FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to _______________
Commission File No. 33-99998
GROUP LONG DISTANCE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0213198
State or other jurisdiction (I.R.S. Employer
incorporation or organization Identification No.)
1451 West Cypress Creek Road, Suite 200
Fort Lauderdale, Fl. 33309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 771-9696
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained to the best of registrant's
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knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB [X]
State issuer's revenues for its most recent fiscal year: $12,364,643
The aggregate market value of the common voting stock held by
non-affiliates as of August 5, 1996 was approximately $12,655.259 based on the
last sale price of the Common Stock on August 5, 1996 of $7.25 per share and
reported by NASDAQ Trading and Market Services Research Department.
Shares outstanding of the registrant's common stock as of August 5,
1996: 2,257,348 shares.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Group Long Distance, Inc. a Florida corporation (the "Company" or
"GLD") is a seven year old non-facilities based long distance carrier, the
predecessor of which was originally incorporated in May of 1989, and which began
as an "aggregator" of AT&T long distance services. A facilities based carrier
provides long distance services with the use of its own preferred interexchange
carrier code ("PIC") and a non-facilities based carrier provides long distance
services without the use of its own PIC. An "aggregator" places its customers
long distance traffic through a facilities based carrier and that carrier bills
and collects from the end-user customers. The Company built up a customer base
of over 1,000 customers generating approximately $350,000 in monthly revenue in
its first year of operation and by June of 1990 focused on reselling and
rebilling a new program AT&T Software Defined Network ("SDN"). The Company used
sales personnel to sell its SDN services to the general business community. As
such, during the last five years it provided central services and consolidation
for distributors to join them in their efforts throughout the United States.
Through April 30, 1996, the Company has grown to a customer base of over 12,000
including 27 distributors, 17 agents, and two remote sales locations, prior to
acquisitions of customer bases recently effected (See "PRESENT STATUS" and
"RECENT DEVELOPMENTS" herein). In excess of 60% of the pre-acquisitions customer
base is located in the Southeastern United States and through its distributors
and agents, the Company transacts business to a lesser degree in the Middle
Atlantic, Northeastern, Mid South and far Western states. Post-acquisition
customer bases represent approximately 35% in the Southeastern states. The
Company is not restricted from conducting business in any jurisdiction. GLD has
certification from the Public Service Commission and the FCC, which requires
them to register their rates and practices.
GLD utilizes special AT&T network contracts to provide its customers
with direct access on the AT&T long distance network. GLD has similar agreements
with Worldcom/LDDS, Tel-Save, Intermediary Communications ("ICI") and other
carriers. See "DEPENDENCE ON THIRD PARTY CARRIERS AND MINIMUM VOLUME
COMMITMENTS" herein. These programs were developed by the carriers, such as AT&T
and Worldcom/LDDS for Fortune 500 companies, with multiple locations. Because of
the commitments to millions of minutes in usage each month, the rates that are
charged under these programs are typically less than those available directly to
businesses who place under $25,000 a month in long distance calls. By placing
business on one of these AT&T or alternative carrier network products, GLD can
allow a business to benefit from the same low rates without having to commit to
any minimum monthly or yearly usage amounts and without leaving the comfort and
quality of an AT&T or other major carriers.
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The Company currently acts as a switchless reseller utilizing the AT&T
network, Worldcom/LDDS, Tel-Save, ICI and to a lesser degree other carriers and
rebills inbound and outbound network products throughout the United States. It
also sells prepaid calling cards, billing services, an
Internet/E-mail/Voice/Data Access packaged-product, International call back and
network management and consulting services. Through April 30, 1996, the Company
is receiving approximately 18% of its revenues from 800 services, approximately
4% of it revenues from all calling cards, 77% of its revenue from all outbound
services and 1% of its revenue from consulting services. The Company is adding
local access (Intralata) and reselling Internet services in the near future. It
is also in the process of arranging for feature group access to switches that
will allow it to both route higher profit calls in heavy traffic areas and
provide additional international services. Higher profit calls are obtained
through such switches because the rates available from the carriers to companies
with switching facilities are lower than those offered to non-facilities based
companies. While the Company had intended to acquire its own switching
facilities, the Company has determined that in view of Tel-Save's planned
installation and implementation of its own switches in five strategic
metropolitan centers in the U.S. in the third quarter of the Company's current
fiscal year and an anticipated price reduction from Tel-Save to the Company in
connection therewith, it does not presently intend to acquire its own switching
facilities. (See ITEM 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION").
CORPORATE HISTORY
Second ITC Corporation, a Florida corporation, was formed to acquire
Group Long Distance, Inc. Pursuant to an Agreement of Merger and Articles of
Merger filed with the Secretary of State of Florida on November 16, 1995, Group
Long Distance, Inc. was merged into Second ITC Corporation in a transaction in
which ITC Integrated Systems, Inc. ("ITC") issued 94% of the issued and
outstanding common stock of Second ITC Corporation to the shareholders of Group
Long Distance, Inc.
Group Long Distance, Inc., was incorporated on July 19, 1990 by
Gerald M. Dunne, Sr. as the corporate successor to Group Long Distance of
Florida, Inc. which was originally incorporated under the laws of Florida in May
1989 by Gerald M. Dunne, Sr. and Gerald M. Dunne, Jr. In June, 1991, Group Long
Distance, Inc. merged with Group Long Distance of Florida, Inc. for the purpose
of recapitalizing the operating company to increase the percentage ownership by
the then existing management. As a result of this merger, Group Long Distance,
Inc. has succeeded to and will continue the business of Group Long Distance of
Florida, Inc. All references in this Annual Report to the Company include Group
Long Distance, Inc. and its predecessor Group Long Distance of Florida, Inc.
The Company was incorporated in Florida on September 18, 1995 as Second
ITC Corporation, a Florida corporation. Upon the effective date of its merger
with Group Long Distance, Inc., the name of Second ITC Corporation was changed
to Group Long Distance, Inc.
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Neither Group Long Distance, Inc. nor any of its officers, directors or
employees had any prior or subsequent affiliation with ITC.
In March, 1996 the Securities and Exchange Commission declared
effective a registration statement filed by the Company on behalf of certain
selling shareholders listed therein, and on behalf of ITC, pursuant to which ITC
effected a stock dividend distribution of its shares of the Company's Common
Stock to its shareholders. See also "RECENT DEVELOPMENTS" herein pertaining to
recent acquisitions.
For accounting purposes, the financial statements of Group Long
Distance, Inc. and its predecessor are considered to be the financial statements
of the post-merger surviving corporation. The address of the Company's principal
office is 1451 West Cypress Creek Road, Suite 200, Fort Lauderdale, FL 33309.
The Company's telephone number is (954) 771-9696.
INDUSTRY EVOLUTION
Resellers now make up approximately 11% of the total long distance
market, but over 20% of the business long distance market, which in 1994 was
estimated by the FCC at approximately $65 billion dollars. Of that figure, the
FCC estimated that approximately $36 billion dollars originated from business,
rather than residential, utilization.
Resellers represent a paradox in the telecommunications marketplace.
They are simultaneously an extremely important portion of the profits of the
major long distance providers and yet represent a risk to their product quality,
reputation, and pricing. Not only do resellers receive legal protection to
compete with the network based major carriers, but their sale of excess capacity
represents a necessary source of traffic. The four major carriers and most
regional carriers have substantial excess capacity and their constant
technological & facility upgrading continues that capability.
Resellers primarily exist due to their ability to offer substantially
discounted long distance toll rates, and increasingly, discounted calling card
rates and other discounted services, to their prime target markets, which are
small and medium sized businesses. However, were it not for the fact that the
main target for most resellers was simply not as profitable for wholesale or
major carriers to serve, the reseller would have already encountered such
substantial competition from the major carriers, who are better capitalized,
that they would not have been able to achieve the position in the industry which
they have now achieved. The small and medium business user, or in long distance
terms, those who are currently paying less than $25,000 a month in long distance
charges, represent the same service cost in many cases as larger clients, but
whose profitability falls substantially below the largest clients. As such,
AT&T, MCI, Sprint and Worldcom/LDDS have not positioned themselves to
aggressively discount to this market.
Although resellers face the same expense "crunch" for providing
services, traditionally, most resellers were born as customer base groups or
aggregators of customers, and as such,
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have low overhead. Since the growth of revenues (as published by nationally
recognized telecommunication research specialists) generated through resellers
have been four to five times the percentage of the growth of revenues of the
overall long distance market amongst the three largest carriers (which control
approximately 87% of the long distance market), this paradoxical yet symbiotic
relationship that exists is actually encouraged by the major carriers. There are
more than 500 companies that belong to the TRA and Comp Tel Associations which
represent both facilities based (own & operate switches) and non-facilities
based (switchless) operations in the United States. Major carriers attend the
Conferences and seek out the best resellers to engage further sales in this
important market sector.
In the near future, many resellers may inevitably merge and/or be
acquired by larger wholesalers and resellers, or by major carriers themselves.
Resellers can also offer services that large carriers are not prepared to offer,
such as customized location billing, non-telcom billing carrier services at
single locations with single invoices, and split dedicated service. Although
some regulatory barriers exist, the cost of overcoming these are low. With low
entry barriers, a significant portion of the telecommunications market is still
open to significant competition on a price and service basis. Resellers have
been able to quickly build sizeable customer bases on marketing and
telemarketing strengths, while they may have less ability to manage their
growing revenues and their general business enterprise as their sales and
marketing plans succeed. Therefore, their ability to attract capital to finance
receivables, improve facilities and equipment, and develop management and
systems infrastructure will be the difference between resellers that survive,
those that must merge or be acquired, versus those that continue to grow and
prosper as independent companies.
The major carriers and some of the regional carriers will continue to
depend upon a significant portion of their profits being derived from their
wholesale and resale market sales. Resellers can serve their target market
segments what they require at a price that the majors cannot or will not
provide. Research reports also point to the opportunities that exist in the
product/service areas including prepaid calling cards, international services,
cellular and wireless services, video and data transmission, Web site and
Internet access, 800 number service, voice mail, and electronic mail. Industry
research indicates that the number of call minutes billed will continue to rise
amongst resellers at a rate that is substantially greater than the number of
call minutes billed by the major carriers. Within the resellers market as a
whole, switchless resellers appear to see higher percentage growth than do
facilities based carriers in all of the segments previously mentioned. However,
more switchless resellers will become facilities based as they acquire small
companies and as their traffic increases in given geographic zones, which will
increase their ability to purchase or lease a switch. More traffic flowing into
a given area enhances a reseller's ability to make a switch economically viable
and more profitable for that geographic zone. Should this trend continue, there
may be substantially fewer resellers that remain switchless in the next five to
ten years.
With the recent federal and state regulatory changes that affect the
ability of local service providers (such as the "Baby Bells"), cable TV systems,
satellite network systems, and cellular
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and wireless companies to enter the long distance marketplace, as well as the
ability of major long distance carriers to enter the local access marketplace,
the total market for telecommunication services and products is becoming more
fragmented and competitive. This will influence the rate of growth and the
opportunities that exist for resellers. Resellers with the best potential of
success and continuity will be those with the greatest ability to market and
finance new product and service introductions, and to properly service their
customers.
PRESENT STATUS
The Company currently acts as a switchless reseller utilizing AT&T,
Worldcom/LDDS, Tel-Save, ICI and to a lesser degree other carrier networks
throughout the United States and utilizes switching facilities in providing
debit card and international call back services. It also sells prepaid calling
cards, Internet/E-mail/Voice/Data Access, international call back, and network
management and consulting services. The Company is adding local access
(Intralata) and reselling Internet services in the near future. It is also in
the process of arranging for feature group access to switches that will allow
the Company to both route higher profit calls in heavy traffic areas and provide
international service. The Company has entered into an agreement with UUNet for
the resale of Internet services. The resale of cellular services at the
wholesale level is currently under development, with no definitive date for
completion. The Company will initiate marketing of all its new services to its
existing customer base with nominal expense consisting of statement stuffers,
inserts, and customer service inquiries or follow up calls. As these services
become further developed and tested by the Company's existing customers, they
will become available to new customers through the Company's normal sales force
and distribution channels. The costs associated with marketing to new clients
cannot be accurately determined at this time, but based upon prior experience
with new service introduction, would not exceed currently available funds on a
monthly basis that has been historically allocated for marketing and
advertising.
The acquisition of Adventures in Telecom, Inc., further discussed below
in "RECENT DEVELOPMENTS," includes in excess of 30,000 customers and
approximately $1.5 million of estimated current monthly revenues. The Company
has hired additional customer service and collection personnel to adequately
service such additional customer base and to otherwise address customer service
requirements.
Through April 30, 1996, the Company's two sales offices produced
approximately 50% of its new accounts. Each sales office has generally produced
approximately $25,000 dollars each month in new account sales. Distributors
account for approximately 30% of new account sales while the agent program, as
well as other sources, combine for the remaining 20%. Some of these distributors
and agents are subject to agreements with the Company, of which the majority are
nonexclusive.
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DEPENDENCE ON THIRD PARTY CARRIERS AND MINIMUM VOLUME COMMITMENTS
AT&T and Tel-Save carried approximately 61% and 67% of GLD's revenues in
the fiscal years ended April 30, 1996 and 1995, respectively. Worldcom/LDDS
carried 37% and 31% during the same two periods, respectively. Other carriers
comprised approximately 2% during each of the same two periods, respectively.
While the Company believes that its relationship with its predominant carriers
is satisfactory, the disruption of service with any one or more of such
predominant carriers would have a material adverse effect on the Company and its
operations. See "OTHER CONSIDERATIONS" herein.
GLD has entered into supply agreements indirectly with AT&T through
Tel-Save and directly with Worldcom/LDDS, and ICI, and to a lesser degree
shorter term agreements with a number of other suppliers for long distance
telecommunication services. The agreement with Worldcom/LDDS requires certain
minimum volume purchases on a monthly or annual basis and is subject to
surcharges that are generally equal to a percentage of the Company's shortfall
during that specified minimum volume period. Should a shortfall occur, the
Company would be either charged a higher rate for subsequent periods or the
Company could be charged back for the recently lapsed period at a higher rate.
Although the agreements with Worldcom/LDDS and ICI could result in such
carriers' enforcement of such minimum volume in either of these manners, the
Company, faced with such an event, could switch its traffic within seventy-two
hours to other carriers whose rates are comparable, if not more favorable to
those newly charged by Worldcom/LDDS and/or ICI, and as such, from a practical
standpoint, would limit the incentive of Worldcom/LDDS and/or ICI to engage in
prohibitive enforcement of its shortfall policy. During 1996, these commitments
to Worldcom/LDDS are approximately $500,000 dollars in traffic per month. Such
commitments will increase to approximately $750,000 per month commencing April
1, 1997 and approximately $1,000,000 per month commencing August 1, 1997. While
no minimum commitment to ICI existed at April 30, 1996, commitments to ICI are
subject to staged increases through March 1997 at which time the commitment will
be $250,000 per month. The Company has no similar commitments to any of its
other carriers. Although the Company has never failed to meet a volume
commitment to its suppliers, there can be no assurance that the Company would
not experience losses of customer bases that would prevent it during any given
period from making such a volume commitment. To the extent that it failed to
make such a volume commitment, the Company could experience a deterioration of
its profit margin for that period, as well as experience a loss for that period
due to the surcharge, or obligate itself to either higher rates in the next
periods or to a payback of the surcharge (constituting the equivalent of a debt
repayment) over an indeterminate period of time in the future. Although the
Company knows of no such reasons that could in the near term affect it in such a
way as to cause such events to unfold, such events could be adverse to the
Company's ability to continue to be profitable. In 1993, AT&T adjusted its then
invoiced billings to GLD and arranged for a repayment period. Although the
Company restructured these invoices due to bad debt write offs from its
customers and has since restructured its credit control to avoid similar
occurrences in the future, as well as in the immediate past since that
restructuring with AT&T, there is no assurance that should volume
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commitments not be honored by the Company that similar restructurings could be
arranged in the future.
RECENT DEVELOPMENTS
In May 1996, the Company purchased, for $220,000, the stock and assets,
including the customer base, of Gulf Communications Services, Inc. ("Gulf").
Gulf has it's own switching equipment which allows it to act as an international
call back and call through provider. In addition, Gulf offers pre-paid calling
cards access, voice mail and fax broadcast services. The purchase price is
payable in installments of $10,000 a month through January 1998.
On July 22, 1996, the Company acquired all of the issued and
outstanding shares of the common stock of Adventures in Telecom, Inc. ("AIT"), a
privately held company based in Houston, Texas in consideration of $5,271,230
and an aggregate of 200,000 restricted 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). The AIT acquisition includes in excess of 30,000 long distance
customers and estimated current monthly revenues of approximately $1.5 million.
See also "OTHER CONSIDERATIONS".
AIT's customer base consists primarily of small business customers to
whom the Company intends to market its long distance, Internet and local access
services.
In anticipation of and in connection with such acquisition, the Company
closed upon a $5,521,230 loan transaction with Tel-Save, Inc. (the "Lender" or
"TS"), a subsidiary of Tel-Save Holdings, Inc. and a provider of certain
telecommunication services to the Company and the Company's end-users and
customers. Such aggregate loan amount included approximately $250,000 of funds
previously advanced by TS to the Company for unrelated matters.
The loan agreement between the Company and the Lender and the
promissory note pertaining thereto provide, in summary, for the repayment of
such loan with interest thereon at the rate of 6.5% per annum with delineated
principal and interest payable on a monthly basis, on or prior to July 11, 1997.
The Company intends to repay such loan primarily through the collection of
receivables as well as through funds which may be derived from public or private
financing sources. In connection with such loan transaction, the Company agreed
to issue a common stock purchase warrant to TS Investment, Inc., a subsidiary of
Tel-Save Holdings, Inc., to purchase 300,000 shares of the Company's common
stock at an exercise price of $5.75 per share through July 11, 2001, further
subject to certain demand and " piggyback" registration rights. Such loan
agreement and related documents also provide, in summary, among other matters,
(i) for the pledge by Gerald M. Dunne, Jr., the Company's President and Chief
Executive Officer, of all shares of the Company's common stock owned by him to
secure the repayment of such loan, (ii) for the Company's executive officer and
directors to enter into a stockholder agreement with the Company and TS
restricting the transfer of certain of their respective Company securities until
the repayment of the loan in full, (iii) in the event a default, as such phrase
is defined in the loan agreement, shall have occurred and be continuing, for the
Company and its directors, upon the request of TS, to take all steps necessary
and appropriate to cause TS's designees to be appointed to and constitute a
majority of the Company's board of directors, and (iv) for the Company to pledge
various assets, including all shares of AIT common stock owed by the Company, to
TS to secure the repayment of such loan.
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PRODUCTS AND SERVICES
At present, the products and services offered by the Company include:
* AT&A AT&T SOFTWARE DEFINED NETWORK ("SDN")
AT&T's premier virtual network is used by some of their
largest corporate clients.
* AT&T CUSTOMER SPECIFIC TERM PLAN II AND REVENUE VOLUME
PRICING PLAN ("CSTP II" AND "RSVP")
Available for AT&T 1-800 incoming services only. Significantly
reduced rates with larger volume discounts that only AT&T's largest 800 users
receive.
* WORLDCOM/LDDS NETWORK PRODUCTS AVAILABLE THROUGH THE COMPANY
This contract combines all long distance services from a
single vendor with aggressive inter/intra-state as well as international rates,
800 service, a full range of calling card and debit card products and dedicated
access, point to point with full technical support. The Company offers other
long distance reseller companies billing partitions under this agreement. The
customers within this base have already received information on Intralata
dialing (toll calls normally billed by the local telephone company) using the
Company service.
* INTRALATA SERVICE
This plan allows Intralata calls to be billed by the Company
rather than the local telephone companies. As pre-subscription (the ability to
choose an Intralata long distance company) becomes available, the Company will
be positioned to convert its existing customers to these services enabling them
to initiate their local toll calls in the same manner that a normal long
distance call is initiated. This positions the Company to add this service to
customers already being billed, potentially increasing the net revenue per
account while achieving a higher profit margin per customer since the
incremental revenue does not cost as much to produce.
* "BUSINESS EXPRESS PLUS" PRIVATE NETWORK SERVICE
Business Express service is an alternative carrier service
primarily utilizing the Worldcom/LDDS and Tel-Save networks, which offer
customers flat rate pricing for both outbound and 800 long distance service
where a customer requires enhanced authorization features not available at
similar pricing levels. Calling cards are also available.
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* DEBIT AND CREDIT PREPAID CARDS
GLD's travel and debit cards offer low long distance rates
through either per unit fees or through monthly billing of the end user client.
The cards are utilized in the exact same way as other calling cards and there
are no "ease of use" disadvantages versus other calling cards. Besides
relatively large savings for out of country and foreign travelers, these cards
are now being priced at a level that includes substantial potential utilization
by larger corporations, whose executives and sales personnel routinely utilize
calling cards. The absence of transaction fees per call as well as lower per
minute charges make these cards extremely attractive to both large and smaller
users.
The Company was the procuring agent in a transaction in which
Target Stores markets prepaid calling cards throughout their retail stores. The
Target contract has generated approximately $3.5 million of retail sales at
April 30, 1996 of which the Company recognized a 5% agency commission of
approximately $176,000 through such period. This has provided the Company with a
number of opportunities for additional sales to other large retail outlets and
service providers, e.g., rental car companies, airlines, travel organizations,
associations, restaurant chains, retail store chains, etc. Affinity groups and
large service provider retailers can sell these cards in smaller unit sizes to
persons utilizing their services. Since the reception by Target store customers
has been successful as measured by reorders and by customer satisfaction with
the product, the ability of the Company to demonstrate its capability to provide
a national mass merchandiser with a large quantity of consistent quality
products in a timely fashion has been beneficial to the Company's sales and
marketing efforts. Other retail chains and service providers have been able to
observe the potential profitability of these products as they relate to their
respective organizations.
"EZ CALL" is GLD's calling card which is paid for in advance.
The cards may also have additional time added to them by using a major credit
card. EZ Call limits a customer's liability for stolen, lost, or employee abused
cards, since the minutes are preset and added to each card in limited quantities
at the direction of the customer. These cards are also being utilized by
consumer product companies as promotional giveaways and in fund raising
campaigns by schools and other charitable organizations. Of the orders received
by the Company through April 30, 1996, approximately one-third of these orders
were indirectly related to such promotions.
* INTERNET ACCESS
This product is the newest and fastest growing to
telecommunications providers in general. GLD has packaged a service which
includes domain registration and services (e.g., design, placement,
advertising), Web sites, monthly access to the Internet for dialup and dedicated
usage, and a discounted 800 service to respond and/or reply to the customers'
eventual order flow. This package, which is currently offered by the Company to
a limited client base while it is under test and development status includes
E-mail, Web browser, internet dialer, and
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search engines, all priced, at this time, as much as 58% below a representative
major carrier provider for software and initial access. The bundling of these
services represents a "one-stop" arrangement for the small and middle size
business user. Since many small businesses do not employ computer/software
specialists to serve their systems needs, and are owned or managed by
individuals who may not be skilled in the use of the Internet, a "one-stop"
approach provides the Company with a simple approach to a steadily expanding
demand in the marketplace and is responsive to the practical deficiencies
inherent in this market niche.
* ENHANCED BILLING/CONSULTING
The Company believes that its value added billing capabilities
and consulting services for its small and medium size customers helps these
businesses manage their telecommunications costs more effectively. The type of
services that are in highest demand by the Company's target market include
access configuration, billing verification, correction of billing errors,
integration of voice, data, and facsimile hardware/peripheral equipment, LAN/WAN
(local area network/wide area network) assessment and design, cost
justification, relocation of telecommunication equipment, data line and
diagnostic analysis, call detail, access/trunk utilization, network trouble
resolution, and service order processing. These capabilities are provided within
local service coordination and can be interfaced with equipment vendors for
add-ons, moves or changes. As GLD adds additional sales and marketing personnel,
this portion of its business, and level of service, is expected to continue to
grow.
* INTERNATIONAL SERVICES
The Company has acquired switching facilities that will enable
the Company to originate and transmit international traffic worldwide.
Currently, the Company's primary marketing focus is in the Caribbean basin,
nearby Latin American countries, and Europe. GLD expects to broaden its scope of
operations to include offering international switching services to facilities
based companies and wholesalers while pursuing acquisitions of companies already
serving international markets.
Call back service is one of the fastest growing segments of
the international sector. Call back service utilizes programming that allows an
international caller to effectively originate a call outside the United States,
and instantaneously be "switched" by a "call back" feature to a U.S. based line
at a much lower rate than would be available in the country of origin. GLD's
geographic advantage of being based in South Florida, a "gateway" to the
Caribbean Basin and Latin America, is strategically beneficial to customers
located in such zones. Although this segment of business currently represents
less than 1% of GLD's revenues, the Company believes that its sales force can
effectively penetrate these markets at a cost that may be less than some of its
competitors. There is a ready labor market in the Broward and
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Dade county area of persons fluent in the languages spoken in the countries
throughout the Caribbean and Latin America from which the Company may attract
new employees.
EXPANSION OF PRODUCTS AND SERVICES
As the Company continues to utilize transmission services from several
underlying carriers, as well as arranging for feature group access to switches
in key high traffic geographical zones, its ability to cross-sell additional
services to these same customers potentially enhances its revenue base and
profit margins. Debit or calling cards that are prepaid, and Internet access
related services which have expanded profits in the past, and may be anticipated
to do so in the future. Most small and medium businesses have traveling
executives or sales personnel that utilize currently available telephone calling
cards, or Internet/E-mail/Voice/Data Access systems. GLD's management believes
that the Company has the ability to provide these additional services with the
same representative discounts as it provides in long distance services. Although
no assurances are given, the Company believes that since these customers are
already familiar with GLD, their acceptance of the "bundling" of newly provided
but already utilized services may be anticipated to continue.
The Company receives marketing and advertising advances from its
principal carrier; in the past, as its revenues generated through that
respective carrier increased, so has its respective allocation of advances
increased. Such marketing and advertising advances are not currently part of any
agreements or contracts with such carrier, but represent verbal performance
allowances for the Company to more rapidly expand its customer base within that
carrier's network. These arrangements are usually after the fact and are
therefore not directly measurable in their quantitative impact on any specific
new account or group of accounts but rather judged by the general increase in
the carrier's base of business initiated by the Company. Although there can be
no assurance that such advances will continue to be available to the Company in
the future, the Company has negotiated favorable marketing advances during the
next twelve months. The Company intends to expand its sales force, its
telemarketing lead generation capabilities, its international call back
marketing, and its direct distribution systems.
ACQUISITION AND PROCUREMENT OF CUSTOMER BASES
Management believes that in certain instances, it may be faster and
less expensive for the Company to purchase a customer base or acquire a
complementary product and distribution channel than it is to develop internally.
The Company has already enhanced the profitability of its acquired assets or
businesses by applying volume discounts from its carriers to the newly acquired
traffic. As acquisitions of customer bases do not generally require significant
additional overhead, the profit margin on such acquired traffic tends to be
higher which may positively impact upon cash flow. GLD intends to pursue the
combination and/or acquisition of appropriate customer bases or facilities based
carriers. Although acquisitions of customer bases may result in more favorable
discounts to the Company from its major carriers, thereby enhancing and
expanding GLD's margins on its pre-combination business, there can be no
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assurance that this will occur in the future. Should an acquisition or
combination prove to be unsuccessful for any reason, it could adversely impact
the Company's operating profits, cash flow and operations. See also "PRESENT
STATUS" and "RECENT DEVELOPMENTS" above and "OTHER CONSIDERATIONS" herein.
Prior to October 1995, GLD acted as a reseller of Worldcom/LDDS long
distance services for Touchtone Network, Inc. ("Touchtone"). In October 1995,
the Company entered into an agreement whereby those customers of Touchtone not
carried by the Company were acquired by GLD. This resulted in the Company's
ability to lower its costs on the traffic upon which it was already acting as a
distributor and introduced approximately 1,000 new small business customers who
were routing their calls through Worldcom/LDDS to the Company. At the time of
such acquisition, Touchtone revenues were in excess of $100,000 per month.
Through expected attrition, the Company has experienced a decrease in monthly
revenues from such customer base to approximately $85,000 per month as of April
30, 1996 and as of the date hereof. The Company anticipates that such base of
business will continue to decrease over time on a diminishing basis. Such
attrition has already been taken into account in the amortization of the
customer acquisition costs.
SALES AND MARKETING
GLD's sales and marketing to potential accounts is organized by sales
and marketing managers. These sales managers are supported by an internal
telemarketing group, by direct sales representatives, and by customer service
representatives. Direct client meetings are conducted by all of these personnel.
A provisioning staff enrolls new subscribers and ensures compliance with client
instructions.
The Company's multiple channels of distribution consist of:
Direct Sales Data & Billing Partitions
Distributors Joint Ventures
Agents Retail Chain Stores
Telemarketing Sales Association and Affinity Groups
GLD intends to focus its marketing efforts in the following areas:
1. Cross sell additional services and new products to existing
customers (including newly acquired customer bases).
2. Market the prepaid and monthly pay calling cards to other
retail, corporate, and service outlets nationwide.
3. Provide existing and new clients an Internet access package.
4. Expand international call back services through its newly
the acquired switching facilities.
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5. Seek new contracts from the respective membership of various
related business, trade and professional associations.
6. Provide Intralata service through local network providers.
7. Expand all new services to the Company's distributors and
agents.
8. Direct sales contact for both in-house and distributor/agency
accounts in each major city. Continue a telemarketing effort
to arrange appointments.
9. Expand distributor and agent training in GLD products and
services.
10. Recruit new agents via Internet and USA TODAY ads; Target
geographic zones.
12. Open new sales locations in Tampa, Jacksonville, Richmond,
Atlanta, Raleigh-Durham, and Charlotte.
COMPETITION
The long distance telecommunications industry is highly competitive and
influenced by the introduction of new services by, and the marketing and pricing
activities of major industry participants. Since the regulatory climate has
favored competition amongst the "Big Four" providers of long distance services
(AT&T, Sprint, MCI, Worldcom/LDDS) the industry has experienced significant
increases annually in the number of companies that are providing resale, debit
card, international call back, data/fax/voice mail, internet, and messaging
services. Many of these companies are small businesses and do not individually
pose substantial competition to either the "Big Four" or even the next several
hundred large sized interexchange carriers or resellers. Many of these
businesses are agents or distributors of these interexchange carriers or are
master distributors for them, and as such, represent aggregators of "customer
based" competition for each small and medium sized business customer. This
market is characterized by both a "price driven" and" services-provided driven"
environment. Since the majority of resellers are extremely close in pricing for
similarly sized volume customer accounts, the ability to attract new customers
is often more dependent on factors other than pricing, including but not limited
to services provided, timeliness, accuracy, and the ability to resolve problems
expeditiously. As such, the quality of the administration of the customers
account, and therefore the management aspects of each competitive provider are
becoming increasingly important. Since the industry is rapidly consolidating,
with mergers and acquisitions amongst medium and small providers being
consummated on a daily basis, those competitors that are positioned financially
and organizationally to acquire the customer bases of smaller resellers will
increasingly outpace the service capabilities and ongoing account maintenance
capabilities of smaller competitors. Many of the Company's competitors may have
better name recognition, and/or marketing capacity than the Company and have
greater personnel and other resources than those currently available to the
Company. To the extent that Company indirectly utilizes the AT&T, Worldcom/LDDS,
Tel-Save, ICI and other carriers' transmission networks and software engineering
capabilities, and as such, there is no technological nor utilization inferiority
that is present to a customer of the Company versus that customer's direct
access to the same transmission or software for such carriers, these and other
competitors may have capacities and resources greater than the Company. Certain
competitors have national advertising programs and may be more rapidly expanding
their telemarketing and incentive programs than the
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Company. Some competitors may have increased storage capacity for on-line data
within their information systems.
As previously discussed herein (see "INDUSTRY EVOLUTION"), the market
to whom the Company and other resellers offer their services is not as
profitable for the "Big Four" due to their substantially higher cost in
servicing such businesses. In the event the "Big Four" were to reverse their
current strategy and decide to more directly compete on a price basis with its
distributors like the Company, such revised strategy would in all likelihood
adversely effect the Company's ability to retain and expand its client base. See
also "REGULATION; RECENT LEGISLATION" below.
New competitors such as cable systems, local exchange carriers,
satellite and wireless companies, as well as other long distance
telecommunications service companies, have recently announced plans to enter
several of the business' in which the Company competes. Such new competitors are
either not providing services or have been prevented from providing services
either in the Company's core businesses such as long distance resale, or in
additional services such as debit cards, internet access, enhance billing
features, or international services. The extent to which their competitive
impact on the market for telecommunications services cannot currently be
determined. To the extent that such entities offer price and service
competition, these entities, individually, or as a group, could materially
impact on the Company's profit margins.
REGULATION; RECENT LEGISLATION
The Federal Communications Commission ("FCC") and various state public
utility commissions regulate actions, proposals relating to interstate access
and transport, local exchange competition, the interconnection with local
telephone companies, licensing, rate and tariff approvals, expansion of company
operations, geographic distribution, methods of operation, and otherwise limit
the types of services offered by the Company. Although the Company believes that
it is in material compliance with all material regulations governing its
operations and has obtained or is in the process of obtaining various tariff and
license approvals to conduct its business in the states it currently conducts or
plans to conduct business, there can be no assurance the Company will continue
to comply with applicable laws or regulations or that the Company will continue
to comply with applicable Federal Trade Communication regulations. The Company
has not been denied licenses in the past in any state but there can be no
assurance that the Company would not be denied licenses in any state or
jurisdiction in which it may apply for licenses in the future.
There have been significant regulatory changes in both federal and
state regulations and these changes have had significant impact on the actions
and abilities of resellers to continue their business. For the most part, FCC
regulations require major providers to give access to both long distance and
local operations to companies such as GLD. There can be no assurance that
regulators will not change their current pro-competition trend and further
restrict the ability
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of resellers to conduct their operations in a profitable manner. Such reversal
or modification could be detrimental to the Company and have a material adverse
effect upon its operations. Although the Company's profit levels are not
regulated by the FCC or the various state utility commissions, such authorities
may have the ability to do so in the future, and the extent to which they
exercise such rights, could adversely affect the Company.
A 1984 court decree, which required AT&T to divest its local exchange
operations began a litany of corporate expansions in the United States for
companies providing direct long distance discounted services. Since then and
currently, the FCC and the United States Congress have been committed to
allowing for increased competition among the providers of long distance, local
access, and wireless/satellite services.
On February 8, 1996, the President signed the Telecommunications Act,
which will introduce more competition to U.S. telecommunications markets. The
legislation opens the local services market by requiring local exchange carriers
("LEC" or "Baby Bells") to permit interconnection to their networks. This
established LEC obligations with respect to access, resale, number portability,
dialing parity, access to rights-of-way, and mutual compensation. The
legislation also codifies the LEC's equal access and nondiscrimination
obligations and preempts most inconsistent state regulations. The legislation
also contains special provisions that eliminate restrictions on the Regional
Bell Operating Companies providing long distance services, which means that the
Company will face competition for providing long distance services from
well-capitalized, well-known companies that prior to this time could not compete
in long distance service.
TECHNOLOGY TRENDS
The telecommunications industry as a whole has experienced rapid
technological change, significant numbers of new product and service
capabilities, and alternate carrier mediums. As such, wire based services
compete with cellular services which compete with wireless services which
compete with satellite services. Although wire based services are currently
dominant, and are the type used predominately by the Company, industry and
market trends evolving to other mediums of service could adversely affect the
Company and could cost the Company additional substantial expense in converting
their services from predominately wire-based to other mediums. To the extent
that the proliferation of new telecommunications mediums could reduce the demand
for the Company's services and products, or may reduce the demand for any
specific product in general, such as debit cards, international call-back, or
internet access, the Company may be limited in its ability to introduce new
products and in effect may be prevented from introducing any new products in the
future. Since the cost of introduction of new products and services and the
initial cost of marketing is substantial, to the extent that the Company has
expended resources to do so and does not realize the revenues and profits from
those products and services that it expected, these technological changes could
adversely affect the Company's ability to compete and to be profitable in the
future.
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BILLING RECONCILIATION
The invoices that are received each month from the Company's carriers
do not, at the time of this Annual Report, reflect the true agreement or
contract rates, as applicable, but rather reflect the respective rate within
each carriers' software as that respective program has accounted for the
Company's call traffic. This rate differential must then be manually adjusted by
the Company's and the carriers' accounting departments prior to arriving at an
invoice amount that would be further examined for other types of billing
inconsistencies or errors. The nature of the software systems currently in use
by the company's carriers is not expected to be materially upgraded in the near
future and as such, the Company expects to be required to continue to make such
manual adjustments for an indefinite period. The Company receives the credit for
this rate differential prior to any potential disputes or errors that may result
in additional credits to the Company. Although there are no contractual
provisions addressing these credits and discrepancies, the availability of this
credit as a result of this true rate differential is never a subject of
negotiation or offset regarding any other billing disputes, inconsistencies or
errors. These discrepancies relate to recurring monthly amounts which are not
material in size and different in amount and credit each month. There are no
carryovers on such reconciliations since they are resolved on a monthly basis.
The payable to AT&T (See "Financial Statements 1996 and 1995," page
F-10, Note E) that occurred in 1991 was due to such a billing inconsistency. On
the system utilized by AT&T at that time, detailed customer billing records
could be invoiced at any time for up to two years after incurred. The bills that
resulted in the event were for items that were invoiced twelve months subsequent
to the billing cycle reflected on the invoices. The Company initiated a
complaint regarding this service and practice since many of those customers were
out of business or had discontinued service in this area, or were no longer
client customers of the Company, or refused to pay an invoice in excess of a
year old, and therefore, the ability of the Company to collect such an invoice
that was so far in arrears was negatively impacted. AT&T has since modified its
procedures and policies to eliminate the recurrence of such discrepancies and
the Company has additional personnel and computerized systems in place now that
would effectively monitor the potential of such billing inconsistencies. See
"ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION".
EMPLOYEES
As of April 30, 1996, the Company employed 48 persons on a full-time
basis, with 29 in sales and marketing, 9 in customer service and provisioning,
and 10 in management, administration, finance, technical and information
systems. None of the Company's employees is covered by collective bargaining
agreements. The Company considers relations with its employees to be good.
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OTHER CONSIDERATIONS
DEPENDENCE ON THIRD PARTY CARRIERS AND THIRD PARTY OPERATED NETWORK
SWITCHING FACILITIES
The Company does not currently own any network switching facilities and
depends upon AT&T, Worldcom/LDDS, Tel-Save and ICI, and to a lesser degree,
other facilities based carriers for the actual transmission and switching of
customer calls or other services. GLD's ability to continue it's current
business and to expand it's customer base and product/service capabilities to
that customer base depends, at least in part, on it's ability to continue to
receive telecommunications services from facilities based long distance carriers
both on favorable terms and with the compatibility with interexchange and local
exchange carriers to initiate and terminate service for it's customers.
The ability of the Company to continue access to switching facilities
on favorable terms is material to the Company's ongoing profitability and the
continuing expansion of the Company's operating margins. An increase in the
rates charged to the Company by these facilities based carriers and/or the
discontinuance of the availability of such facilities would at the least cause a
significant increase in the Company's expenses for the purpose of switching to
other facilities based providers and at the worst could prevent the Company from
continuing to service a significant portion of it's customer base. Any increase
in the rates charged by third party operated switching companies allows the
Company to terminate their agreements with said third party operated switching
companies and initiate new service with other third party operated switching
companies. Although the Company believes that it has adequate access to
switching facilities on terms currently favorable and, as its volume increases,
become more favorable, and further believes that it's strong relationships with
these switching facilities are well developed based on the Company's performance
and credit record with these facilities, there can be no assurance that such
relationships will continue, and if discontinued, would adversely affect the
Company.
The Company's carriers cannot increase the rates to the Company without
prior notice. In the event of an increase in price, the Company would have the
option of terminating its agreement with that carrier. If the Company
experienced price increase simultaneously from all its current carriers, the
Company would seek to enter into new agreements with other carriers such as MCI,
Sprint, Allnet, LCI, and/or one or more of the other long distance carriers
currently offering similar service agreements to those in effect to the Company
at the date hereof. Although the Company is aware of the rates and terms
available to it from such alternative carriers, and believes that it would be
able to negotiate comparable rates to those currently available, there is no
assurance that such rates would be available at the time that a potential
simultaneous rate increase from the Company's current carriers occurred. As such
the Company's ability to operate profitably could be adversely effected. See
also "PRESENT STATUS -
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DEPENDENCE ON THIRD PARTY CARRIERS AND MINIMUM VOLUME COMMITMENTS".
In addition, a third party facilities provider could experience a
service interruption or equipment failure that would be perceived by the end
user customer of the Company to be a failure on the part of the Company to
provide adequate service to them, and could adversely affect the Company's
ability to continue a relationship with that customer. Although such failures
have not been the cause of any customer dissatisfaction since the Company
commenced operations, such future interruptions could have an adverse affect on
the Company.
All long distance providers are dependent upon local exchange carriers
to originate and terminate their calls. Origination is the process by which a
call begins at a customers location and is routed to a long distance provider
and network selected to transmit that call. Termination is the process by which
the call extends from the interexchange carrier to the call's intended
destination. Since the FCC requires both interexchange carriers and local
exchange carriers to provide for the resale of the use of their transmission and
with access to the origination and termination to calls, respectively, should
either or both of these FCC requirements be removed, the Company could be
adversely affected.
INFORMATION SYSTEMS AVAILABLE TO MANAGEMENT
The Company depends to a large degree upon the call data records that
are provided by its facilities based carriers and on its on billing and
provisioning capacity. There can be no assurance that accurate information will
continue to be consistently provided on a timely basis by the Company's facility
based carriers or that the Company's billing capabilities will maintain and
expand sufficiently to meet its customers requirements. In both 1995 and 1996,
the Company upgraded its billing and customer service systems and as it added
new clients and acquired new clients, the Company purchased new hardware and
software to expand and improve its systems. There can be no assurance that the
Company will continue its profitability so as to provide it with the cash flow
necessary to continue to purchase hardware and software necessary to the
maintenance and expansion of its own billing and collection systems.
Management data systems are currently provided by internal programming
designed for the Company and to a lesser degree provided by reports generated by
the facilities based carriers. Such management information provided by
facilities based carriers could be more limited or be discontinued in the future
with little notice to the Company, and as such would cause the Company to expend
funds to substitute systems to replace these reports. There can be no assurance
that the Company will generate sufficient cash flow in the future to accommodate
such expenditures at the time when these expenditures are required, and as such,
management may be unable to achieve timely information which has been available
to it in the past.
The Company has three different billing cycles. The Tel-Save/AT&T
billing cycle starts on the nineteenth of each month and ends on the eighteenth
of each month. Worldcom/LDDS
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is on a monthly billing cycle and Midcom's billing cycle begins on the ninth of
each month and ends on the eighth. Bills are received from the underlying
carriers approximately ten days after the end of the respective billing cycles.
The Company collects all payments from its customers and in the case of those
customers utilizing Tel-Save and Midcom agreements, such payments are remitted
to lock box accounts.
Due to billing inconsistencies and/or the methodology of billing by
facilities based carriers, there may be amounts owed to the facilities based
carriers in a given invoice period that are disputed by the Company (See
"BILLING RECONCILIATION") . As such, the Company may be in arrears in some of
its payments to a carrier until such disputed amounts are reconciled to the
satisfaction of both parties. Although such amounts are under review on a
constant basis at both the Company and the facilities based carriers, and the
Company has adequately trained, efficient personnel to handle such problem
solving, there can be no assurance that the facilities based carriers will
continue to carryover the disputed balances in the future as they have done in
the past. The ability of the Company to adequately reconcile such differences,
as well as the Company's ability to carryover disputed amounts until reconciled,
could adversely effect the Company. It is the Company's current policy to pay
small disputed amounts and apply for a credit from the carrier during the given
invoice period. Should the carrier issue a smaller credit, or no credit, as
against that which was disputed by the Company, then the Company's profit margin
for that period would be adversely affected.
To adequately service, in a competitive environment, huge volumes of
call data quickly and accurately, GLD must maintain a sophisticated billing and
reporting system. Although it has maintained such systems in the past to grow
its customer base to its current levels, there can be no assurance that it will
be able to maintain such systems in the future, nor that it can remain
competitive against other providers of billing services and other resellers for
an extended period into the future. As such, its inability to be competitive in
providing such billing services could adversely affect the Company.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent in part upon it's ability to
attract and retain key management personnel who are in high demand and are often
subject to competing employment opportunities. The loss of services of Gerald M.
Dunne, Jr., the Company's President and Chief Executive Officer, or turnover in
other key areas could adversely affect the Company's business. See "MANAGEMENT".
MANAGEMENT EXPERIENCE DURING PERIODS OF EXPANSION
The Company's growth has necessitated upgrading and updating to its
accounting, billing, personnel, data information, supervisory, and financial
control systems. Such expansion normally requires diligent attendance to ongoing
training and, where appropriate, modifying internal controls. The Company's
ability to continue to expand its operating margins and to continue its
profitability could be adversely effected if its ability to
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effectively manage the components that have lead to its previously experienced
growth is impaired or reduced in any way. There can be no assurance that the
Company can continue to effectively assimilate its growth at the rates it has
experienced in its immediate past.
CREDIT CONTROLS
Credit controls for the adding of new customers, as well as the assessment of
the quality of customers attained through the acquisition of aggregated customer
bases from previously competitive firms, also places a challenge on management
as GLD integrates competitors' customer bases into their own rapidly expanding
current customer base. The Company is constantly updating and revising its
policies as it relates to the extension of credit to its customers including
Dunn & Bradstreet credit reports, letters of credit and where credit bureau
reports are not indicative of the better credit risks, for personal guarantees.
As the Company's customer base grows, the need to continue to improve both the
availability and timeliness of its credit controls will continue to place a
burden on the Company's management and resources. To the extent that the
Company may be unable to continue to keep pace with its expanding customer base,
its inability to control credit risks appropriately could adversely affect the
Company's ability to operate profitably.
ITEM 2. PROPERTIES.
The Company's executive offices are located at 1451 West Cypress Creek
Road, Suite 200, Fort Lauderdale, Florida 33309. Such facilities, which occupy
approximately 7,980 square feet, are subject to a four year lease expiring in
March 2000 with a current monthly rental rate of approximately $8,000 per month,
including operating expenses, subject to an approximate 4% adjustment increase
on an annual basis.
CURRENT SALES LOCATIONS
Fort Lauderdale and Orlando, Fla.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any material litigation, and
management has no knowledge of any threatened material litigation by or against
the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders through
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this Annual Report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
Since April 1, 1996, the Company's Common Stock has been and is traded
on a limited basis on the OTC Bulletin Board, owned and operated by the NASDAQ
Stock Market, Inc. under the symbol GLDT. The following table sets forth, for
the periods indicated, high and low bid information for the Company Common Stock
as reported by the NASDAQ Trading and Market Services Research Department. Such
high and low bid information reflects inter-dealer quotations, without retail,
mark-up, mark down or commissions any may not represent actual transactions. The
Company intends to make application to have its Common Stock approved for
quotation on the NASDAQ National Market System at such time as it may meet the
listing criteria thereof. There can be no assurance that its Common Stock will
be so listed or that the market for the Company's securities will be further
developed or otherwise sustained.
HIGH LOW
---- ---
Fiscal Year 1996
Fourth Quarter $5.0625 $4.875
(April 1 - April 30, 1996)
Fiscal Year 1997
First Quarter $7.50 $3.25
On August 5, 1996, the high and low bid for the Company's Common Stock
was $6.50 and $5.375 respectively, and the last price that the Company's Common
Stock traded was $7.25.
The approximate number of record holders of the Company's Common Stock
as of August 5, 1996 is 110.
The Company has not paid any cash dividends to date and does not
anticipate or contemplate paying dividends in the foreseeable future. It is the
present intention of management to utilize all available funds for the
development of the Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company had gross revenues for its fiscal years ended April 30,
1996, 1995 and 1994 of $12,364,643, $9,538,095 and $7,784,112. The revenue for
the fiscal year ended April
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30, 1996 reflect an increase of approximately 30% over the preceding period. The
Company's revenue increases of $2,826,548 in 1996 and $1,753,983 in 1995 are the
result of a continued aggressive marketing program. The Company also began
marketing additional services such as Internet access service and international
call back service in the second half of 1995, though such services' impact on
revenues were nominal through April, 1996.
Subsequent to the April 30, 1996 fiscal year end, the Company purchased
the stock and assets, including the customer base, of Gulf Communications
Services, Inc. ("Gulf"). Gulf has its own switching equipment which allows it to
act as an international call back and call through provider.
Also subsequent to the April 30, 1996 fiscal year end, the Company
acquired a customer base from Adventures in Telecom, Inc. ("AIT"), consisting of
approximately 30,000 long distance customers with estimated current monthly
revenues of approximately $1.5 million.
Cost of sales was 72.9% of sales for the fiscal year ended April 30,
1996 and 73.3% of sales for the fiscal year ended April 30, 1995. There were no
significant price changes during fiscal year 1996. However, it is anticipated
that prices from the Company's major carrier, Tel-Save, will decrease through
the introduction of Tel-Save's own installed switches in five strategic
metropolitan centers in the U.S. which are anticipated to be operational in the
third quarter of the Company's 1997 fiscal year.
Selling, general and administrative costs increased in fiscal year 1996
to $2,968,597 from $2,090,197 in fiscal year 1995, representing an increase of
$878,400. 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 in connection with the
Company's receipt of additional revenues, and to a lesser extent, increased
amortization costs resulting from the acquisition of new customer bases and an
increase in bad debt expense which is related to the Company's corresponding
increase in revenues. Selling, general and administrative costs for the twelve
months ended April 30, 1996 and April 30, 1995 were 24% and 21.9%,
respectively, of net sales. Interest expense for the fiscal years ended April
30, 1996 and 1995 remained at less than 1% of total net sales for each
respective period. Income taxes on operations for the fiscal years ended April
30, 1996 and 1995 were 1.4% and at 1.6%, respectively of net sales.
In connection with a settlement agreement entered into with AT&T in
1994, the Company paid such carrier $165,000 during fiscal year 1995, and
$10,000 during the twelve months ended April 30, 1996. The Company is currently
negotiating with such carrier to further reduce the approximate $547,500 amount
owed to such carrier pursuant to the term of such agreement and believes,
although no assurances are given, that it will be successful in reducing the
amount owed and renegotiating the payment terms thereof. See also "Results of
Operations."
Net earnings decreased by 26% in the year end 1996 as compared to year
end 1995. This resulted in earnings per share of $.10 in fiscal 1996 versus
$.15 in fiscal 1995, a decrease of approximately 33%. This is largely
attributable to the increase in selling, general and administrative costs during
the fiscal year ended April 30, 1996.
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Although no assurances are given, net earnings are anticipated to improve
during the fiscal year ended April 30, 1997 due to the post April 30, 1996
acquisition of additional customer bases. See "ITEM 1 DESCRIPTION OF BUSINESS -
RECENT DEVELOPMENTS". Such acquisition will not significantly increase staff and
operating costs, which should result in overall improved profitability. It is
anticipated, that the Company may experience some loss of customers from the
customer base acquired in the post April 30, 1996 AIT acquisition. Based upon
the Company's prior experience, such attrition rate may be significant during
the first year following such acquisition with such attrition rate declining and
such customer base stabilizing in subsequent years. Reasons for attrition may be
as a result of offers from competitors which attract customers to such
competitors' services. The effect of any such attrition will be a decrease in
revenues and profitability from such customer base. Such anticipated attrition
and the consequence thereof have previously been considered by the Company in
connection with the purchase price paid for such customer accounts and in
connection with the amortization by the Company of such customer acquisition
costs over their useful life.
The Company's cash flow from operations increased by $568,941 in fiscal
1996 when compared to fiscal 1995. The increase in cash flow from operations is
primarily the result of an increase in amortization of customer acquisition
costs, a decrease in accounts receivable and an increase in accounts payable to
carriers. The Company acquired property and equipment and increased payments to
procure customer bases during the 12 months ended April 30, 1996 for a total of
$952,398 versus $146,006 in 1995. While the Company has borrowed an aggregate of
$100,000 from one of its directors and a third party unaffiliated with the
Company pursuant to a promissory note payable in September 1999 for working
capital purposes, the Company has financed significantly all of its acquisitions
and purchases of property and equipment and deferred offering costs through
internally generated funds and from securities issuances for the fiscal year
ended April 30, 1996. Subsequent to April 30, 1996, the Company closed upon a
$5,521,230 loan from Tel-Save, a provider of certain telecommunication services
to the Company and the Company end-users and customers. Such borrowings were
principally utilized to fund the acquisition of the AIT customer base. Cash flow
of $42,046 was used in financing activities in 1996 as compared to cash flow
used in financing activities in 1995 of $188,651. In 1996, option holders who
had held their options since 1991, 1993, and 1994 respectively, exercised their
options and the Company sold stock which generated $110,000 and made principal
payments on debt of $132,822.
Proceeds from loans totaled $112,159 during the twelve months ended
April 30, 1996 and $17,210 during the same period in 1995. Repayment of loans
during the twelve months ended April 30, 1996 and 1995 totaled $132,822 and
$309,861, respectfully.
The Company's gross accounts receivable decreased by $377,016 during
the year ended April 30, 1996 to $1,559,653 from $1,936,669. A portion of the
receivables at April 30, 1996 due from a related party was converted into a note
receivables in the amount of $182,050. Accounts receivable net, including such
note receivable, were 50.5% of total assets at April 30, 1996, versus 74.0% of
total assets at April 30, 1995. The Company's allowance for doubtful accounts
was decreased by $210,381 to allow for the approximate 20% decrease in gross
26
<PAGE>
accounts receivable, including the note receivable, during the fiscal year ended
April 30, 1996 versus April 30, 1995. Accounts payable to carriers increased in
1996 by $481,960 as compared to 1995. Accounts payable to carriers was 57.5% of
total liabilities and equity at April 30, 1996 and 52.8% of total liabilities
and equity at April 30, 1995. The Company has been able to maintain its level of
receivables and at the same time negotiate better payment terms from its
carriers. This has resulted in a positive cash flow which has been used to fund
acquisitions and deferred offering costs during the last fiscal year. While no
assurances are given, it is anticipated that these acquisitions will generate
cash flow to help fund further acquisitions and meet current and future debt
obligations.
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, the Company has experienced rapid growth
through both internal and external factors. The acquisition of customer bases
has required a substantial amount of working capital, which have been funded
primarily by a combination of internally generated funds, bank borrowings, loans
from shareholders and vendor financing. This resulted in a negative flow of
$44,284 for the fiscal year ended April 30, 1996.
The Company's primary source of liquidity in the short-term is cash
flow from operations, which includes vendor financing. Additionally, in July
1996, the Company converted approximately $567,000 of accounts payable into a
note payable to a vendor. Although the note requires monthly payments, it will
slow down and slightly reduce the cash payments otherwise required in fiscal
1997.
Vendor financing includes $547,500 payable to a long distance carrier pursuant
to the terms of a settlement agreement with such carrier. While conducting
ongoing negotiations during the 1996 fiscal year as well as currently, to reduce
such amount and modify the payment terms thereof, the Company paid $10,000 of
the $410,000 otherwise due and payable pursuant to the terms of such agreement,
resulting in a favorable impact on the Company's cash flow during such year.
The Company is cumulatively $425,000 in arrears on this payable and does not
have adequate liquidity to pay it off in full if current settlement discussions
are not successful in reducing the amount owed or agreeing on a revised payment
schedule.
Subsequent to April 30, 1996 the Company closed upon a $5,521,230 loan
transaction with Tel-Save, a provider of certain telecommunication services to
the Company and the Company's end-users and customers. Such funds were
principally utilized to acquire the AIT customer base, consisting of over 30,000
long distance customers with estimated current monthly revenues of approximately
$1.5 million.
Also subsequent to April 30, 1996, the Company entered into an
arrangement with one of it's carriers to convert part of a payable into a short
term note payable. The terms of the note include a repayment over nine months
ending in June 1997 at an interest rate of 15% per annum secured by the
receivables created under the service agreement with such carrier.
Although no assurances can be given, the Company believes that it can
successfully attract the capital required to expand its services, acquire new
customer bases and assets, reverse its negative cash flow and liquidate the
above-described settlement agreement obligation through internally generated
funds and by utilizing either debt or equity from institutional, corporate, or
public and/or private marketplace sources.
Management believes that it's continued growth will be dependent upon
the following:
1. The utilization of multiple channels of distribution to
broaden the market penetration of the Company's products and
services. The Company intends to supplement its direct sales
force to increase it's customer base. Also, by "bundling" it's
products and services, the Company can increase its profit
margin per customer (See "ITEM 1. BUSINESS - SALES AND
MARKETING");
27
<PAGE>
2. The successful acquisition of companies whose services
closely match those of the Company or are synergistic with
those services offered by the Company and the successful
integration of any such acquisitions;
3. The achievement of carrier volume commitments, which has the
effect of reducing the rates that the Company is required to
pay such carriers. In turn, this enables the Company to
increase its profit margins, allowing for increased cash flows
and the ability to finance new products and services;
4. The carriers also offer additional volume discounts for
additional reduction in rates based on revenue and monthly
usage levels. As the Company expands and increases revenues,
it is anticipated that these additional pricing incentives and
discounts will increase the cash flow and profit margins of
the Company.
While the Company intends to continue to effect all such measures, no
assurances are given that such measures will assure the Company's continued
growth.
The Company's call traffic has increased substantially over the last
three years and has enabled the Company to negotiate favorable pricing from its
major carriers, positioning it to expand its distribution channels,
supplementing its direct sales force and "bundling" other products and services
to its client base, subsequently increasing its profit margins per customer.
Revenue growth has resulted from such "bundling" effect and has contributed to
the expansion of profit margins. As the Company has achieved "breakpoints" in
its volume commitments to major suppliers, the reduced rates the Company
continues to pay from that point forward increased the Company's profit margins
allowing for increased cash flow, which further increased the Company's ability
to finance new product and service expansion and to internally generate
marketing programs to support the new products and services.
The carriers offer additional volume discounts for additional reduction
in rates based on revenue and monthly usage levels. As the Company's revenues
have increased, the carriers have provided additional pricing incentives,
reductions or other discounts. Each carriers' "breakpoint" (the point at which
the Company achieves an additional pricing incentive reduction or discount) will
be different and may be customized for the Company based upon multiple factors,
including types of services sold, geographical regions of business and revenues
contributing to the carriers' enhanced or value added services. See also " ITEM
1. BUSINESS - OTHER CONSIDERATIONS".
EFFECTS OF INFLATION
The Company does not believe that inflation has had a significant
impact on its operations for the last two fiscal years.
28
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
Audited balance sheets as of April 30, 1996 and 1995, and related
statement of earnings, stockholders' equity (deficit) and cash flows for the
years then ended are included after Item 12. herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On June 5, 1996, the Company's Board of Directors engaged the
accounting firm of Grant Thornton LLP as independent accountants for the Company
for 1996, subject to approval of shareholders. The work of the predecessor
accounting firm, Timothy M. Hohl Company P.A., was terminated on June 5, 1996.
During the two most recent fiscal years and the interim periods
subsequent to April 30, 1995, there have been no disagreements with Timothy M.
Hohl Company P.A. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure or any reportable events.
29
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.
The executive officers and directors of the Company are as follows:
Name Age Position
Mr. Gerald M. Dunne, Jr. 33 President, Chief Executive
Officer, and Director
Andrea A. Morey 38 Vice President -
Administration and
Corporate Secretary
Edward Harwood 70 Director
C. Shelton James 57 Director
Glenn Koach 41 Director
Calvin Shoemaker 55 Director
John Tomlinson 47 Director
BIOGRAPHIES OF EXECUTIVE OFFICERS AND DIRECTORS
GERALD M. DUNNE JR. has been President and Director of GLD since 1991. Prior
thereto and from 1989 to 1991, he was Senior Vice President and Vice President
of Sales, respectfully. Mr. Dunne is an active member of the Telecommunications
Resellers Association.
ANDREA A. MOREY has been Vice President - Administration since November 1994 and
Corporate Secretary since April 1991. She joined GLD in 1989 as an account
representative and became Director of Operations in 1991. Prior to her
association with GLD, Ms. Morey was Director of Administration of the South
Florida law firm of Tew, Jorden & Schulte.
30
<PAGE>
EDWARD HARWOOD has been a Director since September 14, 1995, and is a private
investor. For the 19 years prior to 1989, Mr. Harwood held various executive
positions with Gould Electronics Corporation, including Vice President of
Operations.
C. SHELTON JAMES, a Director since September 14, 1995, and is currently Chairman
and Chief Executive Officer of Elcotel, a publicly traded corporation and
manufacturer of telecommunications equipment since 1991. Mr. James also serves
as a Director of the following public corporations: NAI Technologies, SK
Technologies, Harris Computer Systems and CSPI. Mr. James is also the President
and Director of Fundamental Management since 1990. From 1980 - 1989, Mr. James
served as Executive Vice President of Gould Inc., and as President of its
computer systems division.
GLENN KOACH, a Director since September 14, 1995, is currently and since 1984,
has been affiliated with Riverside Capital Advisors, an investment company based
in South Florida. Mr. Koach also serves as Chairman of the Board of Metro
Airlines. Mr. Koach has served as Financial Vice President with the Tribune
Company, Director of Financial Analysis for Warner Amex Cable Communications and
as a Corporate Financial Analyst for Dun & Bradstreet.
CALVIN SHOEMAKER, a Director since September 14, 1995, is currently President,
Director and CEO of SK Technologies, a publicly traded corporation. Prior to
1990, Mr. Shoemaker served as Vice President of Marketing and Sales with Gould
Electronics Corporation.
JOHN TOMLINSON has been a Director since November 7, 1995. Mr. Tomlinson is a
Certified Public Accountant, 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.
OTHER KEY MANAGEMENT
SAM D. HITNER has been the Company's Financial Controller since August 1995.
Prior thereto, and from November 1994 to August 1995, Mr. Hitner was employed
with John Tomlinson CPA as a tax consultant. From September 1992 through July
1994, Mr. Hitner was Financial Controller of the sales and marketing division of
South Africa Druggists, a public South African based pharmaceutical manufacturer
and distributor. Before September 1992, Mr. Hitner was Financial Controller of
the sales and marketing division of Protea Electronics, a division of a public
South African corporation, which division was involved in the sale and repair of
sophisticated electronic equipment. Prior thereto, Mr. Hitner was an audit
supervisor with the accounting firm Ernst & Young. Mr. Hitner is qualified as a
Chartered Accountant (S.A.).
MICHAEL A. MUELLER has been Vice President of Marketing since 1992. From 1991 to
his appointment as Vice President of Marketing, he was GLD's Director of
National Sales.
31
<PAGE>
JEFFREY A. ULLMAN has been Vice President of Sales since 1994. From February
1993 through October 1994, Mr. Ullman was GLD's Regional Manager of Sales for
the Central Florida division and from April 1992 through February 1993, a GLD
Sales Manager. the Orlando office.
JEFFREY J. GRANICK has been Director of Operations since November 1994. Prior
thereto and from October 1992 to November 1994, Mr. Granick was employed with
the Company in a sales support position. Prior thereto, he was employed for 11
years by Morse Shoe, Fayva Shoe Store Division in sales and management.
"KEYMAN" INSURANCE
The Company maintains life insurance policies in the face amount of
$1,000,000 on Gerald M. Dunne, Jr., its Chief Executive Officer and $250,000 on
Andrea A. Morey, its Chief Administrative Officer, respectively. The proceeds of
the policies are payable to the Company.
The current directors hold no other directorships in any company with a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of
1940, except as disclosed herein.
ITEM 10. EXECUTIVE COMPENSATION.
The following tables set out all plan and non-plan compensation awarded to,
earned by or paid to (1) the Company's Chief Executive Officer and the Company's
next three (3) most highly compensated executive officers who received
individually a total annual salary and bonus of $100,000 or more and (2) all
directors, for all services rendered in any capacity by any such officer or
director to the Company or its subsidiaries during the Company's fiscal year
ended April 30, 1996.
32
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
- ------------------ ---- ------ ----- ------------
Gerald M. Dunne, Jr. 1996 $93,000 $3,134(1) $38,126(2)
President, and Chief
Executive Officer
All Directors as a 1996 $0.00 $0.00 $0.00
Group(3)
(1) Comprised of subjective and profitability bonuses. The subjective bonus is
generally composed of qualitative performance objectives reset by the Board of
Directors on an annual basis, and will vary from year to year both in nature and
amount to be earned. Fiscal 1996 was the first year for which Mr. Dunne was be
eligible for such a bonus feature. The profitability bonus is earned by the
attainment of Board of Director prescribed revenues and profits, can be modified
on an annual basis both in nature and amount, and is subject to review and
modification by the Company's Board of Directors after the fiscal year end.
(2) Comprised of up to $18,000 per annum for 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 receives
automobile reimbursements to this extent although other employees are reimbursed
for some automobile related expenses.
(3) Through April 30, 1996, no Board member has 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. Subsequent to such fiscal year end, the
Company's Board of Directors authorized, subject to shareholders' approval,
stock options in favor of each non-employee Director in the amount of 20,000
shares of the Company's common stock (100,000 shares in the aggregate)
exercisable any time over a two year period from May 21, 1996 at an exercise
price of $5.0625 per share.
EMPLOYMENT AGREEMENTS
On November 7, 1995, the Company entered into an employment agreement
with Gerald M. Dunne, Jr., its President and Chief Executive Officer.
33
<PAGE>
The following table sets out all cash and non-cash compensation to be
paid pursuant to the employment agreement.
Term 3 years
Annual Compensation $104,000
CPI Adjustments No
Deferred Compensation No
Subjective Bonus Up to $25,000
Profitability Bonus Up to $50,000 plus a percentage
Benefits
Automobile Yes
Health and Dental Coverage Yes
Health/Dental Premium
Paid by Employee None
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTIONS/SAR VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON REALIZED AT APRIL 30, 1996 (#) AT APRIL 30, 1996 ($)
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald M. Dunne, Jr. 47,635 $0.00 0 0 $0.00 $0.00
</TABLE>
LONG TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE - NONE
REPORT ON REPRICING OF OPTIONS/SARS - NONE
34
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth, as of August 5, 1996, the ownership of
common stock by persons known to the Company who own beneficially more than 5%
of the outstanding shares of the Company's Common Stock:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(1)
- ------------------- ----------------------- -----------
Gerry M. Dunne Sr. Trust 319,373 14.15%
2502 S.W. Raquet Club Dr.
Palm City, FL. 34990
Dunne, Mr. Gerald M. Jr. 219,182(2)(3) 10.15%
3201 N.W. 107th Ave.
Coral Springs, FL. 33065
TS Investment, Inc., c/o 300,000(4) 11.73%
Tel-Save, Inc.
6805 Route 202
New Hope, PA 18938
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act, except as otherwise noted and, unless otherwise indicated,
represents shares for which the beneficial owner has sole voting, investment and
dispositive powers.
(2) President, Chief Executive Officer, Director.
(3) See also "ITEM 1. BUSINESS - RECENT DEVELOPMENTS" concerning certain pledge
and transfer restrictions relating to shares of the Company's Common Stock owned
by the Company's executive officers and directors.
(4) Includes 300,000 shares of Common Stock underlying a warrant exercisable at
$5.75 per share through July 11, 2001. See "ITEM 1. BUSINESS - RECENT
DEVELOPMENTS".
35
<PAGE>
(B) SECURITY OWNERSHIP OF MANAGEMENT.
The following table sets forth, as of August 5, 1996 the beneficial
common stock ownership of all directors, executive officers, and of all
directors and officers as group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER POSITION BENEFICIAL OWNERSHIP(1)(2) OF CLASS(1)
- ------------------- -------- -------------------------- -----------
<S> <C> <C> <C>
Dunne, Mr. Gerald M. Jr President,
3201 N.W. 107th Ave. Chief Execu-
Coral Springs, FL 33065 tive Officer 229,182 10.15%
James, Mr. C. Shelton
4101 N. Ocean Blvd.
Apt 405D
Boca Raton, FL 33431 Director 104,678 4.64%
Harwood, Mr. Edward
4100 Galt Ocean Drive
Apt 614
Ft. Lauderdale, FL 33308 Director 77,668 3.44%
Koach, Mr. Glenn
2320 N.E. 9th Street
Suite 300
Ft. Lauderdale, FL 33304 Director 40,966 1.81%
Morey, Ms. Andrea
15040 Archervale Street Vice President,
Davie, FL 33331 Corporate Secretary 34,054 1.51%
Shoemaker, Mr. C.S.
3060 N.E. 42nd Street
Ft. Lauderdale, FL 33308 Director 19,531 0.87%
Tomlinson, Mr. John
500 West Cypress Creek Rd.
Suite 455
Fort Lauderdale, FL 33309 Director 53,351(3) 2.31%
All Officers and Directors
As A Group (7 Persons) 559,430(3) 24.27%
</TABLE>
36
<PAGE>
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act, except as otherwise noted and, unless otherwise indicated,
represents shares for which the beneficial owner has sole voting, investment and
dispositive powers.
(2) See also "ITEM 1. BUSINESS - RECENT DEVELOPMENTS" concerning certain pledge
and transfer restrictions relating to shares of the Company's Common Stock owned
by the Company's executive officers and directors.
(3) 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. See also "ITEM 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS".
(C) CHANGES IN CONTROL.
Except as described in this Annual Report, there are no arrangements
known to the Company, including any pledge by any person of securities of the
Company or of any of its parents, the operation of which may at a subsequent
date result in a change in control of the Company. See "ITEM 1. BUSINESS-RECENT
DEVELOPMENTS."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1991, the Company, by its then President, Patrick Rickard, entered
into a royalty agreement with Gerald M. Dunne, Sr. ("Dunne"), the father of
Gerald M. Dunne, Jr., the Company's current President and Chief Executive
Officer. In consideration for certain sales and marketing activities to be
conducted by Dunne on behalf of the Company, the agreement provides for monthly
royalty payments to be paid by the Company to Dunne based upon a sliding scale
percentage (from 1% to .4%) of the Company's monthly net revenues. Royalties
paid for the years ended April 30, 1996 and 1995 totaled approximately $111,810
and $91,300, respectively. Such agreement provides for the termination thereof
at the earlier to occur of the following: (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 a third party; (c)
the merger of the Company with or into a company of which the common stock is
traded on NASDAQ, the American Stock Exchange, Inc., or the New York Stock
Exchange, Inc.; (d) the bankruptcy, dissolution, liquidation or termination of
the business of the Company; (e) the demise of Dunne; (f) termination by the
Company "for cause" as defined therein; or, (g) upon the disposition of all of
the Company's Common Stock owned by Dunne.
During September 1995, Mr. John L. Tomlinson, a Company Director, and
an unaffiliated third party loaned the Company $100,000. Such loan is evidenced
by a promissory note for such aggregate amount with simple interest payable
thereon at the rate of 2% above the prime rate, adjustable semi-annually on
March 31 and September 30 of each
37
<PAGE>
year. Such promissory note further provides, in general, for the payment of
principal and interest in 48 installments, payable monthly. As further
inducement for such loan, the Company granted Mr. Tomlinson and such other party
an option to acquire 47,635 shares of the Company's Common Stock exercisable at
$3.15 per share through September 30, 1997.
38
<PAGE>
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
GROUP LONG DISTANCE, INC.
APRIL 30, 1996 AND 1995
<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.
GRANT THORNTON LLP
Fort Lauderdale, Florida
July 26, 1996
<PAGE>
TIMOTHY M. HOHL COMPANY P.A.
CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors
Group Long Distance, Inc.
We have audited the accompanying balance sheet of Group Long Distance, Inc. as
of April 30, 1995 and the related statement of income, stockholders' equity
(deficit), 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 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 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 audits provide 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, 1995 and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Timothy M. Hohl Company P.A.
- --------------------------------
TIMOTHY M. HOHL COMPANY P.A.
November 24, 1995
<PAGE>
<TABLE>
<CAPTION>
GROUP LONG DISTANCE, INC.
BALANCE SHEETS
APRIL 30,
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
Current assets
Cash $ 78,767 $ 123,051
Accounts receivable less allowance for doubtful
accounts of $358,000 and $568,000 at April 30,
1996 and 1995, respectively 1,201,710 1,368,345
Note receivable - related party 96,956 --
Deferred tax assets 147,900 214,000
Prepaid expenses and other current assets 76,638 6,244
----------- -----------
1,601,971 1,711,640
----------- -----------
Note receivable - related party, net of current portion 85,094 --
Property and equipment net of accumulated depreciation of
$29,647 and $20,582 at April 30, 1996 and 1995, respectively 77,276 31,581
Customer acquisition costs, net of accumulated amortization
of $134,602 and $10,386 at April 30, 1996 and 1995 886,917 106,659
Deferred offering costs 73,478 --
Other assets 15,675 --
----------- -----------
Total assets $ 2,740,411 $ 1,849,880
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Line of credit $ 47,920 $ --
Accounts payable - trade 76,787 74,385
Accounts payable - carriers 1,466,931 984,971
Accrued expenses and other liabilities 245,138 90,879
Current portion of long-term debt 609,811 486,550
Current portion of long-term debt - related party -- 67,083
Current portion of capital lease obligations 6,456 --
----------- -----------
2,453,043 1,703,868
Long-term debt, net of current portion 83,159 160,000
Capital lease obligations, net of current portion 15,568 --
----------- -----------
Total liabilities 2,551,770 1,863,868
----------- -----------
Commitments and contingencies -- --
Stockholders' equity (deficit)
Preferred stock, no par value, 2,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, no par value, 5,000,000 shares authorized;
2,057,348 and 1,761,900 shares issued and outstanding as of
April 30, 1996 and 1995, respectively -- --
Additional paid-in capital 268,364 263,700
Accumulated deficit (79,723) (277,688)
----------- -----------
Total stockholders' equity (deficit) 188,641 (13,988)
----------- -----------
Total liabilities and stockholders' equity deficit $ 2,740,411 $ 1,849,880
=========== ===========
The accompanying notes are an integral part of these statements
</TABLE>
F-3
<PAGE>
GROUP LONG DISTANCE, INC.
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED APRIL 30,
1996 1995
----------- ----------
Sales $12,364,643 $9,538,095
Cost of sales 9,009,131 6,992,817
----------- ----------
Gross profit 3,355,512 2,545,278
Selling, general and administrative expenses 2,968,597 2,090,197
Interest expense, net 19,050 22,177
----------- ----------
Earnings before income taxes 367,865 432,904
Income tax expense 169,900 151,000
----------- ----------
Net earnings $ 197,965 $ 281,904
=========== ==========
Earnings per common and common
equivalent share $ .10 $ .15
=========== ==========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GROUP LONG DISTANCE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED APRIL 30, 1996 AND 1995
Retained Total
Shares of Additional Earnings 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 offering -- -- (105,336) -- (105,336)
Net earnings -- -- -- 197,965 197,965
---------- --------- --------- --------- ---------
Balance, April 30, 1996 2,057,348 $ -- $ 268,364 $ (79,723) $ 188,641
========== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
<TABLE>
<CAPTION>
GROUP LONG DISTANCE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ $ 197,965 $ 281,904
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 133,281 16,070
Provision for bad debts 404,480 301,203
Changes in assets and liabilities
Increase in accounts receivable (237,845) (723,413)
Increase in notes receivable (182,050) --
Decrease in deferred tax asset 66,100 146,000
(Increase) decrease in prepaid expenses and
other current assets (70,394) 3,396
Increase (decrease) in accounts payable - trade 2,402 (585)
Increase in accounts payable - carriers 481,960 358,740
Increase (decrease) in accrued expenses and
other liabilities 154,259 (2,098)
--------- ---------
Net cash provided by operating activities 950,158 381,217
--------- ---------
Cash flows from investing activities
Acquisitions of property and equipment (32,249) (28,961)
Acquisitions of customer bases (904,474) (117,045)
Increase in other assets (15,675) --
--------- ---------
Net cash used in investing activities (952,398) (146,006)
--------- ---------
Cash flows from financing activities
Net borrowings under line of credit agreement 47,920 --
Proceeds from loan originations 112,159 17,210
Principal repayments of long-term debt (132,822) (309,861)
Principal repayments of capital lease obligations (487) --
Proceeds from the sale of common stock 110,000 112,000
Offering costs incurred (178,814) --
Common stock repurchased and retired -- (8,000)
--------- ---------
Net cash used in financing activities (42,046) (188,651)
--------- ---------
Net increase (decrease) in cash (44,284) 46,560
Cash at beginning of year 123,051 76,491
--------- ---------
Cash at end of year $ 78,767 $ 123,051
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
In November 1995, Group Long Distance (which was originally formed 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.
Group Long Distance, Inc. (the "Company") is a nonfacilities based reseller
of long distance telecommunication services. The Company utilizes special
network service 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.
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.
(continued)
F-7
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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. Although the Company believes its amortization policy
accurately reflects the circumstances, it is reasonably possible that such
amortization may need to be increased if customer attrition becomes higher.
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. Stock options and warrants are
considered common stock equivalents unless their inclusion would be
antidilutive.
USE OF ESTIMATES
In preparing financial statements in conformity 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.
(continued)
F-8
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 Plans are accounted for
under APB 25, "Accounting for Stock Issued to Employees," and related
interpretations. In November 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 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.
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 routed
through AT&T's switch-based reseller, Tel-Save. Such revenues represented
61% and 67% of total revenues in fiscal 1996 and 1995, respectively
F-9
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
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 matures on
August 1, 1996 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. The
amount outstanding under the line of credit at April 30, 1996 is $47,920.
NOTE E - LONG-TERM DEBT
Long-term debt is comprised of the following at April 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Unsecured non-interest bearing settlement
payable to AT&T. The Company has been and
continues to be in arrears under this obligation.
See also Note L. $ 547,500 $ 557,500
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. 11,000 24,000
Unsecured 18% interest bearing note which is payable in
monthly installments of $1,000 and matures in fiscal 1998. 25,973 32,093
18% interest bearing note payable to an individual. The
note is collateralized by 100,000 shares of the Company's
common stock. 17,069 32,957
</TABLE>
(continued)
F-10
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE E - LONG-TERM DEBT - Continued
1996 1995
--------- ---------
11% interest bearing notes payable to
stockholders. The notes were repaid on
December 31, 1995 $ -- $ 67,083
-------- --------
692,970 713,633
Less current portion of long-term debt 609,811 553,633
-------- --------
$ 83,159 $160,000
======== ========
Principal maturities of long-term debt at April 30,
1996 are as follows:
Year Ending
APRIL 30
-----------
1997 $609,811
1998 38,876
1999 44,283
2000 and thereafter
--------
$692,970
========
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.
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.
(continued)
F-11
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE F - INCOME TAXES - Continued
The provision for income taxes consists of the following:
1996 1995
-------- --------
Current $103,800 $ 5,000
Deferred 66,100 146,000
-------- --------
$169,900 $151,000
======== ========
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, 1996
and 1995:
1996 1995
--------- ---------
Provision for income taxes, at 34% $ 125,800 $ 147,100
Increase (decrease) in tax resulting from:
Amortization 33,400 --
Nondeductible items 7,700 6,000
Alternative minimum tax credits (13,000) (5,000)
Effect of graduated tax rates (1,800) (14,100)
State taxes, net of federal tax benefit 13,700 17,000
Other 4,100 --
--------- ---------
$ 169,900 $ 151,000
========= =========
Deferred tax assets are comprised of the following at April 30, 1996
and 1995.
1996 1995
--------- ---------
Allowance for doubtful accounts $ 134,700 $ 210,405
Customer acquisition costs 37,000 -
Accrued bonus 13,200 -
Alternative minimum tax credits - 3,595
--------- ---------
184,900 214,000
Less valuation allowance 37,000 -
--------- ----------
$ 147,900 $ 214,000
========= =========
F-12
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
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.
Approximate future minimum lease payments applicable to noncancellable
operating leases are as follows:
YEAR ENDING
APRIL 30
-----------
1997 $ 88,728
1998 91,118
1999 89,096
2000 and thereafter 73,266
----------
$ 342,208
==========
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:
YEAR ENDING
APRIL 30
-----------
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
==========
F-13
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE H - COMMITMENTS AND CONTINGENCIES
Certain of the Company's resale 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 reduced volume discounts and various other surcharges.
In November 1995, the Company entered into an employment contract with an
individual who served as the Company's president in a full time capacity
for three years. The agreement provides for annual base compensation of
$104,000. When the revenue, when annualized, exceeds $20,000,000, the
annual base compensation is increased to $130,000 on a per diem basis. The
agreement also provides for a revenue and profitability bonus of $50,000
upon the Company's attainment of $550,000 in combined profits. The
agreement also provides for other bonuses totaling $25,000 if executive
recruiting goals and stock value objectives are met.
In the normal course of business, the Company is subject to various
litigation. In the opinion of management, the ultimate resolution of the
litigation will not have a material effect on the financial statements.
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
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.
(continued)
F-14
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE J - STOCK OPTIONS - Continued
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.
At April 30, 1996, there were unexercised options to purchase 76,689 shares
of the Company's common stock outstanding (all of which were exercisable)
as follows:
OPTIONS EXERCISE
DATE OPTIONS GRANTED OUTSTANDING PRICE
-------------------- ----------- --------
November, 1993 9,527 $ 1.05
February, 1994 19,054 $ .53
September, 1995 47,635 $ 3.15
-----------
76,216
===========
NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
1996 1995
----------- ----------
Cash paid during the year
for interest $ 21,687 $ 37,612
=========== ==========
Cash paid during the year
for taxes $ 5,000 $ 8,312
=========== ==========
(continued)
F-15
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION - Continued
1996 1995
---------- -----------
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 $ -
========== ===========
NOTE L - SETTLEMENT AGREEMENTS
In June 1993, the Company executed an agreement with AT&T Company whereby
AT&T Company agreed to accept $1,043,000 as full settlement from Group Long
Distance for billing disputes between the Companies. The total balance due
totaled $1,548,502. Although, the Company has paid down this obligation to
$547,500, it is approximately $425,000 in arrears in its payments. The
Company is attempting to negotiate a new payment schedule or,
alternatively, a lump sum settlement. See also Note E.
NOTE M - EQUITY
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock. 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.
NOTE N - SUBSEQUENT EVENTS
EMPLOYEE STOCK OPTION PLAN
In May 1996, the Board of Directors authorized the Company to establish a
Qualified Stock Option Plan on behalf of the Company's employees, subject
to stockholder approval. The Plan is authorized to grant options for
150,000 shares of common stock to qualifying employees over a five year
period.
(continued)
F-16
<PAGE>
GROUP LONG DISTANCE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
NOTE N - SUBSEQUENT EVENTS - continued
DIRECTOR STOCK OPTION PLAN
In May 1996, the Board of Directors authorized the Company to issue options
to purchase 100,000 shares of the Company's common stock to the
non-employee Directors of the Company. The options, when granted, will have
an exercise price equal to the fair market value at date of grant, and may
be exercised at any time over a two year period.
ACQUISITIONS
In May 1996, the Company purchased, for $220,000, the stock and assets,
including the customer base, of Gulf Communications Service, Inc. ("Gulf").
Gulf has switching equipment which allows it to act as an international
call back and call through provider. The purchase price of $220,000 is
payable monthly through January 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 nonfacilities 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. To induce a corporation to provide the financing
needed to purchase AIT, the Company issued warrants to purchase 300,000
shares of common stock of the Company at $5.75 per share which are
exercisable through July 2001 and subject to certain registration rights.
ACQUISITION FINANCING
The Company, to finance the AIT acquisition, obtained a note from a
corporation 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.
VENDOR FINANCING
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.
F-17
<PAGE>
ITEM 13. EXHIBITS.
(A) THE FOLLOWING EXHIBITS ARE FILED AS A PART OF THIS ANNUAL REPORT:
<TABLE>
<S> <C> <C>
3.1 Articles of Incorporation 1
3.2 By-laws 1
4 Instruments defining the rights of holders, including indentures (See 3.2; 10.23; 10.24; 10.26) 1; 3
10.1 LDDS MetroMedia Communications Agreement Dated 02/28/94 1
10.2 Addendum to 02/28/94 LDDS MetroMedia Communications
Agreement dated 03/11/94 1
10.3 Addendum to 02/28/94 LDDS MetroMedia Communications
Agreement dated 06/03/94 1
10.4 Addendum to 02/28/94 LDDS MetroMedia Communications
Agreement dated 11/30/94 1
10.5 Addendum to 02/28/94 LDDS MetroMedia Communications
Agreement and November 30, 1994 Addendum dated 02/15/95 1
40
<PAGE>
10.6 Addendum to 02/28/94 LDDS MetroMedia Communications
Agreement and Addendums of 3/11/94, 11/30/94 &
02/15/95 dated 05/09/95 1
10.7 Addendum to 02/28/94 LDDS MetroMedia Communications
Agreement and Addendums of 3/11/94, 11/30/94 &
02/15/95 dated 05/19/95 1
10.8 Addendum to 02/28/94 LDDS MetroMedia Communications
Agreement and Addendums of 3/11/94, 11/30/94,
2/15/95, 5/20/95 & 5/26/95 dated 7/21/95 1
10.9 GLD Reseller Agency Agreement with ARN 1
10.10 Global Telecom Network & GLD Target Agreement 1
10.11 Gerald M. Dunne, Jr. Employment Agreement dated November 8, 1995 1
10.12 Not Applicable
10.13 Gateway American Bank Loan Agreement 1
10.14 Convertible Debenture to John Tomlinson 1
10.15 Tel-Save Carrier Agreement 1
10.16 UUNet Marketing Agreement 1
10.17 Touchtone Network, Inc. Reseller Agreement 1
10.18 Purchase Agreement and Plan of Exchange dated July 1996 by and
between the Company and Adventurer in Telecom, Inc. 3
10.19 Release and Settlement Agreement dated June 1993 by and among AIT, the
Company and Tel-Save, Inc. 3
10.20 Amendment to Release and Settlement Agreement 3
10.21 Agreement dated as of July 11, 1996 by and between the Company and
Tel-Save, Inc. 3
10.22 Promissory Note dated July 11, 1996 issued by the Company in favor of
Tel-Save, Inc. 3
10.23 Common Stock Purchase Warrant to Purchase 300,000 Shares of Common
Stock issued by the Company to Tel-Save Holdings, Inc. 3
10.24 Stockholders Agreement dated as of July 11, 1996 by and among the
Company, Tel-Save, Inc., the Company's Directors and a Company Officer 3
10.25 Pledge Agreement dated as of July 11, 1996 by and between Gerald M.
Dunne, Jr. and Tel-Save, Inc. 3
10.26 Registration Rights Agreement dated as of July 11, 1996 by and
between the Company and TS Investments, Inc. [Tel-Save Holdings, Inc.] 3
11 Statement re: computation of per share earnings (see page F-8) 3
16 Letter on change in certifying accountant 2
41
<PAGE>
19 Reports furnished to security holders 1
19.1 Letter to shareholders dated 9/4/95 1
19.2 Letter to shareholders dated 2/3/95 1
20 Other documents or statements to security holders 1
20.1 Plan of Merger 1
20.2 Articles of Merger 1
21 Subsidiaries of the registrant: Gulf Communication Services, Inc., a
Florida corporation
Adventures in Telecom, Inc., a Texas
corporation
</TABLE>
1. Incorporated by reference to the Registrant's Form SB-2 Registration
Statement, as amended, File No. 33-99998 and to the exhibit of the same
number included therein.
2. Incorporated by reference to Form 8-K dated June 10, 1996 filed with the
Commission.
3. Filed herewith.
(B) REPORTS ON FORM 8-K - NONE.
42
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GROUP LONG DISTANCE, INC.
Date: August 12, 1996 By: /s/ Gerald M. Dunne, Jr.
---------------------------------
Gerald M. Dunne, Jr.,
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Gerald M. Dunne, Jr. August 12, 1996
- -------------------------------------
Gerald M. Dunne, Jr.
President and Chief Executive Officer
/s/ Edward Harwood August 12, 1996
- -------------------------------------
Edward Harwood
Director
/s/ Shelton James August 12, 1996
- -------------------------------------
Shelton James
Director
/s/ Glenn Koach August 12, 1996
- -------------------------------------
Glenn Koach
Director
/s/ John Tomlinson August 12, 1996
- -------------------------------------
John Tomlinson
Director
43
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
10.18 Purchase Agreement and Plan of Exchange dated July 1996 by and
between the Company and Adventurer in Telecom, Inc.
10.19 Release and Settlement Agreement dated June 1993 by and among AIT, the
Company and Tel-Save, Inc.
10.20 Amendment to Release and Settlement Agreement
10.21 Agreement dated as of July 11, 1996 by and between the Company and
Tel-Save, Inc.
10.22 Promissory Note dated July 11, 1996 issued by the Company in favor of
Tel-Save, Inc.
10.23 Common Stock Purchase Warrant to Purchase 300,000 Shares of Common
Stock issued by the Company to Tel-Save Holdings, Inc.
10.24 Stockholders Agreement dated as of July 11, 1996 by and among the
Company, Tel-Save, Inc., the Company's Directors and a Company Officer
10.25 Pledge Agreement dated as of July 11, 1996 by and between Gerald M.
Dunne, Jr. and Tel-Save, Inc.
10.26 Registration Rights Agreement dated as of July 11, 1996 by and
between the Company and TS Investments, Inc. [Tel-Save Holdings, Inc.]
</TABLE>
44
EXHIBIT 10.18
PURCHASE AGREEMENT AND PLAN OF EXCHANGE
THIS PURCHASE AGREEMENT AND PLAN OF EXCHANGE (hereinafter the
"Agreement"), is made and entered into this _____ day of July, 1996, by and
among GROUP LONG DISTANCE, INC., a corporation organized under the laws of the
State of Florida (hereinafter "GLD"), ADVENTURES IN TELECOM, INC., a corporation
organized under the laws of Texas (hereinafter "AIT"), and certain individuals
(collectively, hereinafter the "AIT Shareholders").
WITNESSETH:
WHEREAS, the AIT shareholders own all of the authorized issued and
outstanding shares of AIT, a newly formed Texas corporation, consisting of
100,000 shares of common stock, $0.01 par value ("the AIT Shares"); and
WHEREAS, GLD wishes to acquire AIT from the AIT Shareholders by
exchanging shares of GLD for AIT Shares, and for other valuable consideration as
hereafter provided; and
WHEREAS, GLD has available for such exchange 200,000 shares of its
authorized, issued and outstanding capital stock ("The Stock"); and,
WHEREAS, AIT, by Purchase and Sale Agreement dated June 28, 1996 has
agreed to purchase certain assets ("The Assets") of DNS Communications, Inc. for
the cash sum of $5,271,230, and,
WHEREAS, the parties desire to exchange the AIT Shares for The Stock
and to transfer all of AIT's right, title and interest in The Assets to GLD on
the terms and conditions of this Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth, GLD, the AIT Shareholders, jointly and
severally, and AIT do hereby agree as follows:
1. THE PURCHASE AND PLAN OF EXCHANGE; HOLDBACK SHARES:
a) Subject to the terms and conditions of this Agreement, at the
Closing to be held as provided in paragraph 7 below, the AIT Shareholders will
sell to GLD the AIT Shares, free and clear of all encumbrances, and GLD shall
acquire from the AIT Shareholders the AIT Shares and make the payment as
provided in paragraph 5 below
b) In full consideration for the AIT Shares, GLD shall deliver
The Stock at the Closing, subject to the withholding of a number of the shares,
calculated in accordance with the formula below ("The Holdback Shares"). The
Holdback Shares shall not be delivered at Closing and instead shall be retained
by GLD pursuant to subparagraph c) below as security for the indemnification
obligation of AIT and the AIT Shareholders as provided in paragraph 10. The
formula is as follows:
1. The Net Revenue (Gross Revenue less taxes) to DNS generated
from The Assets used in the purchase computation for the June, 1996 DNS billing
will be calculated by GLD and multiplied times 4.5; and,
2. The sum of $5,271,230 will be deducted from that calculation;
and,
3. The balance (1 minus 2 above) will be divided by $7.00 to
arrive at the number of shares of The Stock to be transferred to the AIT
Shareholders; and,
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4. 25% of the number of shares determined in (3) will be retained
by GLD as Holdback Shares; and,
5. 75% of the number of shares determined in (3) will be
transferred at the Closing.
c) Unless, on or before 180 days after the Closing, GLD gives
notice to the AIT Shareholders asserting a claim for indemnification pursuant to
paragraph 10 (a "Claim Notice"), GLD shall, as soon as practicable thereafter
deliver all of the Holdback Shares to AIT Shareholders. If GLD gives a Claim
Notice within the aforesaid 180 day period, GLD shall effect indemnification for
any damages, to the extent the Holdback Shares are sufficient to cover the
damages, by canceling the appropriate number of Holdback Shares, and thereafter
deliver the remaining Holdback Shares to the AIT Shareholders. The appropriate
number of Holdback Shares shall be equal to the amount of damages claimed in the
Claim notice divided by $7.00 (subject to appropriate adjustment in the event of
any stock split, stock dividend or other reclassification of GLD common stock).
2. (a) DELIVERY OF AIT SHARES; ACCEPTANCE BY GLD. At Closing (as
defined below), AIT shall deliver to GLD or cause all AIT Shareholders to
deliver to GLD the AIT Shares in proper form for transfer or accompanied by duly
executed stock powers representing the shares. The AIT shares shall be free
and clear of all liens, claims, pledges, options, encumbrances, restrictions on
transfer and voting, and rights of others of every nature whatsoever. GLD shall
accept such AIT shares as the sole consideration and in full consideration for
The Stock.
(b) It being in the interest of all AIT Shareholders that the
transactions contemplated by this Agreement qualify as a tax-free reorganization
within the meaning of Section 368 of the Internal Revenue Code, as amended, each
AIT Shareholder hereby irrevocably appoints Scott Crist, until the consummation
of the transactions contemplated herein, as his agent ("Shareholders' Agent")
and attorney-in-fact with power and authority to deliver certificates
representing the AIT Shares owned by each such Shareholder at the Closing
hereunder and to accept delivery of each AIT Shareholder's shares as provided in
Section 2 hereof for the account of such AIT Shareholder at the Closing and
generally to execute and deliver to GLD and to receive from GLD on behalf of the
AIT Shareholders such other certificates, documents and instruments as may be
exchanged by the parties at the Closing pursuant to this Agreement. Immediately
after the Closing, the Shareholders' Agent shall deliver to each AIT Shareholder
The Stock to which each AIT Shareholder is entitled pursuant to the transaction
herein. In the event this Agreement is terminated without a Closing for any
reason, the Shareholders' Agent shall return to each AIT Shareholder the AIT
Shares owned by each AIT Shareholder.
3. DELIVERY OF GLD SHARES; ACCEPTANCE BY AIT AND THE AIT SHAREHOLDERS.
GLD shall issue and deliver The Stock to all AIT Shareholders, immediately
upon receipt of all issued and outstanding AIT Shares. The aggregate number of
shares of The Stock to be issued to AIT Shareholders shall be proportionate to
the AIT shares held by each AIT Shareholder immediately before the exchange.
GLD shall not be obligated to issue fractional shares and shall not pay cash in
lieu of fractional shares. AIT and the AIT Shareholders shall accept The Stock
as the sole consideration and in full consideration for the AIT shares
transferred to GLD pursuant to paragraph 1.
4. EQUAL VALUE. AIT, the AIT Shareholders and GLD agree that the value
of The Stock in the aggregate will be approximately equal to the value of the
AIT shares in the aggregate.
5. CASH CONSIDERATION. In addition to The Stock, GLD will provide or
will cause Tel-Save to provide sufficient funds to complete the purchase of the
assets, in accordance with wiring instructions agreed at closing c/o Matrix
account at Texas Commerce Bank,
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6. NO OTHER CONSIDERATION. All parties hereto agree that the exchange
provided in this Agreement is a cash and stock-for-stock exchange and that no
other property, or rights to acquire other property or securities shall be
included in this exchange to constitute additional consideration for the
exchange.
7. CLOSING. The exchange described herein shall be completed on or
before ______________________. The Closing will be held at the offices of GLD
at or such other place and time as the parties may mutually agree in writing.
At the Closing the parties to this Agreement will exchange stock certificates
and other instruments and documents as specified herein in order to determine
whether the terms and conditions of this Agreement have been satisfied. Upon
the determination of each party that its conditions to consummate this exchange
have been satisfied or waived, AIT shall deliver or cause all the AIT
Shareholders to deliver to GLD the AIT certificates evidencing the AIT shares,
and GLD shall deliver to the AIT Shareholders certificates of The Stock
proportionate to the AIT shares held immediately before the exchange. All acts,
deliveries, and confirmations comprising the Closing regardless of chronological
sequence shall be deemed to occur contemporaneously and simultaneously upon the
occurrence of the last act, delivery, or confirmation of the Closing and none
of such acts, deliveries, or confirmations shall be effective unless and until
the last of the same shall have occurred.
8. WARRANTIES AND REPRESENTATIONS OF THE AIT SHAREHOLDERS AND AIT. The
AIT Shareholders and AIT warrant and represent that:
A. ORGANIZATION AND CORPORATE POWER. AIT is duly incorporated and
validly existing under the laws of the State of Texas. AIT has all requisite
corporate power and authority and material licenses, permits and
authorizations necessary to own and operate its properties and to carry on its
business as now conducted.
B. AUTHORIZATION. The execution, delivery, and performance by AIT
of this Agreement and all other agreements contemplated hereby to which AIT is a
party have been duly and validly authorized by all necessary corporate action of
AIT, and this Agreement and each such other agreement, when executed and
delivered by the parties thereto, will constitute the legal, valid and binding
obligation of AIT enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, and similar
statutes affecting creditors' rights generally and judicial limits on equitable
remedies.
C. NO CONFLICT WITH OTHER INSTRUMENTS OR AGREEMENTS. The
execution, delivery, and performance by AIT of this Agreement and all other
agreements contemplated hereby to which AIT is a party will not result in a
breach or violation of, or constitute a default under, its Articles of
Incorporation or Bylaws or any material agreement to which AIT is a party or by
which AIT is bound.
D. CAPITAL STOCK AND RELATED MATTERS. The authorized capital stock
of AIT consists of 100,000 shares of common stock, $0.01 par value, of which
28,500 shares are issued and outstanding to the AIT shareholders per Exhibit B.
The remaining shares are retained in treasury.
E. FULLY-PAID, NON-ASSESSABLE SHARES. The AIT Shares shall, upon
delivery, be duly and validly authorized and issued, fully-paid and
non-assessable, and free from all stamp-taxes, liens, and changes with respect
to the exchange thereof. Neither the AIT Shareholders nor AIT have violated or
will violate any applicable securities laws in connection with the exchange of
the shares to GLD hereunder.
F. NO ADDITIONAL SECURITIES OR RIGHTS. AIT is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its stock and shall not issue additional shares of stock
immediately before the exchange that would result in GLD acquiring a number of
AIT shares representing less than all issued and outstanding shares of AIT.
3
<PAGE>
G. SUBSIDIARIES. AIT does not own or hold any rights to acquire
any shares of stock or any other security or interest in any other corporation
or entity.
H. REQUIRED APPROVAL. The Board of Directors and the AIT
Shareholders have approved this Agreement as may be required by state law and
any and all approvals of state regulatory agencies.
I. CAPABLE OF EVALUATING EXCHANGE. The AIT Shareholders have
experience in financial and business affairs and are capable of evaluating the
merits and risks of the exchange herein.
J. NO DISSENTERS. There will be no AIT Shareholders dissenting to
the exchange contemplated by this Agreement.
K. CONTRACTS AND COMMITMENTS. There are no written or oral
employment or consulting agreements, deferred compensation agreements,
contracts or commitments with any employee, officer or director or AIT, or
agents or consultants, other than agreements entered into in the ordinary
course of business.
L. COMPLIANCE WITH LAWS. To the best of AIT's knowledge, AIT is,
in the conduct of its business, in substantial compliance with all laws,
statutes, ordinances, regulations, orders, judgments, or decrees applicable to
them, the enforcement of which, if AIT were not in compliance therewith, would
have a materially adverse effect on the business of AIT, taken as a whole. AIT
has not received any notice of any asserted present or past failure by AIT to
comply with such law, statutes, ordinances, regulations, orders, judgments, or
decrees.
M. BROKERS AND FINDERS. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried out by AIT
and the AIT Shareholders directly with GLD, without the intervention of any
person on behalf of AIT and the AIT Shareholders, in such a manner that no valid
claim may arise against the parties to this Agreement for a finder's fee,
brokerage commission or similar payment concerning this Agreement.
N. INFORMATION PROVIDED. During the course of the negotiation of
this Agreement, AIT and AIT Shareholders have reviewed all information provided
to them by GLD and have had the opportunity to ask questions of and receive
answers from representatives of GLD concerning GLD, the securities being
exchanged pursuant to this Agreement, and to obtain certain additional
information requested by them AIT has provided to representatives of GLD all
information and materials related to AIT and its shares that GLD has requested
and AIT has answered all inquiries made by GLD concerning AIT and its shares.
O. As a result of purchase of The Assets from DNS;
1) AIT has good, valid, and marketable title to all The Assets,
free and clear of all liens and encumbrances. The assets include all rights,
properties and other assets necessary for GLD to conduct the business underlying
The Assets in all material respects in the same manner in which the business was
conducted by AIT and DNS; and,
2) Title to The Assets is hereby transferred to GLD free and clear
of all liens and encumbrances, and AIT and the AIT Shareholders will, at
Closing, execute and deliver any confirming documentation requested by
GLD, including, without limitation, the Bill of Sale in Exhibit B attached
hereto.
4
<PAGE>
P. Support of Customer Base represented by The Assets. On behalf
of GLD, AIT and the AIT Shareholders will support the GLD customer base
represented by The Assets in accordance with all of GLD's reasonable
requirements, such support to include, but not be limited to, the services
provided by the AIT Shareholders under the contract of June 10, 1996 between
Orion Communications, Inc. and DNS. In furtherance of such support, AIT and the
AIT Shareholders will use all reasonable efforts to take, or cause to be taken,
all actions, or otherwise do, all things necessary or advisable to make
effective an ongoing support program, including development and maintenance of
sound working relationships with GLD customers, agents and distributors.
9. WARRANTIES AND REPRESENTATIONS OF GLD. GLD warrants and represent
that:
A. ORGANIZATION AND CORPORATE POWER. GLD is duly incorporated and
validly existing under the laws of the State of Florida. GLD has all requisite
corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties and to carry on its
business as now conducted. GLD has provided to representatives of AIT all
information and materials related to GLD and its shares that AIT has requested
and GLD has answered all inquiries made by AIT concerning GLD and its shares.
B. AUTHORIZATION. The execution, delivery, and performance by GLD
of this Agreement and all other agreements contemplated hereby to which GLD is a
party have been duly and validly authorized by all necessary corporate action of
GLD, and this Agreement and each such other agreement, when executed and
delivered by the parties thereto, will constitute the legal, valid, and binding
obligation of GLD enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, and similar
statutes affecting creditors' rights generally and judicial limits on equitable
remedies.
C. NO CONFLICT WITH OTHER INSTRUMENTS OR AGREEMENTS. The
execution, delivery, and performance by GLD of this Agreement and all other
agreements contemplated hereby to which GLD is a party will not result in a
breach or violation of, or constitute a default under, its Articles of
Incorporation or Bylaws or any material agreement to which GLD is a party or by
which GLD is bound.
D. INVESTMENT REPRESENTATIONS. GLD is acquiring the AIT shares for
its own account for purposes of investment and without expectation, desire, or
need for resale and not with the view toward distribution, resale, subdivision,
or fractionalization of the shares.
E. FULLY-PAID, NON-ASSESSABLE SHARES. The Stock shall, upon
delivery, be duly and validly authorized and issued, fully-paid and
non-assessable, and free from all stamp-taxes, liens, and charges with respect
to the exchange thereof.
F. NO INTENT TO REACQUIRE. GLD has no intention of reacquiring any
of the GLD shares issued pursuant to this Agreement.
G. REQUIRED APPROVAL. The Board of Directors of GLD have approved
this Agreement as may be required by state law and any and all approvals of
state regulatory agencies.
H. COMPLIANCE WITH LAWS. To the best of GLD's knowledge, GLD is,
in the conduct of its business, in substantial compliance with all laws,
statutes, ordinances, regulations, orders, judgments, or decrees applicable to
them, the enforcement of which, if GLD were not in compliance therewith, would
have a materially adverse effect on the business of GLD, taken as a whole. GLD
has not received any notice of any asserted present or past failure by GLD to
comply with such laws, statutes, ordinances, regulations, orders, judgments, or
decrees.
5
<PAGE>
I. BROKERS AND FINDERS. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried out by GLD
and the GLD Shareholders directly with AIT, without the intervention of any
person on behalf of GLD and the GLD Shareholders, in such a manner that no valid
claim may arise against the parties to this Agreement for a finder's fee,
brokerage commission or similar payment concerning this Agreement.
J. INFORMATION PROVIDED. During the course of the negotiation of
this Agreement, GLD has reviewed all information provided by AIT and has had the
opportunity to ask questions of and receive answers from representative of AIT
concerning AIT, the securities being exchanged pursuant to this Agreement, and
to obtain certain additional information requested by them GLD has provided to
representatives of AIT all information and materials related to GLD and its
shares that AIT has requested and AIT has answered all inquiries made by AIT
concerning GLD and its shares.
10. A. INDEMNIFICATION. The AIT Shareholders, jointly and severally,
and AIT agree to indemnify in respect of, and hold GLD harmless from and against
any and all damages, claims, deficiencies, losses, including taxes, and all
expenses, including interest, penalties, attorneys' and accountants' fees and
disbursements, resulting from the misrepresentation, breach of warranty or
nonfulfillment or failure to perform any covenant or agreement on the part of
AIT or the AIT Shareholders made as a part of or contained in this Agreement,
including the Exhibits hereto or in any certificate executed and delivered
pursuant to this Agreement or in connection with the transactions contemplated
hereby GLD agrees to indemnify in respect of, and hold AIT and the AIT
Shareholders harmless from and against, any and all damages, claims,
deficiencies, losses, including taxe, and all expenses, including interest,
penalties, attorney's and accountants' fees and disbursements, resulting from
the misrepresentation, breach of warranty or nonfulfillment or failure to
perform any covenant or agreement on the part of GLD made as a part of or
contained in this Agreement, including the Exhibits hereto or in any certificate
executed and delivered pursuant to this Agreement or in connection with the
transactions contemplated hereby except for Damages resulting from any such
misrepresentations, breach of warranty or nonfulfillment or failure to perform
any such covenant or agreement known to AIT on the Closing Date. The party
claiming indemnification hereunder is hereunder referred to as the
"Indemnified Party" and the party against whom such claims are asserted is
hereinafter referred to as the "Indemnifying Party".
B. NOTIFICATION OF CLAIMS. Indemnified Party agrees to notify
Indemnifying Party promptly in writing of any occurrence, event, transaction or
circumstance occurring subsequent to the date of this Agreement that could give
rise to a claim for indemnification against Indemnifying Party under this
section ("Indemnification Event"). Additionally, Indemnified Party, together
with such written notice, and thereafter promptly after receipt or the obtaining
thereof, will deliver to Indemnifying Party all information and documents
relating to such Indemnification Event, and will use all commercially reasonable
efforts to cooperate with Indemnifying Party in the defense of any litigation
brought by third parties or other efforts by Indemnifying Party to mitigate
Damages resulting from the Indemnification Event.
C. LIMITATION ON LIABILITY. Notwithstanding anything to the
contrary herein:
(1) The AIT Shareholders may satisfy or partially satisfy any
indemnification claim by returning The Stock of GLD valued at the price per
share set forth in Section 1b(3) herein. If damages claimed exceed the value of
The Stock, the remainder of the claim shall continue.
(2) No indemnification hereunder shall include consequential
or indirect damages.
6
<PAGE>
11. DELIVERY OF BOOKS AND RECORDS. On the Closing Date, AIT shall
deliver to GLD all books, records, and files of AIT which AIT and the AIT
Shareholders agree are reasonably necessary to permit GLD to fully utilize AIT's
charter and certificates of authority to transact business and to satisfy
regulatory authorities, including, but not necessarily limited to, The Assets,
computer software license and source code, a computer tape or tapes relating to
AIT's operations; copies of forms, computer and policy records, agents'
contracts, files and commission records paid to any agents, brokers, or third
parties; form files and commission records paid to any agents, brokers, or
third parties; and any and all files or records maintained by AIT with respect
to the business of AIT. In addition to the foregoing, AIT shall transfer to
GLD originals or certified copies of the following books, records and documents
in whatever format such books, records and documents exist, if any:
(a) Articles of Incorporation, Bylaws, stock register, and minute
books of AIT, and the documents mentioned or referred to therein;
(b) The Charter or Certificates of Authority issued to AIT.
12. TERMINATION
A. This Agreement may be terminated and abandoned at any time
without further obligation or liability on the part of any party in favor of any
other by mutual consent of the AIT Shareholders, AIT and GLD.
B. TERMINATION PROCEDURE. Any party having the right to terminate
this Agreement may terminate this Agreement by delivering to the other party
written notice of termination, and thereupon, this Agreement will be terminated
without obligation or liability of any party.
13. MISCELLANEOUS PROVISIONS.
A. ENTIRE CONTRACT. This Agreement contains the entire contract
and supersedes any and all other agreements, oral or written, between the
parties hereto with respect to the subject matter hereof and contains all of the
covenants and agreements between the parties with respect to such matters. Each
party to this Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this Agreement shall
be valid or binding.
B. AMENDMENTS. This Agreement may not be modified, changed, or
amended in any respect unless agreed upon in writing and signed by the duly
authorized representatives of the respective parties hereto.
C. TITLE AND CAPTIONS. All section titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the
context nor effect the interpretation of this Agreement.
D. PRONOUNS AND PLURALS. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular, or plural
as the identity of the person or persons may require.
E. AGREEMENT BINDING. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, successors and
assigns of the parties hereto.
F. SEVERABILITY. If any term, provision, convenant, or condition
of this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the provisions shall remain in full
force and effect and shall in no way be affected, impaired, or invalidated.
7
<PAGE>
G. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
H. COUNTERPARTS. This Agreement may be executed in several copies
or counterparts, each of which shall have the same force and effect of an
original.
I. SURVIVAL OF REPRESENTATIONS. The representations and warranties
of the parties herein shall survive the Closing.
J. NOTICES. All notices, requests, demands, and other
communications required or permitted hereunder will be in writing and will be
deemed to have been duly given when delivered by hand, by facsimile
transmission, or two days after being mailed by certified or registered mail,
return receipt requested, with postage prepaid:
If to GLD, to:
Gerry Dunne Jr.
President
Group Long Distance
1451 West Cypress Creek Rd.
Fort Lauderdale, FL 33309
or to such other person or address as GLD furnishes to AIT pursuant to the
above.
If to AIT Shareholders or
AIT before the Closing, to:
Scott Crist
Chairman
Adventures in Telecom
4635 Southwest Freeway, Suite 800
Houston, Texas 77027
K. ATTORNEY FEES. In the event and arbitration, suit or action is
brought by any party under this Agreement to enforce any of its terms, or in any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys' fees to be fixed by the arbitrator, trial court, or
appellate court.
L. EXPENSES. Each party shall bear its own costs and expenses,
including attorneys' fees, incurred in connection with this transaction.
8
<PAGE>
M. ARBITRATION. If at any time during the term of this Agreement
and thereafter any dispute, difference, or disagreement shall arise upon or in
respect of the Agreement, and the meaning and construction hereof, every such
dispute, difference, and disagreement shall be referred to a single arbiter
agreed upon by the parties, or if no single arbiter can be agreed upon, an
arbiter or arbiters shall be selected in accordance with the rules of the
American Arbitration Association and such dispute, difference, or disagreement
shall be settled by arbitration in accordance with the then prevailing
commercial rules of the American Arbitration Association, and judgment upon the
award rendered by the arbiter may be entered in any court having jurisdiction
thereof. Any such arbitration shall be conducted in Fort Lauderdale, Florida.
N. PRESUMPTION. This Agreement or any section thereof shall not be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
O. TREATMENT OF TRANSACTION. Although the parties intend this
transaction to be a "reorganization" within the meaning of Section 386(a)(1)(B)
of the Internal Revenue Code of 1986, such treatment is not a condition to
Closing and no Internal Revenue Service Ruling or opinion of counsel is being
requested for such treatment. The parties will account and report such
transaction for tax purposes as such a reorganization unless advised by their
respective accountants or tax advisors that such treatment is not proper.
P. WAIVER. Any term or condition of this Agreement may be waived
at any time by the party which is entitled to the benefit thereof, such waiver
shall be in writing and shall be executed by AIT's or GLD's President or
authorized representative of such party. A waiver of one occasion shall not be
deemed to be a waiver of the same or any other breach on a future occasion.
Q. ASSIGNMENT. The right and obligations of the parties under
this Agreement may not be assigned in whole or in part without the prior written
consent of other party, which consent shall not be unreasonably withheld.
R. FURTHER ACTION. The parties hereto shall execute and deliver
all documents, provide all information and take or forbear from all such action
as may be necessary or appropriate to achieve the purposes of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or, by their
respective duly authorized officers, have caused this Agreement to be executed
as of the date first written above.
ATTEST: GROUP LONG DISTANCE, INC.
By:
- ---------------------------- -----------------------------
Gerry Dunne, Jr.
President
ATTEST: ADVENTURES IN TELECOM, INC.
/s/ ILLEGIBLE By: /s/ SCOTT CRIST
- ---------------------------- -----------------------------
Scott Crist
Chairman, CEO and President
WITNESS: AIT SHAREHOLDERS:
/s/ ILLEGIBLE /s/ MARK VANCE
- ---------------------------- ----------------------------
Mark Vance
/s/ ILLEGIBLE /s/ E. SCOTT CRIST
- ---------------------------- ---------------------------
E. Scott Crist
9
EXHIBIT 10.19
RELEASE AND
SETTLEMENT AGREEMENT
This Release and Settlement Agreement ("Agreement") is entered into this
_____ day of June, 1993, by and among American Telephone and Telegraph Company
("AT&T"), Group Long Distance, Inc. ("Group") and Tel-Save, Inc. ("Tel-Save").
RECITALS
WHEREAS, Group previously subscribed to Distributed Network Service ("DNS")
offered by AT&T pursuant to Tariff FCC No. 1, and a dispute has arisen
concerning Group's failure to pay AT&T tariffed DNS usage charges, shortfall and
termination charges;
WHEREAS, on January 13, 1993, Group entered into an agreement with Tel-Save
(the "Tel-Save/Group Agreement") whereby various former customers of Group
("Customers") have been transferred by Group to Tel-Save for the provisioning of
telecommunications services, and provides for a monthly reconciliation of
obligations between Tel-Save and Group in return for a potential monthly payment
by Tel-Save to Group (the "Payment");
WHEREAS, Tel-Save acknowledges that it has an interest in and will benefit
from a resolution of the dispute between Group and AT&T; and
WHEREAS, AT&T and Group now wish to settle the aforementioned dispute.
THEREFORE, in consideration of the mutual promises contained herein, the
parties agree as follows:
1. PAYMENT TO AT&T
(a) AT&T will accept the amount of $1,200,000.00 from Group in full
satisfaction of Group's tariffed DNS charges (the "Amount") according to the
following schedule: $157,300 on July 1, 1993 (to be deducted from applicable
credits to Group's CSTPII based on AT&T's "Best in the Business" promotion);
$40,000 on October 1, 1993; ($100,000 on November 1, 1993) (to be deducted from
applicable credits to Group's CSTFII based on AT&T's "Best in the Business"
promotion); $40,000 on December 1, 1993; $45,000 on January 10, 1994; $45,000 on
February 1, 1994; $45,000 on March 1, 1994; $45,000 on April 1, 1994; $45,000 on
May 2, 1994; $45,000 on June 1, 1994; $45,000 on July 1, 1994; $45,000 on August
1, 1994; $45,000 on September 1, 1994; $45,000 on
<PAGE>
October 3, 1994; $45,000 on November 1, 1994; $45,000 on December 1, 1994;
$45,000 on January 2, 1993; $92,500 on February 1, 1995; $92,500 on March 1,
1995; $92,500 on April 3, 1995.
(b) As to all payments described above with the exception of the July 1,
1993, October 1, 1993, November 1, 1993, December 1, 1993, February 1, 1995,
March 1, 1993, and April 1, 1995 payments, the following payment procedure shall
apply: if Tel-Save is obligated to make a Payment to Group under the
Tel-Save/Group Agreement in the month preceding one of the above payment dates,
Group agrees to direct Tel-Save immediately to send to AT&T instead of Group the
lesser amount of that Payment or $45,000. If, however, the Payment is less than
$45,000, Group shall immediately pay AT&T the difference between $45,000 and
that month's Payment.
(c) If Group has made all payments timely to AT&T under this Agreement as
of January 1, 1994, Group may choose, subject to the conditions described below,
to substitute the remainder of its payment obligations for one of the two
following options.
(i) Group may elect to pay AT&T 12 monthly payments of $68,906.25 each,
to be paid to AT&T on January 10, 1994; February 1, 1994; March 1, 1994; April
1, 1994; May 1, 1994; June 1, 1994; July 1, 1994; August 1, 1994; September 1,
1994; October 1, 1994; November 1, 1994; and December 1, 1994. Except for
section 1(b), all provisions of this Agreement shall remain unchanged; or
(ii) Group may elect to pay AT&T no later than January 10, 1994,
$735,000 in certified funds in full satisfaction of this Agreement.
If Group chooses either option, Group shall inform AT&T in writing between
January 3 and January 7, 1994. If Group does not choose either option or cannot
validly do so under the terms of this subsection, Group's obligations under the
remainder of this Agreement remains unchanged.
2. ADDITIONAL OBLIGATIONS
(a) To the extent of Tel-Save's obligations under section 1 of this
Agreement, Tel-Save shall make Payments to AT&T in a timely manner for so long
as the balance due AT&T remains outstanding and any customers remain with
Tel-Save.
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<PAGE>
(b) Tel-Save shall allow AT&T at all reasonable times to enter Tel-Save's
premises and to audit at AT&T expense any of Tel-Save's books and records that
pertain to Customers.
(c) Tel-Save agrees to guarantee payment to AT&T of the first $200,000 of
Group's obligation under this Agreement. In the event that Group fails to make
timely any of the monthly payments described in section 1(b) which comprise the
first $200,000 of Group indebtedness, AT&T shall notify Group in writing of its
default. If Group does not cure this default within five business days after it
receives notice from AT&T, the amount of the particular monthly payment shall
become immediately due and owing by Tel-Save to AT&T.
(d) Group shall not cause or attempt to cause the Customers to transfer
their telecommunications services from Tel-Save to another telecommunications
service provider.
3. RELEASE
In return for accepting this Agreement, Group, on behalf of itself and its
employees, agents, shareholders, officers, directors (in their individual and
representative capacities), subsidiaries, predecessors, affiliates, parent
corporations, if any, joint venturers, successors and assigns, heirs, executors,
administrators and trustees ("Releasors") hereby discharges and releases AT&T
and AT&T's past and present employees, agents, shareholders, officers, directors
(in their individual and representative capacities), subsidiaries, predecessors,
affiliates, parent corporations, if any, joint venturers, successors and
assigns, heirs, executors, administrators and trustees, ("Releases") from any
and all rights, claims, damages, actions, judgments, obligations, attorneys'
fees, indemnities, subrogations, duties, demands, controversies or liabilities,
at law or in equity, known or unknown, matured or unmatured, foreseeable or
unforseeable, which Releassors now have or ever had against Releasees, arising
from AT&T's provision of DNS service
4. FUTURE SERVICE
(a) Group agrees that before it subscribes or attempts to subscribe to any
other AT&T service furnished under Tariff F.C.C. No. 1 after the date of this
Agreement, Group shall have satisfied all its payment obligations under this
Agreement, and no payments shall remain outstanding and owing to AT&T.
(b) AT&T agrees that, as to any future tariffed service requested by Group,
AT&T shall not require Group to post a deposit greater than an amount equal to
three times the
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<PAGE>
estimated average monthly usage charges and/or the monthly recurring charges.
5. BREACH OF AGREEMENT
In the event AT&T does not receive Payments in a timely manner, AT&T may,
at its option and without prior notice to Group, commence an action against
Group in any court of competent jurisdiction to recover the outstanding portion
of the Amount Group agrees that in such an event Group waives any contractual
administrative or regulatory statutes of limitations it might otherwise have
against AT&T. Except in case of a breach of Tel Save's obligations under section
2 of this Agreement, AT&T shall have no recourse against Tel-Save arising from
the terms of this Agreement.
6. ENTIRE AGREEMENT
This Agreement is the sole, only, entire and complete agreement of the
parties relating in any way to the subject matter hereof. No statements,
promises or representations have been made by any party to any party, or are
relied upon, and no consideration has been or is offered, promised, expected or
held out, other than as stated in this Agreement as to the subject matter
hereof. There are no oral or written collateral agreements as to the subject
matter hereof. All prior discussions and negotiations have been, and are, merged
and integrated into, and are superseded by, this Agreement as to the subject
matter hereof.
7. OWNERSHIP OF CLAIM
The parties hereto warrant that they have not assigned or transferred, in
any manner, to any person or entity, any right or interest to which they may be
entitled regarding the dispute between the parties. Each party warrants and
represents to the other party that it is the owner and holder of all rights
concerning the claim that is the subject of this Agreement.
8. NO ADMISSION OF LIABILITY
This Agreement, the contents thereof or its execution shall not be
construed as any admission of liability by either party.
9. LEGAL COUNSEL.
Each of the parties represents that in the execution of this Agreement, and
the negotiations leading thereto, it had the opportunity to consult legal
counsel of its own selection. Prior
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<PAGE>
to the execution of this Agreement by each party, the party's attorney, if any,
reviewed this Agreement, made any desired changes and advised the party with
respect to the advisability of making the settlement and release provided
herein and of executing this Agreement.
10. APPLICABLE LAW
This Agreement shall be construed in accordance with and be governed by the
internal laws of the State of New Jersey in effect as of the date of execution.
11. ENFORCEMENT OF AGREEMENT
If any action at law or in equity, including an action for declaratory or
injunctive relief, is brought to enforce or interpret the provisions of this
Agreement, the prevailing party shall be entitled to all of its costs in
prosecuting or defending said action, including a reasonable amount of its
attorneys' fees, which may be set by the court in which the action for
enforcement if brought, or in a separate motion for that purpose, in addition to
any other relief to which the prevailing party may be entitled.
12. CONFIDENTIALITY
The parties agree to keep both the fact of and the consideration for this
Agreement confidential and agree not to disclose it to others (unless required
by a court or regulatory agency of competent jurisdiction). Group and Tel-Save
further agree that, if asked about the dispute described herein, each will
respond only that the dispute has been resolved satisfactorily.
13. MISCELLANEOUS
(a) The delay or failure of a party to exercise any right, power or
privilege hereunder or failure to strictly enforce any breach or default shall
not constitute a waiver with respect thereto and no waiver of any such right,
power, privilege, breach or default on any one occasion shall constitute a
waiver thereof on any subsequent occasion unless clear and express notice
thereof in writing is provided.
(b) If any provision of this Agreement is held to be invalid or
unenforceable, all other provisions shall nevertheless continue in full force
and effect.
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<PAGE>
14. TARIFF SERVICE
This Agreement shall have no effect upon, and shall not modify or alter,
the parties' respective obligations and responsibilities under the tariffs that
govern AT&T's provision of service.
15. MULTIPLE ORIGINALS
This Agreement is intended to have multiple executed originals. The parties
agree that each executed original is as valid and binding as any other executed
original.
IN WITNESS whereof, the parties have affixed their signatures effective as
of the date first above written.
AMERICAN TELEPHONE
AND TELEGRAPH COMPANY GROUP LONG DISTANCE, INC.
ILLEGIBLE ILLEGIBLE
By: ------------------------ By: ------------------------------
(Signature) (Signature)
ILLEGIBLE ILLEGIBLE
------------------------ ------------------------------
(Name and Title) (Name and Title)
8/23/93 6/29/93
------------------------ ------------------------------
(Date Executed) (Date Executed)
TEL-SAVE, INC.
ILLEGIBLE
By: ------------------------
(Signature)
ILLEGIBLE
------------------------
(Name and Title)
6/30/93
------------------------
(Date Executed)
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Exhibit 10.20
AMENDMENT TO RELEASE
AND SETTLEMENT AGREEMENT
This Amendment ("Amendment") to the Release and Settlement (the
"Agreement") is entered into by and among American Telephone and Telegraph
Company ("AT&T"), Group Long Distance ("Group") and Tel-Save, Inc. ("Tel-Save").
WHEREAS, AT&T Group and Tel-Save executed the Agreement effective on
August 23, 1993, which remains in force;
WHEREAS, the parties have agreed that it is to their mutual benefit that
certain provisions of the Agreement be revised.
THEREFORE, the parties agree to amend the Agreement as follows:
1. SECTION 1(A) OF THE AGREEMENT
Those payment obligations specified in Section 1(a) arising after March 1,
1994 are replaced with the following schedule: $5,000 on April 1, 1994;
$5,000 on May 1, 1994; $5,000 on June 1, 1994; $25,000 on July 1, 1994; $25,000
on August 1, 1994; $40,000 on September 1, 1994; $40,000 on October 1, 1994;
$40,000 on November 1, 1994; $40,000 on December 1, 1994; $40,000 on January 2,
1995; $50,000 on February 1, 1995; $50,000 on March 1, 1995; $50,000 on April 3,
1995; $52,000 on May 1, 1995; $52,000 on June 1, 1995; $52,000 on July 1, 1995;
$52,000 on August 1, 1995; $52,000 on September 1, 1995; and $52,500 on October
1, 1995.
2. SECTION 1(C) OF THE AGREEMENT
(a) Group may exercise the option specified in Section 1(c) on October 1,
1994, instead of January 1, 1994, subject to the terms of Section 1(c). If Group
qualifies for and wishes to exercise this option, Group shall inform AT&T in
writing between September 1, 1994, and September 15, 1994.
EXHIBIT 10.21
This AGREEMENT, dated as of July 11, 1996, between Tel-Save, Inc.,
a Pennsylvania corporation ("TS) and Group Long Distance, Inc., a Florida
corporation (the "Company").
WHEREAS, TS and the Company are parties to certain Partition
Agreements, pursuant to which TS provides certain telecommunications services to
the Company and the Company's end-users and customers;
WHEREAS, as security for the Company's obligations to TS under such
Partition Agreements and otherwise, the Company has executed Assignment and
Security Agreements, in favor of TS, and Lock Box and Security Agreements, among
TS, the Company and the banks party thereto; and
WHEREAS, the Company has requested that TS advance certain monies
to the Company to enable the Company to acquire certain telecommunications
traffic (the "DNS Traffic") from DNS Communications, Inc. ("DNS") pursuant to a
Purchase Agreement and Plan of Reorganization, dated July 11, 1996, by and among
Adventures in Telecom, Inc. ("AIT"), the Company and certain individuals named
therein (the "Purchase Agreement"), together with certain Partition Agreements
with TS pursuant to which such DNS Traffic is provisioned, and TS is willing, on
the terms and subject to the conditions hereof, to advance such monies to the
Company;
NOW THEREFORE, in consideration of the premises and the mutual
agreements, provisions and covenants herein contained, the parties hereby agree
as follows:
1. DEFINITIONS. Capitalized terms used herein shall have the
following meanings:
(a) "ADVANCES" shall have the meaning set forth in Section 2(a) of
this Agreement.
(b) "APPLICABLE RATE" shall mean an annual rate of interest equal
to six and one-half percent (6.5%).
(c) "BASIC DOCUMENTS" shall mean the Note, the Security Agreements,
the Warrant, the Registration Rights Agreement, the Pledge Agreement,
the
<PAGE>
Stockholders Agreement, the Lock Box Agreements and the GLD Partition
Agreements, each as it may be amended, modified or supplemented.
(d) "BUSINESS DAY" shall mean any day on which commercial banks are
not authorized or required to close in New York City.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto. Any reference to a specific
section or sections of the Code shall be deemed to include a reference to any
corresponding provision of future law.
(f) "COLLATERAL" shall have the meaning set forth in the Security
Agreements, as amended and supplemented hereby.
(g) "COMMON STOCK" shall mean the common stock, par value $0.01 per
share, of the Company.
(h) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and any regulations issued pursuant
thereto.
(i) "EVENT OF DEFAULT" shall have the meaning set forth in Section
6 of this Agreement.
(j) "FINAL MATURITY DATE" shall mean July 11, 1997.
(k) "GAAP" shall mean generally accepted accounting principles as
from time to time set forth in the opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and in statements by
the Financial Accounting Standards Board or in such opinions and statements of
such other entities as shall be approved by a significant segment of the
accounting profession in the United States of America, applied on a consistent
basis.
(l) "GLD PARTITION AGREEMENTS" shall mean, collectively, all
Partition Agreements pursuant to which TS provides telecommunications services
to the Company or the Company's end-users or customers, including, without
limitation, Partition Agreements that have been assigned or otherwise
transferred to the Company, including, without limitation, the Partition
Agreements
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<PAGE>
pursuant to which the DNS Traffic is or will be provisioned.
(m) "LOCK BOXES" shall mean, collectively, the several lock boxes
established pursuant to the Lock Box Agreements into which amounts payable by
end-users and other customers for services provisioned by TS under any of the
GLD Partition Agreements are deposited.
(n) "LOCK BOX AGREEMENTS" shall mean, collectively, the Lock Box
and Security Agreements in favor of TS that secure the obligations under the GLD
Partition Agreements, including, without limitation, the Lock Box and Security
Agreement, dated as of July 29, 1994, among TS, the Company and Comerica Bank,
as each may be amended or supplemented.
(o) "MATRIX" shall mean Matrix Telcom, Inc.
(p) "PLEDGE AGREEMENT" shall have the meaning set forth in Section
4(a)(vi).
(q) "PLEDGED STOCK" shall mean the stock that is pledged pursuant
to the Pledge Agreement.
(r) "PLEDGOR" shall have the meaning set forth in Section 4(a)
(vi).
(s) "POST-DEFAULT INTEREST CONDITION" shall mean (i) the occurrence
and continuation of the failure by the Company to pay when due (whether at
stated maturity, by acceleration, by mandatory prepayment or otherwise) any
principal or interest on any Advance or any other amount payable by the Company
to TS under any of this Agreement or the Security Documents, (ii) the occurrence
and continuation of any Event of Default referred to in Section 6(a)(iii), (iv)
or (v) hereof or (iii) the delivery by TS of a notice terminating this Agreement
or accelerating the maturity of the Advance upon an Event of Default.
(t) "POST-DEFAULT RATE" shall mean a rate per annum equal to eight
and one-half percent (8.5%).
(u) "PREPAYMENT DATE" shall mean the last day of each calendar
month.
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<PAGE>
(v) "PURCHASE AGREEMENT" shall have the meaning set forth in the
third Recital hereof.
(w) "SECURITY AGREEMENTS" shall mean, collectively, the Assignment
and Security Agreements, in favor of TS that secure the obligations under
the GLD Partition Agreements, including, without limitation, the Assignment and
Security Agreement, dated as of July 29, 1994, by the Company in favor of TS, as
each may be amended or supplemented.
(x) "SECURITY DOCUMENTS" shall mean the Security Agreements, the
Lock Box Agreements, the Pledge Agreement, and documents related thereto and
contemplated thereby and any other documents required by TS to create and
evidence a perfected security interest in the Collateral and other assets of the
Company and the Pledged Stock as TS may require.
(y) "STOCKHOLDERS AGREEMENT" shall have the
meaning set forth in Section 4(a)(vii).
(z) "WARRANT" shall have the meaning set forth
in Section 4(iv).
(aa) "SUBSIDIARIES" shall mean any corporation, association, joint
venture, partnership or other business entity of which securities, other
ownership interests or other management rights or relationships representing 50%
or more of the ordinary voting power or control or beneficial interest are, at
the time as of which any determination is being made, owned, possessed or
controlled by the entity in question or one or more Subsidiaries of such entity
or by such entity and one or more Subsidiaries of such entity.
2. ADVANCES. (a) On the terms and subject to the conditions hereof,
at the request of the Company and on the first business day after the date all
of the conditions set forth in Section 4 hereof shall have been satisfied or,
subject to the terms and conditions of Section 4(c), such earlier date, TS shall
advance to the Company the amount of $5,521,230 in cash (the "Advance")
(b) (i) The Company hereby promises to pay to TS interest on the
unpaid principal amount of the Advance hereunder for the period from and
including the
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<PAGE>
date of such Advance, but excluding the date such Advance shall be repaid in
full, at the Applicable Rate. Interest shall be calculated based on a three
hundred sixty-five (365) day year for the actual number of days elapsed and
accrued interest shall be payable on each Prepayment Date and on the Final
Maturity Date, except that interest payable at the Post-Default Rate shall be
payable from time to time on demand of TS.
(ii) Notwithstanding the foregoing, at any time that a
Post-Default Interest Condition has occurred and is continuing (whether or not
the same is thereafter cured), the Company hereby promises to pay to TS interest
at the Post-Default Rate on the unpaid principal amount of the Advance (whether
or not then due). Accrued interest at the Post-Default Rate shall be payable
from time to time on demand of TS.
(c) The Company hereby promises to pay to TS the entire
outstanding principal amount of the Advance hereunder on the Final Maturity Date
and to prepay the Advance as provided herein.
(d) The Advance shall be subject to mandatory prepayment, and
shall be due and payable, as follows:
(i) On each Prepayment Date, such principal amount of the
Advance as shall, together with the interest payable on the Advance on such
Prepayment Date, equal $500,000, shall be prepaid and shall be due and payable.
(ii) In addition, on each Prepayment Date, such principal amount
of the Advance as shall equal the amount set forth in clause "fifth" in Section
2(e) below shall be prepaid and shall be due and payable.
(iii) The entire outstanding principal amount of the balance,
together with interest accrued thereon to the date of payment, shall be prepaid
and shall be due and payable on the ninetieth (90th) day after the date of this
Agreement if the Company and TS shall not on or before such date have executed
and delivered the TelComm Agreement as defined and provided in Section 3(b).
(iv) The entire outstanding principal amount of the Advance,
together with interest accrued thereon,
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<PAGE>
shall be prepaid and shall be due and payable at the time of the consummation by
the Company of any sale for cash of any shares of the Company's capital stock or
of any debt securities of the Company, whether public or private, other than a
sale of capital stock after the date hereof upon the exercise of rights under
(i) outstanding employee stock options, (ii) the Warrant, (iii) the Purchase
Agreement and (iv) any agreement with a trade creditor pursuant to which the
Company has agreed to provide shares of the Company's capital stock to such
trade creditor; PROVIDED that, in the case of such a trade creditor, such
shares, together with any shares provided to any other trade creditors, shall
not constitute in the aggregate more than 1% of the total capital stock of the
Company on the date of any such provision.
(v) As provided in Section 4(c) hereof.
(e) The parties agree that on each Prepayment Date commencing
immediately following the date hereof, and so long as no Event of Default or
event that, with notice or lapse of time or both, would become an Event of
Default shall have occurred and be continuing, the amounts that have been paid
into the Lock Boxes since the next preceding Prepayment Date (the "Monthly
Amount") shall be applied in the following order (in each case to the extent of
such amounts and without prejudice to the Company's obligations, which are
absolute, to make its payment obligations hereunder):
FIRST, to the payment of all usage and other charges owed to
TS under the GLD Partition Agreements;
SECOND, to the extent the Monthly Amount exceeds the amount
payable pursuant to clause "first," to the payment of interest on the Advance
that is payable on such Prepayment Date;
THIRD, to the extent the Monthly Amount exceeds the amount
payable pursuant to clauses "first" and "second", to the payment of the
principal of the Advance that is prepayable on such Prepayment Date pursuant to
Section 2(d)(i) hereof;
FOURTH, to the extent the Monthly Amount exceeds the amounts
payable pursuant to clauses
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<PAGE>
"first", "second" and "third", to distribution to the Company in an amount up to
$150,000; and
FIFTH, any balance of the Monthly Amount after application
pursuant to clauses "first," "second", "third" and "fourth", to the payment of
the principal of the Advance that is prepayable on such Prepayment Date pursuant
to Section 2(d)(ii) hereof;
If and so long as an Event of Default or event that, with notice or lapse of
time or both, would become an Event of Default shall have occurred and be
continuing, all amounts paid into the Lock Boxes may, in the sole discretion of
TS, be (and shall be, in the case of an
Event of Default described in clause (iii), (iv) or (v) of Section 6(a) hereof)
applied to the payment of principal and interest on the Advance until paid in
full.
(f)(i) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Company
under this Agreement shall be made in U.S. dollars in immediately available
funds and shall be made to TS at its address for notices pursuant to Section
9(b) not later than 1:00 PM New York time on the date on which such payment
shall become due (each such payment made after such time on such date shall be
deemed to have been made on the next succeeding Business Day).
(ii) If the due date of any payment under this Agreement would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
(g) It is understood and agreed by the Company that the Advance
and any interest thereon and all other amounts payable to TS hereunder are
intended to be, and are, for all purposes of the Security Agreements and the
Lockbox Agreements, "Obligations" as therein defined and entitled as such to the
security and other benefits of such Security Agreements and Lockbox Agreements
as fully as if expressly set forth as "Obligations" in such Agreements.
(h) Each of the GLD Partition Agreements, the Security Agreements,
the GLD Lockbox Agreements and the
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<PAGE>
other Lockbox Agreements is hereby amended to the extent necessary to reflect
the terms of this Agreement.
(i) of the Company, substantially in the form of Exhibit A hereto
(the "Note"), dated as of the date hereof, and payable to TS in the aggregate
principal amount of $5,521,230.
3. GLD PARTITION AGREEMENTS AMENDMENTS; TELCOMM AGREEMENT.
(a) Each of the GLD Partition Agreements is hereby supplemented
and amended as follows:
(i) to change the term thereof as follows: "until the later of
August 31, 1999 and the date that all obligations of P/A to TS hereunder or
otherwise shall have been satisfied in full (the "Service Term")".
(ii) to change the rates for services thereunder to such rates
and related terms as are reflected in the monthly billing statement delivered by
TS to the Company in June, 1996 pursuant to the Partition Agreement, dated as of
July 29, 1994, between TS and the Company.
(iii) to add as additional provisions thereof the following,
appropriately numbered or lettered and with such definitional changes as may be
appropriate:
"(A) P/A shall not, after September 1, 1996, provision any new
end-user or other customer in respect of domestic switched, 1+ or 800 services
other than through TS; PROVIDED that this requirement shall not apply to any
end-user or customer whose usage for international services have constituted
(or, in the case of new end-users or other customers, are reasonably projected
to constitute) fifty percent (50%) or more of such end-user's or customer's
total usage.
"(B) P/A agrees that TS may, in its sole discretion, reprovision
any or all of the following traffic on TS' "One Better Net", or "OBN", network
(the "OBN Network") and that P/A will use its best efforts to cause such
reprovisioning as TS may elect:
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<PAGE>
(1) any and all lines provisioned under this Agreement;
(2) any and all lines acquired by P/A from Touchtone Network, Inc.
that are provisioned by WilTel through P/A; and
(3) any and all lines acquired by P/A from United States Digital
Network that are provisioned by WilTel through P/A.
"(C) P/A shall not incur any indebtedness for borrowed money or for
the deferred purchase price of any, asset except for obligations to TS or its
affiliates, unless P/A shall have given TS five (5) days prior notice thereof
and an opportunity for TS to provide such financing."; and
"(D) From and after TS shall have first reprovisioned traffic
hereunder under its OBN network:
(1) All services provided under this Agreement that are provided
over the OBN Network will be billed at the rates set forth in TS' OBN Rate
Schedule previously distributed by TS.
(2) P/A shall maintain, from the first anniversary of such date to
the end of the Service Term (including any extension thereof) (the "Commitment
Period"), on a take-or-pay basis, "Monthly Revenues" of at least $5,000,000
("P/A's Commitment"). If P/A does not maintain P/A's Commitment in any month
during the Commitment Period, P/A shall pay to TS the difference between P/A's
Commitment and P/A's Monthly Revenues for such month (the "Shortfall Charge").
The Shortfall Charge for any month shall be due at the same time as payment for
the services and other charges reflected in the Monthly Revenues for such month
or immediately in the amount equal to P/A's Commitment for the unexpired term of
this Agreement if TS terminates this Agreement based on P/A's default. For
purposes of this Agreement, "Monthly Revenues" for any month shall mean and
include the aggregate amount of all usage charges for services provided under
this Agreement included in the monthly statement for such month."
(b) TS and the Company will each use its commercially reasonable
best efforts to negotiate in good
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<PAGE>
faith and execute, as soon as practicable and, in any event, within ninety (90)
days after the date hereof, a telecommunications services agreement (the
"TelComm Agreement") providing for the provision by TS to the Company of certain
telecommunications services and other associated services, including through TS'
"One Better Net", or "OBN" network (the "OBN Network"). Such TelComm Agreement
shall include the terms set forth in the preceding clauses of this Section 3 as
additions and supplements to the GLD Partition Agreements and such other terms
and conditions as shall be reasonably required by TS and are customary in an
agreement such as the TelComm Agreement and shall provide that it restates and
supersedes in all respects the GLD Partition Agreements.
4. CONDITIONS TO ADVANCE. (a) The obligation of TS to make the
Advance is subject to the receipt by TS of the following documents, each of
which shall be acceptable to TS in form and substance:
(i) A certificate of the secretary of the Company, dated as of
such date, certifying that attached thereto is a true and correct copy of
resolutions of the Board of Directors of the Company approving the execution,
delivery and performance of this Agreement and the documents delivered in
connection herewith and of the Company's Certificate or Articles of
Incorporation and its By-Laws, and certifying as to the others signing this
Agreement and the Security Documents on behalf of the Company.
(ii) The Note, substantially in the form attached hereto as
Exhibit A, duly executed and delivered by the Company;
(iii) Amendments to the Security Agreements, duly completed and
executed, providing for the addition to the "Collateral" subject to the pledge
and security interest of the Security Agreements of all of the Company's assets
not theretofore pledged as such security, including without limitation, all of
the stock of AIT and all of the Company's right, title and interest in and to
the Purchase Agreement;
(iv) A Warrant (the "Warrant"), substantially in the form
attached hereto as Exhibit B, duly executed and delivered by the Company;
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<PAGE>
(v) A Registration Rights Agreement (the "Registration Rights
Agreement"), substantially in the form attached hereto as Exhibit C, duly
executed and delivered by the Company;
(vi) A Pledge Agreement (the "Pledge Agreement"), substantially
in the form attached hereto as Exhibit D, duly executed and delivered by Mr.
Gerald Dunne, Jr. (the "Pledgor") and the Company, together with the
certificates for such shares so pledged, accompanied by blank stock powers;
(vii) A Stockholders Agreement (the "Stockholders Agreement"),
substantially in the form attached hereto as Exhibit E, duly executed and
delivered by each of the Stockholders named therein;
(viii) True and correct copies of each agreement, including all
amendments, modifications and supplements thereto, including but not limited to
any agreements granting a security interest in any asset of the Company or its
Subsidiaries, relating to indebtedness for borrowed money of the Company or
deferred purchase price for the acquisition of assets other than in the ordinary
course of business;
(ix) True and complete copies of each of the GLD Partition
Agreements set forth on Schedule I hereto.
(x) The results of informational searches demonstrating the
absence of any financing statements, tax liens and judgment liens filed against
the Company or any of the Collateral other than those in favor of TS;
(xi) An opinion of the Company's counsel as to the valid
organization of the Company, the valid authorization, execution and delivery of
this Agreement and the Basic Documents, the validity of the shares of Common
Stock issued pursuant to the Warrant, the capitalization of the Company, the
absence of legal or governmental proceedings, noncontravention with other
agreements and with the Company's organizational documents and the perfection of
the security interests in the Collateral (as supplemented hereby) and the
Pledged Stock; provided that such counsel may rely, in giving such opinion, as
to matters of fact on the certificates
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<PAGE>
of officers and employees of the Company and of governmental authorities;
(xii) A written acknowledgment by each of the Company, AIT, DNS
and Matrix that TS has no obligations or liabilities under, or with respect to,
the Purchase Agreement, and releasing TS from any such obligation or liability;
(xiii) Such UCC financing statements and amendments to existing
financing statements and other filings as shall be necessary to perfect the
security interests in the "Collateral" as amended and supplemented hereby;
(xiv) Agreements and other documents evidencing the assignment
to the Company of all amounts in the Lock Boxes to which the Company succeeded
as assignee or transferee of the related Partition Agreement and the assumption
by the Company of all liabilities and obligations under the Lock Box Agreements
to which the Company succeeded as assignee or transferee of the related
Partition Agreement;
(xv) Written acknowledgments by each of the Directors of the
Company of the provisions of Section 8(i) hereof and agreements that upon an
Event of Default, he or she will use his or her best efforts to comply
therewith; and
(xvi) Such other documents as TS or its counsel may reasonably
request.
(b) The obligation of TS to make the Advance is subject to the
further conditions precedent that after giving effect thereto and to the
intended use hereof:
(i) the representations and warranties of the Company provided
in Section 7 shall be true and correct on and as of the date of such Advance;
(ii) there has been no material breach of any of the covenants
or obligations hereunder;
(iii) no Event of Default or event that, with the passage of
time or giving of notice, would be an Event of Default has occurred and be
continuing;
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<PAGE>
(iv) there shall have been no material adverse change in the
financial condition or, in TS's sole reasonable judgment, creditworthiness of
the Company and its Subsidiaries, taken as a whole; and
(v) TS shall have received such Security Documents as may be
requested by TS, duly executed and delivered by the Company, to create in TS a
perfected security interest in the Collateral and such other of the Company
assets as TS requires, each of which shall be reasonably acceptable to TS in
form and substance.
(c) Notwithstanding the foregoing, TS may, in its sole discretion,
elect to make the Advance before all of the conditions set forth in clauses (a)
and (b) of this Section have been satisfied. If TS should so elect and make the
Advance before all of such conditions shall have been satisfied, the entire
principal amount of the Advance, together with accrued interest thereon, shall
be prepaid and shall be due and payable on the tenth Business Day after the date
of the Advance unless, on or before such tenth Business Day, all of the
conditions set forth in clauses (a) and (b) of this Section shall have been
satisfied in full. It is understood and agreed that, by accepting the proceeds
of the Advance hereunder, the Company agrees to the effectiveness of all of the
actions to be provided in all of the documents and agreements to be delivered
pursuant to clause (a) of this Section, including, without limitation, that, as
security for all obligations hereunder and under the Security Documents, the
Company hereby assigns to TS, and hereby grants to TS a security interest in,
all of the Company's right, title and interest in, to and under all of the
Company's assets and property, real and personal, tangible and intangible,
whether now existing or hereafter created, and the Security Agreement is hereby
supplemented and amended in all respects so to provide.
5. INDEMNIFICATION. The Company hereby agrees to indemnify TS, its
stockholder and its other affiliates, and their respective directors, officers,
employees, controlling persons, attorneys and agents (collectively, the
"indemnified persons"), for, and hold each of the indemnified persons harmless
against, any and all losses, liabilities, claims, damages, costs or expenses
incurred by any of them (or which may be
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<PAGE>
claimed against any of them by any person whatsoever) arising out of, by reason
of or in connection with the execution and delivery of this Agreement, the
transactions described herein, the collection of any amounts payable hereunder
(including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such collection) or any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to the extensions of credit hereunder
or any actual or proposed use by the Company of the proceeds of the Advance
(including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings) and the Company further agrees to reimburse and pay to the
indemnified persons the full amount of any such losses, liabilities, claims,
damages, costs and expenses so incurred immediately upon demand. The Company
also agrees not to assert any claim against any indemnified person on any theory
of liability, for special, indirect, consequential or punitive damages arising
out of or otherwise relating to any of the transactions described herein.
6. EVENTS OF DEFAULT. (a) Each of the following events shall
constitute an "Event of Default" under this Agreement.
(i) The Company shall fail to pay when due any principal amount
of the Advance or any fee or any other amount (other than interest) payable by
the Company hereunder or shall fail to pay within ten (10) calendar days any
interest due hereunder in respect of the Advance.
(ii) Any Security Document shall cease for any reason to be in
full force and effect or shall cease to be effective to grant a perfected
security interest in the collateral or other asset purported to be pledged
thereunder or in which a security interest was purported to be granted thereby.
(iii) The Company shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due.
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<PAGE>
(iv) The Company shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
examiner or liquidator of itself or of all or a substantial part of its assets
or properties; (ii) make a general assignment for the benefit of its creditors;
(iii) commence a voluntary action under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts;
(iv) file a petition seeking insolvency, reorganization, liquidation,
dissolution, arrangement or winding up, or composition or readjustment of debts;
(v) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under any law
relating to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts; or (vi) take any action for the purpose of effecting any of
the foregoing.
(v) A proceeding or case shall be commenced, without the
application or consent of the Company, in any court of competent jurisdiction
seeking (i) its reorganization, liquidation, dissolution, arrangement or winding
up, or the composition or readjustment of its debts; (ii) the appointment of, or
the taking of possession by, a receiver, custodian, trustee, examiner or
liquidator of itself or of all or a substantial part of its assets or
properties; or (iii) similar relief in respect of the Company under any law
relating to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue in effect, for a period of sixty
(60) or more consecutive days; or an order for relief against the Company shall
be entered in an involuntary case under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts.
(vi) The Company shall fail to observe or perform any other
obligation to be observed or performed by the Company under this Agreement for a
period of thirty (30) or more consecutive days after written notice from TS of
such failure.
(vii) The Company shall fail to observe or perform any obligation
to be observed or performed under the GLD Partition Agreement or any of the
other Basic
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<PAGE>
Documents and the same shall not have been cured within the cure period, if any,
provided in such agreement, or any of the Pledgors shall fail to observe or
perform any obligations to be observed or performed under the Pledge Agreement.
(viii) The Company shall fail to pay when due beyond any
applicable grace period any indebtedness for borrowed money or for the deferred
purchase price of an asset other than in the ordinary course of business, due
any third party, or shall fail to perform any material obligation due a third
party or be in material default under any agreement between the Company and a
third party.
(ix) Any representation or warranty made by the Company to TS,
or any financial statement or certificate furnished by the Company to TS, shall
be incorrect in any material respect when made or furnished.
(x) Dissolution, liquidation, merger or consolidation of the
Company, transfer of a substantial portion of the Company's property or transfer
of a majority of the ownership of the Company, or any actions taken in
contemplation thereof.
(xi) The seizure or garnishment of, or levy upon, any of the
Collateral or other assets of the Company in which TS has a security interest by
a third party.
(xii) Any event, act or condition shall occur, or not occur,
which, in the reasonable judgment of TS, has a material adverse effect on the
business or operations of the Company and its Subsidiaries, taken as a whole.
(xiii) The Company shall divert or attempt to divert payments in
respect of the Company customer accounts from any lock box accounts
establishment pursuant to the Security Documents.
(b) REMEDIES. If an Event of Default referred to in clause (a) of
this Section (other than clauses (iii), (iv) and (v) thereof) shall occur and be
continuing, TS may, by notice to the Company, terminate this Agreement and/or
declare the principal amount then
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<PAGE>
outstanding of, and accrued interest on, the Advance and all other amounts
payable by the Company hereunder to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are expressly waived by
the Company. If an Event of Default referred to in clause (iii), (iv) or (v) of
clause (a) of this Section shall occur and be continuing, this Agreement shall
automatically be terminated and the principal amount then outstanding of, and
the accrued interest on, the Advance and all other amounts payable by the
Company hereunder shall automatically become immediately due and payable without
presentment, protest or other formalities of any kind, all of which are
expressly waived by the Company.
7. REPRESENTATIONS BY THE COMPANY. To induce TS to enter into this
Agreement and to provide financing to the Company, the Company represents and
warrants to TS, as of the date of this Agreement that:
(a) The Company has furnished to TS its audited financial
statements for its fiscal year ending April 30, 1995 and the unaudited financial
statements for each of the first three fiscal quarters of 1996; such financial
statements, including any notes and schedules pertaining thereto, have been
prepared in accordance with GAAP or such other traditional accounting
conventions acceptable to TS and fully and fairly present the financial
condition of the Company at the date of such statements and the results of its
operations for the period covered thereby. There has been no material adverse
change in the business or financial condition of the Company since the date of
such statements except as disclosed to TS in writing by the Company.
(b) The Company has filed all federal, state and local tax returns
and other reports which it was required to file; paid or caused to be paid all
taxes, assessments and other governmental charges that are due and payable; made
adequate provision for the payment of such taxes, assessments or other charges
which have accrued but are not yet payable.
(c) (i) Except as otherwise disclosed by the Company in writing to
TS, the Company is not in default
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<PAGE>
beyond any applicable grace period in respect to any existing indebtedness for
borrowed money or for the deferred purchase price of any asset.
(ii) There is no breach, default or basis for acceleration or
termination under, nor has any event occurred nor does any condition exist
which, with the passage of time or the giving of notice, or both, would
constitute a breach, default or basis for acceleration under this Agreement or
any of the other Basic Documents or any related agreement between TS and the
Company.
(d) The Company is duly formed, validly existing and in good
standing under the laws of the State of Florida. The Company has the power and
authority to execute and deliver this Agreement, to perform its obligations
thereunder and to consummate the transactions described herein. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
the valid and binding obligation of the Company.
(e) The execution and delivery of this Agreement do not, and the
consummation of the transactions described herein by the Company will not,
violate any provision of the Certificate of Incorporation or the By-Laws of the
Company or conflict with or result in a breach of any of the terms or provisions
of any mortgage, indenture, lease, agreement, instrument, order, arbitration
award, judgment or decree to which the Company is a party. No approval,
authorization, consent or other order or action of, or filing or registration
with, any public body or authority is required for the execution and delivery by
the Company of this Agreement.
(f) Except as otherwise disclosed by the Company in writing to TS,
there is no litigation, action, arbitration, administrative proceeding, suit or
claim pending or, to the Company's knowledge, threatened against the Company.
(g) The Company is the sole beneficial owner of the Collateral in
which it purports to grant a security interest and no lien exists or will exist
upon such Collateral at any time, except for (i) the Security Documents provided
for herein, which create a valid and
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<PAGE>
perfected lien on and security interest in such Collateral in favor of TS,
subject to no equal or prior lien (except as set forth in Schedule 7(g)) and
(ii) liens set forth in Schedule 7(g). All filings and other actions necessary
or desirable to perfect and protect such liens and security interests have been
duly made or taken.
(h) The Company maintains its chief place of business and chief
executive office and office where most of the Company's assets are located at
1451 West Cypress Creek Road, Suite 200, Fort Lauderdale, Florida
33309.
(i) As of the date hereof, the Company has no class of equity
securities that is required to be registered under Section 12 of the Securities
Exchange Act of 1934, as amended.
(j) Schedule I hereto sets forth a complete and correct list of all
GLD Partition Agreements.
(k) The information, reports, financial statements, exhibits and
schedules furnished in writing by and on behalf of the Company to TS in
connection with this Agreement and the other Basic Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained in this Agreement and in such other
documents, certificates or instruments, in light of the circumstances under
which they were made, not misleading. All such information will be true,
complete and accurate in every material respect in the date as of which such
information is stated or certified. There is no fact known to the Company
materially adversely affects or in the future may (so far as the Company can now
reasonably foresee) materially adversely affect the business, operations,
affairs, condition (financial or otherwise), properties or assets of the Company
or any of its Subsidiaries, taken as a whole, which has not been set forth in
this Agreement or in the other documents, certificates and instruments delivered
to TS by or on behalf of the Company specifically for use in connection with the
transactions described herein.
8. COMPANY COVENANTS.
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<PAGE>
(a) The Company shall apply the proceeds of the Initial Advance
hereunder to the Acquisition of the DNS Traffic pursuant to the Purchase
Agreement.
(b) The Company shall certify at least monthly and so often as TS
reasonably requests, that the representations and warranties of the Company
provided in Section 7 remain true, and that there has been no breach of any of
said representations and warranties or of the covenants of the Company hereunder
or under any Security Document, whether now cured or not, during the intervening
period from the immediately prior certification.
(c) The Company shall deliver to TS as soon as possible, and in any
event within five (5) Business Days after the Company knows or has reason to
know of the occurrence of any event or circumstance that could reasonably be
expected to give rise to a lien under Section 412 of the Code or Title IV of
ERISA on any asset of the Company or of any trade or business which, under
Section 414(b), (c), (m) or (o) of the Code, is under common control with, or a
member of the same affiliated service group as, the Company.
(d) The Company shall deliver to TS promptly after the Company
knows or has reason to know that any Event of Default, or an event with the
passage of time or giving of notice would be an Event of Default, has occurred,
a notice of such Event of Default, describing the same in reasonable detail and,
together with such notice or as soon thereafter as possible, a description of
the action, if any, that the Company has taken or proposes to take with respect
thereto.
(e) The Company shall, and shall cause each of its Subsidiaries
to:
(i) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises; and
(ii) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
property prior to the date penalties attach thereto, except for any tax,
assessment, charge or levy the payment of which is
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<PAGE>
being contested in good faith and by proper proceedings against which adequate
reserves are being maintained.
(f) For so long as the Advance is outstanding, the Company will
deliver to TS:
(i) as soon as available and in any event within 90 days (or
any applicable extension period for filing such report with the Securities and
Exchange Commission) of the end of each fiscal year of the Company, a statement
of income, retained earnings and cash flow and the related balance sheet of the
Company as at the end of such fiscal year, prepared in accordance with GAAP and
accompanied by a report thereon of independent certified public accountants
stating that (i) such financial statements fairly present the financial
condition and results of the Company and (ii) in making the examination
necessary to render their report, they obtained no knowledge, except as
specifically stated, of an Event of Default;
(ii) as soon as available and in any event within 45 days (or
any applicable extension period for filing such report with the Securities and
Exchange Commission) of the end of each of the first three quarterly fiscal
periods of the Company, statements of income, retained earnings and cash flow of
the Company for such period, prepared in accordance with GAAP; and
(iii) any other financial documents TS may reasonably request.
(g) The Company shall not create, incur, assume or suffer to exist
any lien, mortgage, lease, pledge, charge, security interest or encumbrance of
any kind with respect to any of its assets other than the lien(s) provided by
the Security Documents nor shall the Company voluntarily transfer any right,
title or interest in any such assets.
(h) Without the written consent of TS, the Company shall not incur
any indebtedness for borrowed money or for the deferred purchase price of any
asset except for obligations to TS or its affiliates and except for an aggregate
of $100,000 of indebtedness borrowed from financial institutions or other
persons that are not engaged in the telecommunications business.
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<PAGE>
(i) If an Event of Default shall have occurred and be continuing,
the Company shall, upon request of TS, promptly take all steps necessary and
appropriate to cause, and shall cause, TS's designees to constitute a majority
of the Company's Directors of the Company, including, without limitation, by (1)
increasing the size of the Board of Directors of the Company and (2) securing
the resignations of such number of directors as is necessary to enable TS's
designees to be so elected to the Board of Directors of the Company (and shall
promptly hold a board meeting for such purpose).
9. MISCELLANEOUS.
(a) No failure or forbearance on the part of TS to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement or the other Basic Documents shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement or the other Basic Documents preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are (to the extent permitted by
applicable law) cumulative and not exclusive of any remedies provided by law.
(b) All notices, requests and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made in writing (including,
without limitation, by telecopier) and, if to TS, mailed or faxed or delivered
to it, addressed to it at 22 Village Square at Logan Square, New Hope,
Pennsylvania 18938 (Facsimile Number: 215-862-1083) Attention: General Counsel;
if to the Company, mailed or faxed or delivered to it, addressed to it at 1451
West Cypress Creek Road, Suite 200, Fort Lauderdale, Florida 33390 (Facsimile
Number: 305-771-9910), Attention: President, or, as to either party, at such
other address as shall be designated by such party in a notice to the other.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid.
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<PAGE>
(c) The Company agrees to pay or reimburse TS for paying: (a) all
reasonable out-of-pocket costs and expenses of TS (including, without
limitation, the reasonable fees and expenses of outside counsel to TS), in
connection with (i) the execution and filing of the Security Documents and (ii)
any modification, supplement or waiver of any of the terms of this Agreement or
of the Security Documents; (b) all reasonable out-of-pocket costs and expenses
of TS, (including, without limitation, reasonable counsels' fees) in connection
with (i) any Event of Default and any enforcement or collection proceedings
resulting therefrom or in connection with the negotiation of any restructuring
or "work-out" (whether or not consummated) of the obligations of the Company
hereunder and (ii) the enforcement of this Section 9(c).
(d) Except as otherwise expressly provided in this Agreement, any
provision of this Agreement may be amended, modified or supplemented only by an
instrument in writing signed by the Company and TS, and any provision of this
Agreement may be waived by TS.
(e) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
(f) The Company shall not assign any of its rights or obligations
hereunder without the prior written consent of TS and any attempted assignment
or delegation without such consent shall be void. TS may assign, transfer, sell
or negotiate, all or any part of the Advance and in such event TS shall promptly
provide the Company with notice thereof.
(g) The obligations of the Company under Sections 5, 9(b), 9(c) and
9(j) hereof shall survive the repayment of the Advance and the expiration or
earlier termination of this Agreement.
(h) The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
(i) This Agreement may be executed in any number of counterparts,
all of which taken together
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<PAGE>
shall constitute one and the same instrument and any of the parties hereto may
execute this Agreement by signing any such counterpart.
(j)(i) It is the intention of the parties hereto that all questions
with respect to the construction of this Agreement and the rights and
liabilities of the parties hereto shall be determined in accordance with the
laws of the Commonwealth of Pennsylvania applicable to business arrangements
entered into and performed entirely within the Commonwealth of Pennsylvania.
(ii) Each of the parties hereto (i) hereby irrevocably submits
itself to the non-exclusive jurisdiction of (a) the courts of the Commonwealth
of Pennsylvania and (b) the United States District Court for the District of
Pennsylvania, for the purposes of any suit, action or other proceeding brought
by the other, or its respective successors or assigns, with respect to this
Agreement, including a suit, action or proceeding to enforce any obligation for
the payment of money contained herein, and (ii) to the extent permitted by
applicable law, hereby waives, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of the above-named courts, that
the suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that such an obligation
for the payment of money, may not be enforced in or by such courts. The Company
hereby irrevocably appoints CT Corporation as its agent in Pennsylvania to
receive on behalf of the Company service of copies of any summons and complaint
and any other pleadings or process that may be served in any such action or
proceedings.
(k) If any provision contained in this Agreement is determined by a
court of competent jurisdiction to be in conflict with applicable law, that
portion shall be considered changed or omitted to conform with said law; all
other provisions of this Agreement shall remain in full force and effect.
(l) During the term of this Agreement, TS shall have the right to
require an independent audit of the Company's books and records to verify the
proper use of
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<PAGE>
Advances, the security position of TS and the continued creditworthiness of the
Company. Such independent auditor shall be selected by TS, subject to the
reasonable objection of the Company. The expense of each such audit shall be
borne by TS unless it is determined as a result of such audit that the Company
is in material violation of this Agreement, in which event the Company shall
reimburse TS for such expense.
(m) This Agreement constitutes the full understanding of the
parties, a complete allocation of the rights, risks and remedies between them
and a complete and exclusive statement of the terms and conditions of their
agreement concerning the matters covered by this Agreement; no conditions or
usage of trade, course of dealing or performance, or understanding or agreement
purporting to modify, vary, explain, or supplement this Agreement shall be
binding unless hereinafter made in writing and signed by the party to be bound,
and no modification shall be effected by the acknowledgment or acceptance of any
document containing terms or conditions at variance with or in addition to those
set forth herein. The parties acknowledge that they have conferred with counsel
concerning this Agreement and matters pertaining thereto and that neither party
shall raise such a defense in any later proceeding.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first above written.
GROUP LONG DISTANCE, INC.
By:_______________________
TEL-SAVE, INC.
By:______________________
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Exhibit 10.22
NOTE
US$5,521,230 New Hope, Pennsylvania
July 11, 1996
FOR VALUE RECEIVED, the undersigned, GROUP LONG DISTANCE,
INC., a Florida corporation, (the "Company") hereby promises to
pay TEL-SAVE, INC., a Pennsylvania corporation, the principal sum
of FIVE MILLION FIVE HUNDRED AND TWENTY-ONE THOUSAND TWO HUNDRED
AND THIRTY DOLLARS ($5,521,230) on July 11, 1997 with interest
(computed on the basis of a 365 day year but charged for the
actual number of days principal is unpaid) on the unpaid balance
thereof at the rate of 6.5% per annum payable monthly on the last
day of each calendar month. All payments made by the Company
pursuant to this Note shall be made in lawful money of the United
States of America and in immediately available funds, on the
dates, at the place and in the principal amounts provided in the
Agreement defined below.
This Note is issued pursuant to, and evidences obligations
under, the Agreement, dated as the date hereof, between Tel-Save,
Inc. and the Company (as it may be amended and restated, the
"Agreement").
The Agreement provides for the acceleration of the
maturity of this Note and for the payment of Post-Default Interest
upon the occurrence of certain events and for prepayments of the
Advance, together with accrued interest, upon the terms and
conditions specified therein.
This Note shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania
applicable to business arrangements entered into and performed
entirely within the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the undersigned has duly caused this
Note to be executed and delivered at the place specified above and
as of the date first written above.
GROUP LONG DISTANCE, INC.
By________________________
Name:
Title
Exhibit 10.23
GROUP LONG DISTANCE, INC.
COMMON STOCK PURCHASE WARRANT TO PURCHASE 300,000 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 assigns, the "Issuer") hereby
certifies and agrees that TS Investment, Inc., a Delaware corporation and a
wholly-owned subsidiary of Tel-Save Holdings, Inc., also a Delaware corporation
("TS" and, in its capacity as the holder of this Warrant, 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 PM. Eastern Standard
Time on July 11, 2001 (the "Termination Date"), at an exercise price (the
"Exercise Price") of $5.75 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 Agreement, dated as of July
11, 1996 (the "Agreement"), between Tel-Save, Inc. and the Issuer.
<PAGE>
Exhibit B
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."
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 300,000 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
- 2 -
<PAGE>
Exhibit B
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 the Notice and paid for. Upon such exercise pursuant to a
Notice of Warrant Exercise, the number of Warrant Shares 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 2,000,000 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. 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
- 3 -
<PAGE>
Exhibit B
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, right, or warrants or options to purchase any such
shares other than hereunder. Except as provided to the Holder,
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
- 4 -
<PAGE>
Exhibit B
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 (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
- 5 -
<PAGE>
Exhibit B
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 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
- 6 -
<PAGE>
Exhibit B
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 after 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 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
- 7 -
<PAGE>
Exhibit B
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 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
- 8 -
<PAGE>
Exhibit B
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 NASDAQ and
reported by any member firm of the New York Stock Exchange selected by the
Company, or (4) if neither (1), (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
- 9 -
<PAGE>
Exhibit B
purchase Common Stock or distribution of evidences of indebtedness or other
assets (excluding cash dividends) referred to 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
- 10 -
<PAGE>
Exhibit B
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 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 times for inspection by the Holder and
the Issuer shall, forthwith after each such adjustment, mail a copy by certified
mail or such certificate to the Holder.
8. TERMINATION DATE EXTENSION. If, by reason of Section 3(b) of
the Registration Rights Agreement, dated as of the date hereof, between the
Issuer and Tel-Save, 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.
- 11 -
<PAGE>
Exhibit B
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's fees and costs.
- 12 -
<PAGE>
Exhibit B
IN WITNESS WHEREOF, the Issuer has caused this Warrant to be duly
executed and delivery as of July 11, 1996.
GROUP LONG DISTANCE, INC.
By: /s/ GERALD M. DUNNE, JR.
-------------------------
Gerald M. Dunne, Jr.
President
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<PAGE>
Exhibit B
APPENDIX A
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant as to ______________ shares and hereby makes payment of $______________
in payment of 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:
- ------------------------------------------------------------
- ------------------------------------------------------------
- 14 -
<PAGE>
Exhibit B
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 substitution in the
premises.
Dated:____________, 199_
Signature:___________________
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<PAGE>
Schedule I
DESCRIPTION OF OPTIONS
EXHIBIT 10.24
FORM OF
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT, dated as of July 11, 1996, among
MESSRS. GERALD M. DUNNE, JR., C. SHELTON JAMES, EDWARD HARWOOD, GLENN KOACH,
C.S. SHOEMAKER, JOHN TOMLINSON AND MS. ANDREA MOREY, (together with any person
that is or becomes a holder of the common stock, without par value, of the
Company (as defined below) (the "Common Stock") and acknowledges that it is
subject to and bound by the terms of this Agreement as herein provided, the
"Stockholders" and each a "Stockholder"), GROUP LONG DISTANCE, INC., a Florida
corporation (the "Company"), and TEL-SAVE, INC., a Pennsylvania corporation (the
"Purchaser").
WHEREAS, the Stockholders are the owners of record and
beneficially own in the aggregate [462,546] shares of Common Stock and each
Stockholder individually owns the number of shares of Common Stock set forth in
Schedule I hereto;
WHEREAS, the Company and the Purchaser have entered an
agreement (the "Financing Agreement"), dated the date hereof, pursuant to which
the Purchaser has agreed to make an advance of money to the Company, subject to
the terms and conditions thereof;
WHEREAS, the Company has issued a warrant, dated the date
hereof (the "Warrant"), to the Purchaser, which Warrant entitles the Purchaser
to purchase up to 300,000 shares of Common Stock, subject to the terms and
conditions thereof;
NOW THEREFORE, in consideration of the mutual promises herein
contained, each of the Stockholders and the Company agrees as follows:
1. SALE AND TRANSFER OF SHARES. (a) Except for those shares
listed 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, no Stockholder shall sell or transfer any shares of Common Stock owned
by him or her to any person (herein, the "Transferee") other than (w) to a
member of the immediate family of such
<PAGE>
Stockholder or to a trust established for the benefit of such Stockholder or an
active employee of the Company, (x) to another Stockholder or an active employee
of the Company, or (y) to an employee stock ownership trust established for the
benefit of the employees of the Company, which shall have acknowledged and
agreed in writing as provided in Section 5 hereof, unless:
(i) such Stockholder shall have given written notice to the
Company of such proposed sale at least ten (10) days prior to the consummation
of such sale, which notice shall include the terms of such proposed transaction,
including, without limitation, the price and number of shares;
(ii) the Company shall have given written notice to the
Purchaser of such proposed sale at least ten (10) days prior to the consummation
thereof, which notice shall include the terms of such proposed transaction;
(iii) the Purchaser shall have given written notice to the
Company at least ten (10) days prior to the consummation of such sale of the
number of shares the Purchaser wishes to sell to such Transferee;
(iv) the Transferee shall, simultaneously with the purchase of
shares from such Stockholder, and at the same price and on the same conditions,
purchase from the Purchaser such number of shares equal to the lesser of (x) the
aggregate number of shares set forth in the notice to the Company of the
Purchaser's desire to sell such shares pursuant to clause (iii) above and (y)
the number of shares that bears the same relation to the aggregate number of
shares "beneficially owned" (used herein as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) by such Purchaser as of the date
hereof to the number of shares of Common Stock to be sold by such Stockholder to
the Transferee bears to the aggregate number of shares beneficially owned by
such Stockholder on such date. The Purchaser shall be permitted, in its sole
discretion, to either (i) sell to the Transferee such shares of Common Stock by
exercising its rights under the Warrant or (ii) sell to the Transferee, in whole
or in part, the Warrant.
(b) No Stockholder shall sell any shares of Common Stock to any
person unless such person shall
-2-
<PAGE>
have acknowledged (i) receipt of a copy of this Agreement; (ii) that he or she
shall be deemed a "Stockholder" under this Agreement; and (iii) that he or she
and his or her shares shall be subject to and bound by the terms of this
Agreement. Such person shall have endorsed such acknowledgment and consent upon
the counterpart of this Agreement delivered to and held by the Company.
2. ENDORSEMENT OF STOCK CERTIFICATES; TRANSFER LIMITATIONS. So
long as this Agreement shall be in effect, all certificates for shares of the
Common Stock of the Stockholders, of any transferee of any of such shares and of
any transferee of any transferee, now or hereafter issued, shall be endorsed as
follows:
The shares of stock represented by this certificate are subject
to and are transferable only in compliance with a Stockholders
Agreement, dated as of July 11, 1996, between the Stockholders
named therein and Tel-Save, Inc., and a copy of such
Stockholders Agreement is on file at the principal office of
Group Long Distance, Inc.
The Company will not register the transfer of, or issue any certificate in
exchange for, or otherwise recognize the transfer of, any shares of Common Stock
except those transferred in compliance with the terms of this Agreement.
3. FURTHER COVENANTS. So long as any amount shall be
outstanding and payable under the Financing Agreement, each of the Stockholders
(in his or her capacity as a stockholder and as an officer or director of the
Company) shall use his or her best efforts, including, without limitation,
voting all of his or her shares of Common Stock, to cause the agreements of the
Company set forth in Section 8(i) of the Financing Agreement to be effective.
4. MODIFICATIONS. This Agreement may not be effectively
amended, modified or supplemented and no provision hereof may be waived except
with the written consent of the parties hereto.
-3-
<PAGE>
5. SPECIFIC PERFORMANCE. The Stockholders and the Company
stipulate that the remedies at law available to the Purchaser in the event of
any default or threatened default by the Company or a Stockholder in the
performance of or compliance with any of the terms of this Agreement are not and
will not be adequate, and that, to the extent permitted by applicable law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
6. CONSTRUCTION. (a) If any provision of this Agreement shall
be declared invalid or illegal for any reason whatsoever, then notwithstanding
such invalidity or illegality, the remaining terms and provisions of this
Agreement shall remain in full force and effect in the same manner as if the
invalid or illegal provisions had not been contained herein.
(b) For purposes of this Agreement, the use of the singular
form shall be deemed to include the plural, and the use of the masculine gender
shall be deemed to include the feminine gender, and vice versa, except if the
context clearly requires otherwise.
7. BENEFIT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, and to their respective heirs,
executors, administrators, successors and assigns, and shall be binding upon any
person to whom any stock of the Company is transferred in violation of the
provisions of this Agreement, and the heirs, executors, administrators,
successors or assigns of such Person.
8. NOTICES. Any notice provided for hereunder shall be in
writing and shall be delivered,
if to the Company, at:
Group Long Distance, Inc.
1451 West Cypress Creek Road
Suite 200
Fort Lauderdale, Florida, 33309
Attention: President
-4-
<PAGE>
Telephone Number: (954) 771-9696
Facsimile Number: (954) 771-9910
if to the Purchaser, at:
Tel-Save, Inc.
Law Department
6805 Route 202
New Hope, Pennsylvania 18938
Attention: General Counsel
Telephone Number: (215) 862-1500
Facsimile Number: (215) 862-1515
and if to a Stockholder, to the address set forth in Schedule I.
9. GOVERNING LAW. This Agreement shall be governed by the laws
of the Commonwealth of Pennsylvania.
10. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which so executed shall be deemed to be an original and
said counterparts shall together constitute and be one and the same.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the day and year first above written.
GROUP LONG DISTANCE, INC.
By -------------------------------------
Name:
Title:
TEL-SAVE, INC.
By -------------------------------------
Name:
Title:
-5-
<PAGE>
GERALD M. DUNNE, JR.
----------------------------------------
C. SHELTON JAMES
----------------------------------------
EDWARD HARWOOD
----------------------------------------
GLENN KOACH
----------------------------------------
C.S. SHOEMAKER
----------------------------------------
JOHN TOMLINSON
----------------------------------------
ANDREA MOREY
----------------------------------------
-6-
<PAGE>
Schedule II
LIST OF SECURITIES
not subject to Agreement
EXHIBIT 10.25
FORM OF PLEDGE AGREEMENT
PLEDGE AGREEMENT, made as of July 11, 1996, by GERALD M. DUNNE,
JR., a stockholder of GROUP LONG DISTANCE, INC. (the "Company") ("Grantor") and
THE COMPANY to Tel-Save, Inc., a Pennsylvania corporation ("Tel-Save").
PRELIMINARY STATEMENT
Tel-Save and the Company have entered into a Agreement, dated
as of the date hereof (the "Agreement"), pursuant to which Tel-Save will make an
advance of money (the "Advance") to the Company. It is a condition precedent to
Tel-Save making such advance under the Agreement that Grantor and the Company
shall have granted the security interest contemplated by this Pledge Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce Tel-Save to enter into the Agreement and extend credit thereunder,
Grantor and the Company hereby agrees as follows:
1. COLLATERAL. Grantor hereby grants to Tel-Save a security
interest in all of Grantor's right, title and interest in, to and under the
securities described in Schedule I hereto (together with its products, proceeds
and accessions, the "Collateral").
2. SECURITY FOR OBLIGATIONS. This Pledge Agreement secures the
payment of all obligations of the Company now or hereafter existing under the
Agreement or otherwise, whether for services, principal, interest, fees,
expenses or otherwise, and all obligations of Grantor now or hereafter existing
hereunder and the Agreement (all such obligations of Grantor and the Company
being the "Obligations").
3. REPRESENTATIONS AND WARRANTIES.
(a) Grantor represents and warrants as follows:
(i) Grantor owns the Collateral free and clear of any
lien, security interest, charge or encumbrance except for the security interest
created by this Pledge Agreement. No effective financing statement
<PAGE>
or other instrument similar in effect covering all or any part of the Collateral
is on file in any recording office, except such as may have been filed in favor
of Tel-Save relating to this Pledge Agreement.
(ii) This Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the payment of the
Obligations, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been duly taken by Grantor.
(iii) No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required for (i) the grant by Grantor of the assignment or security interest
granted hereby, (ii) the execution, delivery or performance of this Pledge
Agreement by Grantor, or (iii) the perfection of or the exercise by Tel-Save of
its rights and remedies hereunder.
(iv) This Pledge Agreement, when executed and delivered in
accordance with the provisions hereof, shall constitute a valid and binding
obligation of the Grantor, enforceable in accordance with its terms except as
the enforceability thereof may be limited by bankruptcy, insolvency or other
similar laws affecting creditor's rights generally and rights of acceleration
and availability of equitable remedies may be limited by principals of general
applicability.
(b) The Company's represents and warrants:
(i) All of the Collateral has been validly issued, and is
fully paid and non-assessable, and is subject to no warrants, options to
purchase, or similar rights of any person.
(ii) This Pledge Agreement, when executed and delivered in
accordance with the provisions hereof, shall constitute a valid and binding
obligation of the Company, enforceable in accordance with its terms except as
the enforceability thereof may be limited by bankruptcy, insolvency or other
similar laws affecting creditor's rights generally and rights of acceleration
and availability of equitable remedies may be limited by principals of general
applicability.
- 2 -
<PAGE>
4. FURTHER ASSURANCES.
(a) Grantor agrees that from time to time, at the expense of
Grantor, Grantor shall promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that Tel-Save may reasonably request, in order to perfect and protect the
security interest granted or purported to be granted hereby or to enable
Tel-Save to exercise and enforce its rights and remedies hereunder with respect
to any Collateral. Without limiting the generality of the foregoing, Grantor
will: execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as Tel-Save may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.
(b) Grantor hereby authorizes Tel-Save to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor where permitted by
law. A carbon, photographic or other reproduction of this Pledge Agreement or
any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
5. AS TO THE COLLATERAL. Grantor shall not sell, assign (by
operation of law or otherwise) or otherwise dispose of any of the Collateral, or
(except for Grantor's contractual obligations to its agents and dealers) create
or suffer to exist any lien, security interest or other charge or encumbrance
upon or with respect to any of the Collateral to secure debt of any person,
except for the assignment and security interest created by this Pledge
Agreement, without notice to and prior written consent of Tel-Save.
6. TEL-SAVE APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints Tel-Save Grantor's attorney-in-fact, with full authority in
the place and stead of Grantor and in the name of Grantor or otherwise, from
time to time in the discretion of Tel-Save to take any action and to execute any
instrument which Tel-Save may deem necessary or
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<PAGE>
advisable to accomplish the purposes of this Pledge Agreement, including,
without limitation, to ask, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral, to receive, indorse, and collect any drafts or
other instruments, documents and chattel paper in connection therewith, to
provide services directly to the Company's End Users and bill for such services,
and to file any claims or take any action or institute any proceedings that
Tel-Save may deem to be necessary or desirable for the collection thereof.
7. TEL-SAVE MAY PERFORM. If Grantor fails to perform any
agreement contained herein, Tel-Save may itself perform, or cause performance
of, such agreement, and the expenses of Tel-Save incurred in connection
therewith shall be payable by Grantor under Section 10(b).
8. TEL-SAVE'S DUTIES. The powers conferred on Tel-Save
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, Tel-Save shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral.
9. REMEDIES. If any event of default by Grantor under the
Pledge Agreement (each an "Event of Default") shall have occurred and be
continuing, Tel-Save may exercise any or all of the following rights and
remedies, which shall be cumulative and in addition to any other rights and
remedies Tel-Save may have at law or in equity:
(a) Grantor acknowledges that an Event of Default will result
in serious disruption to the business of Tel-Save and could materially impair
the ability of Tel-Save to meet its obligations to third parties. Tel-Save,
therefore, may take title to, and assume all of the rights of Grantor in the
collateral as liquidated damages, but not as a penalty. Grantor agrees that this
remedy shall be deemed commercially reasonable for purposes of the Uniform
Commercial Code.
- 4 -
<PAGE>
(b) Tel-Save may exercise any and all rights and remedies of
Grantor in respect of the Collateral.
(c) All payments made in respect of the Collateral and received
by Tel-Save may, in the discretion of Tel-Save, be held by Tel-Save as
collateral for, and/or then or at any time thereafter applied (after payment of
any amounts payable to Tel-Save pursuant to Section 10) in whole or in part by
Tel-Save against, all or any part of the Obligations in such order as Tel-Save
shall elect. Any surplus of such payments held by Tel-Save and remaining after
payment in full of all the Obligations shall be paid over to Grantor or to
whomsoever may be lawfully entitled to receive such surplus.
(d) Tel-Save may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code (whether or not the Code applies to the affected
Collateral).
(e) Tel-Save may, upon 10 business days' prior written notice
to Grantor of the time and place, with respect to the Collateral that shall then
be or that shall thereafter come into the possession, custody or control of
Tel-Save, sell, lease, assign or otherwise dispose of all or any part of such
Collateral.
(f) Tel-Save may provision and bill directly any End Users of
the Company, _______________________________ thereby rendering such End Users
Tel-Save's direct customers until such Event of Default has been cured or the
balance due under the Advance is paid in full.
All payments received by Grantor in connection with the
Accounts or otherwise in respect of the Collateral shall be received in trust
for the benefit of Tel-Save, shall be segregated from other funds of Grantor and
shall be forthwith paid over to Tel-Save in the same form as so received (with
any necessary indorsement).
10. INDEMNITY AND EXPENSES
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<PAGE>
(a) Grantor agrees to indemnify Tel-Save from and against any
and all claims, losses and liabilities growing out of or resulting from this
Pledge Agreement (including, without limitation, enforcement of this Pledge
Agreement), except claims, losses or liabilities resulting from the gross
negligence or willful misconduct of Tel-Save.
(b) Grantor will upon demand pay to Tel-Save the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Tel-Save may incur in connection
with (i) the enforcement of this Pledge Agreement, (ii) the custody or
preservation of, or the collection from or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of the rights of Tel-Save
hereunder or (iv) the failure by Grantor to perform or observe any of the
provisions hereof.
11. SECURITY INTEREST ABSOLUTE. All rights of Tel-Save and the
security interest hereunder, and all obligations of Grantor hereunder, shall be
absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of the Pledge
Agreement or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from any of the Agreement or any other
agreement or instrument relating thereto;
(c) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Obligations; or
(d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, Grantor or a third-party grantor of a
security interest.
12. AMENDMENTS AND WAIVER. No amendment or waiver of any
provision of this Pledge Agreement nor
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<PAGE>
consent to any departure by Grantor herefrom, shall in any event be effective
unless the same shall be in writing and signed by Tel-Save, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
13. ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including facsimile communication)
and,
if to the Company, mailed or faxed or
delivered to it, addressed to it at:
1451 West Cypress Creek Road
Suite 200
Fort Lauderdale, Florida 33309
Attention: President
Telephone Number: (954) 771-9696
Facsimile Number: (954) 771-9910
if to Tel-Save, mailed or faxed or
delivered to it, addressed to it at:
6805 Route 202
New Hope, Pennsylvania 18938
Attention: General Counsel
Telephone Number: (215) 862-1500
Facsimile Number: (215) 862-1083
and
if to Stockholder to:
Mr. Gerald M. Dunne, Jr.
3201 N.W. 107th Avenue
Coral Springs, Florida 33065
or as to either party at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the terms
of this Section. All such notices and other communications shall, when mailed or
faxed, respectively, be effective when deposited in the mails or faxed,
respectively, addressed as aforesaid.
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<PAGE>
14. CONTINUING SECURITY INTEREST. This Pledge Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until payment in full of the Obligations, (ii) be binding
upon Grantor, its successors and permitted assigns and (iii) inure to the
benefit of Tel-Save and its successors, transferees and assigns. Upon the
payment in full of the Obligations, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to Grantor. Upon any
such termination, Tel-Save will, at Grantor's expense, execute and deliver to
Grantor such documents as Grantor shall reasonably request to evidence such
termination.
15. GOVERNING LAW; TERMS. This Pledge Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania, except to the extent that the validity or perfection of the
security interest hereunder, or remedies hereunder, are governed by the laws of
a jurisdiction other than the Commonwealth of Pennsylvania. Unless otherwise
defined herein terms used in Article 9 of the Uniform Commercial Code in
Pennsylvania are used herein as therein defined.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
----------------------------
as Grantor
GROUP LONG DISTANCE, INC.
By:
-----------------------
Name:
Title:
TEL-SAVE HOLDINGS, INC.
By:
-----------------------
Name:
Title:
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<PAGE>
SCHEDULE I
SECURITIES
NAME OF STOCKHOLDER TYPE OF EQUITY NUMBER OF
- ------------------- -------------- ----------
SHARES
- ------
Mr. Gerald M. Dunne Common Stock of 211,754
Group Long Distance,
Inc.
- 10 -
EXHIBIT 10.26
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of July 11, 1996, between TS
INVESTMENTS, INC., a Delaware corporation ("TS"), and GROUP LONG DISTANCE, Inc.,
a Florida corporation (the "Company").
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means common stock, without par value of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" means the Purchaser and any assignee or transferee of the
Purchaser of any Registrable Securities unless such Registrable Security is
acquired in a public distribution pursuant to a Registration Statement under the
Securities Act or pursuant to transactions exempt from registration under the
Securities Act where securities sold in such transaction may be resold without
subsequent registration under the Securities Act.
"PERSON" means an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"PROSPECTUS" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"PURCHASER" means TS.
"REGISTRABLE SECURITIES" means the Shares of Common Stock issuable to
TS upon the exercise of its
<PAGE>
rights under the Warrant and any of such shares of Common Stock (x) by way of
stock split, stock dividend or other distribution, (y) in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or (z) in any other way. Any Registrable Security will cease to
be a Registrable Security when (i) a Registration Statement covering such
Registrable Security has been declared effective by the Commission and it has
been disposed of or purchased, as the case may be, pursuant to such effective
Registration Statement, (ii) it is sold under circumstances in which all of the
applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met or it may be sold pursuant to Rule 144(k) under
the Securities Act or (iii) it has been otherwise transferred, the Company has
delivered a new certificate or other evidence of ownership for it not bearing a
legend and it may be resold without subsequent registration under the Securities
Act.
"REGISTRATION EXPENSES" has the meaning set forth in Section 6.
"REGISTRATION STATEMENT" means any registration statement of the
Company, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all exhibits
and all material incorporated by reference in such Registration Statement, which
relates to Registrable Securities.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING HOLDER" means a Holder who is selling Registrable Securities
pursuant to a Registration Statement.
"SHELF REGISTRATION" means the shelf registration statement filed by
the Company in accordance with Section 2(a)(i) hereof.
"UNDERWRITER" means a securities dealer that purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
"WARRANT" means the Warrant made by the Company on July 11, 1996 and
issued to Purchaser to acquire up to 300,000 shares of Common Stock at a price
of $5.75 per share.
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<PAGE>
2. SHELF REGISTRATIONS
(a) (i) Upon the request of Holder and sixty days prior written notice to the
Company, the Company shall file a "shelf" registration statement with respect to
the Registrable Securities on an appropriate form pursuant to Rule 415 (or any
similar provision that may be adopted by the Commission) under the Securities
Act (the "Shelf Registration").
(ii) The Company agrees to use its best efforts to have the Shelf
Registration declared effective as soon as practicable after the filing date and
to keep the Shelf Registration continuously effective until the earlier of the
(i) third anniversary of the effective date of the registration statement and
(ii) the first date there shall be no remaining Registrable Securities
(including by reason of the fact that all Registrable Securities may be sold
pursuant to Rule 144(k) under the Securities Act). The Company will pay all
Registration Expenses in connection with the Shelf Registration, whether or not
it becomes effective. The Company will make generally available to its security
holders, as soon as reasonably practicable after the end of the fourth fiscal
quarter following the fiscal quarter that includes such effective date, an
earnings statement covering a period of at least 12 months which shall satisfy
the provisions of Section 11(a) of the Securities Act.
(b) SELECTION OF UNDERWRITERS. If at any time or from time to time Holder
desires to sell Registrable Securities in an underwritten offering (other than
pursuant to Section 3 hereof), the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by
Holder.
3. DEMAND AND PIGGY-BACK REGISTRATIONS
(a) (i) PIGGY-BACK REGISTRATIONS. If at any time on or after the date hereof,
the Company proposes to file a registration statement under the Securities Act
with respect to an offering of shares of its Common Stock, whether or not for
sale for its own account (other than a registration statement on Form S-4 or
S-8, or any substitute form that may be adopted by the Commission or a
registration filed in connection with an exchange offer of securities solely to
the Company's existing security holders), the Company shall give written notice
of such proposed filing to Holder as soon as practicable (but in
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<PAGE>
no event less than 30 days before the anticipated filing date), and Holder shall
have the right, exercisable by notice to the Company to be given by Holder
within 30 days after the giving of such notice by the Company, to have included
within the coverage of the registration statement such amount of Registrable
Securities as Holder may request, subject to Section 3(a)(ii) below.
(ii) The Company shall use reasonable efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration statement
for such offering to be included on the same terms and conditions as any similar
securities of the Company or of other security holders to be included therein.
If, notwithstanding the reasonable efforts of the Company, the managing
Underwriter or Underwriters of such offering deliver a written opinion to Holder
that, due to the size of the offering that Holder, the Company and such other
persons intend to make, the success of the offering would be materially and
adversely affected by inclusion of the Registrable Securities requested to be
included, then the amount of securities to be offered for the account of Holder
shall be reduced PRO RATA (according to the Registrable Securities proposed for
registration) to the extent necessary to reduce the total amount of securities
to be included in such offering to the amount recommended by such managing
Underwriters; PROVIDED that this sentence and the reduction in the shares to be
sold by Holder will not apply to the first underwritten public offering after
the date hereof, in which offering Holder shall be permitted to participate to
the fullest extent that it requests.
(b) DEMAND REGISTRATION. (i) MAKING A DEMAND. Unless Holder shall
have given notice to effect a registration pursuant to Section 2(a) and such
registration shall have become effective and shall remain effective, whenever
Holder shall make a written request to the Company to register under the
Securities Act any Registrable Securities now owned or hereafter acquired by it,
the Company shall thereupon promptly use its best efforts to register the
Registrable Securities of Holder under the Securities Act; PROVIDED that the
Company shall not be required to effect more than three registrations pursuant
to this Section 3(b) and not more than one that becomes effective within a 12
consecutive month period nor shall it be required to effect a registration
pursuant to this of this Section 3(b) at any time during which the
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<PAGE>
Company in good faith believes that it would not be in its best interest to
effect such a registration at such time (provided that the Company may not delay
such registration beyond thirty (30) days) due to the disclosure that would be
required upon such a registration relating to certain matters as to which the
Company at such time has a substantial need for confidentiality; and PROVIDED
FURTHER, that if within sixty (60) days after receipt of the initial request
pursuant to this Section 3(b), the Company shall elect to include in such
registration shares for its own account, then the Company shall notify Holder
that the Company has elected to effect a registration pursuant to this Section
3(a) and shall thereafter diligently proceed to do so, including therein the
Registrable Securities, but subject to the limitations set forth in such
paragraph (a), it being understood that such registration shall not be deemed to
be a registration under this Section 3(b) for purposes of the immediately
preceding clause limiting the number of such registration. The Company shall
keep any registration statement filed pursuant to this Section 2(b) continuously
effective for at least 120 days (or until such earlier date as all Registrable
Securities registered thereby have been sold).
(ii) REGISTRATION STATEMENT FORM. The Company may, if permitted by
law, effect any registration requested under this paragraph (b) by the filing of
a registration statement on Form S-3 (or any successor or similar short-form
registration statement).
(iii) SELECTION OF UNDERWRITERS. If a requested registration
pursuant to this paragraph (b) involves an underwritten offering, the
underwriter or underwriters thereof shall be selected, after consultation with
the Company, by Holder and shall be acceptable to the Company, which shall not
unreasonably withhold its acceptance of such underwriter or underwriters.
4. HOLD-BACK AGREEMENTS
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDER OF REGISTRABLE
SECURITIES. Holder, if requested by the managing Underwriters in an underwritten
offering of Common Stock of the Company in which Holder is participating, agrees
not to effect any public sale or distribution of the Registrable Securities,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten offering), during the 10-day period prior to, and during a
period of up to 90 days
-5-
<PAGE>
beginning on, the closing date of such underwritten offering, to the extent
timely notified in writing by the Company or the managing Underwriters.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS. The
Company agrees:
(1) not to effect any public or private sale or distribution of
its equity securities, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and
during a period of up to 90 days beginning on, the closing date of
each underwritten offering made pursuant to a Registration Statement
filed under Section 2 or Section 3, to the extent timely requested
in writing by the managing Underwriters (except as part of such
underwritten registration or pursuant to registrations on Forms S-4
or S-8 or any successor form to such Forms), and
(2) if reasonably requested by Holder or the managing
Underwriters in connection with an underwritten offering of Common
Stock of the Company, to use reasonable efforts to cause each holder
of privately placed equity securities issued by the Company at any
time on or after the date of this Agreement to agree not to effect
any public sale or distribution of any such securities during such
period, including a sale pursuant to Rule 144 under the Securities
Act (except as part of such underwritten registration, if
permitted).
5. REGISTRATION PROCEDURES
In connection with the Company's obligations to file a
Registration Statement pursuant to Sections 2 or 3 hereof, the Company will use
its best efforts to effect such registration to permit the sale of such
Registrable Securities covered thereby in accordance with the intended method of
disposition thereof, and in connection therewith the Company will as
expeditiously as possible:
(a) before filing the Registration Statement or Prospectus or
any amendments or supplements thereto, furnish to Holder and the
Underwriters, if any, copies of all such documents proposed to be
filed, which documents will be subject to the review of the Selling
Holders and Underwriters, and the Company
-6-
<PAGE>
will not file the Registration Statement or amendment thereto or
any Prospectus or any supplement thereto to which Holder or the
Underwriters, if any, shall reasonably object;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement, and such
supplements to the Prospectus, as may be requested by any Holder or
any Underwriter of Registrable Securities, and as may be required by
the rules, regulations or instructions applicable to the
registration form utilized by the Company or by the Securities Act
or rules and regulations thereunder (including the rules for shelf
registration), or as may otherwise be necessary to keep the
Registration Statement effective for the applicable period and cause
the Prospectus as so supplemented to be filed with the Commission
pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of
all securities covered by such Registration Statement during the
applicable period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(c) notify Holder and the managing Underwriters, if any,
promptly, and (if requested by any such Person) confirm such advice
in writing,
(1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to
the Registration Statement or any post-effective amendment, when
the same has become effective,
(2) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or
for additional information,
(3) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose,
(4) prior to the closing of an underwritten offering if at
any time the
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<PAGE>
representations and warranties of the Company contemplated
by paragraph (m) below, cease to be true and correct,
(5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose,
and
(6) of the existence of any fact that results in the
Registration Statement, the Prospectus or any document
incorporated therein by reference containing an untrue statement
of material fact or omitting to state a material fact required
to be stated therein or necessary to make the statements therein
(in light of the circumstances under which they were made, in
the case of the Prospectus) not misleading;
(d) make all reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at
the earliest possible moment;
(e) if requested by the managing Underwriter or Underwriters or
Holder, immediately incorporate in a Prospectus supplement or
post-effective amendment such information as the managing
Underwriters and Holder agree should be included therein relating to
the plan of distribution with respect to such Registrable Securities
or change thereof, including, without limitation, information with
respect to the amount of Registrable Securities being sold to such
Underwriters, the purchase price being paid therefor by such
Underwriters and with respect to any other terms of the underwritten
(or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(f) furnish to Holder and each Selling Holder and each managing
Underwriter (if any), without charge, at least one signed copy of
the Registration Statement and any post-effective amendment thereto,
-8-
<PAGE>
including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those
incorporated by reference);
(g) deliver to each Selling Holder and the Underwriters, if any,
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as
such Persons may reasonably request; the Company consents to the use
of the Prospectus or any amendment or supplement thereto by each of
the Selling Holders and the Underwriters, if any, in connection with
the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto in the manner
contemplated by the Prospectus or any such amendment or supplement;
(h) prior to any public offering of Registrable Securities,
register or qualify or cooperate with Holder, the Selling Holders,
the Underwriters, if any, and their respective counsel in connection
with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as Holder or any Underwriter reasonably
requests in writing and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the
Registration Statement; PROVIDED that the Company will not be
required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any action which would
subject it to general service of process in any such jurisdiction
where it is not then so subject;
(i) cooperate with the Selling Holders and the managing
Underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be
sold and not bearing any restrictive legends; and enable such
Registrable Securities to be registered in such names as the
managing Underwriters, if any, may request at least two business
days prior to any sale of Registrable Securities to the
Underwriters;
(j) if any fact contemplated by paragraph (c)(6) above shall
exist, prepare a supplement or post-effective amendment to the
Registration
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Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable
Securities, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they are made, not misleading;
(k) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed if reported by
Holder or the managing Underwriters, if any;
(l) not later than the effective date of the Registration
Statement, provide a CUSIP number for all Registrable Securities and
provide the applicable transfer agent with printed certificates for
the Registrable Securities that are in a form eligible for deposit
with Depositary Trust Company;
(m) in the case of an underwritten offering, enter into an
underwriting agreement with the Underwriters containing such
representations, warranties, covenants and indemnities as are
customary for underwritten offerings effected for the accounts of
selling security holders; obtain such opinions, certificates and
letters in connection therewith as may be reasonably requested by
such Underwriters; and deliver such other documents and certificates
as Holder or such Underwriters may reasonably request in connection
with such offering;
(n) make available for inspection by Holder, any Underwriter
participating in any disposition pursuant to a Registration
Statement, and any attorney or accountant retained by the Selling
Holders or an Underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all
information reasonably requested by Holder or such Underwriter,
attorney or accountant in connection with the registration;
(o) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC,
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and make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month
period (or 90 days, if such period is a fiscal year) (l) commencing
at the end of any fiscal quarter in which Registrable Securities are
sold to Underwriters in an underwritten offering, or, if not sold to
Underwriters in such an offering, (2) beginning with the first month
of the Company's first fiscal quarter commencing after the effective
date of the Registration Statement, which statements shall cover
said 12-month periods; and
(p) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation
by any Underwriter (including any "qualified independent
underwriter" that is required to be retained in accordance with the
rules and regulations of the NASD).
The Company will cooperate with and assist Selling Holders in
effecting the sale of the Registrable Securities. In the case of an underwritten
offering of the Registrable Securities that does not include any securities to
be sold by or on behalf of the Company, the Company and its officers will, upon
the reasonable request of Holder, participate directly in the marketing and sale
of the Registrable Securities (including personal appearances at meetings with
potential purchasers of the Registrable Securities) to the extent that the
Company and its officers would participate in the marketing and sale of Common
Stock for its own account in an underwritten offering of comparable size.
The Company may require each Selling Holder to furnish to the
Company such information regarding the distribution of such securities as the
Company may from time to time reasonably request in writing.
Each Selling Holder agrees by acquisition of the Registrable
Securities that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 5(c) hereof (other than 5(c)(1)
hereof), such Selling Holder will forthwith discontinue disposition of
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(j) hereof, or
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until it is advised in writing by the Company that the use of the Prospectus may
be resumed, and has received copies of any additional or supplemental filings
that are incorporated by reference in the Prospectus, and, if so directed by the
Company, Holder and each such Selling Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in Holders'
or such Selling Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. If the Company shall
give any such notice, the time period mentioned in Section 2(a)(ii) hereof shall
be extended by the number of days during the period from and including the date
of the giving of such notice to and including the date when Holders'
Representative and each Selling Holder either receives the copies of the
supplemented or amended prospectus contemplated by Section 5(j) hereof or is
advised in writing by the Company that the use of the Prospectus may be resumed.
Each Selling Holder agrees by acquisition of the Registrable
Securities to cooperate with the Company in all reasonable respects in
connection with the preparation and filing of Registration Statements hereunder
in which such Registrable Securities are included or expected to be included.
6. REGISTRATION EXPENSES
(a) All expenses ("Registration Expenses") incident to the
Company's performance of or compliance with this Agreement will be paid by the
Company, regardless whether the Registration Statement becomes effective,
including without limitation:
(1) all registration and filing fees (including with respect
to filings required to be made with the Nasdaq National Market
or NASD);
(2) fees and expenses of compliance with securities or blue
sky laws (including fees and disbursements of counsel for the
Underwriters or Selling Holders in connection with blue sky
qualifications of the Registrable Securities and determination
of their eligibility for investment under the laws of such
jurisdictions as the managing Underwriters or Holders'
Representative may designate);
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(3) printing (including expenses of printing certificates
for the Registrable Securities and of printing prospectuses),
messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company;
(5) fees and disbursements of all independent certified
public accountants of the Company (including the expenses of any
special audit and "cold comfort" letters required by or incident
to such performance);
(6) fees and expenses of other Persons retained by the
Company; and
(7) fees and expenses associated with any NASD filing
required to be made in connection with the Registration
Statement, including, if applicable, the fees and expenses of
any "qualified independent underwriter" (and its counsel) that
is required to be retained in accordance with the rules and
regulations of the NASD (all such expenses being herein called
"Registration Expenses").
The Company will not have any obligation to pay any underwriting
fees, discounts or commissions attributable to the sale of Registrable
Securities.
The Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, and the fees and expenses of
any Person, including special experts, retained by the Company.
(b) In connection with each Registration Statement required
hereunder, the Company will reimburse the Selling Holders for the reasonable
fees and disbursements of not more than one law firm chosen by Holders.
7. INDEMNIFICATION
(a) INDEMNIFICATION BY COMPANY. The Company shall indemnify and
hold harmless Holder, its officers,
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directors, employees and Agents and each Person who controls such Holder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being sometimes hereinafter referred to as an
"Indemnified Holder") from and against all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation and legal expenses)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
allegation thereof based upon information furnished in writing to the Company by
such Holder expressly for use therein; PROVIDED, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any preliminary
prospectus if (i) such Holder failed to send or deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale of Registrable
Securities and (ii) the Prospectus would have completely corrected such untrue
statement or omission; and PROVIDED, further, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission in the Prospectus, if
such untrue statement or alleged untrue statement, omission or alleged omission
is completely corrected in an amendment or supplement to the Prospectus and if,
having previously been furnished by or on behalf of the Company with copies of
the Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to or concurrently
with the sale of a Registrable Security to the person asserting such loss,
claim, damage, liability or expense who purchased such Registrable Security
which is the subject thereof from such Holder. This indemnity will be in
addition to any liability that the Company may otherwise have. The Company will
also indemnify Underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and
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directors and each Person who controls such Persons (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same
extent as provided above with respect to the indemnification of the Indemnified
Holders; PROVIDED, HOWEVER, if such Underwriters, selling brokers, dealer
managers or similar securities industry professionals require or agree to
indemnification provisions different from those set forth herein, but standard
in the industry, the Company agrees to provide them such indemnification rather
than the indemnification provided for herein.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against an Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing, and the Company shall assume the defense
thereof, including the employment of counsel satisfactory to such Indemnified
Holder and the payment of all expenses. Such Indemnified Holder shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be the expense
of such Indemnified Holder unless (a) the Company has agreed to pay such fees
and expenses or (b) the Company shall have failed to assume the defense of such
action or proceeding and has failed to employ counsel satisfactory to such
Indemnified Holder in any such action or proceeding or (c) the named parties to
any such action or proceeding (including any impleaded parties) include both
such Indemnified Holder and the Company, and such Indemnified Holder shall have
been advised by counsel reasonably satisfactory to the Company that there may be
one or more legal defenses available to such Indemnified Holder which
are different from or additional to those available to the Company (in which
case, if such Indemnified Holder notifies the Company in writing that it elects
to employ separate counsel at the expense of the Company, the Company shall not
have the right to assume the defense of such action or proceeding on behalf of
such Indemnified Holder, it being understood, however, that the Company shall
not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for such Indemnified Holder and any other Indemnified Holders, which firm
shall be designated in
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writing by such Indemnified Holders). The Company shall not be liable for any
settlement of any such action or proceeding effected without its written
consent, but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, the Company agrees
to indemnify and hold harmless such Indemnified Holders from and against any
loss or liability by reason of such settlement or judgment.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each Holder
agrees to indemnify and hold harmless the Company, its directors and officers
and each Person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to such Holder, but only with
respect to information relating to such Holder furnished in writing by such
Holder expressly for use in any Registration Statement or Prospectus, or any
amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against the Company or its directors or
officers or any such controlling person, in respect of which indemnity may be
sought against a Holder, such Holder shall have the rights and duties given the
Company and the Company or its directors or officers or such controlling person
shall have the rights and duties given to each Holder by the preceding
paragraph. In no event shall the liability of any Selling Holder hereunder be
greater in amount than the dollar amount of the proceeds received by such
Selling Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
The Company shall be entitled to receive indemnities from
Underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus or Registration Statement or any
amendment or supplement thereto, or any preliminary prospectus.
(c) CONTRIBUTION. If the indemnification provided for in this
Section 7 is unavailable to an indemnified party under Section 7(a) or Section
7(b) hereof (other than by reason of exceptions provided in those Sections) in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable
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indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the Company on the one hand and
of the Indemnified Holder on the other in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the Indemnified Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Indemnified Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 7(a),
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 7(c), an Indemnified
Holder shall not be required to contribute any amount in excess of the amount by
which the total price at which the Securities sold by such Indemnified Holder or
its affiliated Indemnified Holders and distributed to the public were offered to
the public exceeds the amount of any damages which such Indemnified Holder, or
its affiliated Indemnified Holder, has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. RULE 144
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The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder, and it will take such further
action as any Holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder, the Company
will deliver to such Holder a written statement as to whether it has complied
with such information and requirements.
9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
10. MISCELLANEOUS
(a) REMEDIES. Each Holder in addition to being entitled to exercise
all rights provided herein, and granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Agreement and for so long as it has an obligation to maintain a
Shelf Registration pursuant to Section 2(a) or for the period during which
Holder is entitled to make a demand pursuant to Section 3(b), enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to Holder in this Agreement or otherwise conflicts with the
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provisions hereof. The rights granted to Holder hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's securities under any such agreements.
(c) ACTIONS AFFECTING REGISTRABLE SECURITIES. The Company agrees to
use its best efforts to cause all Registrable Securities to be listed on the
Nasdaq National Market System or any other exchange on which shares of the same
security are then traded.
(d) AMENDMENTS AND WAIVERS. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of Holder.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telecopier, or air courier service.
(i) if to a Holder, at the most current address given by such
Holder to the Company in accordance with this Section 10(e), which
address initially is:
Tel-Save, Inc.
6805 Route 202
New Hope, PA 18939
Telephone Number: (215) 862-1500
Facsimile Number: (215) 862-1515
Attention: General Counsel
(ii) if to the Company, at
Group Long Distance, Inc.
1451 West Cypress Creek Road
Suite 200
Fort Lauderdale, FL 33309
Telephone Number: (954) 771-9696
Telefax Number: (954) 771-9910
and thereafter at such other address, notice of which is given in accordance
with this Section 10(e).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; 10 business
days after being
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deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the date of delivery, if delivered by an
air courier.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania, without regard
to principles of choice of law.
(j) SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(m) THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Company and Holder (and any affiliates of Holder) and their
respective successors and assigns, and is not for the benefit of nor may any
provision hereof be enforced by, any other Person.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
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TEL-SAVE, INC.
By:-------------------------------------
Name:
Title:
GROUP LONG DISTANCE, INC.
By:-------------------------------------
Name:
Title:
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