%
Antigua 809 2 0.463 0.6708 0.444 33.81% 4.10%
Argentina 54 5 0.539 0.065 0.5372 17.35% 0.33%
Armenia 374 11 1.0046 0.9672 0.7659 20.81% 23.76%
Aruba 297 2 0.432 0.5616 0.4329 22.92% -0.21%
Ascension Isl. 249 3 0.9096 1.4742 0.9546 35.25% -4.95%
Australia 61 6 0.1686 0.35 0.1465 58.14% 13.10%
Austria 43 4 0.3206 0.6318 0.2775 56.08% 13.55%
Azerbaijan 994 11 0.9001 0.9672 0.8636 10.71% 4.06%
Azores 351 6 0.4107 #DIV/0! #DIV/0!
Bahamas 809 7 0.2446 0.3 0.2664 11.20% -8.91%
Bahrain 973 8 0.8146 0.8892 0.7659 13.87% 5.98%
Bangladesh 880 21 0.93 1.09 0.9879 9.37% -6.23%
Barbados 809 2 0.4631 0.824 0.4689 24.86% -1.24%
Belarus 375 11 0.7581 0.85 0.7548 11.20% 0.44%
Belgium 32 4 0.3301 0.48 0.2026 57.80% 38.63%
Belize 501 13 0.815 0.7588 0.641 15.28% 21.35%
Benin 229 3 0.653 0.9048 0.6327 30.07% 3.11%
Bermuda 809 7 0.314 0.5304 0.2888 45.59% 8.09%
Bhutan 975 21 0.612 2.223 1.0434 53.06% -70.49%
Bolivia 591 10 0.588 0.69 0.6429 6.82% -9.34%
Bosnia/Herzogovina 387 11 0.7671 1.1154 0.5062 54.82% 34.02%
Botswana 267 3 0.87 0.8112 0.8936 -10.15% -2.71%
Brazil 55 5 0.4821 0.58 0.4589 19.16% 2.76%
British Virgin Isl. 809 7 0.4631 1.6318 0.444 29.72% 4.12%
Brunei 673 3 0.7386 1.248 0.7326 41.30% 0.81%
Bulgeria 359 11 0.7 0.7644 0.5761 24.64% 17.70%
Burkina Faso 226 3 0.663 0.663 0.7104 -7.15% -7.15%
Burundi 257 3 0.605 2.769 0.7659 72.34% -26.60%
Cambodia 855 12 0.951 1.7238 0.9657 43.98% -1.55%
Cameroon 237 3 0.8431 1.1154 0.888 20.39% -5.33%
Cape Verde Isl. 238 3 0.85 1.3026 0.5062 61.14% 40.45%
Cayman Islands 809 7 0.455 0.5616 0.4163 25.88% 8.52%
Central Africa 236 3 0.421 2.0436 0.8882 66.32% -63.47%
Chad Republic 235 33 0.422 2.106 0.9435 55.20% -123.58%
Chile 56 5 0.413 0.51 0.4937 3.19% -19.55%
China 86 12 0.87 1.07 0.8547 20.12% 1.76%
Christmas & Cocos Is 672 1 0.7 1.2636 0.5728 54.87% 18.18%
Columbia 57 10 0.5 0.65 0.4773 26.57% 4.54%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
EXHIBIT 3(3)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
COUNTRY CC RC BEST GLD PH-1 GLD-DIF BEST-DIF
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Comoros 269 3 0.43 3.3384 0.9546 71.41% -122.00%
Congo Republic 242 3 0.9096 1.0764 0.8991 16.47% 1.15%
Cook Island 682 1 1.259 3.2058 1.2099 62.26% 3.90%
Costa Rica 506 13 0.5581 0.57 0.5439 4.58% 2.54%
Croatia 385 11 0.6436 1.1154 0.4884 56.21% 24.11%
Cuba 53 2 0.682 0.88 0.7093 19.40% -4.00%
Cyprus Republic 357 4 0.5333 0.9048 0.4662 48.47% 12.58%
Czechoslavakia 42 19 0.404 0.73 0.3441 52.86% 14.83%
Denmark 45 4 0.27 0.45 0.1920 57.33% 28.88%
Diego Garcia 246 21 0.938 1.911 0.8825 53.82% 5.92%
Djibouti 253 3 0.8051 1.5132 0.8214 45.72% -2.02%
Dominica 809 2 0.456 0.663 0.4689 29.28% -2.82%
Dominican Republic 809 2 0.3206 0.47 0.2886 38.60% 9.98%
Ecuador 593 10 0.61 0.62 0.5550 10.48% 9.02%
Egypt 20 11 0.7386 0.71 0.7326 -3.18% 0.81%
El Salvador 503 13 0.5581 0.59 0.6105 -3.47% -9.39%
Equatorial Guinea 240 3 0.528 2.7066 1.0989 59.40% -108.13%
Eritrea 291 11 1.36 1.1232 1.0767 4.14% 20.83%
Estonia 372 11 0.393 0.89 0.3441 61.34% 12.44%
Ethiopia 251 11 1.085 1.1232 0.9546 15.01% 12.02%
Faeroe Island 298 4 0.5011 0.6474 0.3885 39.99% 22.47%
Falkland Islands 500 3 0.97 2.3946 0.7921 66.92% 18.34%
Fiji Islands 679 14 1.0426 1.2246 1.0601 13.44% -1.67%
Finland 358 4 0.265 0.468 0.2054 56.12% 22.51%
France 33 4 0.2256 0.3 0.1804 39.88% 20.05%
French Antilles 596 7 0.55 0.5226 0.4689 10.28% 14.75%
French Guiana 594 5 0.7006 1.2558 0.6355 49.40% 9.30%
French Polynesia 689 1 0.5486 1.2324 0.5245 57.44% 4.40%
Gabon 241 3 0.8241 0.858 0.7881 8.15% 4.37%
Gambia 220 3 0.627 0.9438 0.5994 36.49% 4.40%
Georgia, Republic of 995 11 1.034 0.9672 0.8325 13.93% 19.49%
Germany 49 4 0.217 0.31 0.1976 36.26% 8.95%
Ghana 233 3 0.7006 0.975 0.6516 33.17% 7.00%
Gibraltar 350 4 0.493 0.8112 0.4440 45.27% 9.94%
Greece 30 4 0.3396 0.6 0.3219 46.35% 5.21%
Greenland 299 4 0.5771 0.7098 0.5961 16.02% -3.29%
Grenada 809 2 0.453 1.0374 0.4107 60.41% 9.34%
Guadaloupe 590 7 0.413 0.5226 0.4318 17.38% -4.55%
Guam 671 1 0.244 0.6708 0.2720 59.46% -11.45%
Guantanamo 53-99 2 0.737 0.8502 0.6771 20.36% 8.13%
Guatemala 502 13 0.577 0.55 0.5428 1.31% 5.93%
Guinea 224 3 0.885 1.7706 0.7881 55.49% 10.95%
Guinea-Bissau 245 3 1.0236 2.145 1.0534 50.89% -2.91%
Guyana 592 10 0.762 1.3962 0.8325 40.37% -9.25%
Haiti 509 2 0.596 0.546 0.5872 -7.54% 1.48%
Honduras 504 13 0.5771 0.6006 0.5162 14.06% 10.56%
Hong Kong 852 12 0.3016 0.41 0.2942 28.26% 2.47%
Hungary 36 4 0.389 0.57 0.3108 45.47% 20.10%
Iceland 354 16 0.314 0.7878 0.3630 53.93% -15.60%
India 91 21 0.5961 0.78 0.5495 29.56% 7.83%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE>
EXHIBIT 3(3)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
COUNTRY CC RC BEST GLD PH-1 GLD-DIF BEST-DIF
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Indonesia 62 12 0.8774 0.74 0.7759 -4.85% 11.53%
Inmarsat-Atl-East 871 7.67 7.67 6.6600 13.17% 13.17%
Inmarsat-Atl-West 874 7.67 7.67 6.1050 20.40% 20.40%
Inmarsat-Indian 873 7.67 7.67 6.1050 20.40% 20.40%
Inmarsat-Pac 872 7.67 7.67 6.1050 20.40% 20.40%
Iran 98 11 1.0141 1.2168 0.8547 29.76% 15.72%
Iraq 964 11 1.1 1.3338 1.0434 21.77% 5.15%
Ireland 353 4 0.3586 0.45 0.2692 40.18% 24.94%
Israel 972 20 0.6056 0.85 0.5661 33.40% 6.52%
Italy 39 4 0.3301 0.49 0.2942 39.97% 10.89%
Ivory Coast 225 3 1.02 1.4274 0.5661 60.34% 44.50%
Jamaica 809 2 0.472 0.6 0.4052 32.48% 14.16%
Japan 81 6 0.2731 0.36 0.2442 32.17% 10.58%
Jordan 962 20 0.7481 0.8502 0.7215 15.14% 3.56%
Kazakhstan 7 11 1.0200 0.85 0.7493 11.85% 26.54%
Kenya 254 17 0.868 1.014 0.8769 13.52% -1.03%
Kiribati 686 1 0.93 1.4118 0.8436 40.25% 9.29%
Korea (North 850 6 0.5296 0.7488 0.5772 22.92% -8.99%
Korea (South) 82 6 0.69 0.69 0.5310 23.04% 23.04%
Kuwait 965 17 0.733 0.8892 0.6349 28.60% 13.38%
Kyrgyzstan 7 11 0.647 0.9672 0.7315 24.37% -13.06%
Laos 856 12 1.03 2.418 1.0989 54.55% -6.69%
Latvia 371 11 0.598 0.89 0.4329 51.36% 27.61%
Lebanon 961 8 0.84 0.8 0.7175 10.31% 14.58%
Lesotho 266 17 0.8811 1.3104 0.9546 27.15% -8.34%
Liberia 231 3 0.6911 0.5226 0.5439 -4.08% 21.30%
Libya 218 3 0.6911 1.5288 0.6882 54.95% 0.42%
Liechtenstein 41 4 0.2636 0.4368 0.2609 40.28% 1.04%
Lithuania 370 11 0.6816 1.0452 0.6216 40.53% 8.80%
Luxembourg 352 4 0.3111 0.47 0.2498 46.86% 19.72%
Macao 853 12 0.665 1.287 0.7326 43.08% -10.17%
Macedonia 389 11 0.93 0.93 0.4884 47.48% 47.48%
Madagascar 261 3 1.11 2.5818 1.0989 57.44% 1.00%
Madera 351-91 6 0.4218 #DIV/0! #DIV/0!
Malawi 265 3 0.6056 0.9204 0.6105 33.67% -0.81%
Malaysia 60 12 0.56 0.56 0.4564 18.49% 18.49%
Maldives 960 9 1.32 1.7472 0.8769 49.81% 33.57%
Mali Republic 223 3 1.1376 1.833 1.0545 42.47% 7.30%
Malta 356 4 0.7196 1.0452 0.5173 50.51% 28.12%
Mariana Isl (Saipan) 670 1 0.6549 #DIV/0! #DIV/0!
Marshall Island 692 1 1.36 1.5912 1.0989 30.94% 19.20%
Mauritania 222 3 0.89 1.2558 0.8916 29.01% -0.17%
Mauritius 230 3 0.89 1.5912 0.8916 43.97% -0.17%
Mayotte Isl 269 3 0.43 3.3384 0.9990 70.08% -132.33%
Mexico Zone #7 52 15 0.76 0.67 0.4689 30.02% 38.31%
Micronesia 691 1 1.15 1.15 0.9413 18.15% 18.15%
Moldavia 373 11 0.87 1.0452 0.7548 27.78% 13.24%
Monaco 339 33 4 0.2256 0.4134 0.2054 50.33% 8.98%
Mongolia 976 12 0.79 2.3868 0.4163 82.56% 47.31%
Montserrat 809 2 0.458 0.7254 0.4074 43.84% 11.05%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3
<PAGE>
EXHIBIT 3(3)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
COUNTRY CC RC BEST GLD PH-1 GLD-DIF BEST-DIF
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Morocco 212 3 0.6056 1.3104 0.5328 59.34% 12.02%
Mozambique 258 3 0.7196 1.6536 0.6660 59.72% 7.45%
Mustique 809 2 0.4385 #DIV/0! #DIV/0!
Myanmar (Burma) 95 21 1.23 1.23 1.0989 10.66% 10.66%
Nakhodka 0.9324 #DIV/0! #DIV/0!
Namibia 264 3 0.8716 1.209 0.7604 37.11% 12.76%
Nauru 674 1 1.1 1.3026 1.1322 13.08% -2.93%
Nepal 977 21 1.05 1.1388 1.0989 3.50% -4.66%
Netherlands 31 4 0.2351 0.32 0.2026 36.70% 13.83%
Netherlands Antilles 599 7 0.3681 0.39 0.3330 14.62% 9.54%
Nevis 809 2 0.458 0.819 0.4107 49.85% 10.33%
New Caledonia 687 1 1.131 1.3104 1.0545 19.53% 6.76%
New Zealand 64 1 0.333 1.0452 0.2470 76.37% 25.83%
Nicaragua 505 13 0.61 0.64 0.4564 28.68% 25.18%
Niger Republic 227 3 0.901 1.3884 0.9202 33.72% -2.13%
Nigeria 234 17 0.68 0.8814 0.6793 22.93% 0.10%
Nieu Island 683 1 1.7 2.7222 1.3764 49.44% 19.04%
Norfolk Island 672 1 0.67 1.2636 0.2700 78.64% 59.71%
Norway 47 4 0.28 0.3 0.2109 29.70% 24.68%
Oman 968 8 1.014 0.9672 0.9879 -2.14% 2.57%
Pakistan 92 21 0.9 1.01 0.9535 5.60% -5.94%
Palau Republic 680 1 1.466 1.5288 1.2432 18.68% 15.20%
Palm Island 809 2 0.6660 #DIV/0! #DIV/0!
Panama 507 13 0.513 0.5772 0.5650 2.12% -10.13%
Papau New Guinea 675 1 0.675 1.1154 0.6427 42.38% 4.79%
Paraguay 595 5 0.679 0.79 0.6383 19.21% 6.00%
Peru 51 10 0.595 0.62 0.5717 7.80% 3.92%
Phillipines 63 12 0.5771 0.65 0.5495 15.47% 4.79%
Poland 48 19 0.4 0.54 0.3885 28.06% 2.88%
Portugal 351 6 0.3206 0.61 0.3108 49.05% 3.06%
Qatar 974 17 0.9286 1.0998 0.8547 22.29% 7.96%
Reunion Island 262 3 0.9951 1.8564 0.9990 46.19% -0.39%
Romania 40 11 0.537 0.77 0.5495 28.64% -2.32%
Russia 7 11 0.6151 0.85 0.5661 33.40% 7.97%
Rwanda 250 3 1.145 1.7082 0.9646 43.53% 15.76%
Saipan 670 1 0.7576 0.6552 0.5639 13.94% 25.57%
Sakhalin 7 11 2.2465 #DIV/0! #DIV/0!
San Marino 39 4 0.484 0.5616 0.4329 22.92% 10.56%
Sao Tome 239 3 1.2 1.9266 1.1755 38.99% 2.04%
Saudi Arabia 966 17 0.704 0.76 0.7075 6.91% -0.50%
Senegal 221 3 1.0966 1.0998 1.0101 8.16% 7.89%
Serbia 11 0.6105 #DIV/0! #DIV/0!
Seychelles Islands 248 3 1.3466 1.677 0.9990 40.43% 25.81%
Sierra Leone 232 3 0.88 1.0608 0.9324 12.10% -5.95%
Singapore 65 1 0.24 0.39 0.2109 45.92% 12.13%
Slovakia 427 42 19 0.404 0.73 0.4607 36.90% -14.02%
Slovenia 386 11 0.77 0.77 0.5162 32.97% 32.97%
Solomon Islands 677 1 0.91 1.56 0.9213 40.94% -1.24%
Somalia 252 11 1.15 1.15 1.0989 4.44% 4.44%
South Africa 27 3 0.495 0.663 0.4773 28.01% 3.58%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 4
<PAGE>
EXHIBIT 3(3)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
COUNTRY CC RC BEST GLD PH-1 GLD-DIF BEST-DIF
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Spain 34 4 0.3111 0.59 0.2875 51.27% 7.59%
Sri Lanka 94 21 0.8241 1.2324 0.8436 31.55% -2.37%
St. Christopher 809 2 0.5328 #DIV/0! #DIV/0!
St. Helena 290 3 0.59 2.1606 0.4689 78.30% 20.53%
St. Kitts 809 2 0.4624 0.7254 0.4096 43.54% 11.34%
St. Lucia 809 2 0.453 0.7488 0.4329 42.19% 4.44%
St. Peirre 508 2 0.2731 0.663 0.3275 50.61% -19.90%
St. Vincent 809 2 0.453 0.7488 0.4096 45.30% 9.58%
Sudan 249 11 0.6 0.6 0.3104 48.27% 48.27%
Suriname 597 5 0.8526 1.1622 0.8045 30.78% 5.64%
Swaziland 268 3 0.5296 1.482 0.5772 61.05% -8.99%
Sweden 46 4 0.1615 0.28 0.1271 54.61% 21.30%
Switzerland 41 4 0.2636 0.32 0.2103 34.27% 20.20%
Syria 963 11 1.035 1.3884 1.0989 20.85% -6.17%
Taiwan 886 1 0.3871 0.46 0.3941 14.34% -1.80%
Tajikistan 7 11 0.647 0.9672 0.6527 32.52% -0.88%
Tanzania 255 11 0.8241 1.0296 0.8258 19.79% -0.21%
Thailand 66 12 0.822 0.67 0.7437 -11.00% 9.53%
Togo 228 3 0.844 1.248 0.8769 29.74% -3.90%
Tonga 676 14 0.8 1.2324 0.8325 32.45% -4.06%
Trinidad/Tobago 809 2 0.472 0.585 0.4689 19.85% 0.66%
Tunisia 216 3 0.691 0.75 0.6572 12.37% 4.89%
Turkey 90 4 0.5201 0.67 0.4684 30.09% 9.94%
Turkmenistam 7 11 O.647 0.9672 0.7326 24.26% -13.23%
Turks/Caicos 809 7 0.458 0.7254 0.4440 38.79% 3.06%
Tuvalu 688 1 0.91 3.12 1.0545 66.20% -15.88%
Uganda 256 11 0.8336 0.8112 0.8325 -2.63% 0.13%
Ukraine 380 11 0.7101 0.85 0.7104 16.42% -0.04%
Union Island 809 2 0.4440 #DIV/0! #DIV/0!
United Kingdom 44 4 0.1306 0.24 0.1066 55.60% 18.41%
Uruguay 598 10 0.65 0.77 0.6993 9.18% -7.58%
Uzbekistan 7 11 0.647 0.9672 0.8667 10.39% -33.95%
U. A. Emirates 971 8 0.679 0.66 0.6094 7.67% 10.25%
Vanuatu 678 6 1.15 3.2292 0.8325 74.22% 27.61%
Vatican City 396 39 4 0.3301 0.5616 0.3219 42.68% 2.48%
Venezuela 58 5 0.3681 0.468 0.3219 31.22% 12.55%
Vietnam 84 12 1.0521 1 1.0545 -5.45% -0.23%
Wallis & Fortuna 681 1 0.41 2.6988 0.3885 85.60% 5.24%
Western Somoa 685 1 0.8716 0.8424 0.8456 -0.38% 2.98%
Yemen Arab Republic 967 8 0.7861 0.897 0.8369 6.70% -6.47%
Yugoslavia 381 11 0.6721 1.1154 0.5761 48.35% 14.29%
Zaire 243 3 0.71 1.3416 0.6882 48.70% 3.07%
Zambia 260 3 0.613 0.9984 0.8325 16.62% -35.81%
Zimbawe 263 3 0.5771 0.9048 0.5550 38.66% 3.83%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 5
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT, effective May 1, 1996, is between Group Long Distance,
Inc., a Florida corporation ("Buyer"), and Mr. Larry C. Cornwell, a Florida
resident ("Seller").
WITNESSETH:
WHEREAS, in a transaction effective February 1, 1996 Seller purchased all
of the voting stock and assets of Gulf Communications Services, Inc., a Florida
corporation ("the Corporation"), from its then parent company, Gulf Components,
Inc., ("Gulf"); and,
WHEREAS, Seller now owns all of the assets ("the Assets") and all of the
authorized, issued and outstanding shares ("the Stock"), of the Corporation,
and,
WHEREAS, to secure payment for its purchase of the Stock and the Assets
Seller executed the following documents in favor of Gulf.
A. A Stock Pledge Agreement dated February 17, 1996 ("the Stock Pledge
Agreement");
B. A Secured Promissory Note dated February 1, 1996 ("the Note");
C. A Security Agreement dated February 1, 1996; ("the Security
Agreement");
D. An Agreement for Purchase and Sale of Business dated February 1,
1996 (the "Purchase Agreement");
E. A Personal Guaranty of the Note dated February 1, 1996 ("the
Personal Guaranty"); and,
WHEREAS, Buyer now desires to buy the Stock from Seller, and to assume
Seller's liability for payment of the Note; and,
WHEREAS, Seller is willing to sell the Stock to Buyer subject to the terms
and conditions of this Agreement.
NOW, THEREFORE,
In consideration of the mutual promises, representations, warranties,
covenants, conditions and agreements contained herein, the parties, intending to
be legally bound, agree as follow:
<PAGE>
ARTICLE I
PURCHASE AND SALE; CONSIDERATION
1.1 Purchase and Sale Seller agrees to sell, assign, convey and transfer
the Stock to Buyer, and Buyer agrees to pay Seller therefor as follows:
A. Cash Payments:
$12,500 on or before June 15, 1996; and
$12,500 on or before July 15, 1996.
B. Assumption of the Note: Buyer hereby assumes the liability of
Seller for payments of principal and interest on the Note.
1.2 The Closing. The Closing will take place on June 4, 1996 at Buyer's
corporate offices at a mutually agreed time, unless postponed or rescheduled by
mutual agreement. At The Closing Seller shall deliver to Buyer appropriate stock
certificate(s) representing the Stock, duly endorsed and assigned, free and
clear of all liens and encumbrances. In addition to such certificate(s), the
parties shall provide to each other such other documents and instruments as are
necessary or advisable to consummate the transaction herein contemplated,
including, without limitation, the following:
A. A release of Seller and the Stock from the Stock Pledge Agreement;
and,
B. An assignment by Seller and an assumption by Buyer of the Note;
and,
C. A release of Seller from the Personal Guaranty and such other
documents as the parties deem appropriate.
ARTICLE II
DUE DILIGENCE
Prior to The Closing, Buyer shall have a full and complete opportunity to
evaluate the Corporation's business and to review its business, financial, and
contractual records and information, and Seller shall cooperate with Buyer for
this purpose.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that, as of The Closing date:
3.1 Status of the Corporation. The Corporation is duly organized, validly
existing and in good standing under the laws of the State of Florida.
2
<PAGE>
3.2 Authority. Seller has the full right, power and authority to enter into
and carry out the transactions contemplated by this Agreement.
3.3 Enforceability. This Agreement is the valid and binding agreement of
Seller, enforceable in accordance with its terms.
3.4 Title. Seller has good and marketable title to the Stock and the Assets
which shall be transferred to Buyer free and clear of all liens and encumbrances
except as otherwise specifically provided herein. The Stock so transferred to
Buyer constitutes all of the authorized, issued and outstanding stock of the
Corporation.
3.5 Claims/Legal Proceedings/Other Liabilities. To Seller's knowledge,
other than those specifically indicated below, there are no liens, suits,
claims, legal proceedings or other liabilities of any kind, pending or
threatened, against Seller or the Corporation.
A. The Note and Security Agreement; including a UCC-1 Financing
Statement on the Assets;
B. AT&T contract for long distance service, guaranteed by the
Corporation.
3.6 Books and Records. The Corporation's books and records are complete,
accurate and current as of The Closing date.
3.7 Compliance with Laws and Regulations. The operations of the Corporation
have been conducted in accordance with, and the Corporation has obtained and is
in compliance with, all permits, licenses and other authorizations required
under, all applicable laws, regulations and other requirements of all
Governmental Bodies (including without limitation applicable State Public
Service Commissions and the Federal Communications Commission). The Corporation
has not received any notification of any present or past failure by the
Corporation to comply with any such laws, rules or regulations.
3.8 Regulatory Approvals. The Corporation shall obtain, all applicable and
necessary federal, state and local regulatory approvals to consummate the
transaction contemplated herein, including, without limitation, all approvals
required by the State of Florida Public Service Commission and other State
regulatory bodies and the Federal Communications Commission.
3
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer warrants and represents to Seller that, as of The Closing date:
4.1 Status of Buyer. Buyer is a Florida corporation, duly organized,
validly existing and in good standing under the laws of the State of Florida.
4.2 Authority. Buyer has full corporate right, power and authority to enter
into and carry out the transactions contemplated by this Agreement.
4.3 Enforceability. This Agreement is the valid and binding agreement of
Buyer, enforceable in accordance with its terms.
ARTICLE V
COVENANTS OF SELLER
Seller agrees that from and after the date of this Agreement:
5.1 Access to Records. Seller shall give, or cause the Corporation to give,
Buyer and its authorized representatives full access to the Corporation's files,
materials, books and records pertaining to its business.
5.2 Cooperation. Seller and the Corporation will cooperate fully with Buyer
in dealing with matters affecting the transactions contemplated hereby or the
transfer of any Stock hereunder.
5.3 Conduct of the Business. Until The Closing, Seller will cause the
Corporation to maintain its business operations, books, records, and accounts in
a manner consistent with past practice. Neither Seller nor the Corporation will
issue any capital stock or other equity rights in the Corporation, or purchase,
acquire or redeem any Stock, or split any or all Shares of the Stock, or amend
the Articles of Incorporation or the By-Laws of the Corporation, or borrow or
commit any significant sums of money, or grant any salary increases or bonuses,
or materially amend any existing agreements, or otherwise dispose of any assets
of the business.
5.4 Employees of the Corporation. Seller shall make all of the
Corporation's employees available to Buyer for discussion for the purpose of
post-Closing employment.
4
<PAGE>
ARTICLE VI
CONFIDENTIALITY
Until The Closing, Buyer will treat as confidential all information
obtained from Seller or the Corporation which is not already in the public
domain or otherwise lawfully known to Buyer.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of the parties hereto are subject to the condition that, as
of The Closing, all of the terms and conditions hereof to be performed or
complied with shall have been performed or complied with in all materials
respects, and the representations and warranties made by each party to the
others shall be correct in all material respects.
ARTICLE VIII
LIABILITY; INDEMNIFICATION
The representations, warranties, and covenants set forth in this Agreement
and the liabilities of the parties with respect thereto shall survive The
Closing. The parties acknowledge that that they have relied on the
representations, warranties and disclosures of liabilities or claims made
hereunder by each other and agree to defend, indemnify, and hold each other
harmless from and against all claims, losses, expense, actions, demands or
obligations arising out of or resulting from: (a) any breach of this Agreement
or any covenant made hereunder; or (b) any inaccuracy in any of the
representations or warranties made hereunder.
ARTICLE IX
GENERAL MATTERS
9.1 Binding Agreement. All terms, covenants, representations, warranties
and conditions of this Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the parties to this Agreement and their respective
successors and assigns.
9.2 Notices. All notices required to be given under this Agreement shall be
in writing and shall be deemed to be duly given if delivered personally or by
facsimile copy as follows:
5
<PAGE>
If to Seller, to:
Mr. Larry C. Cornwell
7051 Charles Humphrey Road
Plant City
Florida 33565
If to Buyer, to:
Mr. Gerald M. Dunne, Jr.
Group Long Distance, Inc.
1451 W. Cypress Creek Road
Suite 200
Ft. Lauderdale, FL 33309
9.3 Entire Understanding. This Agreement is the entire agreement between
the parties and supersedes all prior agreements and understandings, written or
oral, with respect to the subject matter hereof. Any amendment hereto shall be
in writing and signed by all parties.
9.4 Assignment. Buyer shall have the right to assign its rights hereunder
to any affiliate, subsidiary or successor legal entity, without notice to or
consent of Seller. Seller shall not have any rights of assignment, except
pursuant to Buyer's consent, which shall not be unreasonably withheld.
9.5 Waivers. The failure of any party to require performance of any
provision of this Agreement at any time shall not affect its right later to
require such performance. No waiver in any instance shall be a further or
continuing waiver unless otherwise stated in such waiver.
9.6 Applicable Law. This Agreement shall be governed by and construed in
accordance with Florida law.
9.7 Further Assurances. From and after The Closing, each party will execute
and deliver such other instruments and conveyances and take such other action,
as the other may reasonably require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SELLER: BUYER:
GROUP LONG DISTANCE, INC.
/s/ Larry C. Cornwell /s/ Gerald M. Dunne, Jr.
- ---------------------------- ------------------------------------
Larry C. Cornwell Gerald M. Dunne, Jr.
6
<PAGE>
APPLICABLE LAW: The law of the state of Florida will govern this note. Any term
of this note which is contrary to applicable law will not be effective, unless
the law permits you and me to agree to such a variation. If any provision of
this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification of
this agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on the note will first reduce the amount I owe you
for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary of this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: If I receive the principal in more than one advance, each advance will
start to earn interest only when I receive the advance. The interest rate in
effect on this note at any given time will apply to the entire principal
advanced at that time. Notwithstanding anything to the contrary, I do not agree
to pay and you do not intend to charge any rate of interest that is higher than
the maximum rate of interest you could charge under applicable law for the
extension of credit that is agreed to here (either before or after maturity). If
any notice of interest accrual is sent and is in error, we mutually agree to
correct it, and if you actually collect more interest than allowed by law and
this agreement, you agree to refund it to me.
INDEX RATE: The Index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purposes of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owned to me on an item presented to you or in your
possession for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1)I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without
first notifying you before making such a change; (10) I fail to plant, cultivate
and harvest crops in due season; (11) any loan proceeds are used for a purpose
that will contribute to excessive erosion of highly erodible land or to the
conversion of wetlands to produce an agricultural commodity, as further
explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off the debt against any right I have to the payment of
money from you, subject to the terms of the "Set-off" paragraph
herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any reasonable
fee you incur with such attorney plus court costs (except where prohibited by
law). I agree that reasonable attorneys' fees shall be construed to mean 10% of
the principal sum named in this note, or such larger fee that the court may
determine to be reasonable and just. To the extent permitted by the United
States Bankruptcy Code, I also agree to pay the reasonable attorney's fees and
costs you incur to collect this debt as awarded by any court exercising
jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
To the extent permitted by law, I also waive my right to a trial by jury in
respect to any litigation arising from this note and any other agreement
executed in conjunction with this credit transaction.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
BORROWER'S INTEREST
DATE OF PRINCIPAL INITIALS PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE (not required) PAYMENTS BALANCE RATE PAYMENTS THROUGH:
- ----------- ------- -------------- -------- ------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
__/__/__ $ $ $ % $ __/__/__
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__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
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(page 2 of 2)
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GROUP LONG DISTANCE, INC. GATEWAY AMERICAN BANK OF FLORIDA ACCOUNT #: 0111109400
1451 W. CYPRESS CK.RD, STE. 200 1451 N.W. 62ND STREET, SUITE 212 Loan Number 0111109465
FORT LAUDERDALE, FL 33309 FORT LAUDERDALE, FL 33309 Date May 2, 1996
Maturity Date May 2, 1998
Loan Amount $50,000.00
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Renewal of ________________
"I" Includes each borrower above, "You" means the lender, its successors TAXPAYER ID#: 65-0213198
joint and severally. and assigns.
- ------------------------------------------------------------------------------------------------------------------------------------
For value received, I promise to pay to you, or your order, at your address listed above the PRINCIPAL sum of FIFTY THOUSAND AND
NO/100 ***** Dollars $50,000.00
|X| Single Advance: I will receive all of this principal sum on May 2, 1996. No additional advances are contemplated under this
note.
|_| Multiple Advance: The principal sum shown above is the maximum amount of principal I can borrow under this note. On
_________________________ I will receive the amount of $________________ and further principal advances are contemplated.
Conditions: The conditions for further advances are ____________________________________________________________________________
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
|_| Open End Credit: You and I agree that I may borrow up to the maximum amount of principal more than one time. This feature
is subject to all other conditions and expires on ______________.
|_| Closed End Credit: You and I agree that I may borrow up to the maximum only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from MAY 2, 1996 at the rate of 10.250% per year until FIRST
CHANGE DATE.
|X| Variable Rate: This rate may then change as stated below.
|X| Index Rate: The future rate will be 2.000% OVER the following index rate: PRIME RATE AS QUOTED IN THE WALL STREET JOURNAL
|_| No Index: The future rate will not be subject to any internal or external index. It will be entirely in your control.
|X| Frequency and Timing: The rate on this note may change as often as DAILY.
A change in the interest rate will take effect ON THE SAME DAY.
|X| Limitations: During the term of this loan, the applicable annual interest rate will not be more than 18.000% or less than
7.000%.
Effect of Variable Rate: A change in the interest rate will have the following effect on the payments:
|X| The amount of each scheduled payment will change. |X| The amount of the final payment will change.
|_| __________________________________________________________________________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note owing after maturity, and until paid in full, as
stated below:
|_| on the same fixed or variable rate basis in effect before maturity (as indicated above).
|X| at a rate equal to 18.00%.
|X| LATE CHARGE: If a payment is made more than 10 days after it is due, I agree to pay a late charge of 5.000% OF THE LATE PAYMENT
WITH A MINIMUM OF $5.00.
|X| ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which |_| are |X| are not included in the
principal amount above: $250 LOAN FEE.
PAYMENTS: I agree to pay this note as follows.
|X| Interest: I agree to pay accrued interest MONTHLY BEGINNING 06/02/96 AND ON 05/02/98
|X| Principal: I agree to pay the principal $2,083.33 MONTHLY BEGINNING JUNE 2, 1996, BALANCE DUE MAY 2, 1998
|_| Installments: I agree to pay this note in __________ payments. The first payment will be in the amount of $________________ and
will be due _________________________. A payment of $___________________ will be due _________________________ thereafter. The
final payment of the entire unpaid balance of principal and interest will be due __________________________________.
ADDITIONAL TERMS:
I/WE GIVE GATEWAY AMERICAN BANK OF FLORIDA SECURITY INTEREST IN THE FOLLOWING: ALL OF DEBTOR'S EQUIPMENT, MACHINERY, FURNITURE
AND GENERAL INTANGIBLES PER SECURITY AGREEMENT DATED MAY 2, 1996.
PURPOSE: The purpose of this loan is BUSINESS: SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING
MOVING/IMPROVEMENTS TO OFFICE EXPENSES. THOSE ON PAGE 2). I have received a copy on today's date.
GROUP LONG DISTANCE, INC.
Signature for Lender
BY: /s/ Gerald M. Dunne Jr.
X -------------------------------------------
---------------------------------------- GERALD M. DUNNE, JR., PRESIDENT
DEVON G. BORN, VICE PRESIDENT
-----------------------------------------------
- -----------------------------------------
-----------------------------------------------
(page 1 of 2)
</TABLE>
- --------------------------------------------------------------------------------
GROUP LONG DISTANCE, INC. GATEWAY AMERICAN BANK OF FLORIDA
- ---------------------------------------- 1451 N.W. 62ND STREET, SUITE 212
1451 W. CYPRESS CK. RD, STE. 200 FORT LAUDERDALE, FL 33309
- ----------------------------------------
FORT LAUDERDALE, FL 33309
- ----------------------------------------
- ----------------------------------------
TAXPAYER I.D. NUMBER: 65-0213198
- ----------------------------------------
DEBTOR'S NAME, ADDRESS AND SSN OR TIN SECURED PARTY'S NAME AND ADDRESS
("I" means each Debtor who signs.) ("You" means the Secured Party,
its successors and assigns.)
- --------------------------------------------------------------------------------
I am entering into this security agreement with you on MAY 2, 1996 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below that
(Check one) [ ] | [X] (name) GROUP LONG DISTANCE, INC. owe(s) to you now
or in the future:
(Check one below):
[_] Specific Debt(s). The debt(s), liability or obligations evidenced by
(describe):_________________________________________________________
and all extensions, renewals, refinancings, modifications and
replacements of the debt, liability or obligation.
[X] All Debt(s). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and obligation
of every type and description (whether such debt, liability or
obligation now exists or is incurred or created in the future and
whether it is or may be direct or indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several).
Security Interest. To secure the payment and performance of the above described
Secured Debts, liabilities and obligations, I give you a security interest
in all of the property described below that I now own and that I may own
in the future (including, but not limited to, all parts, accessories,
repairs, improvements, and accessions to the property), wherever the
property is or may be located, and all proceeds and products from the
property.
[X] Inventory: All inventory which I hold for ultimate sale or lease, or
which has been or will be supplied under contracts of service, or
which are raw materials, work in process, or materials used or
consumed in my business.
[X] Equipment: All equipment including, but not limited to, all
machinery, vehicles, furniture, fixtures., manufacturing equipment,
farm machinery and equipment, shop equipment, office and
recordkeeping equipment, and parts and tools. All equipment
described in a list or schedule which I give to you will also be
included in the secured property, but such a list is not necessary
for a valid security interest in my equipment.
[_] Farm Products: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with their
products, produce and replacements;
(b) all crops, annual or perennial, and all products of the crops;
and
(c) all feed, seed, fertilizer, medicines and other supplies used
or produced in my farming operations.
[_] Accounts, Instruments, Documents, Chattel Paper and Other Rights to
Payment: All rights I have now and that I may have in the future to
the payment of money including, but not limited to:
(a) payment for goods and other property sold or leased or for
services rendered, whether or not I have earned such payment
by performance; and
(b) rights to payment arising out of all present and future debt
instruments, chattel paper and loans and obligations
receivable. The above include any rights and interests
(including all liens and security interests) which I may have
by law or agreement against any account debtor or obligor of
mine.
[X] General Intangibles: All general intangibles, including but not
limited to, tax refunds, applications for patents, patents,
copyrights, trademarks, trade secrets, good will, trade names,
customer lists, permits and franchises, and the right to use my
name.
[_] Government Payments and Programs: All payments, accounts, general
intangibles, or other benefits (including, but not limited to,
payments in kind, deficiency payments, letters of entitlement,
warehouse receipts, storage payments, emergency assistance payments,
diversion payments, and conservation reserve payments) in which I
now have and in the future may have any rights or interest and which
arise under or as a result of any preexisting, current or future
Federal or state governmental program (including, but not limited
to, all programs administered by the Commodity Credit Corporation
and the ASCS).
[X] The secured property includes, but is not limited by, the following:
ALL OF THE DEBTOR'S EQUIPMENT, MACHINERY, FURNITURE AND GENERAL
INTANGIBLES TOGETHER WITH ALL PARTS, ATTACHMENTS, EQUIPMENT,
ACCESSORIES, AND ACCESSIONS WHENEVER ACQUIRED BY WAY OF REPLACEMENT,
SUBSTITUTION, ADDITION, PURCHASE, OR OTHERWISE, AS WELL AS PROCEEDS
AND WHATEVER IS RECEIVED WHEN COLLATERAL OR PROCEEDS IS SOLD,
EXCHANGED OR OTHERWISE DISPOSED OF.
If this agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description is:
- --------------------------------------------------------------------------------
I am a(n) [_] individual [_] partnership [X] corporation
[_] __________________________________________________________________
[_] If checked, file this agreement in the real estate records.
Record Owner (if not me):_______________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The property will be used for [_] personal [X] business
[_] agricultural [_] _________________ reasons.
GATEWAY AMERICAN BANK OF FLORIDA
- --------------------------------
(Secured Party's Name)
By:_____________________________
DEVON G. BORN
Title: VICE PRESIDENT
----------------------
I AGREE TO THE TERMS SET OUT ON BOTH PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I have
received a copy of this document on today's date.
GROUP LONG DISTANCE, INC.
- --------------------------------
(Debtor's Name)
By: /s/ Gerald M. Dunne, Jr.
-----------------------------
GERALD M. DUNNE, JR.
Title: PRESIDENT
By:_____________________________
Title:__________________________
(page 1 of 2)
<PAGE>
GENERALLY - "You" means the Secured Party identified on page 1 of this
agreement. "I," "me" and "my" means each person who signs this security
agreement as Debtor and who agrees to give the property described in this
agreement as security for the Secured Debts. All terms and duties under this
agreement are joint and individual. No modification of this security agreement
is effective unless made in writing and signed by you and me. This security
agreement remains in effect, even if the note is paid and I owe no other debt to
you, until discharged in writing. Time is of the essence in this agreement.
APPLICABLE LAW - I agree that this security agreement will be governed by the
law of the state in which you are located. If property described in this
agreement is located in another state, this agreement may also, in some
circumstances, be governed by the law of the state in which the property is
located.
To the extent permitted by law, the terms of this agreement may vary
applicable law. If any provision of applicable law may not be varied by
agreement, any provision of this agreement that does not comply with that law
will not be effective. If any provision of this agreement cannot be enforced
according to its terms, this fact will not affect the enforceability of the
remainder of this agreement.
OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent that I own all of the
property, or to the extent this is a purchase money security interest I will
acquire ownership of the property with the proceeds of the loan. I will defend
it against any other claim. Your claim to the property is ahead of the claims of
any other creditor. I agree to do whatever you require to protect your security
interest and to keep your claim in the property ahead of the claims of other
creditors I will not do anything to harm your position.
I will keep books, records and accounts about the property and my business
in general. I will let you examine these records at any reasonable time. I will
prepare any report or accounting you request, which deals with the property.
I will keep the property in my possession and will keep it in good repair
and use it only for the purpose(s) described on page 1 of this agreement. I will
not change this specified use without your express written permission. I
represent that I am the original owner of the property and, if I am not, that I
have provided you with a list of prior owners of the property.
I will keep the property at my address listed on page 1 of this agreement,
unless we agree I may keep it at another location. If the property is to be used
in another state, I will give you a list of those states. I will not try to sell
the property unless it is inventory or I receive your written permission to do
so. If I sell the property I will have the payment made payable to the order of
you and me.
You may demand immediate payment of the debt(s) if the debtor is not a
natural person and without your prior written consent (1) a beneficial interest
in the debtor is sold or transferred or (2) there is a change in either the
identify or number of members of a partnership or (3) there is a change in
ownership of more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the property as they become due. You
have the right of reasonable access in order to inspect the property I will
immediately inform you of any loss or damage to the property.
LIMITATIONS - This agreement will not secure a debt described in the section
entitled "Secured Debts" on page 1:
1) If you fail to make any disclosure of the existence of this security
interest required by law for such other debt;
2) if this security interest is in my principal dwelling and you fail
to provide (to all persons entitled) any notice of right of
recission required by law for such other debt;
3) to the extent that this security interest is in "household goods"
and the other debt to be secured is a "consumer" loan (as those
terms are defined in applicable federal regulations governing unfair
and deceptive credit practices);
4) if this security interest is in margin stock subject to the
requirements of 12 C.F.R. Section 207 or 221 and you do not obtain a
statement of purpose if required under these regulations with
respect to that debt; or
5) if this security interest is unenforceable by law with respect to
that debt.
PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the
extent of a purchase money security interest arising under this security
agreement: (a) payments on any non-purchase money loan also secured by this
agreement will not be deemed to apply to the purchase money loan, and (b)
payments on the purchase money loan will be deemed to apply first to the
non-purchase money portion of the loan, if any, and then to the purchase money
obligations in the order in which the items of collateral were acquired or if
acquired at the same time, in the order selected by you. No security interest
will be terminated by application of this formula. "Purchase money loan" means
any loan the proceeds of which, in whole or in part, are used to acquire any
collateral securing the loan and all extensions, renewals, consolidations and
refinancings of such loan.
AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR - I agree to
pay you on demand any sums you advanced on my behalf including, but not limited
to, expenses incurred in collecting, insuring, conserving, or protecting the
property or in any inventories, audits, inspections or other examinations by you
in respect to the property. If I fail to pay such sums, you may do so for me,
adding the amount paid to the other amounts secured by this agreement. All such
sums will be due on demand and will bear interest at the highest rate provided
in any agreement, note or other instrument evidencing the Secured Debt(s) and
permitted by law at the time of the advance.
If I fail to perform any of my duties under this security agreement, or
any mortgage, deed of trust, lien or other security interest, you may without
notice to me perform the duties or cause them to be performed. I understand that
this authorization includes, but is not limited to, permission to: (1) prepare,
file, and sign my name to any necessary reports or accountings; (2) notify any
account debtor of your interest in this property and tell the account debtor to
make the payments to you or someone else you name, rather than me; (3) place on
any chattel paper a note indicating your interest in the property; (4) in my
name, demand, collect, receive and give a receipt for, compromise, settle, and
handle any suit or other proceedings involving the collateral; (5) take any
action you feel is necessary in order to realize on the collateral, including
performing any part of a contract or endorsing it in my name; and (6) make an
entry on my books and records showing the existence of the security agreement.
Your right to perform for me shall not create an obligation to perform and your
failure to perform will not preclude you from exercising any of your other
rights under the law or this security agreement.
INSURANCE - I agree to buy insurance on the property against the risks and for
the amounts you require and to furnish you continuing proof of coverage. I will
have the insurance company name you as loss payee on any such policy. you may
require added security if you agree that insurance proceeds may be used to
repair or replace the property. I will buy insurance from a firm licensed to do
business in the state where you are located. The firm will be reasonably
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name you
as loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will not
settle any account for less than its full value without your written permission.
I will collect all accounts until you tell me otherwise. I will keep the
proceeds from all the accounts and any goods which are returned to me or which I
take back in trust for you. I will not mix them with any other property of mine.
I will deliver them to you at your request. If you ask me to pay you the full
price on any returned items or items retaken by myself, I will do so.
If this agreement covers inventory, I will not dispose of it except in my
ordinary course of business at the fair market value for the property, or at a
minimum price established between you and me.
If this agreement covers farm products I will provide you, at your
request, a written list of the buyers, commission merchants or selling agents to
or through whom I may sell my farm products. In addition to those parties named
on this written list, I authorize you to notify at your sole discretion any
additional parties regarding your security interest in my farm products. I
remain subject to all applicable penalties for selling my farm products in
violation of my agreement with you and the Food Security act. In this paragraph
the terms farm products buyers, commission merchants and selling agents have the
meanings given to them in the Federal Food Security Act of 1985.
DEFAULT - I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) I change my name or assume an
additional name without first notifying you before making such a change; (9)
failure to plant, cultivate and harvest crops in due season; (10) if any loan
proceeds are used for a purpose that will contribute to excessive erosion of
highly erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES - If I am in default on this agreement, you have the following
remedies:
1) You may demand immediate payment of all I owe you under any
obligation secured by this agreement.
2) You may set off any obligation I have to you against any right I
have to the payment of money from you.
3) You may demand more security or new parties obligated to pay any
debt I owe you as a condition of giving up any other remedy.
4) You may make use of any remedy you have under state or federal law.
5) If I default by failing to pay taxes or other charges, you may pay
them (but you are not required to do so). If you do, I will repay to
you the amount you paid plus interest at the highest contract rate.
6) You may require me to gather the property and make it available to
you in a reasonable fashion.
7) You may repossess the property and sell it as provided by law. You
may repossess the property so long as the repossession does not
involve a breach of the peace or an illegal entry onto my property.
you may sell the property as provided by law. You may apply what you
receive from the sale of the property to: your expenses; your
reasonable attorneys' fees and legal expenses (where not prohibited
by law); any debt I owe you. If what you receive from the sale of
the property does not satisfy the debts, you may take me to court to
recover the difference (where permitted by law).
I agree that 10 days written notice sent to my address listed on
page 1 by first class mail will be reasonable notice to me under the
Uniform Commercial Code. If any items not otherwise subject to this
agreement are contained in the property when you take possession you
may hold these items for me at my risk and you will not be liable
for taking possession of them.
8) In some cases, you may keep the property to satisfy the debt. You
may enter upon and take possession of all or any part of my
property, so long as you do not breach the peace or illegally enter
onto the property, including lands, plants, buildings, machinery and
equipment as may be necessary to permit you to manufacture ,
produce, process, store or sell or complete the manufacture,
production, processing, storing or sale of any of the property and
to use and operate the property for the length of time you feel is
necessary to protect your interest, all without payment or
compensation to me.
By choosing any one or more of these remedies, you do not waive your right
to later use any other remedy. You do not waive a default if you choose not to
use any remedy, and, by electing not to use any remedy, you do not waive your
right to later consider the event a default and to immediately use any remedies
if it continues or occurs again.
FILING - A carbon, photographic or other reproduction of this security agreement
or the financing statement covering the property described in this agreement may
be used as a financing statement where allowed by law. Where permitted by law,
you may file a financing statement which does not contain my signature, covering
the property secured by this agreement.
CO-MAKERS - If more than one of us has signed this agreement, we are all
obligated equally under the agreement. You may sue any one of us or any of us
together if this agreement is violated. You do not have to tell me if any term
of the agreement has not been carried out. You may release any co-signer and I
will still be obligated under this agreement. You may release any of the
security and I will still be obligated under this agreement. Waiver by you of
any of your rights will not affect my duties under this agreement. Extending
this agreement or new obligations under this agreement, will not affect my duty
under the agreement.
(page 2 of 2)
<PAGE>
GUARANTY
FT. LAUDERDALE, FL
-------------------------
(City) (State)
MAY 2, 1996
-------------------------
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and to induce GATEWAY AMERICAN BANK OF FLORIDA, 1451
N.W. 62ND STREET, SUITE 212 (herein, with its participants, successors and
assigns, called "Lender"), at its option, at any time or from time to time make
loans or extend other accommodations to or for the account of GROUP LONG
DISTANCE, INC. (herein called "Borrower") or to engage in any other transactions
with Borrower, the Undersigned hereby absolutely and unconditionally guarantees
to Lender the full and prompt payment when due, whether at maturity or earlier
by reason of acceleration or otherwise, of the debts, liabilities and
obligations described as follows:
A. If this [_] is checked, the Undersigned guarantees to Lender the
payment and performance of the debt, liability or obligation of
Borrower to Lender evidenced by or arising out of the
following:_____________________________ and any extensions, renewals
or replacements thereof (hereinafter referred to as the
"Indebtedness").
B. If this [X] is checked, the Undersigned guarantees to Lender the
payment and performance of each and every debt, liability and
obligation of every type and description which Borrower may now or
at any time hereafter owe to Lender (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and
whether it is or may be direct or indirect, due to become due,
absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several, or joint and several; all such
debts, liabilities and obligations being hereinafter collectively
referred to as the "Indebtedness"). Without limitation, this
guaranty includes the following described debt(s): LOAN #0111109465
AND ANY EXTENSIONS, RENEWALS OR REPLACEMENTS THEREOF.
The term "indebtedness" as used in this guaranty shall not include any
obligations entered into between Borrower and Lender after the date hereof
(including any extensions, renewals or replacements of such obligations)
for which Borrower meets the Lender's standard of creditworthiness based
on Borrower's own assets and income without the addition of a guaranty, or
for which a guaranty is required but Borrower chooses someone other than
the joint Undersigned to guaranty the obligation.
The Undersigned further acknowledges and agrees with Lender that:
1. No act or thing need occur to establish the liability of the
Undersigned hereunder, and no act or thing, except full payment and discharge of
all indebtedness, shall in any way exonerate the Undersigned or modify, reduce,
limit or release the liability of the Undersigned hereunder.
2. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Undersigned, whether or not all Indebtedness is paid in full, until this
guaranty is revoked by written notice actually received by the Lender, and such
revocation shall not be effective as to Indebtedness existing or committed for
at the time of actual receipt of such notice by the Lender, or as to any
renewals, extensions and refinancings thereof. If there be more than one
Undersigned, such revocation shall be effective only as to the one so revoking.
The death or incompetence of the Undersigned shall not revoke this guaranty,
except upon actual receipt of written notice thereof by Lender and then only as
to the decedent or the incompetent and only prospectively, as to future
transactions, as herein set forth.
3. If the Undersigned shall be dissolved, shall die, or shall be or become
insolvent (however defined) or revoke this guaranty, then the Lender shall
have the right to declare immediately due and payable, and the Undersigned will
forthwith pay to the Lender, the full amount of all Indebtedness, whether due
and payable or unmatured. If the Undersigned voluntarily commences or there is
commenced involuntarily against the Undersigned a case under the United States
Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.
4. The liability of the Undersigned hereunder shall be limited to a
principal amount of $ UNLIMITED (if unlimited or if no amount is stated, the
Undersigned shall be liable for all Indebtedness, without any limitation as to
amount), plus accrued interest thereon and all attorneys' fees, collection costs
and enforcement expenses referable thereto. Indebtedness may be created and
continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the Undersigned hereunder. The
Lender may apply any sums received by or available to Lender on account of the
Indebtedness from Borrower or any other person (except the Undersigned), from
their properties, out of any collateral security or from any other source to
payment of the excess. Such application of receipts shall not reduce, affect or
impair the liability of the Undersigned hereunder. If the liability of the
Undersigned is limited to a stated amount pursuant to this paragraph 4, any
payment made by the Undersigned under this guaranty shall be effective to reduce
or discharge such liability only if accompanied by a written transmittal
document, received by the Lender, advising the Lender that such payment is made
under this guaranty for such purpose.
5. The Undersigned will pay or reimburse the Lender for all costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred by
Lender in connection with the protection, defense or enforcement of this
guaranty in any litigation or bankruptcy or insolvency proceedings.
This guaranty includes the additional provisions on page 2, all of which are
made a part hereof.
This guaranty is [X] unsecured; [_] secured by a mortgage or security
agreement dated __________________; [_] secured by ____________________________.
IN WITNESS WHEREOF, this guaranty has been duly executed by the
Undersigned the day and year first above written.
X /s/ Gerald M. Dunne, Jr.
---------------------------------------
GERALD M. DUNNE, JR.
_______________________________________
_______________________________________
_______________________________________
"Undersigned" shall refer to all persons
who sign this guaranty, severally and
jointly.
(page 1 of 2)
<PAGE>
ADDITIONAL PROVISIONS
6. Whether or not any existing relationship between the Undersigned and
Borrower has been changed or ended and whether or not this guaranty has been
revoked, Lender may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the Undersigned and without any notice to the Undersigned. The
liability of the Undersigned shall not be affected or impaired by any of the
following acts of things (which Lender is expressly authorized to do, omit or
suffer from time to time, both before and after revocation of this guaranty,
without notice to or approval by the Undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver, adjustment, forbearance, compromise or
indulgence granted to Borrower, any delay or lack of diligence in the
enforcement of Indebtedness, or any failure to institute proceedings, file a
claim, give any required notices or otherwise protect any Indebtedness; (iv) any
full or partial release of settlement with, or agreement not to sue, Borrower or
any other guarantor or other person liable in respect of any Indebtedness; (v)
any discharge of any evidence of Indebtedness or the acceptance of any
instrument in renewal thereof or substitution therefor; (vi) any failure to
obtain collateral security (including rights of setoff) for Indebtedness, or to
see to the proper or sufficient creation and perfection thereof, or to establish
the priority thereof, or to protect, insure, or enforce any collateral security;
or any release, modification, substitution, discharge, impairment,
deterioration, waste, or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any
Indebtedness or any evidence thereof; (ix) any order of application of any
payments or credits upon Indebtedness; (x) any election by the Lender under ss.
1111(b)(2) of the United States Bankruptcy Code.
7. The Undersigned waives any and all defenses, claims and discharges of
Borrower, or any other obligor, pertaining to Indebtedness, except the defense
of discharge by payment in full. Without limiting the generality of the
foregoing, the Undersigned will not assert, plead or enforce against Lender any
defense of waiver, release, statute of limitations, res judicata, statute of
frauds, fraud, incapacity, minority, usury, illegality or unenforceability which
may be available to Borrower or any other person liable in respect of any
indebtedness, or any setoff available against Lender to Borrower or any such
other person, whether or not on account of a related transaction. The
Undersigned expressly agrees that the Undersigned shall be and remain liable, to
the fullest extent permitted by applicable law, for any deficiency remaining
after foreclosure of any mortgage or security interest securing Indebtedness,
whether or not the liability of Borrower or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The
undersigned shall remain obligated, to the fullest extent permitted by law, to
pay such amounts as though the Borrower's obligations had not been discharged.
8. The Undersigned further agrees that the Undersigned shall be and remain
obligated to pay Indebtedness even though any other person obligated to pay
Indebtedness, including Borrower, has such obligation discharged in bankruptcy
or otherwise discharged by law. "Indebtedness" shall include post-bankruptcy
petition interest and attorneys' fees and any other amounts which Borrower is
discharged from paying or which do not otherwise accrue to Indebtedness due to
Borrower's discharge, and the Undersigned shall remain obligated to pay such
amounts as though Borrower's obligations had not been discharged.
9. If any payment applied by Lender to indebtedness is thereafter set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.
10. The Undersigned waives any claim, remedy or other right which the
Undersigned may now have or hereafter acquire against Borrower or any other
person obligated to pay Indebtedness arising out of the creation or performance
of the Undersigned's obligation under this guaranty, including, without
limitation, any right of subrogation, contribution, reimbursement,
indemnification, exoneration, and any right to participate in any claim or
remedy the Undersigned may have against the Borrower, collateral, or other party
obligated for Borrower's debts, whether or not such claim, remedy or right
arises in equity, or under contract, statute or common law.
11. The Undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
Lender shall not be required first to resort for payment of the Indebtedness to
Borrower or other persons or their properties, or first to enforce, realize upon
or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.
12. The liability of the Undersigned under this guaranty is in addition to
and shall be cumulative with all other liabilities of the Undersigned to Lender
as guarantor or otherwise, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. This guaranty shall be enforceable against each person signing this
guaranty, even if one person signs and regardless of any failure of other
persons to sign this guaranty. If there be more than one signer, all agreements
and promises herein shall be construed to be, and are hereby declared to be,
joint and several in each of every particular and shall be fully binding upon
and enforceable against either, any or all the Undersigned. This guaranty shall
be effective upon delivery to Lender, without further act, condition or
acceptance by Lender, shall be binding upon the Undersigned and the heirs,
representatives, successors and assigns of the Undersigned and shall inure to
the benefit of Lender and its participants, successors and assigns. Any
invalidity or unenforceability of any provision or application of this guaranty
shall not affect other lawful provisions and application hereof, and to this end
the provisions of this guaranty are declared to be severable. Except as
authorized by the terms herein, this guaranty may not be waived, modified,
amended, terminated, released or otherwise changed except by a writing signed by
the Undersigned and Lender. This guaranty shall be governed by the laws of the
State in which it is executed. The Undersigned waives notice of Lender's
acceptance hereof.
(page 2 of 2)
<PAGE>
PROMISSORY NOTE
$566,916.66 June 6, 1996
FOR VALUE RECEIVED, the undersigned, GROUP LONG DISTANCE, INC., (the
"Maker"), whose chief executive office and principal place of business is
located at 1451 West Cypress Creek Road, Suite 200, Fort Lauderdale, FL 33309, a
Florida corporation, hereby promises to pay to the order of WORLDCOM, INC. fka
LDDS COMMUNICATIONS, INC., a Georgia corporation, (the "Holder"), at its offices
at One Williams Center, F-18, Tulsa, Oklahoma 74172, Attention: Mr. Robert S.
Vetera, or at such other place as the Holder may from time to time designate,
the principal sum of ($566,916.66), together with interest on such sum from the
date hereof, payable as follows:
(i) Interest shall accrue on the unpaid principal balance hereof from the
date of this Note until paid in full at a rate equal to fifteen
percent (15%) per annum. Provided however, the Maker shall have the
right to prepay the whole or any part of the principal sum hereof at
any time without premium or penalty. No partial prepayment shall
affect the Maker's obligation to continue to pay the regular
installments required hereunder. In the event that Maker pays the
principal balance in full, prior to the Note's maturity date, Holder
hereby agrees to charge interest at the rate of seven and one-half
percent (7.5%) from the last payment date through the date of the
principal payoff. If the Maker fails to pay to the Holder any amounts
owing to the Holder under this Note as of the due date, interest
("Post-Default Interest") on all the outstanding unpaid amounts under
this Note shall accrue at a rate equal to eighteen percent (18%) per
annum from the original due date of such amount until all such amounts
have been paid in full and shall be payable on demand.
(ii) Principal and interest (other than reduced interest-only payment after
principal prepayment or Post-Default Interest) shall be payable in
accordance with the Note Amortization Schedule, attached hereto and
made a part hereof.
If the Maker fails to pay to the Holder when due any amounts owing to the
Holder under this Note, or breaches any other terms of this Note or any other
agreement with Holder (an "Event of Default"), the Holder may declare, by
written notice, the entire principal amount then unpaid, together with all
accrued interest, due and payable at or within five (5) days from the date of
written notice. If an Event of Default occurs and this Note is placed in the
hands of an attorney for
Page 1
<PAGE>
collection, or suit is filed hereon, or proceedings are had in bankruptcy,
receivership, reorganization, or other judicial proceedings for the
establishment or collection of any amount called for hereunder, or any amount
payable or to be payable hereunder is collected through any such proceedings,
the Maker agrees to pay reasonable attorneys' and collection fees to the Holder.
Except as otherwise provided herein, Maker hereby waives presentment,
demand, protest and notice of dishonor. Failure by the Holder to exercise any of
the rights or remedies set forth herein shall not constitute a waiver of the
right to exercise the same or any other right of remedy at any subsequent time
in respect to the same or any other event. The acceptance by the Holder of any
payment hereunder that is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of the right
to exercise any of the foregoing rights or remedies at that time or at any
subsequent time, or nullify any prior exercise of any such right or remedy
without the express written consent of the Holder.
All amounts payable hereunder are payable in lawful money of the United
States of America.
It is expressly stipulated and agreed to be the intent of the Maker and the
Holder to at all times comply with the applicable law now or hereafter governing
the interest payable on this Note or the indebtedness evidenced hereby. If the
applicable law as it is now or as it may be revised, repealed or judicially
interpreted so as to render usurious any amount called for under this Note, or
contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note, or if the Holder's exercise of the option
herein contained to accelerate the maturity of this Note or if any prepayment by
the Maker results in the Maker having paid any interest in excess of that
permitted by applicable law, then it is the Maker's and the Holder's express
intent that all excess amounts theretofore collected by the Holder be credited
on the principal balance of this Note (or, if this Note has been paid in full,
refunded to the Maker), and the provisions of this Note shall immediately be
deemed reformed and the amounts thereafter collectible hereunder reduced,
without the necessity of the execution of any new document, so as to comply with
the then applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder.
All notices and other communications required or permitted to be made
between the parties hereto shall be made in writing and will be deemed delivered
when received by messenger, telex, telecopier or mail at the following address
or such other address as any party may hereafter designate for itself by written
notice to the other party in the manner herein described.
Page 2
<PAGE>
Addresses for Notice and Communications are:
If to Holder:
Robert S. Vetera, Corporate Director of Credit
WorldCom, Inc.
One Williams Center F-18
Tulsa, OK 74172
If to Maker:
Gerald M. Dunne, Jr., President
Group Long Distance, Inc.
1451 West Cypress Creek Road, Suite 200
Fort Lauderdale, FL 33309
THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH OKLAHOMA LAW
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
The terms of this Note shall be binding upon and inure to the benefit of
the successors and assigns of the Maker and the Holder.
EXECUTED as of the date and year first above written.
Group Long Distance, Inc.
BY: /s/ Gerald M. Dunne, Jr.
----------------------------------
Gerald M. Dunne, Jr.
President
Page 3
<PAGE>
NOTE AMORTIZATION SCHEDULE
(360-Day Year)
DEBTOR: Group Long Distance, Inc.
CREDITOR: WorldCom Inc., FKA LDDS Communications Inc.
DATE: 06-Jun-96
PRINCIPAL: $566,916.66
INT RATE: 15.00%
MONTHS: 12
PAYMENT: 51,168.94**
<TABLE>
Payment Payment Beginning Principal Total Ending
Number Due Date Balance Interest Reduction Payment Balance
------ -------- ------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1 06-Jun-96 $ 566,916.66 $ 7,086.46 $ 44,082.48 $ 51,168.94 $ 522,834.18
2 06-Aug-96 $ 522,834.18 $ 6,535.43 $ 44,633.51 $ 51,168.94 $ 478,200.67
3 06-Sep-96 $ 478,200.67 $ 5,977.51 $ 45,191.43 $ 51,168.94 $ 433,009.24
4 06-Oct-96 $ 433,009.24 $ 5,412.62 $ 45,756.32 $ 51,168.94 $ 387,252.91
5 06-Nov-96 $ 387,252.91 $ 4,840.66 $ 46,328.28 $ 51,168.94 $ 340,924.63
6 06-Dec-96 $ 340,924.63 $ 4,261.56 $ 46,907.38 $ 51,168.94 $ 294,017.25
7 06-Jan-97 $ 294,017.25 $ 3,675.22 $ 47,493.72 $ 51,168.94 $ 246,523.53
8 06-Feb-97 $ 246,523.53 $ 3,081.54 $ 48,087.40 $ 51,168.94 $ 198,436.13
9 06-Mar-97 $ 198,436.13 $ 2,480.45 $ 48,688.49 $ 51,168.94 $ 149,747.64
10 06-Apr-97 $ 149,747.64 $ 1,871.85 $ 49,297.09 $ 51,168.94 $ 100,450.55
11 06-May-97 $ 100,450.55 $ 1,255.63 $ 49,913.31 $ 51,168.94 $ 50,537.24
12 06-Jun-97 $ 50,537.24 $ 631.72 $ 50,537.24 $ 51,168.96 $ (0.00)
----------------------------------------
Totals $47,110.63 $566,916.66 $614,027.29
========================================
</TABLE>
** Note: Final Payment is $51,168.96
Group Long Distance, Inc.
By: /s/ Gerald M. Dunne, Jr.
------------------------------
Its: President
<PAGE>
SECURITY AGREEMENT
GROUP LONG DISTANCE, INC., a Florida corporation, with its principal office
at 1451 West Cypress Creek Road, Suite 200, Fort Lauderdale, FL 33309, (the
"Debtor"), and WORLDCOM, INC. fka LDDS COMMUNICATIONS, INC., ("WorldCom"), a
Georgia corporation, with its principal office at One Williams Center, Tulsa,
Oklahoma 74172 ("Secured Party"), agree as follows:
SECTION 1. CREATION OF SECURITY INTEREST
Debtor hereby grants to Secured Party a security interest in the property
described in Section 2 of this Agreement (the "Collateral") to secure
performance and payment of (i) that certain Promissory Note in the original
principal amount of $566,916.66 dated June 6, 1996, executed by Debtor and
payable to the order of Secured Party (the "Note"), bearing interest being
payable in the manner provided therein; (ii) all renewals, extensions and
modifications of the Note; (iii) all monies due and owing under the LDDS
Metromedia Communications Service Agreement, dated February 28, 1994, between
LDDS Communications, Inc. and Group Long Distance, Inc., and (iv) all other
obligations and indebtedness of Debtor ro Secured Party of whatever kind and
however created, whether presently existing or hereafter arising. All of the
foregoing obligations and indebtedness described in this Section 1 shall
hereinafter be referred to as the "Secured Indebtedness", and the Note and all
other documents evidencing or giving rise to the Secured Indebtedness shall
hereinafter be referred to collectively as the "Security Instruments."
SECTION 2. COLLATERAL
All of the Debtor's following property, wherever located, and whether now
owned or hereafter acquired or created, associated with Secured Party's
provision of services under the LDDS METROMEDIA COMMUNICATIONS SERVICE AGREEMENT
dated February 28, 1994 referenced within the Security Agreement between Debtor
and Secured Party, and any amendments, extensions, renewals or replacements
thereof:
(a) Accounts, accounts receivable, reimbursements, notes, contracts,
contract rights, chattel paper, cash, checks, drafts, documents, instruments,
all rights of Debtor to receive payment in money or kind, and other evidence of
indebtedness owed to Debtor;
(b) Customer lists, all documents containing the names, addresses,
telephone numbers, and other information regarding the Debtor's customers,
subscribers, tapes, programs, printouts, disks, and other material and documents
relating to the recording, billing or analyzing of any of the foregoing, and any
other right to payment;
(c) Any and all contract and lease rights, including network contracts,
customer contracts for the furnishing by Debtor of telecommunications services,
and billing and collection contracts, whether evidenced by a document or
otherwise;
(d) All telephone accounts and accounts receivable arising from
telecommunication services rendered to an end user prior to the sale,
assignment, or transfer of such account
Page 1
<PAGE>
(collectively, the "End User Accounts") to a regional Bell operating company, a
Bell operating company, local exchange company; credit card company or provider
of local telephone services (each a "LEC") for billing and collection; and
rights in and to any of the telephone receivables, debts, and other amounts
payable to the Debtor by any LEC, and all cash and non-cash proceeds of the
foregoing;
(e) All records and documents relating to any and all of the foregoing
including, without limitation, records of accounts whether in the form of
writing, microfilm, microfiche, tape, or electronic media; and
(f) All products and proceeds (cash and non-cash) of all of the foregoing,
and increases, accessions, renewals, replacements and substitutions of all of
the foregoing.
The inclusion of proceeds in this Agreement does not authorize Debtor to sell,
dispose of or otherwise use the Collateral in any manner not specifically
authorized by this Agreement.
SECTION 3: DEBTOR'S REPRESENTATIONS AND WARRANTIES
Debtor hereby represents and warrants to Secured Party as follows:
3.1 Clear Tide To Collateral. Debtor is the sole owner of the Collateral,
having good and marketable title thereto, free and clear of any and all liens,
encumbrances, claims, or rights of others created by any acts or omissions of
Debtor, except for the security interest granted to Secured Party.
3.2 First Priority Lien. This Agreement constitutes a valid and continuing
lien on and security interest in the Collateral in favor of Secured Parry, prior
to all other liens, encumbrances, security interests and rights of others
arising from any acts or omissions of Debtor, and is enforceable as such as
against creditors of and purchasers from Debtor.
SECTION 4. EVENTS OF DEFAULT
The following events are Events of Default:
4.1 Failure to Pay. The Debtor does not pay when due any amount due under
any of the Security Instruments or the Debtor otherwise breaches the provisions
thereof, and the Debtor fails to cure such nonpayment or other breach within any
cure period provided thereunder.
4.2 Limitations Regarding Collateral. The Debtor sells, transfers, leases
or otherwise disposes of any of the Collateral, or attempts, offers or contracts
to do so, or Debtor creates, permits or suffers to exist any lien, security
interest, encumbrance, claim or right in or to the Collateral other than those
in favor of Secured Party (the "Other Encumbrances"). Debtor will, at Debtor's
sole expense, defend the Collateral against and take such other action as is
necessary to remove such Other Encumbrances and defend the right, title and
interest of Secured Party in and to any of Debtor's rights to the Collateral,
including without limitation any proceeds and products thereof, against the
claims and demands of all persons.
Page 2
<PAGE>
4.3 Misrepresentation. Any representation or warranty made by the Debtor
herein or in any of the Security Instruments proves to have been untrue in any
material respect, or any representation, statement (including Financial
Statements), certificate or data furnished or made by the Debtor (or any
officer, accountant or attorney of the Debtor) hereunder or under any of the
Security Instruments proves to have been untrue in any material respect, as of
the date as of which the facts therein set forth were stated or certified.
4.4 Impairment of Collateral. Secured Party, in good faith, considers any
Collateral to be unsafe or in such danger of misuse that Secured Party's
prospect of or right to payment or performance under this Agreement or any
instrument or agreement required hereunder or under any other agreement between
Secured Party and Debtor is materially impaired.
4.5 Cross Default. The Debtor breaches, defaults, or commits an event of
default under any other agreement, document or instrument between Secured Party
and Debtor and Debtor fails to cure such breach, default or event of default
within any cure period provided thereunder.
4.6 Change of Name or Chief Executive Office. Debtor changes its name, or
its Chief Executive Office, or changes its corporate structure in any way that
would make filed financing statements misleading without giving Secured Party at
least thirty (30) days advance written notice of such change or move, and
ensuring that any steps necessary to continue the perfection and priority of
Secured Party's security interest in the Collateral shall have been taken, all
at Debtor's expense.
4.7 Opportunity to Cure. Any Event of Default described in Section 4.2 and
4.4 may be cured within five (5) calendar days after notice by Secured Party,
which notice to Debtor must be written.
SECTION 5. SECURED PARTY'S RIGHTS
5.1 Rights of Secured Party Upon Default. If there is an Event of Default
which the Debtor fails to cure within any applicable cure period, the Secured
Party may, at its option and at any time thereafter:
(a) Declare the entire aggregate amount of the Secured Indebtedness then
outstanding and the interest and other fees and expenses accrued thereon,
and all other obligations of Debtor to Secured Party to be immediately due
and payable without notice and without presentment, demand, protest, notice
of protest, or other notice of default or dishonor of any kind, all of
which are hereby expressly waived by the Debtor; (b) require Debtor to
assemble the Collateral, including any books and records pertaining to the
Collateral, and make them available to Secured Party at a place designated
by Secured Party; (c) notify any account debtor, any buyers of the
Collateral, and any other person of Secured Party's interest in the
Collateral; (d) request confirmation from any account debtor of the status
of the account upon which the account debtor is obligated; (e) without
prior notice to Debtor, demand and collect any payments and proceeds of the
accounts directly from the account
Page 3
<PAGE>
debtors; (f) require Debtor to obtain Secured Party's prior written consent
to any sale, agreement to sell, or other disposition of any Collateral; (g)
remedy any default or waive any default without waiving the default
remedies and without waiving any other prior or subsequent default; (h)
take such measures as Secured Party may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, collect on,
prepare for sale or lease, market for sale or lease, sell or lease, or
otherwise dispose of any Collateral; (i) endorse or sign the name of Debtor
on all checks, drafts, collections, receipts and other documents, and take
possession of and open the mail addressed to Debtor and remove therefrom
any payments and proceeds of the Collateral; (j) use or transfer, without
any additional consideration to Debtor, any of Debtor's rights and
interests in any intellectual property, including but not limited to
patents, now owned or hereafter acquired by Debtor, if Secured Party deems
such use or transfer necessary or advisable in order to take possession of,
hold, preserve, process, assemble, prepare for sale or lease, market for
sale or lease, or otherwise dispose of. any Collateral; and (k) have a
receiver appointed by any court of competent jurisdiction to take
possession of and protect the value of the Collateral.
Debtor hereby constitutes and appoints Secured Party as Debtor's
attorney-in-fact to perform all acts and execute all documents in connection
with the remedies described in this Agreement. This power of attorney is coupled
with an interest and shall be irrevocable.
5.2 Further Documentation; Pledge of Instruments. At any time and from time
to time, upon the written request of Secured Party, and at the sole expense of
Debtor, Debtor promptly and duly shall execute, deliver and record any
documents, instruments, agreements and amendments, and take all such further
action as Secured Party may reasonably deem desirable in obtaining the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing statements or
amendments under the applicable Uniform Commercial Code. Debtor also hereby
authorizes Secured Party to file any such financing statement or amendment
thereto, without the signature of Debtor, or with a copy or telecopy of Debtor's
signature, to the extent permitted by applicable law, or to execute any
financing statement or amendment thereof on behalf of Debtor as Debtor's
attorney-in-fact.
5.3 Rights Under Uniform Commercial Code. Without limiting any of Secured
Party's rights and remedies under this Agreement, Secured Party may enforce the
security interests and other liens given hereunder, and under all Security
Instruments and documents referred to herein, pursuant to the applicable Uniform
Commercial Code and any other applicable law including all legal and equitable
remedies available to lenders generally.
5.4 Payments of Taxes and Insurance. If Debtor falls to pay any taxes,
assessments, insurance premiums, or other amounts due to third parties as
required by Debtor on the Collateral, Secured Party may in its discretion, and
without prior notice to Debtor make any such payment. Any payments made by
Secured Party under this paragraph shall not constitute (i) an agreement by
Secured Party to make similar payments in the future, or (ii) a waiver by
Secured Party of any Event of Default under this Agreement. Secured Party need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the
Page 4
<PAGE>
notice for the payment thereof shall be conclusive evidence that the same was
validly due and owing. Debtor agrees to pay Secured Party, on demand, each
payment made by Secured Party under this paragraph together with a late fee, if
any, provided in the Service Agreement.
5.5 Rights and Remedies are Cumulative. All rights and remedies provided
herein are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights or remedies otherwise provided by law. Any single or
partial exercise of any right or remedy shall not preclude the further exercise
thereof or the exercise of any other right or remedy.
5.6 Self-Help Remedies. SECURED PARTY MAY ENFORCE ITS RIGHTS UNDER THIS
AGREEMENT WITHOUT RESORT TO PRIOR JUDICIAL PROCESS OR JUDICIAL HEARING, AND
DEBTOR EXPRESSLY WAIVES, RENOUNCES, AND KNOWINGLY RELINQUISHES ANY LEGAL RIGHT
WHICH MIGHT OTHERWISE REQUIRE SECURED PARTY TO ENFORCE ITS RIGHTS BY JUDICIAL
PROCESS. NOTHING IN THIS AGREEMENT IS INTENDED TO PREVENT DEBTOR OR SECURED
PARTY FROM RESORTING TO JUDICIAL PROCESS AT SUCH PARTY'S OPTION.
5.7 Sale or Disposition of Collateral. Without limiting the generality of
the foregoing, if there is an Event of Default which the Debtor fails to cure
within any applicable cure period, the Secured Party may, at its option and at
any time thereafter, without further demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place and public or private sale) to or upon Debtor or any other person (all
and each of which demands, advertisements and/or notices are hereby expressly
waived), may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange, broker's board or at any of
Secured Party's offices or elsewhere at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Secured Party shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of said Collateral so sold, free of any right or equity of
redemption in Debtor. To the extent permitted by applicable law, Debtor waives
all claims, damages, and demands against Secured Party arising out of the lawful
repossession, retention or sale of the Collateral in accordance with the terms
hereof.
5.8 Notice of Sale. Debtor agrees that Secured Party need not give more
than ten (10) days' notice of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters.
5.9 Application of Sale Proceeds. Secured Party shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care, safekeeping or otherwise of any or
all of the Collateral or in any way relating to the rights of Secured Party
hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the Secured Indebtedness to Debtor, in such order
as Secured Party may elect, Debtor remaining liable for any deficiency remaining
unpaid after such application and the reasonable fees of any attorneys employed
by Secured Party to collect such deficiency, and only after so applying such net
proceeds
Page 5
<PAGE>
and after the payment by Secured Party of any other amount required by any
provision of law, including Section 9-504(1) of the Uniform Commercial Code,
need Secured Party account for the surplus, if any, to Debtor.
5.10 Inspection of Records. Secured Party and any of its employees and
agents may enter upon Debtor's premises at any reasonable time to inspect
Debtor's books and records pertaining to the Collateral.
5.11 No Consequential Damages. SECURED PARTY SHALL NOT BE LIABLE FOR ANY
CONSEQUENTIAL, SPECIAL, INDIRECT OR INCIDENTAL DAMAGES IN CONNECTION WITH THIS
AGREEMENT OR THE COLLATERAL.
SECTION 6. ADDITIONAL PROVISIONS
6.1 Notices. Any communications between the parties hereto to be given in
writing shall be given by mailing the same, postage prepaid, or by telex, cable,
facsimile, overnight courier, or personal delivery, to each party their
addresses set forth below or to such other addresses as either party may in
writing hereafter indicate. Any communication shall be effective upon the
earlier of delivery or five (5) days after sending.
Addresses for Notices and Communications Are:
If to the Secured Party:
Robert S. Vetera, Corporate Director of Credit
WorldCom Network Services, Inc. fka WilTel, Inc.
One Williams Center, F-18
Tulsa, Oklahoma 74172
If to the Debtor:
Gerald M. Dunne, Jr., President
Group Long Distance, Inc.
1451 West Cypress Creek Road, Suite 200
Fort Lauderdale, FL 33309
or at such other address as any party may hereafter designate for itself by
written notice to the other party in the manner herein described.
6.2 No Waiver; Cumulative Remedies. Secured Party shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Secured Party. A waiver by Secured Party of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which
Secured Party would otherwise have had on any future occasion. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by law.
Page 6
<PAGE>
6.3 Successors and Assigns. All covenants and agreements herein contained
by or on behalf of the Debtor shall bind its successors and assigns and shall
inure to the benefit of the Secured Party and its successors and assigns,
Secured Party's rights under this Agreement or the indebtedness hereby secured
may be assigned from time to time, and in any such case the assignee shall be
entitled to all of the rights, privileges and remedies granted in this Agreement
to Secured Party. Debtor may not assign this Agreement or any instruments or
documents executed in connection herewith or any of the rights of Debtor
hereunder without the prior written consent of Secured Party.
6.4 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Oklahoma, without regard to the conflict of
law provisions.
6.5 Severability. In the event any one or more of the provisions contained
in this Agreement, the Security Instruments, or in any other instrument or
document referred to herein or executed in connection with or as security for
the Service Agreement. shall, for any reason, be held to be invalid, illegal or
unenforceable, such provision(s) shall not affect any other provision of this
Agreement, the Service Agreement, the Security Instruments, or any other
instrument or document referred to herein or executed in connection with or as
security for the Service Agreement.
6.6 Defined Terms. Unless otherwise defined in this Agreement, terms used
in this Agreement which are defined in the applicable Uniform Commercial Code
are used with the meanings as therein defined.
6.7 Entire Agreement. This Agreement and all instruments, agreements, and
documents attached hereto, referred to herein or executed in connection
herewith, integrate all the terms and conditions mentioned herein or incidental
hereto, constitute the entire agreement between the parties with respect to the
subject matter thereof, and supersede all prior discussions, negotiations and
communication whether oral or written. Neither Secured Party nor Debtor shall be
bound by any promises, representations, warranties, or affirmations not
contained in this Agreement.
6.8 Paragraph Headings. Paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provision of this Agreement.
6.9 Attorneys' Fees. In the event Secured Party retains the services of an
attorney to enforce any provision of the Service Agreement, this Agreement, or
any other obligation of Debtor to
Page 7
<PAGE>
Secured Party, Debtor agrees to pay reasonable attorneys' fees and other costs,
expenses, and disbursements incurred by Secured Party in connection therewith.
EXECUTED as of the 4 day of June, 1996.
Debtor:
GROUP LONG DISTANCE, INC.
BY: /s/ Gerald M. Dunne, Jr., President
-----------------------------------
Gerald M. Dunne, Jr. President
ATTEST:
BY: /s/ Andrea A. Morey
-------------------------------
PRINTED NAME: Andrea A. Morey
TITLE: SECRETARY
[CORPORATE SEAL]
Secured Party:
WORLDCOM, INC. fka LDDS
COMMUNICATIONS, INC.
BY:
-----------------------------------
Robert S. Vetera
Corporate Director of Credit
Page 8
<PAGE>
CONSENT TO ACTION
TAKEN BY THE
BOARD OF DIRECTORS OF
GROUP LONG DISTANCE, INC.
We, the undersigned, being all of the Directors of GROUP LONG DISTANCE,
INC., a Florida corporation, (the "Corporation"), DO HEREBY ADOPT AND GIVE OUR
UNANIMOUS WRITTEN CONSENT, pursuant to general corporation laws of such state,
to the following resolutions, which shall constitute the actions of the Board of
Directors of said Corporation for the purposes set out therein.
RESOLVED that the form, terms and provisions of the following agreements
and instruments (the "Agreements"), to be executed and delivered by the
Corporation to WORLDCOM, INC. fka LDDS COMMUNICATIONS, INC., copies of which
have been circulated with this Consent and ordered filed with the records of the
Corporation, be, and they hereby are, in all respects approved and ratified:
1. Security Agreement dated June ___, 1996;
2. UCC-1 Financing Statement; and,
3. Promissory Note dated June 6, 1996 in the amount of $566,916.66;
and that the President or any vice President of the Corporation shall be, and
each of them hereby is, authorized to execute and deliver, in the name of and on
behalf of the Corporation and under its corporate seal or otherwise, such
Agreements with such changes therein and modifications thereof as the officer
executing said agreements shall, by his execution thereof, approve.
RESOLVED that the proper officers of the Corporation be, and each of them
hereby is, authorized and directed, to execute, acknowledge and deliver any and
all other agreements, certificates, instruments and other documents on behalf of
the Corporation, and to do and perform any and all acts and things as may be
necessary or advisable, from time to time, in connection with the execution and
delivery of any of said Agreements or the implementation of any of them.
WITNESS our hands, as of the ____ day of June, 1996.
Name: [ILLEGIBLE] Name:
----------------------- -----------------------
Name: Name:
----------------------- -----------------------
Name: Name:
----------------------- -----------------------
<PAGE>
SECRETARY'S CERTIFICATE
GROUP LONG DISTANCE, INC.
I, the undersigned, Andrea A. Morey, Secretary of GROUP LONG DISTANCE,
INC., a Florida corporation, (hereinafter called the "Corporation"), do hereby
certify that pursuant to the general corporation laws of such state, the Board
of Directors of this Corporation unanimously consented as of this 4 day of June,
1996, to the following:
RESOLVED that the form, terms and provisions of the following agreements
and instruments (the "Agreements"), to be executed and delivered by the
Corporation to WORLDCOM, INC. fka LDDS COMMUNICATIONS, INC., copies of which
have been circulated to the Board of Directors, along with a Consent to Action,
a copy of which is attached hereto and made a part hereof, and ordered filed
with the records of the Corporation, be, and they hereby are, in all respects
approved and ratified:
1. Security Agreement dated June 4,1996;
2. UCC-1 Financing Statement; and,
3. Promissory Note dated June 6, 1996 in the amount of $566,916.66;
and that the President or any vice President of the Corporation shall be, and
each of them hereby is, authorized to execute and deliver, in the name of and on
behalf of the Corporation and under its corporate seal or otherwise, such
Agreements with such changes therein and modifications thereof as the officer
executing said Agreements shall, by his execution thereof, approve.
RESOLVED that the proper officers of the Corporation be, and each of them
hereby is, authorized and directed, to execute, acknowledge and deliver any and
all other agreements, certificates, instruments and other documents on behalf of
the Corporation, and to do and perform any and all acts and things as may be
necessary or advisable, from time to time, in connection with the execution and
delivery of any of said Agreements or the implementation of any of them.
I further certify that the foregoing resolutions have not been modified,
revoked or rescinded and are in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
Corporation as of this 4 day of June, 1996.
GROUP LONG DISTANCE, INC.
/s/ Andrea A. Morey
- -----------------------------
Secretary: Andrea A. Morey
(Printed Name)
[CORPORATE SEAL]
<PAGE>
<TABLE>
UNIFORM COMMERCIAL CODE FINANCING STATEMENT FORM UCC-1 (REV. 1993)
This Financing Statement is presented to a filing officer for filing pursuant to
the Uniform Commercial Code
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Debtor (Last Name First if an Individual) 1a. Date of Birth or FEI#
GROUP LONG DISTANCE, INC. 65-0213198
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1b. Mailing Address 1c. City, State 1d. Zip Code
1451 W CYPRESS CREEK ROAD, STE 200 FORT LAUDERDALE, FL 33309
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2. Additional Debtor or Trade Name (Last Name First if an Individual) 2a. Date of Birth or FEI#
- -------------------------------------------------------------------------------------------------------------------------
2b. Mailing Address 2c. City, State 2d. Zip Code
- -------------------------------------------------------------------------------------------------------------------------
3. Secured Party (Last Name First if an Individual)
WORLDCOM, INC. fka LDDS COMMUNICATIONS, INC.
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3a. Mailing Address 3b. City, State 3c. Zip Code
ONE WILLIAMS CENTER, F-18 TULSA, OK 74172
- -------------------------------------------------------------------------------------------------------------------------
4. Assignee of Secured Party (Last Name First if an Individual)
- -------------------------------------------------------------------------------------------------------------------------
4a. Mailing Address 4b. City, State 4c. Zip Code
- -------------------------------------------------------------------------------------------------------------------------
5. This Financing Statement covers the following types or items or property [Include description of real property on
which located and owner of record when required. If more space is required. attach additional sheet(s)].
SEE ATTACHMENT A
- -------------------------------------------------------------------------------------------------------------------------
6. Check only if Applicable: |X| Products of collateral are also covered. |X| Proceeds of collateral are also covered.
|_| Debtor is transmitting utility.
- -------------------------------------------------------------------------------------------------------------------------
7. Check appropriate box: |X| All documentary stamp taxes due and payable or to become due and payable pursuant to
(One box must be marked) s. 201.22F.S., have been paid.
|_| Florida Documentary Stamp Tax is not required.
- -------------------------------------------------------------------------------------------------------------------------
8. In accordance with s. 679.402(2), F.S., this statement is filed 9. Number of additional sheets presented: 1
without the Debtor's signature to perfect a security interest in
collateral: -----------------------------------------------
This Space for Use of Filing Officer
|_| already subject to a security interest in another jurisdiction
when it was brought into this state or debtor's location changed
to this state.
|_| which is proceeds of the original described above in which a
security interest was perfected.
|_| as to which the filing has lapsed. Date filed _______________ and
previous UCC-1 file number ________________________.
|_| acquired after a change of name, identify, or corporate structure
of the debtor.
- -----------------------------------------------------------------------
10. Signature(s) of Debtor(s)
GERALD M. DUNNE, JR., PRESIDENT
GROUP LONG DISTANCE, INC.
/s/ Gerald M. Dunne Jr.
- -----------------------------------------------------------------------
11. Signature(s) of Secured Party or if Assigned, by Assignee(s)
ROBERT S. VETERA, CORPORATE DIRECTOR OF CREDIT
WORLDCOM, INC. fka LDDS COMMUNICATIONS, INC.
- -----------------------------------------------------------------------
12. Return Copy to:
Name VICKI A. EKLUND
Address WORLDCOM, INC. F-18
Address ONE WILLIAMS CENTER
City, State, Zip TULSA, OK 74172
- -------------------------------------------------------------------------------------------------------------------------
FILING OFFICER COPY STANDARD FORM - FORM UCC-1 Approved by Secretary of State, State of Florida
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ATTACHMENT A TO FINANCING STATEMENT
FROM GROUP LONG DISTANCE, INC.
IN FAVOR OF
WORLDCOM, INC. fka LDDS COMMUNICATIONS, INC.
All of the Debtor's following property, wherever located, and whether now
owned or hereafter acquired or created, associated with Secured Party's
provision of services under the LDDS METROMEDIA COMMUNICATIONS SERVICE AGREEMENT
dated February 28, 1994 referenced within the Security Agreement between Debtor
and Secured Party, and any amendments, extensions, renewals or replacements
thereof:
(a) Accounts, accounts receivable, reimbursements, notes, contracts,
contract rights, chattel paper, cash, checks, drafts, documents, instruments,
all rights of Debtor to receive payment in money or kind, and other evidence of
indebtedness owed to Debtor;
(b) Customer lists, all documents containing the names, addresses,
telephone numbers, and other information regarding the Debtor's customers,
subscribers, tapes, programs, printouts, disks, and other material and documents
relating to the recording, billing or analyzing of any of the foregoing, and any
other right to payment;
(c) Any and all contract and lease rights, including network contracts,
customer contracts for the furnishing by Debtor of telecommunications services,
and billing and collection contracts, whether evidenced by a document or
otherwise;
(d) All telephone accounts and accounts receivable arising from
telecommunication services rendered to an end user prior to the sale,
assignment, or transfer of such account (collectively, the "End User Accounts")
to a regional Bell operating company, a Bell operating company, local exchange
company; credit card company or provider of local telephone services (each a
"LEC") for billing and collection; and rights in and to any of the telephone
receivables, debts, and other amounts payable to the Debtor by any LEC, and all
cash and non-cash proceeds of the foregoing;
(e) All records and documents relating to any and all of the foregoing
including, without limitation, records of accounts whether in the form of
writing, microfilm, microfiche, tape, or electronic media; and
(f) All products and proceeds (cash and non-cash) of all of the foregoing,
and increases, accessions, renewals, replacements and substitutions of all of
the foregoing.
<PAGE>
CONSENT AND AMENDMENT
This Consent and Amendment, dated as of December 2, 1996, between
Tel-Save, Inc., a Pennsylvania corporation ("TS"), and Group Long Distance,
Inc., a Florida corporation (the "Company").
WHEREAS, TS and the Company entered into that certain Agreement, dated
as of July 11, 1996 (the "Advance Agreement"), providing for certain advances
by TS to the Company and amending the terms of the GLD Partition Agreements
(herein, together with other capitalized terms used herein without other
definition, as defined in the Advance Agreement); and
WHEREAS, in connection with the Company's proposed underwritten public
offering (the "Public Offering") of shares of its common stock, the Company has
requested, and TS is prepared to agree to, certain amendments to, and waive
compliance with certain provisions of, the Advance Agreement and the GLD
Partition Agreements on the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the premises and mutual
agreements, provisions and covenants herein contained and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
A. The Advance Agreement and Stockholders Agreement
Subject to the conditions set forth in Section E, below, and the
other terms and conditions hereof:
1. The Advance Agreement is amended as follows, such amendments to be,
for all purposes, effective as of July 11, l996:
(a) The following definitions are added to Section 1 thereof, in
alphabetical order:
"Early Payment Date" shall mean January 31, 1997.
"New Date" shall mean the earlier of (i) the Public Offering Date and
(ii) the Early Payment Date.
"Public Offering" shall mean the registered public offering of
securities by the Company after the date hereof.
<PAGE>
"Public Offering Date" shall mean the date of the consummation by the
Company of the sale in the Public Offering.
(b) Section 2(d)(i) thereof is amended to add at the end thereof
in lieu of the period the following:
"; provided, however, that, on each Prepayment Date on or before
the New Date, the principal amount of the Advance that shall be
paid from the amount of the Monthly Payment since the next
preceding Prepayment Date shall equal the amount remaining, if
any, after the payments to TS referenced in clauses "first" and
"second" of Section 2(e) hereof."
(c) Section 2(d)(ii) thereof is amended to add at the end thereof
in lieu of the period the following:
"; provided, that, the provisions of this clause (ii) shall not
apply until the New Date."
(d) Section 2(d)(iii) thereof is amended to substitute for the
phrase "the ninetieth (90th) day after the date of this Agreement" the
phrase "December 31, 1996".
(e) Section 2(d)(iv) thereof is amended to add at the end thereof
in lieu of the period the following:
"; provided, further, however, that if the Public Offering Date
shall occur on or before the Early Payment Date, the principal
amount of the Advance that shall be due and payable on such
Public Offering Date by reason of the Public Offering shall be
$3,500,000 and the unpaid balance of the principal amount of
the Advance shall thereafter be due and payable over the
six-month period after the Public Offering Date, commencing on
the Prepayment Date next following the Public Offering Date, in
six equal monthly amounts on each Prepayment Date to and
including the sixth Prepayment Date after the Public Offering
Date."
- 2 -
<PAGE>
(f) Clause (v) of Section 2(d) thereof is amended to delete such
clause and substitute therefor in its entirety the following:
"(v) On the Early Payment Date, if it shall occur before the
Public Offering Date, such principal amount of the Advance,
together with interest accrued thereon to the date of payment, as
would have been payable on or before such Early Payment Date but
for the provisions of the proviso at the end of Section 2(d)(i)
shall be due and payable."
(g) Section 3(b) thereof is amended to substitute for the phrase
"within ninety (90) days after the date hereof" the phrase "by
December 31, 1996" and to add, after the phrase "as additions and
supplements to the GLD Partition Agreements", the following: ",
except that the provision corresponding to that set forth in Section
3(a)(iii)(D)(2) hereof shall provide that the requirement that the
Company shall maintain at least $3,000,000 in "Monthly Revenues" shall
commence on November 1, 1997, whether or not TS shall have
reprovisioned any traffic under such GLD Partition Agreements,".
(h) The reference in Section 4(a)(xii) to "Matrix" is deleted.
(i) The second sentence of Section 4(c) thereof is deleted in its
entirety.
2. The Stockholders Agreement is amended as follows, such amendments
to be, for all purposes, effective as of July 11, 1996:
(a) Section 1(a) thereof is amended by
(i) deleting the words "on Schedule II, so long as the
Purchaser (or an affiliate of the Purchaser) shall hold the
Warrant or any shares of Common Stock issued pursuant thereto,"
and substituting therefor the following: "in the column
captioned 'Number of Common Shares (Unrestricted)' on Schedule I,
which have been sold as of December 2, 1996, and so long as the
Purchaser (or an affiliate of the Purchaser) shall hold the
Warrant or any other warrant issued by the
- 3 -
<PAGE>
Company to the Purchaser (or an affiliate of the Purchaser) or
any shares of Common Stock issued pursuant thereto,"; and
(ii) deleting the reference to "Section 5" and substituting
therefor "Section 1 (b)".
(b) Section 1(b) thereof is amended by adding the phrase "Except
in connection with a sale or transfer of shares of Common Stock
pursuant to Section 1(a) (other than a sale or transfer pursuant to
clause (w), (x) or (y) thereof)" at the beginning of such Section.
(c) A new Section 1(c) is hereby added to read as follows:
"(c) The provisions of this Section 1 shall not apply during any
period when all of the following shall apply: (a) all amounts due
and owing to TS under the Financing Agreement have been
satisfied, (b) the Company has filed a registration statement
with the Securities and Exchange Commission registering the
resale by the Purchaser of all of its shares of Common Stock of
the Company issued to the Purchaser (or an affiliate of the
Purchaser) by the Company pursuant to the Warrant or any other
warrant issued by the Company to the Purchaser (or an affiliate
of the Purchaser), (c) such registration statement has become and
continues to be effective and (d) such registration statement
currently covers resale of such shares by the Purchaser and the
Purchaser is not prevented from such resale by any action by or
on behalf of the Company."
(d) Schedule I to the Stockholders Agreement is hereby
substituted with Schedule I attached hereto.
3. The references in each of the Advance Agreement and the Basic
Documents (collectively, the "Basic Agreements") to any other Basic Document
shall be amended, for all purposes, effective as of July 11, 1996, to refer to
such other Basic Agreements as amended in this Section A.
B. New Warrant; Registration Rights
- 4 -
<PAGE>
1. In consideration of the TS agreements herein and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged by the Company, the Company shall issue to Tel-Save Holdings, Inc.
("Holdings") or a designated affiliate of Holdings an additional Common Stock
Purchase Warrant (the "New Warrant") to purchase 50,000 shares of the Common
Stock of the Company on the same terms and conditions as the Warrant dated July
11, 1996 to an affiliate of Holdings (the "Old Warrant"), except that the New
Warrant shall be dated the date hereof and the "Exercise Price" (otherwise
defined as in the Old Warrant) shall be $5.00.
2. From and after the date hereof, all references in the Advance
Agreement and the Basic Documents (collectively, the "Basic Agreements"),
including, without limitation, the Registration Rights Agreement, to "the
Warrant" shall mean and include the Old Warrant and the New Warrant and each of
such Basic Agreements is hereby so amended.
3. The reference in Section 3(a)(ii) of the Registration Rights
Agreement to "the first underwritten public offering after the date hereof" is
hereby amended to add at the end thereof, after the word "hereof", the phrase
"in which Holder has elected to, and does, participate".
C. Company Representations and Warranties
The Company hereby represents and warrants that:
1. This Consent and Amendment has been duly authorized, executed and
delivered by and on behalf of the Company and constitutes, and each of the
Basic Agreements constituted at the date of its execution, and, as it may be
amended hereby, constitutes, its legal, valid and binding agreement,
enforceable in accordance with its terms.
2. Assuming the amendments and waivers herein expressly contained were
effective as of July 11, 1996, no default or event of default (as such terms
may be defined in the various Basic Agreements) has occurred and is continuing
under any of the Basic Agreements.
D. TS Waivers
- 5 -
<PAGE>
1. Subject to the conditions set forth in Section E, below, and the
other terms and conditions hereof, TS hereby waives any defaults or events of
default prior to the date hereof under the Basic Agreements to the extent that
such would not have been such defaults or events of default thereunder had the
amendments set forth in Section A hereof been in effect from and as of the
original date of the Advance Agreement.
2. Subject to the conditions set forth in Section E, below, and the
other terms and conditions hereof, TS hereby waives any defaults or events of
default prior to the date hereof under the GLD Partition Agreements to the
extent that they might have occurred by reason of the actions or facts and
circumstances specifically set forth in Schedule A attached hereto.
3. Subject to the conditions set forth in Section E, below, and the
other terms and conditions hereof, TS hereby waives compliance with the
confidentiality provisions of the GLD Partition Agreements to the extent
disclosure is required to be made to the underwriters and their advisers in
connection with the Public Offering and to the extent required by law in
connection with such Public Offering, provided that the Company shall use its
reasonable best efforts to limit the extent of the disclosure of the pricing
terms of such GLD Partition Agreements.
4. Subject to the conditions set forth in Section E, below, and the
other terms and conditions hereof, TS agrees that if it is requested by the
underwriters for the Public Offering to agree not to sell its shares of Common
Stock received upon exercise of the Warrant or any other warrant issued to it
by the Company for a period of time after the Public Offering without such
underwriters' consent, it will so agree with such underwriters provided that
(a) the Company and all of the directors and officers of the Company and the
Stockholders (as defined in the Stockholders Agreement) shall have similarly
agreed not to sell any shares of Common Stock for a period of time after the
Public Offering, (b) the period of time shall be no more than the lesser of (i)
six (6) months after the Public Offering Date and (ii) the shortest period that
the Company or any such director, officer or Stockholder of the Company has
agreed with such underwriters not to sell or dispose of its shares of Common
Stock, and (c) the underwriters shall agree that they will not waive the
limitation, or shorten the period thereof, for any
- 6 -
<PAGE>
other party so agreeing unless they shall also have waived the limitation or
equally shortened the period as respects TS.
E. Amendments Effectiveness and Waiver Conditions
The amendments set forth in Section A hereof and the waivers by TS set
forth in Section D hereof shall be effective on and subject to the Company's
execution and delivery hereof and the following:
1. The satisfaction of any conditions to the Advance set forth in
Sections 4(a) and 4(b) of the Advance Agreement (as amended hereof) not
heretofore satisfied.
2. The execution and delivery by the Company to Holdings or a
designated affiliate of Holdings of the New Warrant.
3. Each of the Company's representations and warranties herein shall
be complete and correct and the President of the Company shall deliver to TS a
certificate to such effect.
4. Each of the parties to the Stockholders Agreement other than the
Company and TS shall have acknowledged and agreed in writing to the amendments
in Section A.2 and waivers herein.
F. Miscellaneous
1. Except as expressly set forth herein, this Amendment and Consent
shall not by implication or otherwise limit, impair, constitute a waiver of, or
otherwise affect the rights and remedies of any party under any of the Basic
Agreements, or alter, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Basic
Agreements, all of which are ratified and affirmed in all respects and shall
continue in full force and effect, as modified hereby.
2. This Consent and Amendment shall be governed by the laws of the
Commonwealth of Pennsylvania applicable to business arrangements entered into
and performed entirely within the Commonwealth of Pennsylvania.
3. This Consent and Amendment may be executed in any number of
counterparts, all of which taken together
- 7 -
<PAGE>
shall constitute one and the same instrument and any of the parties hereto may
execute this Consent and Amendment by signing any such counterpart.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent and
Amendment to be duly executed and delivered as of the date first above written.
GROUP LONG DISTANCE, INC.
By: /s/ Gerald M. Dunne
------------------------------
Name: Gerald M. Dunne
Title: President
TEL-SAVE, INC.
By: /s/ Gary McCulla
------------------------------
Name: Gary McCulla
Title: President
The undersigned acknowledge and
agree to the amendments and other
provisions of Section A.2 as of
the date first written above.
GERALD M. DUNNE, JR.
/s/ GERALD M. DUNNE, JR.
---------------------------------
C. SHELTON JAMES
/s/ EDWARD HARWOOD
---------------------------------
EDWARD HARWOOD
/s/ Glenn Koach
---------------------------------
GLENN KOACH
- 9 -
<PAGE>
JOHN TOMLINSON
/s/ JOHN TOMLINSON
---------------------------------
ANDREA MOREY
/s/ ANDREA MOREY
---------------------------------
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<PAGE>
Schedule A
1. Sections 2(b)(v), 11(d), 13(a)(ii) and 13(a)(iv):
The Company entered into two loan agreements, one for $25,000 and one
for $50,000 and one line of credit agreement for $50,000, all with Gateway
American Bank of Florida ("Gateway"). The Company granted security
interests to Gateway in all of its equipment, machinery, furniture and
general intangibles to secure the repayment of each of those loans and the
line of credit.
In June 1996, the Company converted certain accounts payable to
WorldCom, Inc. ("WorldCom") under a services agreement with WorldCom to a
promissory note in the principal amount of $566,917. As security for the
repayment of that note, the Company granted WorldCom a security interest
in certain assets of the Company, including accounts receivable, customer
lists, contractual rights and records relating to the services agreement.
In May 1996, in connection with the Company's purchase of Gulf
Communications Services, Inc., the Company assumed and agreed to be bound
by the terms of a Secured Promissory Note in favor of Gulf Components,
Inc. That note is secured by substantially all of the assets of Gulf
Communications Services, Inc.
In March 1993, a Uniform Commercial Code financing statement was filed
with the Florida Secretary of State in favor of AT&T, Inc. ("AT&T"),
covering all of the Company's accounts, accounts receivable, contract
rights, general intangibles, notes, drafts and other forms of obligations
and receivables in connection with the Company's customers' usage of
AT&T's network under a previous services agreement between the Company and
AT&T.
The Company granted a security interest in 100,000 shares of the
Company's Common Stock in favor of Mr. Harold Sutton to secure the
repayment of debt owed by the Company to Mr. Sutton.
<PAGE>
2. Sections 7(b), 11(b), 13(a)(ii) and 13(a)(iv):
The Company has executed services agreements with other carriers,
including WorldCom, Intermedia Communications, Inc. and UUNET
Technologies, Inc.
3. Sections 9(b) and 13(a) (ii):
In a registration statement on Form SB-2 filed in December 1995, and
three amendments thereto filed in January 1996, February 1996 and March
1996, the Company disclosed the existence and certain terms of the
Company's Partition Agreement with TS.
4. Sections 11(e) and 13(a)(iv):
In November 1995, the predecessor to the Company (the entity which
executed the Partition Agreement with TS) merged into the Company.
5. Sections 7(d) and 13(a)(ii):
The Company may not have executed employment and/or contractual
agreements with its directors, principals, shareholders, agents and
employees setting forth the non-compete provisions of section 7, the
nature of relationship provisions of section 8 , and the confidentiality
provisions of section 9.
6. Section 13(a)(v):
In June 1993, the Company executed a Release and Settlement Agreement
with AT&T resolving a dispute regarding amounts owed by the Company to
AT&T under a previous services agreement. The Release and Settlement
Agreement provided for the payment of $1,200,000 by the Company to AT&T;
the Company may have defaulted on that agreement and several amendments
thereto.
In July 1996, the Company executed the Advance Agreement with TS. The
Company may not have paid all amounts due on each Prepayment Date as
specified by the terms of the Advance Agreement.
- 2 -
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
===========================================================================================
Number of Number of Percentage of
Name & Address of Common Shares Common Shares Common Stock
Stockholder Position Held (Restricted) (Unrestricted) Outstanding
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dunne, Mr. Gerald M Jr. President 211,754 23,528 10.59%
3201 N.W. 107th Ave.
Coral Springs, FL 33065
- -------------------------------------------------------------------------------------------
James, Mr. C. Shelton Director 94,316 10,480 4.72%
4101 N. Ocean Blvd.
Apt 405D
Boca Raton, FL 33431
- -------------------------------------------------------------------------------------------
Harwood, Mr. Edward Director 69,451 7,717 3.47%
4100 Galt Ocean Drive
Apt 614
Ft. Lauderdale, FL 33308
- -------------------------------------------------------------------------------------------
Koach, Mr. Glenn Director 35,584 4,287 1.93%
2320 N.E. 9th Street
Suite 300
Ft. Lauderdale, FL 33304
- -------------------------------------------------------------------------------------------
Morey, Ms. Andrea Vice President 26,148 2,906 1.31%
15040 Archervale Street Secretary &
Davie, FL 33331 Chief
Administrator
Officer
- -------------------------------------------------------------------------------------------
Tomlinson, Mr. John Director 5,145 571 0.26%
500 West Cypress Creek
Road, Suite 455
Ft. Lauderdale, FL 33309
===========================================================================================
</TABLE>
<PAGE>
GROUP LONG DISTANCE, INC.
COMMON STOCK PURCHASE WARRANT TO PURCHASE 50,000 SHARES
OF COMMON STOCK
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK UNDERLYING THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE
ACT") AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNLESS (1) THEY ARE REGISTERED UNDER THE ACT OR (2) THE
HOLDER HAS DELIVERED TO THE ISSUER AN OPINION OF COUNSEL, WHICH OPINION SHALL
BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THERE IS AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR THAT REGISTRATION IS OTHERWISE NOT REQUIRED.
FOR VALUE RECEIVED, Group Long Distance, Inc., a Florida corporation
(together with its successors and permitted assigns, the "Issuer") hereby
certifies and agrees that Tel-Save Holdings, Inc., a Delaware corporation
(together with its successors and permitted assigns, the "Holder"), is
entitled, subject to the terms, conditions and adjustments hereof, to receive,
in one or more exercises of this Warrant, from time to time, from the Issuer
such number of shares of Common Stock, without par value, of the Issuer (the
"Common Stock") as is determined under Section 1 hereof, during the period
commencing with the date of this Warrant (the "Commencement Date") and ending
at 5:00 P.M. Eastern Standard Time on December 2, 2001 (the "Termination
Date"), at an exercise price (the "Exercise Price") of $5.00 per share. The
number of shares of Common Stock issuable upon exercise of this Warrant ("this
Warrant") and the exercise price per share shall be subject to further
adjustment from time to time upon the occurrence of certain events as set
forth below. This Warrant is the "Warrant" referenced in, and issued in
conjunction with, the Consent and Amendment, dated as of December 2, 1996 (the
"Agreement"), between Tel-Save, Inc. and the Issuer.
The shares of Common Stock or any other shares or other units of stock
or other securities or property or any combination thereof receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to herein as the "Exercise Shares."
<PAGE>
1. Exercise of Warrant;
Reservation of Shares; Capitalization.
(a) Exercise of Warrant. This Warrant may be exercised as to the
then remaining Warrant Shares (as hereinafter defined) by the Holder in whole
at any time or in part from time to time on or after the Commencement Date and
until the Termination Date. For purposes of this Warrant, "Warrant Shares"
shall mean the aggregate of 50,000 shares of Common Stock, subject to further
adjustment as provided in Section 7 hereof and to successive reduction upon any
exercise of this Warrant as and to the extent provided below in this clause
(a). This Warrant may be exercised on any business day by delivering to the
Issuer at its principal office, presently located at 1451 West Cyprus Creek
Road, Suite 200 , Fort Lauderdale, Florida 33309 (or such other office of the
Issuer as shall theretofore have been designated by the Issuer by written
notice to the Holder), a completed and executed irrevocable Notice of Warrant
Exercise in the form set forth in Appendix A hereto and made a part hereof (or
facsimile copy thereof), specifying therein the number of Warrant Shares
(which shall not exceed the number thereof then remaining as to which no Notice
of Warrant Exercise has previously been given) with respect to which the Holder
is then exercising its rights hereunder, provided that this Warrant is so
delivered to the Issuer not later than the original executed copy of such
Notice of Warrant Exercise. The Issuer, pursuant to such Notice of Warrant
Exercise from Holder, duly completed, and in accordance with Section 2 hereof,
shall, upon receipt of this Warrant and the original executed copy of such
Notice of Warrant Exercise, issue, and deliver a certificate evidencing, such
number of Exercise Shares as shall, if the Holder shall have elected a
"Cashless Exercise" in the Notice of Warrant Exercise, equal the result of (x)
the product of (i) the difference between the Current Market Price (as defined
in Section 7(d) hereof) on the date of delivery of such Notice Of Warrant
Exercise and the then Exercise Price, multiplied by (ii) the number of Warrant
shares specified in such Notice of Warrant Exercise, divided by (y) the Current
Market Price on the date of delivery of such Notice of Warrant Exercise. If the
Holder shall not have elected a "Cashless Exercise" and the Notice of Warrant
Exercise is accompanied by cash in the amount of the Exercise Price, the Issuer
shall issue such number of Exercise Shares as shall have been indicated in such
Notice and paid for. Upon such exercise pursuant to such Notice of Warrant
Exercise, the number of Warrant Shares
- 2 -
<PAGE>
automatically shall be reduced by the number thereof specified in such Notice
of Warrant Exercise.
In the event that this Warrant shall be duly exercised in part prior
to the Termination Date, the Issuer shall issue a new Warrant of like tenor
evidencing the rights of the Holder thereof with respect to the balance of the
Warrant Shares under the Warrant so surrendered.
(b) Reservation of Shares; Capitalization.
(i) The Issuer shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued capital
stock, for issuance on exercise of this Warrant, such number of Shares
as shall be required for issuance and delivery upon exercise of this
Warrant;
(ii) As of the date hereof, the Issuer has authorized a total
of 5,000,000 shares of Common Stock, of which 2,257,348 shares are
issued and outstanding, and 1,000,000 shares of Preferred Stock of
which no shares are issued and outstanding and the Issuer holds
100,000 shares of Common Stock in its treasury (subject to a dispute
with Mr. Sutton relating to the ownership of such 100,000 shares). All
of the outstanding shares have been validly issued and are fully paid
and non-assessable. None of the shares of Common Stock have been
issued in violation of any securities laws of the United States or any
rules or regulations promulgated thereunder. Except as set forth in
Schedule I to this Warrant, the Issuer has not granted or issued, or
agreed to grant or issue, any options, warrants or similar rights to
acquire or receive any of the authorized but unissued shares of its
capital stock of any class or any securities convertible into shares
of its capital stock of any class except under this Warrant. The
Issuer is not subject to any obligation, contingent or otherwise, to
repurchase or otherwise acquire or retire any shares of capital stock
of any class of the Issuer or any convertible securities, rights, or
warrants or options to purchase any such shares other than hereunder.
Except as provided to the Holder and except as contemplated to be
granted to the underwriter of the Company's proposed public offering
and to the investors
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<PAGE>
therein, the Issuer has not granted contractual rights to any person
to register, under the Act, any Common Stock held by such person, nor
does any person have any right to require the Issuer to register any
securities of the Issuer held by such person under the Act. The
Exercise Shares to be issued or delivered upon the due exercise of
this Warrant, shall be, upon issuance, in accordance with the terms
hereof, duly authorized, validly issued and shall be fully paid and
nonassessable shares of Common Stock free and clear of all taxes,
liens, charges and security interests (other than the limitations on
such Exercise Shares imposed by applicable securities laws and
limitations expressly included in this Warrant). Such Exercised Shares
shall not be issued In violation of any securities law of the United
States or any rules or regulations promulgated thereunder.
2. Notices of Corporate Action. In the event of a proposal by the
Issuer (or of which the Issuer shall have knowledge) for:
(i) any taking by the Issuer of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a regular
periodic dividend payable in cash) or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other
right, or
(ii) any capital reorganization of the Issuer, any
reclassification or recapitalization of the capital stock of the
Issuer, any consolidation or merger involving the Issuer and any other
Person or any transfer of all or substantially all the assets of the
Issuer to any other Person, or
(iii) any voluntary or involuntary dissolution, liquidation or
winding-up of the Issuer,
the Issuer will deliver to the Holder a notice specifying (1) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right, or
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<PAGE>
(2) the date or expected date on which any such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock
shall be entitled to exchange their shares of Common Stock for the securities
or other property deliverable upon such reorganization, reclassification,
recapitalization consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall with respect to Sections 1(a) and (b) hereof, be
furnished at least twenty (20) days prior to the date therein specified and,
with respect to Section 2 hereof, be furnished promptly upon the commencement
of any event described therein.
3. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant.
4. Transfer of Warrant. This Warrant may be transferred in whole or in
part only in accordance with the terms of the restrictive legend appearing on
the first page of this Warrant.
5. Loss or Destruction of Warrant. Upon receipt by the Issuer of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Issuer will execute and deliver a new Warrant of like
tenor and date. Any such new Warrant executed and delivered shall not
constitute an additional contractual obligation on the part of the Issuer,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be
at any time enforceable by anyone.
6. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Issuer, either at law or equity,
and the rights of the Holder are limited to those expressed in this warrant and
are not enforceable against the Issuer except to the extent set forth herein.
7. Adjustment of Exercise Price, Warrant Shares and Exercise Shares.
The Exercise Price, the number of Warrant Shares and the kind of Exercise
Shares issuable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the
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<PAGE>
happening of certain events as hereinafter provided. The Exercise Price in
effect at any time, the number of Warrant Shares and the kind of securities
issuable upon exercise of this Warrant shall be subject to adjustment as
follows:
(a) Dividend Distributions. If the Issuer shall (i) pay a dividend
or make a distribution on its shares of Common Stock in shares of Common Stock,
(ii) subdivide or classify its outstanding Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be proportionally adjusted
so that the Holder of this Warrant exercised after such date shall be entitled
to receive the aggregate number and kind of shares that, if this Warrant had
been exercised by such Holder immediately prior to such date, such Holder would
have owned upon such exercise and been entitled to receive upon such dividend,
subdivision, combination or reclassification. For example, if the Issuer
declares a 2 for 1 stock dividend or stock split and the Exercise Price
immediately prior to such event was $5.00 per share, the adjusted Exercise
Price immediately ater such event would be $2.50 per share. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) Issuance of Rights or Warrants. In case the Issuer shall issue
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (or having a conversion price per share) less
than the "Current Market Price" of the Common Stock (as defined in Paragraph d
of this Section below) on the record date mentioned below, the Exercise Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the date of such
issuance by a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock outstanding on the record date mentioned below and
the number of additional shares of Common Stock that the aggregate offering
price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at the "Current Market Price" per share of the Common Stock, and the
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<PAGE>
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock offered for subscription or purchases (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and, to the extent
that shares of Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of such rights or
warrants, the Exercise Price shall be readjusted to the Exercise Price that
would then be in effect had the adjustment made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) Adjustment Upon Notice of Warrant Exercise. Whenever the
Exercise Price payable upon exercise of this Warrant is adjusted pursuant to
Paragraphs (a) and (b) above, the number of Warrant Shares as to which a Notice
of Warrant Exercise may be given shall simultaneously be adjusted by multiplying
(x) the number of Warrant Shares then remaining as to which no Notice of Warrant
Exercise has theretofore been given by (y) the Exercise Price in effect just
prior to such adjustment, and dividing the product so obtained by the Exercise
Price, as adjusted
(d) Current Market Price. For the purpose of any computation in
this Warrant, the "Current Market Price" per share of Common Stock at any date
shall be (i) the average daily Market Price during a period of (ten) 10 days,
ending on the day the Current Market Price is determined, on which the national
securities exchanges were open for trading, and (ii) if no class of the
Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Market Price. For
purposes of the definition of "Current Market Price", the term (A) "Market
Price" shall mean (1) the last sale price, regular way, on such date or, if no
such sale takes place on such date, the average of the closing bid and asked
prices on such date, in each case as officially reported on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading, or (2) if the Common Stock is not then listed or admitted
to trading on any national securities
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<PAGE>
exchange but is designated as a national market system security by the NASD, the
last trading price of the Common Stock on such date, or (3) if there shall have
been no trading on such date or if the Common Stock is not so designated, the
average of the reported closing bid and asked prices of the Common Stock on such
date as shown by The NASDAQ Small Cap Market System and reported by any member
firm of the New York Stock Exchange selected by the Company, or (4) if neither
(l), (2) nor (3) is applicable, the Book Value thereof; (B) "Book Value" per
share of Common Stock on any date specified herein shall be determined by an
independent industry expert selected by the Holder (with the consent of the
Issuer, such consent to not be unreasonably withheld); (C) "Consolidated Net
Worth" shall mean the sum of the capital stock (but excluding treasury stock and
capital stock subscribed and unissued) and surplus (including earned surplus,
capital surplus and the balance of the current profit and loss account not
transferred to surplus) accounts of the Company and its Subsidiaries appearing
on a consolidated balance sheet of the Company and its Subsidiaries prepared in
accordance with generally acceptable accounting principles as of the date of
determination, after eliminating all intercompany transactions and all amounts
properly attributable to minority interests", if any, in the stock and surplus
of the Subsidiaries and (D) "NASDAQ" shall mean the National Association of
Securities Dealers Automated Quotation System.
(e) Minimum Adjustments. No adjustment in the Exercise Price shall
be required unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; provided, however, that any adjustments
that by reason of this Paragraph (e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment required to
be made hereunder. All calculations under this Section 7 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section 7 to the contrary notwithstanding, the Issuer shall be
entitled, but shall not be required, to make such additional reductions in the
Exercise Price, in addition to those required by this Section 7, as it, in its
sole discretion, shall determine to be advisable in order that any dividend or
distribution in shares of common Stock, subdivision, reclassification or
combination of Common Stock, issuance of warrants to purchase Common Stock or
distribution of evidences of indebtedness or other assets (excluding cash
dividends) referred to
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<PAGE>
hereinabove in this Section 7 hereafter made by the Issuer to the holders of
its Common Stock shall not result in any tax to the Holders of its Common stock
or securities convertible into Common Stock.
(f) Notice of Issuer Regarding Adjustment and Termination.
Whenever the Exercise Price is adjusted as herein provided or the Termination
Date extended as herein provided, the Issuer shall promptly cause a notice,
setting forth the adjusted Exercise Price and adjusted number of Warrant Shares
as to which a Notice of Warrant Exercise may be given under this Warrant and/or
the extended Termination Date, to be mailed to the Holder, at its last address
appearing in the books of the Issuer, and shall cause a certified copy thereof
to be mailed to its transfer agent, if any. The Issuer may retain a firm of
independent certified public accountants selected by the Board of Directors
(who may be the regular accountants employed by the Issuer) to make any
computation required by this Section 7, and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(g) Future Adjustment to other Shares and Warrant. In the event
that at any time, as a result of an adjustment made pursuant to Section 7 (a)
above, the Holder of this Warrant thereafter shall become entitled to receive
any Exercise Shares of the Issuer, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this Warrant shall
be subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Paragraphs (a) through (e), inclusive, of this Section 7.
(h) Maintenance of Price and Number of Shares. Irrespective of any
adjustments in the Exercise Price, the number of Warrant Shares or kind of
Exercise Shares purchasable upon exercise of this Warrant, Warrants theretofore
or thereafter issued in exchange or substitution for this Warrant or any part
thereof may continue to express the same price and number and kind of shares as
are stated in this Warrant.
(i) Officers Certificate Regarding Termination Date and Adjustment
to Exercise Price. Whenever the Exercise Price shall be adjusted or the
Termination Date extended, in each case as required by the provisions hereof,
the Issuer shall forthwith file
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<PAGE>
in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price determined as herein provided and/or the
Termination Date extended and, in the case of an Exercise Price adjustment,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable time. for inspection by the Holder and the
Issuer shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder.
8. Termination Date Extension. If, by reason of Section 3(b) of the
Registration Rights Agreement, as amended, dated as of July 11, 1996, between
the Issuer and TS Investment, Inc., the Holder is not permitted to sell the
Exercise Shares for a period that includes the Termination Date (before any
adjustment under this Section 8), the Termination Date will be extended by such
number of days as equals the number of days from the beginning of such period
that the Holder is so prevented from selling to the Termination Date (before
any adjustment under this Section 8).
9. Survival. Any obligation of the Issuer under this Warrant, the
complete performance of which may require performance beyond the term of this
Warrant, shall survive the expiration of such term.
10. Amendments and Waivers. The respective rights and obligations of
the Issuer and the Holder may be modified or waived only by a writing executed
by the party against whom the amendment or waiver is to be enforced.
11. Governing Law; Venue: Recovery of Reasonable Attorney's Fees by
Prevailing Party. This warrant shall be governed in all respects by the laws of
the State of Florida. Any and all actions and proceedings arising out of or
pertaining to this Warrant shall be brought in the federal or state courts
located in Broward County, Florida and the prevailing party shall be entitled
to recover its reasonable attorney fees and costs.
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<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Warrant to be duly
executed and delivery as of October 31, 1996.
GROUP LONG DISTANCE, INC.
By: /s/ Gerald M. Dunne, Jr.
-------------------------------------
Gerald M. Dunne, Jr.
President
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<PAGE>
Appendix A
PURCHASE FORM
The undersigned hereby irrevocably elects to execercise its rights
under this Warrant as to _______________ shares and hereby makes payment of
$________________ in payment for the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF COMMON STOCK
Name: ____________________________________________________________________
(Please typewrite or print in block letters)
Address: ____________________________________________________________________
Signature:___________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________________________
hereby sells, assigns, and transfers unto
Name: ____________________________________________________________________
(Please typewrite or print in block letters)
Address: ____________________________________________________________________
____________________________________________________________________
the right to purchase Common Shares represented by this Warrant to the extent
of __________ Common Shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint _____________ Attorney, to transfer
the same on the books of the Issuer with full power of substittution in the
premises.
Dated: ___________, 199_
Signature: _________________
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<PAGE>
SCHEDULE I
Description of Options and Warrants
1. An option to be granted to LT Lawrence to purchase an aggregate of
up to 187,500 shares of the Issuer's common Stock and/or 187,500 Redeemable
Warrants within 45 days of the date of the Issuer's Prospectus, solely for the
purpose of covering over-allotments, if any.
2. 1,250,000 Redeemable Warrants, and the securities underlying such
Redeemable Warrants, registered for public sale under the Issuer's Prospectus.
3. 300,000 outstanding warrants at an exercise price of $5.75 per
share.
4. 76,216 outstanding options at a weighted average exercise price of
$2.23 per share.
5. 438,000 options granted, subject to shareholder approval, under the
issuer's stock option plan at an exercise price of $5.0625 per share.
6. 162,000 options available for future grant under the Issuer's stock
option plan.
<PAGE>
<TABLE>
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<S> <C> <C>
GROUP LONG DISTANCE, INC. GATEWAY AMERICAN BANK OF FLORIDA ACCOUNT # 0111109400
1451 W. CYPRESS CK. RD, STE. 200 1451 N.W. 62ND STREET, SUITE 212 Loan Number 0111109464
FORT LAUDERDALE, FL 33309 FORT LAUDERDALE, FL 33309 Date AUGUST 1, 1996
Maturity Date AUGUST 1, 1997
Loan Amount $50,000.00
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Renewal of 1
"I" Includes each borrower above, "You" means the lender, its successors TAXPAYER ID#: 65-0213198
joint and severally and assigns.
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</TABLE>
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of FIFTY THOUSAND AND NO/100 Dollars $50,000.00
|_| Single Advance: I will receive all of this principal sum on
______________________. No additional advances are contemplated under this
note.
|X| Multiple Advance: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On August 1, 1996 I will receive
the amount of $________________ and further principal advances are
contemplated.
Conditions: The conditions for further advances are AS PER REQUEST FOR
DRAW/OVERDRAFT.
|x| Open End Credit: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on AUGUST 1, 1997.
|_| Closed end Credit: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
AUGUST 1, 1996 at the rate of 9.250% per year until FIRST CHANGE DATE.
|X| Variable Rate: this rate may then change as stated below.
|X| Index Rate: The future rate will be 1.000% OVER the following index
rate: PRIME RATE AS QUOTED IN THE WALL STREET JOURNAL
|_| No Index: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
|X| Frequency and Timing: The Rate on this note may change as often as
DAILY.
A change in the interest rate will take effect ON THE SAME DAY.
|X| Limitations: During the term of this loan, the applicable annual
interest rate will not be more than 18.000% or less than 7.000%. The
rate may not change more than ____________________ % each
_____________________.
Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments:
|X| The amount of each scheduled payment will change. |X| The amount of
the final payment will change.
|_| ____________________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
|_| on the same fixed or variable rate basis in effect before maturity (as
indicated above).
|X| at a rate equal to 18.00%.
|X| LATE CHARGE: If a payment is made more than 10 days after it is due, I
agree to pay a late charge of 5% OF OVERDUE PAYMENT WITH A MINIMUM OF
$5.00.
|X| ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which |_| are |X| are not included in the principal amount above:
$250 LOAN FEE.
PAYMENTS: I agree to pay this note as follows.
|X| Interest: I agree to pay accrued interest ON THE 1ST DAY OF EACH MONTH
BEGINNING OCTOBER 1, 1996
|X| Principal: I agree to pay the principal AUGUST 1, 1997
|_| Installments: I agree to pay this note in __________ payments. The first
payment will be in the amount of $________________ and will be due
_________________________. A payment of $___________________ will be due
_________________________ thereafter. The final payment of the entire
unpaid balance of principal and interest will be due
__________________________________.
ADDITIONAL TERMS:
I/WE GIVE GATEWAY AMERICAN BANK OF FLORIDA SECURITY INTEREST IN THE FOLLOWING:
ALL OF DEBTOR'S EQUIPMENT, MACHINERY, FURNITURE AND GENERAL INTANGIBLES PER
SECURITY AGREEMENT DATED AUGUST 1, 1996.
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|_| SECURITY: This note is separately secured by (describe
separate document by type and date):
(This section is for your internal use. Failure to list a separate
security document does not mean the agreement will not secure this
note.)
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Signature for Lender
X
----------------------------------------
DEVON G. BORN, VICE PRESIDENT
- -----------------------------------------
PURPOSE: The purpose of this loan is BUSINESS:
TEMPORARY WORKING CAPITAL
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING
THOSE ON PAGE 2). I have received a copy on today's date.
GROUP LONG DISTANCE, INC.
BY: /s/ Gerald M. Dunne Jr.
-------------------------------------------
GERALD M. DUNNE, JR.
- -----------------------------------------------
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(page 1 of 2)
<PAGE>
DEFINITIONS: As used on page 1, "|X|" means the terms that apply to this loan.
"I," "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us"). "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state of Florida will govern this note. Any term
of this note which is contrary to applicable law will not be effective, unless
the law permits you and me to agree to such a variation. If any provision of
this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification of
this agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you or I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year." If no accrual method is stated, then you may use
any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed and
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges that I
am obligated to pay (such as property insurance premiums), then you may treat
those payments made by you as advances and add them to the unpaid principal
under this note, or you may demand immediate payments of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without first
notifying you before I make such a change; (10) I fail to plant, cultivate and
harvest crops in due season; (11) any loan proceeds are used for a purpose that
will contribute to excessive erosion of highly erodible land or to the
conversion of wetlands to produce an agricultural commodity, as further
explained in 7C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-off" paragraph
herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any reasonable
fee you incur with such attorney plus court costs (except where prohibited by
law). I agree that reasonable attorneys' fees shall be construed to mean 10% of
the principal sum named in this note, or such larger fee that the court may
determine to be reasonable and just. To the extent permitted by the United
States Bankruptcy Code, I also agree to pay the reasonable attorneys' fees and
costs you incur to collect this debt as awarded by any court exercising
jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
I waive any defenses I have based on suretyship or impairment of
collateral.
To the extent permitted by law, I also waive my right to a trial by jury in
respect to any litigation arising from this note and any other agreement
executed in conjunction with this credit transaction.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number or use together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any part to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extent this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given be
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
BORROWER'S INTEREST
DATE OF PRINCIPAL INITIALS PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE (not required) PAYMENTS BALANCE RATE PAYMENTS THROUGH:
- ----------- ------- -------------- -------- ------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
__/__/__ $ $ $ % $ __/__/__
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(page 2 of 2)
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C>
GROUP LONG DISTANCE, INC. GATEWAY AMERICAN BANK OF FLORIDA
1451 W. CYPRESS CK. RD, STE 200 1451 N.W. 62ND STREET, SUITE 212
FORT LAUDERDALE, FL 33309 FT. LAUDERDALE, FL 33309
TAXPAYER I.D. NUMBER: 65-0213198 SECURED PARTY'S NAME AND ADDRESS
DEBTOR'S NAME, ADDRESS AND SSN OR TIN ("You" means the Secured Party, its successors
("I" means each Debtor who signs.) and assigns.)
- ----------------------------------------------------------------------------------------------
</TABLE>
I am entering into this security agreement with you on AUGUST 1, 1996.
SECURED DEBTS. I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below that
(Check one) |_| | |X| (name) GROUP LONG DISTANCE, INC. owe(s) to you now or
in the future:
(Check one below):
|_| Specific Debt(s). The debt(s), liability or obligations evidenced by
(described): ________________________
_____________________________________ and all extension, renewals,
refinancings, modifications and replacements of the debt, liability or
obligation.
|_| All Debt(s). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and obligation of
every type and description (whether such debt, liability or obligation
now exists or is incurred or created in the future and whether it is
or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or
joint, several or joint and several).
Security Interest. To secure the payment and performance of the above described
Secured Debts, liabilities and obligations, I give you a security interest
in all of the property described below that I now own and that I may own in
the future (including, but not limited to, all parts, accessories, repairs,
improvements, and accessions to the property), wherever the property is or
maybe located, and all proceeds and products from the property.
|_| Inventory: All inventory which I hold for ultimate sale or lease, or
which has been or will be supplied under contracts of service, or
which are raw materials, work in process, or materials used or
consumed in my business.
|X| Equipment: All equipment including, but not limited to, all machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm machinery
and equipment, shop equipment, office and recordkeeping equipment, and
parts and tools. All equipment described in a list or schedule which I
give to you will also be included in the secured property, but such a
list is not necessary for a valid security interest in my equipment.
|_| Farm Products: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with their
products, produce and replacements;
(b) all crops, annual or perennial, and all products of the crops;
and
(c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations.
|_| Accounts, Instruments, Documents, Chattel Paper and Other Rights to
Payment: All rights I have now and that I may have in the future to
the payment of money including, but not limited to:
(a) payment for goods and other property sold or leased or for
services rendered, whether or not I have earned such payment by
performance; and
(b) rights to payment arising out of all present and future debt
instruments, chattel paper and loans and obligations receivable.
The above include any rights and interests (including all liens and
security interests) which I may have by law or agreement against any
account debtor or obligor of mine.
|X| General Intangibles: All general intangibles including, but not
limited to, tax refunds, applications for patents, patents,
copyrights, trademarks, trade secrets, good will, trade names,
customer lists, permits and franchises, and the right to use my name.
|_| Government Payments and Programs: All payments, accounts, general
intangibles, or other benefits (including, but not limited to,
payments in kind, deficiency payments, letters or entitlement,
warehouse receipts, storage payments, emergency assistance payments,
diversion payments, and conservation reserve payments) in which I now
have and in the future may have any rights or interest and which arise
under or as a result of any preexisting, current or future Federal or
state governmental program (including, but not limited to, all
programs administered by the Commodity Credit Corporation and the
ASCS).
|X| The secured property includes, but is not limited by, the following:
ALL OF THE DEBTOR'S EQUIPMENT, MACHINERY, FURNITURE AND GENERAL
INTANGIBLES TOGETHER WITH ALL PARTS, ATTACHMENTS, EQUIPMENT,
ACCESSORIES, AND ACCESSIONS WHENEVER ACQUIRED BY WAY OF REPLACEMENT,
SUBSTITUTION, ADDITION, PURCHASE, OR OTHERWISE, AS WELL AS PROCEEDS
AND WHATEVER IS RECEIVED WHEN COLLATERAL OR PROCEEDS IS SOLD,
EXCHANGED OR OTHERWISE DISPOSED OF.
If this agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description is:
- ------------------------------------------------------------------
I am a(n) |_| individual |_| partnership |X| corporation
|_| ______________________________________________
|_| If checked, file this agreement in the real estate records.
Record Owner (if not me):_______________________________________
________________________________________________________________
_______________________________________________________________.
The property will be used for |_| personal |X| business
|_| agricultural |_|_________________ reasons.
GATEWAY AMERICAN BANK OF FLORIDA
(Secured Party's Name)
By: ___________________________________________________
DEVON G. BORN
Title: SENIOR VICE PRESIDENT
- --------------------------------------------------
I AGREE TO THE TERMS SET OUT ON BOTH PAGE 1 AND
PAGE 2 OF THIS AGREEMENT. I have received a copy
of this document on today's date.
GROUP LONG DISTANCE, INC.
(Debtor's Name)
By: _____________________________________________
GERALD M. DUNNE, JR.
Title: PRESIDENT
By: _____________________________________________
Title:___________________________________________
(page 1 of 2)
<PAGE>
GENERALLY - "You" means the Secured Party identified on page 1 of this
agreement. "I", "me" and "my" means each person who signs this security
agreement as Debtor and who agrees to give the property described in this
agreement as security for the Secured Debts. All terms and duties under this
agreement are joint and individual. No modification of this security agreement
is effective unless made in writing and signed by you and me. This security
agreement remains in effect, even if the note is paid and I owe no other debt to
you, until discharged in writing. Timing is of the essence in this agreement.
APPLICABLE LAW - I agree that this security agreement will be governed by the
law of the state in which you are located. If property described in this
agreement is located in another state, this agreement may also, in some
circumstances, be governed by the law of the state in which the property is
located.
To the extent permitted by law, the terms of this agreement may vary
applicable law. If any provision of applicable law may not be varied by
agreement, any provision of this agreement that does not comply with that law
will not be effective. If any provision of this agreement cannot be enforced
according to its terms, this fact will not affect the enforceability of the
remainder of this agreement.
OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent that I own all of the
property, or to the extent this is a purchase money security interest I will
acquire ownership of the property with the proceeds of the loan. I will defend
it against any other claim. You claim to the property is ahead of the claims of
any other creditor. I agree to do whatever you required to protect your security
interest and to keep your claim in the property ahead of the claims of other
creditors. I will not do anything to harm your position.
I will keep books, records and accounts about the property and my business
in general. I will prepare any report or accounting your request, which deals
with the property.
I will keep the property in my possession and will keep it in good repair
and use it only for the purpose(s) described on page 1 of this agreement. I will
not change this specified use without your express written permission. I
represent that I am the original owner of the property and, if I am not, that I
have provided you with list of prior owners of the property.
I will keep the property at my address listed on page 1 of this agreement,
unless we agree I may keep it at another location. If the property is to be used
in another state, I will giver you a list of those states. I will not try to
sell the property unless it is inventory or I receive your written permission to
do so. If I sell the property I will have the payment made payable to the order
of you and me.
You may demand immediate payment of the debt(s) if the debtor is not a
natural person and without your prior written consent (1) a beneficial interest
in the debtor is sold or transferred or (2) there is a change in either the
identity or number of members of a partnership or (3) there is a change in
ownership of more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the property as they become due. You
have the right of reasonable access in order to inspect the property. I will
immediately inform you of any loss or damage to the property.
LIMITATIONS - This agreement will not secure a debt described in the section
entitled "Secured Debts" on page 1:
1) if you fail to make any disclosure of the existence of this security
interest required by law for such other debt;
2) if this security interest is in my principal dwelling and you fail to
provide (to all persons entitled) any notice of right of rescission
required bylaw for such other debt;
3) to the extent that this security interest is in "household goods" and
the other debt to be secured is a "consumer" loan (as those terms are
defined in applicable federal regulations governing unfair and
deceptive credit practices);
4) if this security interest is in margin stock subject to the
requirements of 12 C.F.R. Section 207 or 221 and you do not obtain a
statement of purpose if required under these regulations with respect
to that debt; or
5) if this security interest is unenforceable by law with respect to that
debt.
PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determine the extent
of a purchase money security interest arising under this security agreement: (a)
payments on any non-purchase money loan also secured by this agreement will not
be deemed to apply to the purchase money loan, and (b) payments on the purchase
money loan will be deemed to apply first to the non-purchase money portion of
the loan, if any, and then to the purchase money obligations in the order in
which the items of collateral were acquired or if acquired at the same time, in
the order selected by you. No security interest will be terminated by
application of this formula. "Purchase money loan" means any loan the proceeds
in which, in whole or in part, are used to acquire any collateral securing the
loan and all extensions, renewals, consolidations and refinancings of such loan.
AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR - I agree to
pay you on demand any sums you advanced on my behalf including, but not limited
to, expenses incurred in collecting, insuring, conserving, or protecting the
property or in any inventories, audits, inspections or other examinations by you
in respect to the property. If I fail to pay such sums, you may do so for me,
adding the amount paid to the other amounts secured by this agreement. All such
sums will be due on demand and will bear interest at the highest rate provided
in any agreement, note or other instrument evidencing the Securing Debt(s) and
permitted by law at the time of the advance.
If I fail to perform any of my duties under this security agreement, or any
mortgage, deed of trust, lien or other security interest, you may without notice
to me perform the duties or cause them to be performed. I understand that this
authorization includes, but is not limited to, permission to: (1) prepare, file,
and sing my name to any necessary reports or accountings; (2) notify any account
debtor or your interest in this property and tell the account debtor to make the
payments to you or someone else you name, rather than me; (3) place on any
chattel paper a note indicating your interest in the property; (4) in my name,
demand, collect, receive and give a receipt for, compromise, settle, and handle
any suites or other proceedings involving the collateral; (5) take any action
you feel is necessary in order to realize on the collateral, including
performing any part of a contract or endorsing it in my name; and (6) make an
entry on my books and records showing the existence of the security agreement.
Your right to perform for me shall not create an obligation to perform and your
failure to perform will not preclude you from exercising any of your other
rights under the law or this security agreement.
INSURANCE - I agree to buy insurance on the property against the risks and for
the amounts you require and to furnish you continuing proof of coverage. I will
have the insurance company name you as loss payee on any such policy. You may
require added security if you agree that insurance proceeds maybe used to repair
or replace the property. I will buy insurance from a firm licensed to the
business in the state where you are located. The firm will be reasonably
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name you
as loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIVES - If this agreements includes accounts. I will
not settle any account for less than its full value without your written
permission. I will collect all accounts until you tell me otherwise. I will keep
the proceeds from all the accounts and any gods which are returned to me or
which I take back in trust for you. I will not mix them with any other property
of mine. I will deliver them to you at your request. If you ask me to pay you
the full price on any returned items or items retaken by myself, I will do so.
If this agreement covers inventory, I will not dispose of it except in my
ordinary course of business at the fair market value for the property, or at a
minimum price established between you and me.
If this agreement covers farms products I will provide you, at your
request, a written list of the buyers, commission merchants or selling agents to
or through whom I may sell my farm products. In addition to those parties named
on this written list, I authorize you to notify at your sole discretion any
additional parties regarding your security interest in my farm products. I
remain subject to all applicable penalties for selling my farm products. I
remain subject to all applicable penalties for selling my farm products in
violation of my agreement with you and the Federal Food Security Act of 1985.
DEFAULT - I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
or assume an additional name without first notifying you before making such a
change; (9) failure to plain, cultivate and harvest crops in due season; (10) if
any loan proceeds are used for a purpose that will contribute to excessive
erosion of highly erodible land or to the conversion of wetlands to produce an
agricultural commodity, as further explained in 7 C.F.R. Part 1940, Subpart G,
Exhibit M.
REMEDIES - If I am default on this agreement, you have the following remedies:
1) You may demand immediate payment of all I owe you under any obligation
secured by this agreement.
2) You may set off any obligation I have to you against any right I have
to the payment of money from you.
3) You may demand more security or new parties obligated to pay any debt
I owe you as a condition of giving up any other remedy.
4) You may make use of any remedy you have under state or federal law.
5) If I default by failing to pay taxes or other charges, you may pay
them (but you are not required to do so). If you do, I will repay to
you the amount you paid plus interest at the highest contract rate.
6) You may require me to gather the property and make it available to you
in a reasonable fashion.
7) You may repossess the property and sell it as provided by law. You may
repossess the property so long as the repossession does not involve a
breach of the peace or an illegal entry onto my property. You may sell
the property as provided by law. You may apply what you receive from
the sale of the property to: your expenses; your reasonable attorneys'
fees and legal expenses (where not prohibited by law); any debt I owe
you. If what you receive from the sale of the property does not
satisfy the debts, you may take me to court to recover the difference
(where permitted by law). I agree that 10 days written notice sent to
my address listed on page 1 by first class mail will be reasonable
notice to me under the Uniform Commercial Code. If any items not
otherwise subject to this agreement are contained in the property when
you take possession, you may hold these items for me at my risk and
you will not be liable for taking possession of them.
8) In some cases, you may keep the property to satisfy the debt. You may
enter upon and take possession of all or any part of my property, so
long as you do not breach the peace or illegally enter onto the
property, including lands, plants, buildings, machinery, and equipment
as may be necessary to permit you to manufacture, production,
processing, storing or sales of any of the time property and to use
and operate the property for the length of time you feel is necessary
to protect your interest, all without payment or compensation to me.
By choosing any one or more of these remedies, you do not waive your right
to later use any other remedy. You do not waive a default if you choose not to
use any remedy, and, by electing not to use any remedy, you do not waive your
right to later consider the event a default and to immediately use any remedies
if it continues or occurs again.
FILING - A carbon, photographic or other reproduction of this security agreement
or the financing statement covering the property described in this agreement may
be used as a financing statement where allowed by law. Where permitted by law,
you may file a financing statement which does not contain my signature, covering
the property secured by this agreement.
CO-MAKERS - If more than one of us has signed this agreement, we are all
obligated equally under the agreement. You may sue any one of use or any of us
together if this agreement is violated. You do not have to tell me if any term
of the agreement has not been carried out. You may release any of the security
and I will still be obligated under this agreement. Waiver by you of any of your
rights will not affect my duties under this agreement. Extending this agreement
or new obligations under this agreement, will not affect my duty under the
agreement.
(page 2 of 2)
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C>
GROUP LONG DISTANCE, INC. GATEWAY AMERICAN BANK OF FLORIDA
1451 W. CYPRESS CK. RD, STE 200 1451 N.W. 62ND STREET, SUITE 212
FORT LAUDERDALE, FL 33309 FT. LAUDERDALE, FL 33309 Line of Credit No. 0111109464
Date: AUGUST 1, 1996
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Max. Credit Amt. $50,000.00
"I" includes each borrower above, "You" means the lender, its successors Loan Ref. No. 0111109464
jointly and severally. and assigns.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
You have extended to me a line of credit in the AMOUNT OF FIFTY THOUSAND AND
N/100 $ 50,000.00.
You will make loans to me from time to time until 2:00 P.M. on AUGUST 1, 1997.
Although the line of credit expires on that date, I will remain obligated to
perform all my duties under this agreement so long as I owe you any money
advanced according to the terms of this agreement, as evidenced by any note or
notes I have signed promising to repay these amounts.
This line of credit is an agreement between you and me. It is not intended
that any third party receive any benefit from this agreement, whether by direct
payment, reliance for future payment or in any other manner. This agreement is
not a letter of credit.
1. AMOUNT: This line of credit is:
|X| OBLIGATORY: You may not refuse to make a loan to me under this line of
credit unless one of the following occurs:
a. I have borrowed the maximum amount available to me;
b. This line of credit has expired;
c. I have defaulted on the note (or notes) which show my
indebtedness under this line of credit;
d. I have violated any term of this line of credit or any note or
other agreement entered into in connection with this line of
credit;
e. I/WE FAIL TO PROVIDE FINANCIAL STATEMENTS AND/OR OTHER
DOCUMENTATION AS REQUESTED.
|_| DISCRETIONARY: You may refuse to make a loan to me under this line of
credit once the aggregate outstanding advances equal or
exceed_______________________ $_______________.
Subject to the obligatory or discretionary limitations above, this line of
credit is:
|X| OPEN-END (Business or Agricultural only): I may borrow up to the
maximum amount of principal more than one time.
|_| CLOSED-END: I may borrow up to the maximum only one time.
2. PROMISSORY NOTE: I will repay any advances made according to this line of
credit agreement as set out in the promissory note, I signed on AUGUST
1, 1996, or any note(s) I sing at a later time which represent
advances under this agreement. The note(s) set(s) out the terms
relating to maturity, interest rate, repayment and advances. If
indicated on the promissory note, the advances will be made as
follows: AS PER REQUEST FOR DRAW/OVERDRAFT.
3. RELATED DOCUMENTS: I have signed the following documents in connection with
this line of credit and note(s) entered into in accordance with this
line of credit:
|X| security agreement dated AUGUST 1, 1996 |_|__________________________
|_| mortgage dated |_|__________________________
|X| guaranty dated AUGUST 1, 1996 |_|__________________________
4. REMEDIES: If I am in default on the note(s) you may:
a. take any action as provided in the related documents;
b. without notice to me, terminate this line of credit.
By selecting any of these remedies you do not give up your right to
later use any other remedy. By deciding not to use any remedy should I
default, you do not waive your right to later consider the event a default,
if it happens again.
5. COSTS AND FEES: If you hire an attorney to enforce this agreement I will
pay your reasonable attorney's fees, where permitted by law. I will
also pay your court costs and costs of collection, where permitted by
law.
6. COVENANTS: For as long as this line of credit is in effect or I owe you
money for advances made in accordance with the line of credit, I will
do the following:
a. maintain books and records or my operations relating to the needs for
this line of credit;
b. permit you or any of your representatives to inspect and/or copy these
records;
c. provide to you any documentation requested by you which support the
reason for making any advance under this line of credit;
d. permit you to make any advance payable to the seller (or seller and
me) of any items being purchased with that advance;
e. ______________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
7. NOTICES. All notices or other correspondence with me should be sent to my
address stated above. The notice or correspondence shall be effect
when deposited in the mail, first class, or delivered to me in person.
8. MISCELLANEOUS: This line of credit may not be changed except by a written
agreement signed by you and me. The law of the state in which you are
located will govern this agreement. Any term of this agreement which
is contrary to applicable law will not be effective, unless the law
permits you and me to agree to such a variation.
FOR THE LENDER SIGNATURES: I AGREE TO THE TERMS OF THIS
LINE OF CREDIT. I HAVE RECEIVED A COPY ON
TODAY'S DATE.
DEVON G. BORN GROUP LONG DISTANCE, INC.
- -------------------------------- ---------------------------------------------
TITLE: SENIOR VICE PRESIDENT BY: /s/ Gerald M. Dunne Jr
------------------------- -----------------------------------------
GERALD M. DUNNE, JR., PRESIDENT
-----------------------------------------
(page 1 of 1)
<PAGE>
GUARANTY
FT. LAUDERDALE, FL
-------------------------------------
(City) (State)
AUGUST 1, 1996
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and to induce GATEWAY AMERICAN BANK OF FLORIDA, 1451
N.W. 62ND STREET, SUITE 212 (herein, with its participants, successors and
assigns, called "Lender"), at its option, at any time or from time to time to
make loans or extend other accommodations to or for the account of GROUP LONG
DISTANCE, INC. (herein called "Borrower") or to engage in any other transaction
with borrower, the Undersigned hereby absolutely and unconditionally guarantees
to Lender the full and prompt payment when due, whether at maturity or earlier
by reason of acceleration or otherwise, of the debts, liabilities and
obligations described as follows:
A. If this |_| is checked, the Undersigned guarantees to Lender the
payment and performance of the debt, liability or obligation of
Borrower to Lender evidenced by or arising out of the
following:______________________________________and any extensions,
renewals or replacements thereof (hereinafter referred to as the
"Indebtedness").
B. If this |_| is checked, the Undersigned guarantees to Lender the
payment and performance of each and every debt, liability and
obligation of every type and description which Borrower may now or at
any time hereafter owe to Lender (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether
it is or maybe director indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or
joint, several, or joint and several; all such debts, liabilities and
obligations being hereinafter collectively referred to as the
"Indebtness"). Without limitation, this guaranty includes the
following described debt(s): LOAN #0111109464 AND ANY EXTENSIONS,
RENEWALS OR REPLACEMENTS THEREOF.
The term "Indebtedness" as used in this guaranty shall not include any
obligations entered into between Borrower and Lender after the date hereof
(including any extensions, renewals or replacements of such obligations)
for which Borrower meets the Lender's standard of creditworthiness based on
Borrower's own assets and income without the addition of a guaranty, or for
which a guaranty is required but Borrower chooses someone other than the
joint Undersigned to guaranty the obligation.
The Undersigned further acknowledges and agrees with Lender that:
1. No act or thing need occur to establish the liability of the Undersigned
hereunder, and no act or thing, except full payment and discharge of all
indebtedness, shall in any way exonerate the Undersigned or modify, reduce,
limit or release the liability of the Undersigned hereunder.
2. This is an absolute, unconditional and continuing guaranty of payment of
the Indebtedness and shall continue to be in force to be binding upon the
Undersigned, whether or not all Indebtedness is paid in full, until this
guaranty is revoked by written notice actually received by the Lender, and such
revocation shall not be effective as to Indebtedness existing or committed for
at the time of actual receipt of such notice by the Lender, or as to any
renewals, extensions and refinancings thereof. If there be more than one
Undersigned, such revocation shall be effective only as to the one so revoking.
The death or incompetence of the Undersigned shall not revoke this guaranty,
except upon actual receipt of written notice thereof by Lender and then only as
to the decedent or the incompetent and only prospectively, as to future
transactions, as herein set forth.
3. If the Undersigned shall be dissolved, shall die, or shall be or become
insolvent (however defined) or revoke this guaranty, then the Lender shall have
the right to declare immediately due and payable, and the Undersigned will
forthwith pay to the Lender, the full amount of all Indebtedness, whether due
and payable or unmatured. If the Undersigned voluntarily commences or there is
commenced involuntarily against the Undersigned a case under the United States
Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.
4. The liability of the Undersigned hereunder shall be limited to a
principal amount of $ UNLIMITED (if unlimited or if no amount is stated, the
Undersigned shall be liable for all Indebtedness, without any limitation as to
amount), plus accrued interest thereon and all attorneys' fees, collection costs
and enforcement expenses referable thereto. Indebtedness maybe created and
continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the Undersigned hereunder. The
Lender may apply any sums received by or available to Lender on account of the
Indebtedness from Borrower or any other person (except the Undersigned), from
their properties, out of any collateral security or from any other source to
payment of the excess. Such application of receipts shall not reduce, affect or
impair the liability of the Undersigned hereunder. If the liability of the
Undersigned is limited to a stated amount pursuant to this paragraph 4, any
payment made by the Undersigned under this guaranty shall be effective to reduce
or discharge such liability only of accompanied by a written transmittal
document, received by the Lender, advising the Lender that such payment is made
under this guaranty for such purpose.
5. The Undersigned will pay or reimburse Lender for all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by Lender in
connection with the protection, defense or enforcement of this guaranty in any
litigation or bankruptcy or insolvency proceedings.
This guaranty includes the additional provisions on page 2, all of which are
made a part hereof.
This guaranty is |X| unsecured; |_| secured by a mortgage or security
agreement dated__________; |_| secured by______________________________________.
IN WITNESS WHEREOF, this guaranty has been duly executed by the Undersigned
the day and year first above written.
/s/ Gerald M. Dunne
---------------------------------
GERALD M. DUNNE, JR.
---------------------------------
---------------------------------
"Undersigned" shall refer to all persons
who sign this guaranty, severally and
jointly.
(page 1 of 2)
<PAGE>
ADDITIONAL PROVISIONS
6. Whether or not any existing relationship between the Undersigned and
Borrower has been changed or ended and whether or not this guaranty has been
revoked, Lender may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the Undersigned and without any notice to the Undersigned. The
liability of the Undersigned shall not be affected or impaired by any of the
following acts or things (which Lender is expressly authorized to do, omit or
suffer from time to time, both before and after revocation of this guaranty,
without notice to or approval by the Undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates; maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver, adjustment, forbearance, compromise or
indulgence granted to Borrower, any delay or lack of diligence in the
enforcement of Indebtedness, or any failure to institute proceedings, file a
claim, give any required notices or otherwise protect any Indebtedness, (iv) any
full or partial release of, settlement with, or agreement not to sue, Borrower
or any other guarantor or other person liable in respect of any Indebtedness (v)
any discharge of any evidence of Indebtedness or the acceptance of any
instrument in renewal thereof or substitution therefor; (vi) any failure to
obtain collateral security (including rights of setoff) for Indebtedness, or to
see to the proper or sufficient creation and perfection thereof, or to establish
the priority thereof, or to protect, insure, or enforce any collateral security;
or any release, modification, substitution, discharge, impairment,
deterioration, waste, or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any
Indebtedness or any evidence thereof; (ix) any order of application of any
payments or credits upon Indebtedness; (x) any election by the Lender under 1111
(b)(2) of the United States Bankruptcy Code.
7. The Undersigned waives any and all defenses, claims and discharges of
Borrower, or any other obligor, pertaining to Indebtedness, except the defense
of discharge by payment in full. Without limiting the generality of the
foregoing, the Undersigned will not assert, plead or enforce against Lender any
defense of waiver, release, statute of limitations, res judicata, statute of
frauds, fraud, incapacity, minority, usury, illegality or unenforceability which
may be available to Borrower or any other person liable in respect of any
Indebtedness, or any setoff available against Lender to Borrower or any such
other person, whether or not on account of a related transaction. The
Undersigned expressly agrees that the Undersigned shall be and remain liable, to
the fullest extent permitted by applicable law, for any deficiency remaining
after foreclosure of any mortgage or security interest securing Indebtedness,
whether or not the liability of Borrower or any other obligor for such
deficiency is discharges pursuant to statute or judicial decision. The
undersigned shall remain obligated, to the fullest extent permitted by law, to
pay such amounts as though the Borrower's obligations had not been discharged.
8. The Undersigned further agrees that the Undersigned shall be and remain
obligated to pay Indebtedness even though any other person obligated to pay
Indebtedness, including Borrower, has such obligation discharged in bankruptcy
or otherwise discharged by law. "Indebtedness" shall include post-bankruptcy
petition interest and attorneys' fees and any other amounts which Borrower is
discharged from paying or which do not otherwise accrue to Indebtedness due to
Borrower's discharge, and the Undersigned shall remain obligated to pay such
amounts as though Borrower's obligations has not been discharged.
9. If any payment applied by Lender to Indebtedness is thereafter set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.
10. The Undersigned waives any claim, remedy or other right which the
Undersigned may now have or hereafter acquire against Borrower or any other
person obligated to pay Indebtedness arising out of the creation or performance
of the Undersigned's obligation under this guaranty, including, without
limitation, any right of subrogation, contribution, reimbursement,
indemnification, exoneration, and any right to participate in any claim or
remedy the Undersigned may have against the Borrower, collateral, or other party
obligated for Borrower's debts, whether or not such claim, remedy or rights
arises in equity, or under contract, statute or common law.
11. The Undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
Lender shall not be required first to resort for payment of the Indebtedness to
Borrower or other persons or their properties, or first to enforce, realize upon
or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.
12. The liability of the Undersigned under this guaranty is in addition to
and shall be cumulative with all other liabilities of the Undersigned to Lender
as guarantor or otherwise, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
13. This guaranty shall be enforceable against each person signing this
guaranty, even if only one person signs and regardless of any failure of other
persons to sign this guaranty. If there be more than one signer, all agreements
and promises herein shall be construed to be, and are hereby declared to be,
joint and several in each of every particular and shall be fully binding upon
and enforceable against either, any or all of the Undersigned. This guaranty
shall be effective upon delivery to Lender, without further act, condition or
acceptance by Lender, shall be binding upon the Undersigned and the heirs,
representatives, successors and assigns of the Undersigned and shall inure to
the benefit of Lender and its participants, successors and assigns. Any
invalidity or unenforceability of any provision or application of this guaranty
shall not affect other lawful provisions and application hereof, and to this end
the provisions of this guaranty are declared to be severable. Except as
authorized by the terms herein, this guaranty may not be waived, modified,
amended, terminated, released or otherwise changed except by a writing signed by
the Undersigned and Lender. This guaranty shall be governed by the laws of the
State in which it is executed. The Undersigned waives notice of Lender's
acceptance hereof.
(page 2 of 2)
<PAGE>
GATEWAY AMERICAN BANK OF FLORIDA
BORROWER: Group Long Distance, Inc. LOAN # 0111109464
------------------------- -------------------
AUTHORIZATION OF FEES PAID, LOAN
PROCEEDS DISBURSEMENT &
AUTOMATIC DEBIT OF PAYMENTS
LOAN FEE $ 250.00
--------
CREDIT INFORMATION
--------
DOCUMENTARY STAMPS
--------
UCC FILING FEE (STATE)
--------
UCC FILING FEE (COUNTY)
--------
TITLE FEE FOR LIEN ON VEHICLE
--------
INTANGIBLE TAX $ 100.00
--------
- ------------------------------ --------
TOTAL DUE: $ 350.00
--------
FEES PAID BY: Debit Account 0111109415
LOAN PROCEEDS DISBURSED:
CHECK NO./PAYABLE TO: ______________________________________
CREDIT ACCT. NUMBER: ______________________________________
DEBIT PAYMENTS AUTOMATICALLY FROM ACCOUNT #__________________________
NAME:_____________________________
/s/ Gerald M. Dunne, Jr. 9-18-96
- ---------------------------------- ------------------------------
NAME DATE
- ----------------------------------
NAME
REVISED 09/13/94-ER
<PAGE>
GROUP LONG DISTANCE, INC.
1996 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1
BACKGROUND, PURPOSE AND DURATION....................................... 1
1.1 Effective Date and Purpose.................................................................... 1
SECTION 2
DEFINITIONS................................................. 1
2.1 "1934 Act"........................................................................................ 1
2.2 "Affiliate"................................................................................... 1
2.3 "Board"....................................................................................... 1
2.4 "Code"........................................................................................ 1
2.5 "Committee"................................................................................... 1
2.6 "Company"..................................................................................... 2
2.7 "Consultant".................................................................................. 2
2.8 "Director".................................................................................... 2
2.9 "Disability".................................................................................. 2
2.10 "Employee".................................................................................... 2
2.11 "Exercise Price".............................................................................. 2
2.12 "Fair Market Value"........................................................................... 2
2.13 "Fiscal Year"................................................................................. 2
2.14 "Grant Date".................................................................................. 2
2.15 "Incentive Stock Option"...................................................................... 2
2.16 "Nonqualified Stock Option"................................................................... 2
2.17 "Option"...................................................................................... 3
2.18 "Option Agreement"............................................................................ 3
2.19 "Participant"................................................................................. 3
2.20 "Plan"........................................................................................ 3
2.21 "Rule 16b-3".................................................................................. 3
2.22 "Section 16 Person"........................................................................... 3
2.23 "Shares"...................................................................................... 3
2.24 "Subsidiary".................................................................................. 3
2.25 "Termination of Service"...................................................................... 3
SECTION 3
ADMINISTRATION................................................ 4
3.1 The Committee................................................................................. 4
3.2 Authority of the Committee.................................................................... 4
3.3 Delegation by the Committee................................................................... 4
3.4 Decisions Binding............................................................................. 4
SECTION 4
SHARES SUBJECT TO THE PLAN.......................................... 4
4.1 Number of Shares.............................................................................. 4
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
4.2 Lapsed Options................................................................................ 4
4.3 Adjustments in Options and Authorized Shares.................................................. 4
SECTION 5
STOCK OPTIONS................................................ 5
5.1 Grant of Options.............................................................................. 5
5.2 Option Agreement.............................................................................. 5
5.3 Exercise Price................................................................................ 5
5.3.1 Nonqualified Stock Options............................................................. 5
5.3.2 Incentive Stock Options................................................................ 5
5.3.3 Substitute Options..................................................................... 6
5.4 Expiration of Options......................................................................... 6
5.4.1 Expiration Dates....................................................................... 6
5.4.2 Death of Participant................................................................... 6
5.4.3 Committee Discretion................................................................... 6
5.5 Exercisability of Options..................................................................... 6
5.6 Payment....................................................................................... 7
5.7 Restrictions on Share Transferability......................................................... 7
5.8 Certain Additional Provisions for Incentive Stock Options..................................... 7
5.8.1 Exercisability......................................................................... 7
5.8.2 Termination of Service................................................................. 7
5.8.3 Company and Subsidiaries Only.......................................................... 7
5.8.4 Expiration............................................................................. 7
5.9 Grant of Reload Options....................................................................... 8
SECTION 6
MISCELLANEOUS................................................ 8
6.1 No Effect on Employment or Service............................................................ 8
6.2 Participation................................................................................. 8
6.3 Indemnification............................................................................... 8
6.4 Successors.................................................................................... 9
6.5 Beneficiary Designations...................................................................... 9
6.6 Nontransferability of Options................................................................. 9
6.7 No Rights as Stockholder...................................................................... 9
6.8 Withholding Requirements...................................................................... 9
6.9 Withholding Arrangements...................................................................... 9
SECTION 7
AMENDMENT, TERMINATION, AND DURATION..................................... 10
7.1 Amendment, Suspension, or Termination......................................................... 10
7.2 Duration of the Plan.......................................................................... 10
SECTION 8
LEGAL CONSTRUCTION.............................................. 10
8.1 Gender and Number............................................................................. 10
8.2 Severability.................................................................................. 10
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.3 Requirements of Law........................................................................... 10
8.4 Compliance with Rule 16b-3.................................................................... 11
8.5 Governing Law................................................................................. 11
8.6 Captions...................................................................................... 11
</TABLE>
iii
<PAGE>
GROUP LONG DISTANCE, INC.
1996 STOCK OPTION PLAN
GROUP LONG DISTANCE, INC., hereby adopts Group Long Distance,
Inc. 1996 Stock Option Plan, as follows:
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 Effective Date and Purpose. The Plan is effective as of
November 29, 1996. The Plan is intended to increase incentive and to encourage
Share ownership on the part of (1) employees of the Company and its Affiliates,
and (2) consultants who provide significant services to the Company and its
Affiliates. The Plan also is intended to further the growth and profitability of
the Company.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following
meanings unless a different meaning is plainly required by the context:
2.1 "1934 Act" means the Securities Exchange Act of 1934, as
amended. Reference to a specific section of the 1934 Act or regulation
thereunder shall include such section or regulation, any valid regulation
promulgated under such section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such section or
regulation.
2.2 "Affiliate" means any corporation or any other entity
(including, but not limited to, partnerships and joint ventures) controlling,
controlled by, or under common control with the Company.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Code" means the Internal Revenue Code of 1986, as
amended. Reference to a specific section of the Code or regulation thereunder
shall include such section or regulation, any valid regulation promulgated under
such section, and any comparable provision of any future legislation or
regulation amending, supplementing or superseding such section or regulation.
2.5 "Committee" means the committee appointed by the Board
(pursuant to Section 3.1) to administer the Plan.
2.6 "Company" means Group Long Distance, Inc., a Florida
corporation, or any successor thereto.
1
<PAGE>
2.7 "Consultant" means any consultant, independent contractor,
or other person who provides significant services to the Company or its
Affiliates, but who is neither an Employee nor a Director.
2.8 "Director" means any individual who is a member of the
Board.
2.9 "Disability" means a permanent and total disability within
the meaning of Code section 22(e)(3), provided that in the case of Options other
than Incentive Stock Options, the Committee in its discretion may determine
whether a permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.
2.10 "Employee" means any employee of the Company or of an
Affiliate, whether such employee is so employed at the time the Plan is adopted
or becomes so employed subsequent to the adoption of the Plan.
2.11 "Exercise Price" means the price at which a Share may be
purchased by a Participant pursuant to the exercise of an Option.
2.12 "Fair Market Value" means the last quoted per share
selling price for Shares on the relevant date, or if there were no sales on such
date, the arithmetic mean of the highest and lowest quoted selling prices on the
nearest day before and the nearest day after the relevant date, as determined by
the Committee. Notwithstanding the preceding, with respect to Options granted on
the date of the initial public offering of Shares, fair market value means the
price at which each Share is sold in such offering, as determined by the
Committee.
2.13 "Fiscal Year" means the fiscal year of the Company.
2.14 "Grant Date" means, with respect to an Option, the date
that the Option was granted.
2.15 "Incentive Stock Option" means an Option to purchase
Shares which is designated as an Incentive Stock Option and is intended to meet
the requirements of section 422 of the Code.
2.16 "Nonqualified Stock Option" means an option to purchase
Shares which is not intended to be an Incentive Stock Option.
2.17 "Option" means an Incentive Stock Option or a
Nonqualified Stock Option.
2.18 "Option Agreement" means the written agreement setting
forth the terms and provisions applicable to each Option granted under the Plan.
2.19 "Participant" means an Employee, Consultant, or Director
who has an outstanding Option.
2
<PAGE>
2.20 "Plan" means Group Long Distance, Inc. 1996 Stock Option
Plan, as set forth in this instrument and as hereafter amended from time to
time.
2.21 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934
Act, as amended, and any future regulation amending, supplementing or
superseding such regulation.
2.22 "Section 16 Person" means a person who, with respect to
the Shares, is subject to section 16 of the 1934 Act.
2.23 "Shares" means the shares of the Company's common stock,
no par value.
2.24 "Subsidiary" means any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
2.25 "Termination of Service" means (a) in the case of an
Employee, a cessation of the employee-employer relationship between an Employee
and the Company or an Affiliate for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability,
retirement, or the disaffiliation of an Affiliate, but excluding any such
termination where there is a simultaneous reemployment by the Company or an
Affiliate; (b) in the case of a Consultant, a cessation of the service
relationship between a Consultant and the Company or an Affiliate for any
reason, including, but not by way of limitation, a termination by resignation,
discharge, death, Disability, or the disaffiliation of an Affiliate, but
excluding any such termination where there is a simultaneous re-engagement of
the consultant by the Company or an Affiliate; and (c) in the case of a
Director, a cessation of the Director's service on the Board for any reason.
SECTION 3
ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the
Committee. The members of the Committee shall be appointed from time to time by,
and shall serve at the pleasure of, the Board.
3.2 Authority of the Committee. It shall be the duty of the
Committee to administer the Plan in accordance with the Plan's provisions. The
Committee shall have all powers and discretion necessary or appropriate to
administer the Plan and to control its operation, including, but not limited to,
the power to (a) determine which Employees, Consultants and Directors shall be
granted Options, (b) prescribe the terms and conditions of the Options, (c)
interpret the Plan and the Options, (d) adopt such procedures and subplans as
are necessary or appropriate to permit participation in the Plan by Employees,
Consultants and Directors who are foreign nationals or employed outside of the
United States, (e) adopt rules for the administration, interpretation and
application of the Plan as are consistent therewith, and (f) interpret, amend or
revoke any such rules.
3
<PAGE>
3.3 Delegation by the Committee. The Committee, in its sole
discretion and on such terms and conditions as it may provide, may delegate all
or any part of its authority and powers under the Plan to one or more directors
or officers of the Company; provided, however, that unless otherwise determined
by the Board, the Committee may not delegate its authority and powers in any way
which would jeopardize the Plan's qualification under section 162(m) of the Code
or Rule 16b-3.
3.4 Decisions Binding. All determinations and decisions made
by the Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in
Section 4.3, the total number of Shares available for grant under the Plan shall
not exceed six hundred thousand (600,000) Shares granted under the Plan may be
either authorized but unissued Shares or treasury Shares.
4.2 Lapsed Options. If an Option terminates, expires, or
lapses for any reason, any Shares subject to such Option again shall be
available to be the subject of an Option.
4.3 Adjustments in Options and Authorized Shares. In the event
of any merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, the
number, class, and price of Shares subject to outstanding Options, and the
numerical limit of Section 5.1 in such manner as the Committee (in its sole
discretion) shall determine to be appropriate to prevent the dilution or
diminution of such Options. Notwithstanding the preceding, the number of Shares
subject to any Option always shall be a whole number.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of
the Plan, Options may be granted to Employees, Consultants and Directors at any
time and from time to time as determined by the Committee in its sole
discretion. The Committee, in its sole discretion, shall determine the number of
Shares subject to each Option. The Committee may grant Incentive Stock Options,
Nonqualified Stock Options, or a combination thereof.
5.2 Option Agreement. Each Option shall be evidenced by an
Option Agreement that shall specify the Exercise Price, the expiration date of
the Option, the number
4
<PAGE>
of Shares to which the Option pertains, any conditions to exercise of the
Option, and such other terms and conditions as the Committee, in its discretion,
shall determine. The Option Agreement shall specify whether the Option is
intended to be an Incentive Stock Option or a Nonqualified Stock Option.
5.3 Exercise Price. Subject to the provisions of this Section
5.3, the Exercise Price for each Option shall be determined by the Committee in
its sole discretion.
5.3.1 Nonqualified Stock Options. In the case of a
Nonqualified Stock Option, the Exercise Price shall be not less than one hundred
percent (100%) of the Fair Market Value of a Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an
Incentive Stock Option, the Exercise Price shall be not less than one hundred
percent (100%) of the Fair Market Value of a Share on the Grant Date; provided,
however, that if on the Grant Date, the Employee (together with persons whose
stock ownership is attributed to the Employee pursuant to section 424(d) of the
Code) owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries, the Exercise
Price shall be not less than one hundred and ten percent (110%) of the Fair
Market Value of a Share on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the
provisions of Sections 5.3.1 and 5.3.2, in the event that the Company or an
Affiliate consummates a transaction described in section 424(a) of the Code
(e.g., the acquisition of property or stock from an unrelated corporation),
persons who become Employees or Consultants on account of such transaction may
be granted Options in substitution for options granted by their former employer.
If such substitute Options are granted, the Committee, in its sole discretion
and consistent with section 424(a) of the Code, shall determine the exercise
price of such substitute Options.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Each Option shall terminate
no later than the first to occur of the following events:
(a) The date for termination of the Option set
forth in the written Option Agreement; or
(b) The expiration of ten (10) years from the Grant
Date; or
(c) The expiration of three (3) months from the date
of the Participant's Termination of Service for a reason other than the
Participant's death, Disability or Retirement; or
(d) The expiration of one (1) year from the date
of the Participant's Termination of Service by reason of Disability.
5
<PAGE>
5.4.2 Death of Participant. Notwithstanding
Section 5.4.1, if a Participant dies prior to the expiration of his or her
options, the Committee, in its discretion, may provide that his or her options
shall be exercisable for up to one (1) year after the date of death.
5.4.3 Committee Discretion. The Committee, in its
sole discretion, (a) shall provide in each Option Agreement when each Option
expires and becomes unexercisable, and (b) may, after an Option is granted,
extend the maximum term of the Option (subject to Section 5.4.1(b) (regarding
the maximum term of Options) and Section 5.8.4 (regarding Incentive Stock
Options)).
5.5 Exercisability of Options. Options granted under the Plan
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall determine in its sole discretion. After an
Option is granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option.
5.6 Payment. Options shall be exercised by the Participant's
delivery of a written notice of exercise to the Secretary of the Company (or its
designee), setting forth the number of Shares with respect to which the Option
is to be exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be
payable to the Company in full in cash or its equivalent. The Committee, in its
sole discretion, also may permit exercise (a) by tendering previously acquired
Shares having an aggregate Fair Market Value at the time of exercise equal to
the total Exercise Price, or (b) by any other means which the Committee, in its
sole discretion, determines to both provide legal consideration for the Shares,
and to be consistent with the purposes of the Plan.
As soon as practicable after receipt of a written notification
of exercise and full payment for the Shares purchased, the Company shall deliver
to the Participant (or the Participant's designated broker), Share certificates
(which may be in book entry form) representing such Shares.
5.7 Restrictions on Share Transferability. The Committee may
impose such restrictions on any Shares acquired pursuant to the exercise of an
Option as it may deem advisable, including, but not limited to, restrictions
related to applicable Federal securities laws, the requirements of any national
securities exchange or system upon which Shares are then listed or traded, or
any blue sky or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options.
5.8.1 Exercisability. The aggregate Fair Market
Value (determined on the Grant Date(s)) of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by any Employee
during any calendar year (under all plans of the Company and its Subsidiaries)
shall not exceed $100,000.
6
<PAGE>
5.8.2 Termination of Service. No Incentive Stock
Option may be exercised more than three (3) months after the Participant's
Termination of Service for any reason other than Disability or death, unless (a)
the Participant dies during such three-month period, and (b) the Option
Agreement or the Committee permits later exercise.
5.8.3 Company and Subsidiaries Only. Incentive
Stock Options may be granted only to persons who are employees of the Company or
a Subsidiary on the Grant Date.
5.8.4 Expiration. No Incentive Stock Option may be
exercised after the expiration of ten (10) years from the Grant Date; provided,
however, that if the Option is granted to an Employee who, together with persons
whose stock ownership is attributed to the Employee pursuant to section 424(d)
of the Code, owns stock possessing more than 10% of the total combined voting
power of all classes of the stock of the Company or any of its Subsidiaries, the
Option may not be exercised after the expiration of five (5) years from the
Grant Date.
5.9 Grant of Reload Options. The Committee may provide in an
Option Agreement that a Participant who exercises all or part of an Option by
payment of the Exercise Price with already-owned Shares, shall be granted an
additional option (a "Reload Option") for a number of shares of stock equal to
the number of Shares tendered to exercise the previously granted Option plus, if
the Committee so determines, any Shares withheld or delivered in satisfaction of
any tax withholding requirements. As determined by the Committee, each Reload
Option shall: (a) have a Grant Date which is the date as of which the previously
granted Option is exercised, and (b) be exercisable on the same terms and
conditions as the previously granted Option, except that the Exercise Price
shall be determined as of the Grant Date.
SECTION 6
MISCELLANEOUS
6.1 No Effect on Employment or Service. Nothing in the Plan
shall interfere with or limit in any way the right of the Company to terminate
any Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment or service with the Company and its
Affiliates is on an at-will basis only.
6.2 Participation. No Employee, Consultant or Director shall
have the right to be selected to receive an Option under this Plan, or, having
been so selected, to be selected to receive a future Option.
6.3 Indemnification. Each person who is or shall have been a
member of the Committee, or of the Board, shall be indemnified and held harmless
by the Company against and from (a) any loss, cost, liability, or expense that
may be imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action
7
<PAGE>
taken or failure to act under the Plan or any Option Agreement, and (b) from any
and all amounts paid by him or her in settlement thereof, with the Company's
approval, or paid by him or her in satisfaction of any judgment in any such
claim, action, suit, or proceeding against him or her, provided he or she shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he or she undertakes to handle and defend it on his or her own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, by contract, as a matter of
law, or otherwise, or under any power that the Company may have to indemnify
them or hold them harmless.
6.4 Successors. All obligations of the Company under the Plan,
with respect to Options granted hereunder, shall be binding on any successor to
the Company, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business or assets of the Company.
6.5 Beneficiary Designations. If permitted by the Committee, a
Participant under the Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Option shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of the Plan and of the applicable Option Agreement, any
unexercised vested Option may be exercised by the administrator or executor of
the Participant's estate.
6.6 Nontransferability of Options. No Option granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, by the laws of descent and distribution, or to
the limited extent provided in Section 6.5. All rights with respect to an Option
granted to a Participant shall be available during his or her lifetime only to
the Participant.
6.7 No Rights as Stockholder. No Participant (nor any
beneficiary) shall have any of the rights or privileges of a stockholder of the
Company with respect to any Shares issuable pursuant to an Option, unless and
until certificates representing such Shares shall have been issued, recorded on
the records of the Company or its transfer agents or registrars, and delivered
to the Participant (or beneficiary).
6.8 Withholding Requirements. Prior to the delivery of any
Shares or cash pursuant to an Option, the Company shall have the power and the
right to deduct or withhold, or require a Participant to remit to the Company,
an amount sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required to be withheld with respect to such
Option (or exercise thereof).
6.9 Withholding Arrangements. The Committee, in its sole
discretion and pursuant to such procedures as it may specify from time to time,
may permit or require a Participant to satisfy all or part of the tax
withholding obligations in connection with an Option by (a) having the Company
withhold otherwise deliverable Shares, or (b) delivering to the
8
<PAGE>
Company already-owned Shares having a Fair Market Value equal to the amount
required to be withheld. The amount of the withholding requirement shall be
deemed to include any amount which the Committee determines, not to exceed the
amount determined by using the maximum federal, state or local marginal income
tax rates applicable to the Participant with respect to the Option on the date
that the amount of tax to be withheld is to be determined. The Fair Market Value
of the Shares to be withheld or delivered shall be determined as of the date
that the taxes are required to be withheld.
SECTION 7
AMENDMENT, TERMINATION, AND DURATION
7.1 Amendment, Suspension, or Termination. The Board, in its
sole discretion, may amend or terminate the Plan, or any part thereof, at any
time and for any reason. The amendment, suspension, or termination of the Plan
shall not, without the consent of the Participant, alter or impair any rights or
obligations under any Option theretofore granted to such Participant. No Option
may be granted during any period of suspension or after termination of the Plan.
7.2 Duration of the Plan. The Plan shall commence on the date
specified herein, and subject to Section 11.1 (regarding the Board's right to
amend or terminate the Plan), shall remain in effect thereafter. However,
without further stockholder approval, no Incentive Stock Option may be granted
under the Plan after [May 21, 2006][date of first grant?].
SECTION 8
LEGAL CONSTRUCTION
8.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
8.2 Severability. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
8.3 Requirements of Law. The granting of Options and the
issuance of Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
8.4 Compliance with Rule 16b-3. Transactions under this Plan
with respect to Section 16 Persons are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan, Option
Agreement or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
9
<PAGE>
8.5 Governing Law. The Plan and all Option Agreements shall
be construed in accordance with and governed by the laws of the State of
Florida.
8.6 Captions. Captions are provided herein for convenience
only, and shall not serve as a basis for interpretation or construction of the
Plan.
EXECUTION
IN WITNESS WHEREOF, Group Long Distance, Inc., by its duly
authorized officer, has executed the Plan on the date indicated below.
GROUP LONG DISTANCE, INC.
Dated: __________, 1996 By
------------------------------
Gerald M. Dunne, Jr.
President
10
<PAGE>
Exhibit 11.1
Group Long Distance, Inc.
Statement Regarding Computation of Per Share Earnings
Exhibit 11
Quarters ended July 31, Years ended April 30,
1995 1996 1995 1996
---- ---- ---- ----
Weighted average number of
common shares outstanding 1,925,000 2,076,914 1,840,250 1,980,125
Common Stock equivalents
considered outstanding all
periods in accordance with
SAB #83(1) 110,000 45,573 -- 38,349
--------- --------- --------- ---------
Total 2,035,000 2,122,487 1,840,250 2,018,474
========= ========= ========= =========
Net earnings 60,875 65,585 281,904 197,985
========= ========= ========= =========
Net earnings per common share 0.03 0.03 0.15 0.10
========= ========= ========= =========
(1) Calculated using the treasury stock method.
<PAGE>
LIST OF SUBSIDIARIES
Gulf Communication Services, Inc.
Adventures-in-Telecom, Inc.
<PAGE>
We have issued our report dated July 26, 1996, accompanying the financial
statements of Group Long Distance, Inc. contained in the Registration Statement.
We consent to the use of the aforementioned report in the Registration
Statement, and to the use of our name as it appears under the caption "Experts."
/s/ Grant Thornton LLP
Fort Lauderdale, Florida
December 9, 1996
<PAGE>
LETTERHEAD OF TIMOTHY M. HOHL COMPANY P.A.
CERTIFIED PUBLIC ACCOUNTANT
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the reference to our firm under the heading "Experts" in
the Registration Statement appearing in the Prospectus, which is part of this
Registration Statement and to the filing of our report on the financial
statements of Group Long Distance, Inc. as of April 30, 1995 and 1994, and of
our report on the financial statements of Second ITC Corporation as October 31,
1995, and to the as part of the Registration Statement.
/s/ Timothy M. Hohl Company P.A.
- --------------------------------
Timothy M. Hohl Company P.A.
December 9, 1996
<PAGE>
We hereby consent to the filing of this opinion as an exhibit
to the above-referenced Registration Statement and to the use of our name
wherever it appears in said Registration Statement, including the Prospectus
constituting a part thereof, as originally filed or as subsequently amended or
supplemented. In giving such consent, we do not consider that we are "experts"
within the meaning of such term as used in the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
issued thereunder, with respect to any part of the Registration Statement,
including this opinion as an exhibit or otherwise.
Very truly yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM GROUP LONG
DISTANCE, INC. FINANCIAL STATEMENTS ENDED
APRIL 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 78,767
<SECURITIES> 0
<RECEIVABLES> 1,559,710
<ALLOWANCES> (358,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,601,971
<PP&E> 106,923
<DEPRECIATION> (29,647)
<TOTAL-ASSETS> 2,740,411
<CURRENT-LIABILITIES> 2,453,043
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 188,641
<TOTAL-LIABILITY-AND-EQUITY> 2,740,411
<SALES> 0
<TOTAL-REVENUES> 12,364,643
<CGS> 9,009,131
<TOTAL-COSTS> 9,009,131
<OTHER-EXPENSES> 2,603,531
<LOSS-PROVISION> 365,066
<INTEREST-EXPENSE> 19,050
<INCOME-PRETAX> 367,865
<INCOME-TAX> 169,900
<INCOME-CONTINUING> 197,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197,965
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM GROUP LONG
DISTANCE, INC. FINANCIAL STATEMENTS ENDED
JULY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 35,804
<SECURITIES> 0
<RECEIVABLES> 3,472,076
<ALLOWANCES> (512,000)
<INVENTORY> 0
<CURRENT-ASSETS> 3,742,402
<PP&E> 398,693
<DEPRECIATION> (49,279)
<TOTAL-ASSETS> 10,850,869
<CURRENT-LIABILITIES> 9,007,510
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,654,206
<TOTAL-LIABILITY-AND-EQUITY> 10,850,869
<SALES> 0
<TOTAL-REVENUES> 5,712,188
<CGS> 4,033,142
<TOTAL-COSTS> 4,033,142
<OTHER-EXPENSES> 926,402
<LOSS-PROVISION> 184,930
<INTEREST-EXPENSE> 440,156
<INCOME-PRETAX> 127,558
<INCOME-TAX> 61,993
<INCOME-CONTINUING> 65,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,565
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
