<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-27604
PICK Communications Corp.
(Exact name of the registrant as specified in its charter)
NEVADA 75-2107261
(State or other jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
155 Route 46, West, Third Floor
Wayne Interchange Plaza II
Wayne, NJ 07470
(Address of principal executive offices)
Registrant's Telephone number, including area code: (973) 812-7425
Indicate by check mark whether the registrant (1) has filed reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 30, 1998
Common Stock, $.001 Par Value 37,959,702
(See Index to Sections of this Document on Page 2)
<PAGE>
PICK Communications Corp.
This Report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding expected future
revenues and expenses. Forward-looking statements relate to plans and
expectations of the Company and are subject to risks and uncertainties,
including the timely development and acceptance of new products in a constantly
evolving telecommunications industry, the impact of competitive products and
pricing, government regulations and other risks detailed from time to time in
the Company's SEC reports.
Index to Form 10-Q
Page Number
PART I Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to the Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II Other Information:
Item 1 Legal Proceedings 21
Item 2 Changes in Securities 21
Item 6 Exhibits and Reports on Form 8-K 22
SIGNATURES 23
2
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
PICK Communications Corp.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 44,400 $ 2,259,095
Accounts receivable, net 451,818 582,534
Inventory 2,054 92,235
Prepaid expenses and other current assets 123,762 1,810,071
------------ ------------
Total current assets 622,034 4,743,935
------------ ------------
Furniture, equipment and software, net 1,000,083 3,087,305
------------ ------------
OTHER ASSETS:
Security deposits 24,396 178,146
Investment in marketable equity securities 171,000 128,250
------------ ------------
Total other assets 195,396 306,396
------------ ------------
Total assets $ 1,817,513 $ 8,137,636
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term debt $ 1,000,000 $ 11,378,773
Current portion of capital leases 146,128 250,622
Accounts payable 4,480,815 3,216,786
Deferred revenue - prepaid calling cards 681,653 1,632,814
Reserve for contingent liability 1,100,000 1,100,000
Advances from stockholder 170,000 0
Accrued compensation due stockholders 53,525 0
Customer deposits and prepayments 6,496 286,841
Other current liabilities 389,025 855,866
------------ ------------
Total current liabilities 8,027,642 18,721,702
------------ ------------
Capital leases, less current portion 794,905 1,126,770
------------ ------------
Total liabilities 8,822,547 19,848,472
------------ ------------
Minority interest in consolidated subsidiary 88,080 86,018
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value; authorized 75,000,000 shares; 43,325,317
issued and 36,059,817 outstanding at December 31, 1997; 37,945,202
issued and 37,909,702 outstanding at September 30, 1998 43,325 37,945
Additional paid in capital in excess of par 5,886,825 3,877,786
Warrants to purchase common stock 21,242 2,381,182
Treasury stock (3,072,222) (11,978)
Unrealized gain (loss) on marketable equity securities 38,000 (4,750)
Retained earnings (deficit) (10,010,284) (18,077,039)
------------ ------------
Total stockholders' equity (deficit) (7,093,114) (11,796,854)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 1,817,513 $ 8,137,636
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PICK Communications Corp.
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Sales of long distance services $ 1,754,431 $ 833,717 $ 6,496,645 $ 1,796,735
Sales of prepaid calling cards 541,272 3,128,839 1,093,947 4,442,334
------------ ------------ ------------ ------------
Total revenues 2,295,703 3,962,556 7,590,592 6,239,069
COST AND EXPENSES:
Cost of sales:
Cost of telephone time purchased 2,052,189 4,597,125 6,841,047 7,143,518
Other cost of sales 167,698 1,138,441 522,193 1,740,742
Adjustment to provision for contingent costs (649,563) 0 (649,563) 0
Selling, general and administrative 487,170 1,037,780 1,465,907 2,144,766
Depreciation and amortization 42,128 91,631 126,008 228,980
------------ ------------ ------------ ------------
Total costs and expenses 2,099,622 6,864,977 8,305,592 11,258,006
------------ ------------ ------------ ------------
Income (loss) from operations 196,081 (2,902,421) (715,000) (5,018,937)
------------ ------------ ------------ ------------
OTHER (EXPENSE):
Net interest (expense) (16,597) (981,606) (46,793) (1,523,201)
Debt placement (expenses) 0 (1,407,049) 0 (1,525,799)
Net (losses) on marketable equity securities 0 0 (9,399,079) 0
------------ ------------ ------------ ------------
Total other (expense) (16,597) (2,388,655) (9,445,872) (3,049,000)
------------ ------------ ------------ ------------
Income (loss) before minority interest in
subsidiary loss and income taxes 179,484 (5,291,076) (10,160,872) (8,067,937)
Minority interest in subsidiary loss 2,092 1,148 413,315 2,062
Benefit (provision) for income taxes 0 0 1,808,000 (880)
------------ ------------ ------------ ------------
Net income (loss) $ 181,576 $ (5,289,928) $ (7,939,557) $ (8,066,755)
============ ============ ============ ============
Net (loss) per common share - basic $ 0.01 $ (0.14) $ (0.21) $ (0.22)
============ ============ ============ ============
Weighted average shares outstanding -basic 36,013,717 36,954,311 37,261,393 36,543,032
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PICK Communications Corp.
Consolidated Statements of Stockholders' Equity
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Number Additional Gain (Loss) on Total
of Shares Common Paid in Treasury Marketable Retained Stockholders'
Outstanding Stock Capital Warrants Stock Securities (Deficit) (Deficit)
----------- ----- ------- -------- ----- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 36,059,817 $ 43,325 $ 5,886,825 $ 21,242 $(3,072,222) $ 38,000 $ (10,010,284) (7,093,114)
Transactions A) 455,517 456 179,570 0 0 0 0 180,026
B) 1,394,368 1,394 864,405 0 0 0 0 865,799
C) 0 0 0 2,359,940 0 0 0 2,359,940
D) 0 (7,230) (3,053,014) 0 3,060,244 0 0 0
E) 0 0 0 0 0 (42,750) 0 (42,750)
Net (loss) 0 0 0 0 0 0 (8,066,755) (8,066,755)
---------- ---------- ----------- ---------- ----------- ----------- ------------- ------------
Balance September,
30, 1998 37,909,702 $ 37,945 $ 3,877,786 $2,381,182 $ (11,978) $ (4,750) $ (18,077,039) $(11,796,854)
========== ========== =========== ========== =========== =========== ============= ============
</TABLE>
A) Shares issued to employees and others as compensation.
B) Shares issued to placement agent and co-financial advisor in conjunction
with placement of short-term debt.
C) Warrants for purchase of common stock: (i) 125,000 shares at $0.50 per
share, exercisable for three years, (ii) 100,000 shares at $0.24 per share
exercisable for one year, (iii) 200,000 shares at $1.00 per share
exercisable for one year (iv) 1,250,000 shares at $0.35 per share
exercisable for three years, (v) 100,000 shares at $0.56 per share
exercisable for one year, (vi) 1,250,000 shares at $0.25 per share
exercisable for three years and (vii) 12,409,859 shares at $0.50 exercisable
for five years.
D) Cancellation of 7,230,000 shares held in treasury.
E) Adjustment to unrealized gain (loss) on marketable equity securities.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PICK Communications Corp.
Consolidated Statements of Cash Flows
Nine Months Ended September 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (7,939,557) $ (8,066,755)
Adjustments to reconcile net (loss) to cash (used in) operating activities:
Non-cash loss on marketable securities 9,399,079 0
Common stock issued for services 43,035 180,026
Amortization of debt discount and debt placement expenses 0 2,512,356
Depreciation and amortization 126,008 228,980
Minority interest in subsidiary loss (413,315) (2,062)
Bad debt expense 78,766 2,072
Adjustment to reserve for contingent liability (649,563) 0
(Benefit) for deferred income taxes (1,808,000) 0
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (396,775) (132,788)
Decrease (increase) in inventory 15,182 (90,181)
Decrease (increase) in other operating assets (98,111) (348,808)
Increase (decrease) in accounts payable 2,933,699 (1,257,579)
Increase (decrease) in deferred revenue (769,534) 951,161
Increase (decrease) in customer deposits 0 280,345
Increase (decrease) in other operating liabilities (699,739) 421,645
------------ ------------
Net cash provided by (used in) operating activities (178,825) (5,321,588)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (6,512) (1,725,176)
------------ ------------
Net cash (used in) investing activities (6,512) (1,725,176)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock for cash (11,978) 0
Principal paid on capital leases 0 (154,667)
Funds advanced on third-party debt, net of cash placement costs 0 11,586,126
Payments on third-party debt 0 (2,000,000)
Funds advanced by stockholder 170,000 15,000
Payments of stockholder advances (25,152) (185,000)
------------ ------------
Net cash provided by (used in) financing activities 132,870 9,261,459
------------ ------------
Net increase in cash (52,467) 2,214,695
CASH, beginning of period 87,712 44,400
------------ ------------
CASH, end of period $ 35,245 $ 2,259,095
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
PICK Communications Corp.
Consolidated Statements of Cash Flows (Continued)
Six Months Ended June 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 46,793 $ 483,380
========== ==========
Non-cash financing activities:
Assets acquired under capital leases 0 591,026
========== ==========
Book value of marketable equity securities exchanged for
common stock of the Company and its subsidiary 6,390,625 0
========== ==========
Book value of marketable equity securities exchanged for other
marketable equity securities 4,085,000 0
========== ==========
Prepaid advertising exchanged for common stock of
the Company and its subsidiary 2,458,155 0
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(UNAUDITED)
(1) Summary of Significant Accounting Principles
Description of Business:
PICK Communications Corp. (the "Company") acts as a wholesaler of long distance
telephone services and sells, through distributors, prepaid telephone calling
cards. The Company is headquartered in Wayne, New Jersey and also leases
facilities and telephone switching equipment in Jersey City, New Jersey and
Miami, Florida.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries, Public Info/Comm Kiosk, Inc.
("PICK"); PICKNET Inc. ("PICKNET"); PICKNET UK, PLC; PICKSat Inc. and P.C.T.
Prepaid Telephone, Inc. ("PCT"). All significant intercompany balances and
transactions have been eliminated.
Minority interest represents the minority shareholders' proportionate share of
the equity and loss of PCT.
Certain amounts in the Statement of Operations for the three and nine months
ended September 30, 1997 have been reclassified to conform with the 1998
presentation.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the statements of
financial condition and revenues and expenses for the periods then ended. Actual
results could differ from those estimates.
Revenue Recognition
Sales of long distance time are recognized at the time that service is provided,
as reported by the switch. The Company defers revenue related to prepaid calling
cards (which is recorded net of distributor discounts) and recognizes revenue as
the card is used.
Net Loss Per Share
Net loss per share - basic is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period. Net loss per
share - diluted is not presented because the inclusion of common share
equivalents would be anti-dilutive.
Concentration of Credit Risk
In 1998, approximately 65% and 14% of revenues were from two customers; in 1997,
approximately 23% and 14% of revenues were from two customers. The Company
performs periodic credit evaluations of its customers, and may, under certain
circumstances, require deposits or prepayments where deemed appropriate.
Accounts receivable consist of the following:
December 31, September 30,
1997 1998
--------- ---------
Accounts receivable $ 778,315 $ 810,704
Reserve for bad debts 326,497 228,170
--------- ---------
Accounts receivable - net $ 451,818 $ 582,534
========= =========
8
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(UNAUDITED)
(1) Summary of Significant Accounting Principles, Continued
Concentration of Credit Risk, Continued
Five customers comprised approximately 29%, 20%, 15%, 15% and 13% of gross
accounts receivable, respectively, at September 30, 1998. Five customers
comprised approximately 36%, 20%, 16%, 13% and 10% of gross accounts receivable,
respectively, at December 31, 1997. At September 30, 1998, the Company has a
reserve for bad debts equal to 28% of the gross accounts receivable. The Company
also purchases telecommunications services from many of its customers.
Frequently, accounts receivable are settled by set-off against liabilities with
the same party.
Inventory
Inventory at December 31, 1997 is composed of costs to produce cards, including
printing and freight, and is valued at the lower of cost or market. Inventory is
relieved and charged to cost of sales when cards are activated. Inventory at
September 30, 1998 consists of computer equipment held for resale. This
inventory is accounted for on the first in, first out ("FIFO") basis.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed using the straight
line method over the estimated useful lives of the assets (3, 5 or 7 years).
Telephone equipment acquired under capital leases is amortized over five years,
using the straight line method.
Intangible Assets
The Company's intangible assets (patent and related rights for prepaid cellular
technology) are valued at cost and amortized over their estimated useful lives
of five years. Since, among other factors, this technology generated no revenues
during 1997, the Company elected to write-off the unamortized balance at
December 31, 1997.
Accounts Payable
Accounts payable at September 30, 1998 includes $1,120,544 payable to WorldCom
Network Services, Inc., which is payable in monthly installments of between
$350,000 and $385,544, plus interest at 18% per annum, through December of 1998.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") number 109 ("Accounting for Income Taxes").
Current and deferred income tax assets and liabilities are recognized in the
financial statements based upon events that have been recognized in the
financial statements and measured based upon the income tax laws enacted at the
time of the events. Valuation allowances are established to reduce income tax
assets to the amount estimated to be realized, based upon currently available
evidence.
9
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(UNAUDITED)
(2) Furniture and Equipment
Furniture, equipment and software consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
----------- ------------
<S> <C> <C>
Furniture, equipment and software - at cost $ 127,538 $ 1,852,714
Less accumulated depreciation (68,488) (95,888)
----------- ------------
Net 59,050 1,756,826
----------- ------------
Telephone switching equipment
acquired under capital leases 941,033 1,532,059
Less accumulated amortization 0 (201,580)
----------- ------------
Net 941,033 1,330,479
----------- ------------
Net furniture and equipment $ 1,000,083 $ 3,087,305
=========== ============
</TABLE>
(3) Investment in Marketable Equity Securities
In 1996, the Company acquired 4,700,000 restricted shares of the common stock of
Ultimistics, Inc. ("Ultimistics"). During the first quarter of 1997, the
Company, in four separate transactions, disposed of all of its shares of
Ultimistics, along with $420,000 of prepaid advertising, in return for (i)
1,000,000 shares of the Company's common stock, (ii) 10,000,000 shares of PCT,
and (iii) 380,000 restricted shares of the common stock of Fairbanks, Inc.
(which subsequently changed its name to Jet Vacations, Inc. and then, Precom
Tech Inc. ("PTI")). The Company recorded losses of $9,399,079 on these
transactions.
At September 30, 1998, the Company owned 380,000 restricted shares of the common
stock of PTI. PTI common stock is traded on the over-the-counter market and
reported on the OTC Bulletin Board. The market value per share of PTI was $1.125
at September 30, 1998, as reflected on the OTC Bulletin Board. Because the
shares are restricted and there is very limited trading activity in PTI stock,
the Company believes the fair value to be approximately 30% of the market price,
or $128,250 at September 30, 1998. 100,000 of the PTI shares are pledged to one
of the Company's vendors.
(4) Short Term Debt
Short-term debt consists of the following:
December 31, September 30,
1997 1998
----------- ------------
Borrowings from bank $ 750,000 $ 0
Short-term loans 250,000 9,378,773
Loan from customer/supplier 0 2,000,000
----------- ------------
$ 1,000,000 $ 11,378,773
=========== ============
The bank borrowing was repaid on July 29, 1998 from a portion of the proceeds of
the borrowing discussed below.
10
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(UNAUDITED)
(4) Short Term Debt, Continued
The $250,000 short-term loan outstanding at December 31, 1997 was repaid in
April 1998 from the borrowing discussed in the following paragraph. As
additional compensation for lending the Company funds, the individual was
initially granted warrants (exercisable over three years) to purchase 250,000
shares of the Company's common stock at $0.50 per share. In return for extending
the maturity date of the loan from March 9, 1998 to April 13, 1998, the
individual was granted warrants for an additional 125,000 shares on the same
terms.
In February of 1998, the Company amended its existing telecommunications
agreement with IDT Corporation ("IDT"), one of its long distance
vendors/customers. Under the terms of the amendment, the Company agreed to sell
IDT up to 10,000,000 minutes per month of long distance traffic, through June 9,
1999, at favorable rates and IDT agreed to lend the Company $2,000,000. Of this
amount, $500,000 was funded when the transaction was signed, $1,000,000 was
funded in April 1998 and the remaining $500,000 was advanced in June, 1998. The
loan bears interest at 9% and matures in February 1999. In addition, IDT
received a warrant to purchase one share of the Company's common stock for each
five dollars loaned (or an aggregate of 400,000 warrrants), at an exercise price
equal to the closing price for the Company's common stock at the date
immediately prior to the date of the advance. The Company has issued 100,000
warrants with an exercise price of $0.24 per share, 200,000 warrants with an
exercise price of $1.00 per share and 100,000 warrants with an exercise price of
$0.56 per share. The warrants are exercisable for a period of one year from the
respective dates of grant.
In April 1998, the Company borrowed $1,000,000 from unaffiliated investors. The
loan was unsecured, bore interest at 10% and matured July 1, 1998. In
consideration for advancing the funds, the lenders received warrants to purchase
1,000,000 shares of the Company's common stock at $0.35 per share, which are
exercisable on or before April 1, 2001. The $195,000 of value assigned to these
warrants is reflected in interest expense. The placement agent for this loan
received $75,000 and warrants to purchase 250,000 shares of the Company's common
stock at $0.35 per share. The $43,750 of value assigned to these warrants is
included in debt placement expenses. This borrowing was repaid on July 31, 1998
from a portion of the proceeds of the borrowing discussed below. Because the
borrowing was repaid after maturity date, the interest rate was increased,
effective July 1, 1998, to 18% and the lenders and the placement agent were
granted warrants to purchase 1,250,000 shares of the Company's common stock,
exercisable through August 14, 2001, at $0.25 per share.
Between July 29, 1998 and September 8, 1998, the Company, through Commonwealth
Associates ("Commonwealth"), placed $9,900,000 (face amount) of 10%, 120 day
notes and 9,900,000 warrants to purchase shares of the Company's common stock at
$0.50 per share for five years (the "Placement"). The Company allocated
$8,587,066 of the gross sale proceeds to the debt and $1,312,934 to the
warrants. The $1,312,934 discount applied to the face amount of the notes is
being amortized into income, as interest expense, over the 120-day life of the
notes. The Company has the right to extend the maturity date of the notes for 60
days; in the event the Company exercises this right, the interest rate of the
notes is increased to 18% per annum, retroactive to the issuance of the notes.
For the Placement, the Company paid Commonwealth and Liberty Capital Ltd. (the
Company's co-financial advisor) $1,089,000 in cash, 1,394,368 shares of common
stock (valued at $865,799) and warrants to purchase 2,509,859 shares of common
stock at $0.50 per share for five years (valued at $383,002). The costs related
to the Placement have been deferred and are being amortized into income as debt
placement expenses over the term of the debt.
11
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(UNAUDITED)
(5) Commitments
The Company leases facilities and equipment under operating and capital leases.
The future minimum payments under such leases as of September 30, 1998 are as
follows:
Operating Capital
Leases Leases
------ ------
1998 (three months) $ 101,104 $ 103,696
1999 482,483 414,783
2000 400,744 414,783
2001 251,425 414,783
2002 169,769 414,783
2003 144,994 0
----------- ----------
Total payments $ 1,550,519 1,762,828
===========
Less amounts representing interest (385,436)
Current portion (250,622)
----------
Capital lease obligations, long-term portion $1,126,770
==========
Rental expense under operating leases was $275,978 and $77,580 for the nine
months ended September 30, 1998 and 1997, respectively. The Company has the
right to renew its operating leases for terms of between three and five years.
At September 30, 1998, the Company has outstanding commitments for the purchase
of telecommunications and computer equipment and for the license of computer
software of approximately $1,500,000.
(6) Income Taxes
The Company's deferred tax assets at December 31, 1997 consist of the following:
Approximate tax benefit from net operating loss carryforwards:
Federal $ 1,800,000
State 300,000
----------
2,100,000
Less valuation allowance (2,100,000)
----------
Net deferred tax assets $ 0
===========
The deferred tax assets are comprised of the tax benefit of net operating loss
carryforwards of approximately $5,500,000 at December 31, 1997, which expires
$1,000,000 in 2009, $1,100,000 in 2010, $1,600,000 in 2011 and $1,800,000 in
2012. Utilization of the net operating loss carryforwards may be limited in the
event of a change in control of the Company.
(7) Contract with Blackstone Calling Card, Inc.
In February, 1998, the Company entered into a two-year agreement with a major
distributor of prepaid telephone calling cards, Blackstone Calling Card, Inc.
("Blackstone" and the "Blackstone Agreement"). Under the terms of the Blackstone
Agreement, as amended, after a six month phase-in period commencing April 27,
1998, Blackstone will purchase a minimum face value of $5,000,000 per month from
12
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(UNAUDITED)
(7) Contract with Blackstone Calling Card, Inc., Continued
the Company, which is expected to result in net revenues of approximately
$3,000,000 per month to the Company. While Blackstone's purchases from the
Company have been increasing significantly, it is anticipated that the
Blackstone Agreement will have to be amended to lower the purchase minimum
amount and the corresponding revenue to the Company. The Blackstone Agreement is
also subject to termination by either party without cause at the end of year
one, upon sixty days prior notice, or by Blackstone if the Company fails to
maintain overall network quality.
(8) Litigation and Reserve for Contingent Liability
The Company is, from time to time, party to litigation that arises in the
ordinary course of its business operations or otherwise. Except as described
below, the Company is not presently a party to any litigation that it believes
would have a material adverse effect on its business.
In February 1997, the Company commenced a mediation action against American
Telephone & Telegraph ("AT&T") seeking $10 million in damages for breach of
contract and fraudulent inducement and malicious conduct under a carrier
agreement (the "Carrier Agreement") entered into in February 1996. The Company
contracted with AT&T under the Carrier Agreement for inbound 800 service and
outbound domestic and international long distance service. The Company claims
that AT&T reneged on certain commitments to provide the Company with lower
international rates than the Company was invoiced by AT&T. AT&T has claimed that
the Company owes it in excess of $1,000,000. In 1996, the Company provided for a
non-cash reserve of $1,750,000, which was reduced to $1,100,000 in the third
quarter of 1997 and is a part of the Company's working capital deficiency. After
two mediation sessions, AT&T indicated that it intended to withdraw from the
mediation. Accordingly, on November 5, 1997, the Company filed for arbitration
proceedings against AT&T and reduced its claim to $5 million. This arbitration
is tentatively scheduled to be heard in January 1999. There can be no assurance
that the Company will be able to prevail in this arbitration. Any adverse
judgment or settlement could have a material impact on the Company's financial
condition.
(9) Stock Option Plan
In February, 1996, the Company adopted a stock option plan for employees and
directors. The following summarizes activity under the plan:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1997 September 30, 1998
----------------- ------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 3,500,000 $ 0.878 4,500,000 $ 0.230
Options cancelled (3,500,000) $ 0.878 0 -
Options granted 4,500,000 $ 0.230 1,200,000 $ 0.427
--------- ---------
Outstanding at end of period 4,500,000 $ 0.230 5,700,000 $ 0.271
========= =========
</TABLE>
The options granted in 1996 were cancelled and most were re-issued at lower
exercise prices in 1997.
The Company applies Accounting Principles Board Opinion number 25, "Accounting
for Stock Issued to Employees," in accounting for stock-based compensation
plans. Accordingly, no compensation expense has been recognized in the
accompanying statements of operations for stock options granted to employees.
13
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(UNAUDITED)
(10) Comprehensive Income
Comprehensive income, as defined in Statement of Financial Accounting Standards
number 130, "Reporting Comprehensive Income" ("SFAS 130"), includes all changes
in equity during a period from non-owner sources. Examples of items included in
comprehensive income that are excluded from net income are unrealized gains or
losses on marketable equity securities or foreign currency translation
adjustments. For the nine months ended September 30, 1998, total other
comprehensive income was a loss of $42,750.
(11) Going Concern Matters
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has incurred operating losses and negative cash flow
from operations in the nine months ended September 30, 1998 as well as the years
ended December 31, 1997, 1996 and 1995. In addition, the Company has a working
capital deficiency of $13,977,767 at September 30, 1998, and as discussed in
Footnote 5, the Company has entered into significant equipment purchase and
software license commitments.
While the Company obtained additional short-term financing during the third
quarter of 1998, it matures in the fourth quarter of 1998 and the first quarter
of 1999. Substantially all of the debts of the Company mature or are subject to
payment agreements calling for payment before the end of February 1999. Without
the Company extending the pay-out terms of the aforementioned liabilities or
obtaining additional long-term financing, as well as increasing revenues and/or
decreasing expenses, the Company may be unable to continue as a going concern
for a reasonable period of time. The financial statements do not include any
adjustments relating to the recoverability of assets or the classification of
liabilities should the Company be unable to continue as a going concern.
The Company is also negotiating with several potential investors to raise
additional funds through private placement of debt and/or equity. The Company
believes that these plans, if successfully implemented, will enable it to
continue as a going concern. However, there can be no assurance that the Company
will be successful in either generating positive operating income or raising
additional funds in the immediate future in amounts sufficient to allow it to
continue as a going concern.
(12) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS
number 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for companies to report information
about operating segments in annual financial statements. Management is currently
evaluating the financial statement and disclosure impact of SFAS number 131. The
disclosures prescribed by SFAS number 131 must be made beginning with the year
ended December 31, 1998.
In March 1998, the FASB issued SFAS number 132, "Employers' Disclosures about
Pensions and Other Post Retirement Benefits." The Company does not currently
provide pension or other post retirement benefits. Consequently, this statement
does not currently apply to the Company.
In June 1998, the FASB issued SFAS number 133, "Accounting for Derivative
Instruments and Hedging Activities." Management is currently evaluating the
financial statement and disclosure impact of SFAS number 133. The Statement is
effective for all fiscal quarters in fiscal years beginning after June 15, 1999
or the first quarter of calendar year 2000 for the Company.
14
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Results of Operations:
The Company generates revenues from the sale of telecommunications services.
This includes international long distance service to carriers and resellers, and
revenues derived from the sale of prepaid telephone calling cards to
distributors for resale to retail outlets.
The Company's costs of sales primarily consist of the cost of telephone
services, for both the resale of international long distance services and for
prepaid telephone calling cards.
For the resale of international long distance, the Company recognizes revenues
as its customers use the traffic. For prepaid telephone calling card sales, the
Company recognizes revenues at the time it provides the telephone services
associated with its cards and recognizes the cost of the carrier telephone
traffic based on the minutes used in the same periods that the Company
recognizes revenues.
Gulfsat Contract
In late 1997, the Company entered into a reciprocal telecommunications agreement
for international traffic termination in Africa, the Middle East and Asia, via
satellite, with Gulfsat Communications Company ("Gulfsat" and the "Gulfsat
Contract"), a communications company located in the Middle East. In March 1998,
the term of the contract was extended to February 28, 2003 and Gulfsat agreed
that its rates to Africa, the Middle East and Asia would be offered in the
United States exclusively through the Company. Under the contract, the Company
is entitled to terminate up to 70 million minutes per month in
telecommunications services into the above regions. Management believes, based
upon its knowledge of the industry, that costs per minute to terminate traffic
through Gulfsat are significantly lower than those currently available to the
Company's competitors.
The Company began to send traffic into one country in the second quarter and
anticipated adding subsequent countries in fairly rapid succession. The Company
then became aware of newer, state-of-the-art technology that would facilitate
the transmission of not only voice traffic but also data, video and Internet
traffic. In order to capitalize on this technology and maximize the benefit the
Company could derive from the Gulfsat Contract, it became necessary to defer
installation. The Company first had to investigate the companies offering the
appropriate asynchronous transmission mode (ATM) equipment and then, in concert
with Gulfsat, select a strategic partner in this global effort. Then the Company
and Gulfsat had to purchase and install the appropriate telephone switching and
compression equipment for the Jersey City hub, the United Kingdom and the first
of several destination countries. To begin installation, the Company required a
portion of the proceeds from the short-term debt financing obtained in the third
quarter to purchase this equipment in August and September. The initial
installation is nearing completion and the Company anticipates that it will be
able to utilize the increased capacity and favorable termination rates to four
or five additional countries starting late in the fourth quarter of 1998. The
Company believes it has sufficient funds available to purchase the necessary
equipment to increase the capacity for delivery of telephone time through
Gulfsat through the end of 1998 and it will require additional funding
thereafter.
15
<PAGE>
Blackstone Contract
In February 1998, the Company entered into a two-year agreement with Blackstone
Calling Card, Inc. ("Blackstone"), a major distributor of prepaid telephone
calling cards (the "Blackstone Agreement"). Under the terms of the Blackstone
Agreement, as amended, after a six month phase-in period ending October 27,
1998, Blackstone was to purchase a minimum face value of $5,000,000 per month
from the Company, which was expected to result in net revenues of approximately
$3,000,000 per month to the Company. The Blackstone Agreement is also subject to
termination by either party without cause at the end of year one upon 60 days'
prior notice, or by Blackstone if the Company fails to maintain overall network
quality.
While Blackstone's purchases from the Company have been increasing significantly
(to approximately $2.2 million, at face value, in September 1998), it is
anticipated that the Blackstone Agreement will have to be amended to lower the
minimum purchase amount and the corresponding revenue to the Company. As
described above, the Company has yet to receive anticipated capacity to
terminate traffic through Gulfsat needed to satisfy Blackstone and other
customers. This has significantly reduced the volume of Blackstone's purchases
and, because the Company has had to purchase time from other carriers (at higher
rates than the Company anticipated paying to Gulfsat) to satisfy the traffic
generated by the users of Blackstone's calling cards, the Company has yet to
achieve the anticipated profit from the Blackstone Agreement. Management
believes that if the Company is able to purchase and install sufficient ATM
equipment by the end of 1998 to increase its capacity to deliver traffic through
Gulfsat, it should be able to satisfy Blackstone's requirements by the middle of
1999.
High Speed Internet Services
Late in the second quarter of 1998, through PICKSat Inc. ("PICKSat"), a
wholly-owned subsidiary, the Company began development of a satellite-delivered,
broadband, international, high-speed Internet and multi-media platform. The
Company anticipates that its customers will begin using this platform for
delivery of data and multi-media in the first quarter of 1999.
16
<PAGE>
Nine Months Ended September 30, 1998 Compared with September 30, 1997
Revenues:
Total revenues amounted to $6,239,069 for the nine months ended September 30,
1998, compared to $7,590,592 for the nine months ended September 30, 1997, a
decrease of $1,351,523, or 18%. The Company significantly curtailed is
operations during the first half of 1998, while it installed and tested two,
leased Siemens Digital Central Office Switches. These switches replaced
switching services previously purchased from third party vendors. Consequently,
the Company decided to curtail its marketing efforts for the sale of
international long distance services until it completed this installation and
until it had the capability to deliver competitively priced traffic through
Gulfsat. Therefore, for the nine months ended September 30, 1998, the Company
generated international long distance revenue of $1,796,735, compared with
$6,496,645 for the nine months ended September 30, 1997, a decrease of
$4,699,910 (72%). Prepaid telephone calling card revenues were $4,442,334 for
the nine months ended September 30, 1998, compared to $1,093,947 for the nine
months ended September 30, 1997. This represents an increase of $3,348,387 or
306% and is attributable to sales to Blackstone.
Costs and Expenses:
The cost of telephone time purchased increased from $6,841,047 to $7,143,518
($302,471 or 4.4%). These costs increased by 4%, even though revenues declined
by 18%, primarily due to the costs of long distance arising from the usage of
prepaid telephone calling cards sold through Blackstone. Other cost of sales
increased from $522,193 to $1,740,742 ($1,218,549 or 233%) primarily due to the
fixed costs associated with the Company's newly-developed network and processing
costs arising from the increased prepaid telephone calling card activity. The
Company believes that it has the capacity to carry significant, additional
traffic without any meaningful increase in the fixed costs associated with the
network. 1997 cost of sales benefited from the reversal of $649,563,
representing a portion of a previous provision of contingent costs. (See Note 8,
Notes to Consolidated Financial Statements.)
Selling, general and administrative expenses were $2,144,766 for the nine months
ended September 30, 1998, compared to $1,465,907 for the nine months ended
September 30, 1997, reflecting an increase of $678,859 or 46%. Approximately
$412,000 of this increase is due to start-up and development expenses of the
Company's newly formed PICKSat subsidiary. The residual increase is primarily
due to other additions to staff.
Loss from Operations:
The Company's loss from operations increased from $715,000 to $5,018,937
primarily due to the increases in cost of sales and general and administrative
expenses discussed above.
17
<PAGE>
Other:
Interest and debt placement expenses increased significantly from the prior year
due to the substantial increase in the amount of short-term debt placed in the
current year.
Three Months Ended September 30, 1998 Compared with September 30, 1997
Revenues:
Total revenues amounted to $3,962,556 for the three months ended September 30,
1998, compared to $2,295,703 for the three months ended September 30, 1997, an
increase of $1,666,853, or 73%.
For the three months ended September 30, 1998, the Company generated
international long distance revenue of $833,717, compared with $1,754,431 for
the three months ended September 30, 1997, a decrease of $920,714 (52%), which
was primarily attributable to delays in available capacity for delivery of
traffic through Gulfsat and the related reduced marketing efforts discussed
above. The Company believes that international long distance revenue growth will
be driven by available capacity through Gulfsat, and, that the Company should
have significantly more capacity available by the end of 1998.
Prepaid telephone calling card revenues were $3,128,839 for the three months
ended September 30, 1998, compared to $541,272 for the three months ended
September 30, 1997. This represents an increase of $2,587,567 or 478% and is
attributable to sales to Blackstone.
Costs and Expenses:
The cost of telephone time purchased increased from $2,052,189 to $4,597,125.
These costs increased by $2,544,936, or 124%, primarily due to the costs of long
distance arising from the usage of prepaid telephone calling cards sold through
Blackstone. Other cost of sales increased from $167,698 to $1,138,441 ($970,743
or 579%) primarily due to the fixed costs associated with the Company's
newly-developed network and processing costs arising from the increased prepaid
telephone calling card activity. 1997 cost of sales benefited from the reversal
of $649,563, representing a portion of a previous provision of contingent costs.
(See Note 8, Notes to Consolidated Financial Statements.)
Selling, general and administrative expenses were $1,037,780 for the three
months ended September 30, 1998, compared to $487,170 for the three months ended
September 30, 1997, reflecting an increase of $550,610, or 113%. Approximately
$412,000 of this increase is due to start-up and development expenses of the
Company's newly formed PICKSat subsidiary. The residual increase is primarily
due to other additions to staff.
18
<PAGE>
Loss from Operations:
The Company's reported income from operations of $196,081 for the three months
ended September 30, 1997 and a loss from operations of $2,902,421 for the three
months ended September 30, 1998. This change is primarily due to the increases
in cost of sales and general and administrative expenses discussed above.
Other:
Interest and debt placement expenses increased significantly from the prior year
due to the substantial increase in the amount of short-term debt placed in the
current year.
Changes in Financial Condition:
Due to the losses discussed above, the Company's working capital deficit
increased from $7,405,608 as of December 31, 1997 to $13,977,767 as of September
30, 1998 (an increase in the working capital deficit of $6,572,159) and the net
worth changed from a negative $7,093,114 at December 31, 1997 to $11,796,854 at
September 30, 1998 (an increase in negative net worth of $4,703,740).
Current assets increased by $4,121,901 primarily due to increases in (i) cash
and (ii) prepaid expenses and other current assets. Prepaid expenses and other
current assets at September 30, 1998 includes $1,491,251 in unamortized expenses
related to the $9.9 million short-term debt placed in the third quarter of 1998.
Current liabilities increased by $10,694,060. This increase is largely due to
net increases in short-term borrowings. The proceeds of the short-term
borrowings were used to fund (i) approximately $1,200,000 in placement costs,
(ii) $2,185,000 in debt repayments, (iii) $1,725,000 in capital expenditures
(iii) a $2,200,000 increase in cash and (iv) the operating losses discussed
above.
Substantially all of the liabilities of the Company mature or are subject to
payment agreements calling for payment before the end of February 1999. In
addition, the Company has committed approximately $1,500,000 to (i) purchase
telecommunications and computer equipment and (ii) license computer software,
payments for which will be due prior to January 31, 1999.
The Company repaid $1,575,000 in short-term debt during July of 1998, consisting
of $575,000 in bank borrowings and $1,000,000 borrowed in April 1998 from
unaffiliated investors. (See Note 4 of Notes to Consolidated Financial
Statements.) The short-term debt was repaid from a portion of the proceeds of a
$9,900,000 short-term debt financing. This replacement, short-term debt
financing matures in the fourth quarter of 1998 and the first quarter of 1999.
The Company is pursuing sources of capital in order to repay the short-term debt
financing and to expand its operations. While the Company believes it will be
successful in its efforts to raise sufficient capital and to restructure its
operations so that it may continue as a going concern, there can be no assurance
that the Company will be successful.
19
<PAGE>
Cash Flows
Cash flow for the nine months ended September 30, 1998 was an increase of
$2,214,695, compared with a decrease of $52,467 for the comparable period in
1997, an improvement of $2,267,162. This improvement is attributable to an
increase in cash provided by financing activities of $9,128,589 off-set by
increases in cash used in operating activities of $5,142,763 and investing
activities of $1,718,664.
Cash Flows from Operating Activities
Operating activities used $5,321,588 in cash for the nine months ended September
30, 1998, compared with a use of $178,825 in 1997. The major reason for this
change is a $4,303,937 increase in the Company's loss from operations. The
operating loss of $5,018,937 for the nine months ended September 30, 1998 was
primarily financed with the proceeds of short-term borrowings, a $951,161
increase in deferred revenues and $701,990 increase in customer deposits and
other operating liabilities, partially off-set by a $571,777 increase in
operating assets and a decrease in accounts payable of $1,257,579. The operating
loss of $715,000 for the nine months September 30, 1997 was primarily financed
by increases in accounts payable, partially off-set by increases in accounts
receivable and reductions in deferred revenue and other operating liabilities.
Cash Flows from Investing Activities
The Company significantly increased its capital expenditures (to $1,725,176) in
1998 to support the development of its international long distance telephone and
high speed Internet services businesses. 1997 capital expenditures were only
$6,512.
Cash Flows from Financing Activities
During the nine months ended September 30, 1998, the Company closed short-term
borrowings, which netted $11,586,126 and borrowed $15,000 from one of its
stockholders. These inflows were reduced by $2,339,667 in repayments, including
$154,667 applied to the principal due on capital leases. 1997 cash flows from
financing activities primarily consisted of $144,848 in net advances from one of
the Company's stockholders.
Impact of Year 2000:
There have been no material changes since the Company's disclosure in its Annual
Report on Form 10-K that, although the Company believes its software is Year
2000 compliant, it has not yet commenced a program to pursue compliance with its
suppliers, vendors, customers and anyone else with whom it electronically
connects.
20
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings:
During the quarter ended September 30, 1998, there were no material changes in
the Company's previously reported legal proceeding commenced against American
Telephone & Telegraph Company.
Item 2 - Changes in Securities:
On July 13, 1998, the Company commenced a private placement offering (the
"Offering") of units (the "Units"), each consisted of a $100,000 10% senior
secured note (the "Notes") and warrants (the "Warrants") to purchase 100,000
shares of the Company's Common Stock.
Commonwealth Associates acted as Placement Agent in the sale of the Units
offered and received upon consummation of the Offering: (i) a placement fee
equal to 7% of the gross proceeds of the Units sold in the Offering ($693,000);
and (ii) a structuring fee equal to 2% of the gross proceeds of the Units sold
in the Offering ($198,000). The Placement Agent also received from the Company
(i) 697,184 shares of Common Stock; (ii) warrants to purchase at an exercise
price of $.50 per share 1,394,366 shares of Common Stock (the "Agent's
Warrants") and (iii) reimbursement of legal fees. The Company agreed to
indemnify the Placement Agent and certain other persons against certain
liabilities, including certain liabilities arising under the Securities Act of
1933, as amended (the "Securities Act").
In addition, Liberty Capital, Ltd., a co-financial advisor to the Company with
respect to the Offering ("Liberty"), received: (i) 2% of the offering price of
the Units ($198,000); (ii) 697,184 shares of Common Stock and (iii) warrants to
purchase at an exercise price of $.50 per share 1,115,493 shares of Common
Stock.
Between July 29, 1998 and September 8, 1998, the Company sold 99 Units for cash,
or an aggregate of $9,900,000 in gross proceeds. The Units were offered and sold
only to "accredited investors" as such term is defined in Regulation D
promulgated under the Securities Act and was offered and sold only to
prospective investors who: (i) represented, among other things, that they were
acquiring Units for their own account, for investment only and not with a view
toward the resale or distribution thereof that they were aware that the Units
had not been registered under the Securities Act and that their transfer rights
are restricted by the Securities Act, applicable securities laws and the absence
of a market for the Units and (ii) represented that they were accredited
investors. Therefore, the Offering was exempt from registration pursuant to
Section 4(6) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.
The principal amount of the Notes, together with accrued interest, is due and
payable on the earlier of (i) completion by the Company of an equity financing
resulting in gross proceeds of $5,000,000 or more or (ii) 120 days from the
placement of the Notes (the "Maturity Date"). The Maturity Date set forth in
(ii) may be extended for up to 60 days (the "Extension Period") solely at the
Company's option (the "Extension Option"). In the event the Company defaults in
the payment of the Notes, and such default continues uncured for five (5)
business days, holders of the Notes will have the option to convert the
principal amount, together with accrued interest, into shares of the Company's
Common Stock at a conversion price per share equal to the lower of (i) 50% of
the closing bid price of the Common Stock on the date of the Event of Default or
(ii) $.25.
21
<PAGE>
Each Warrant is exercisable for a period of five years for one share of Common
Stock at an exercise price equal to $.50 per share. In the event the Company
exercises the Extension Option, the exercise price of the Warrants shall be
reset to the lower of the Closing Bid on the original Maturity Date or $.50. In
the event the Company does not repay the Notes by the end of the Extension
Period, the Company will file a Registration Statement with the Securities and
Exchange Commission within 90 days of the end of the Extension Period (e.g.,
April 25, 1999) registering the shares of Common Stock underlying the Warrants.
In the event the Company fails to file such registration statement on a timely
basis, the Exercise Price of this Warrant shall be adjusted downward 10% per
month until such registration statement is filed. The Warrants will be protected
against dilution upon the occurrence of certain events, including, but not
limited to, sales of shares of Common Stock for less than fair market value or
the exercise price.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits filed as part of this report are listed below:
10.1 Master Purchase Agreement between PICK Communications Corp. and
Northern Telecom Inc., effective as of July 16, 1998.
10.2 Software License and Support Agreement between Portal Software, Inc.
and PICK Communications Corp., dated July 28, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K:
Report dated September 18, 1998 concerning change in
Registrant's Certifying Accountants.
Report dated September 18, 1998 to file Former Accountant's
letter re change in Registrant's Certifying Accountants.
22
<PAGE>
Signatures:
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PICK Communications Corp.
Date: November 12, 1998 By: /s/ Diego Leiva
------------------------------------------
Diego Leiva
President and Chief Executive Officer
Date: November 12, 1998 By: /s/ Robert S. Bingham
-------------------------------------------
Robert S. Bingham
Vice President and Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
MASTER PURCHASE AGREEMENT
This Master Purchase Agreement ("Agreement"), effective as of the 16th day of
July, 1998, is entered into by and between PICKNET, Inc., (hereinafter
"Company") a wholly owned subsidiary of PICK Communications Corporation, with
offices located at 155 Route 46 West, Wayne, New Jersey 07470 and Northern
Telecom Inc. (hereinafter "Nortel"), with offices located at 2221 Lakeside
Boulevard, Richardson, Texas 75082.
WHEREAS, Nortel is engaged in the design, development, manufacture and sale
of various products and offers services associated with such products, which can
be used in connection with the telecommunication services, products and networks
of Company; and
WHEREAS, Company and its Affiliates wish to be able to purchase and/or
license various Products and Services from Nortel and its Affiliates as set
forth in initial Product Annex Exhibits attached hereto, and incorporated herein
by reference, or added subsequent to the execution of this Agreement via written
bilateral amendment hereto, which Company and its Affiliates will use themselves
and not resell or sublicense to third parties, and Nortel is willing to sell
and/or license such products to Company and its Affiliates, subject to the terms
and conditions of this Agreement; and
WHEREAS, in recognition of Company's commitment to purchase Nortel Products
and Services globally during the term of this Agreement, Nortel shall offer
certain purchase incentives to Company and its Affiliates as detailed in the
applicable Product Annex Exhibits;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, the parties agree as follows:
ARTICLE 1. DEFINITIONS
The following words shall have the meanings set forth below. Words in the
singular shall be held to include the plural and vice versa and words of gender
shall be held to include the other genders as the context requires.
1.1 "Acceptance" shall mean that Company has indicated that an ordered
Product is operating in accordance with the applicable Specification.
1.2 "Affiliate" shall mean any entity listed in Exhibit A in which
either Nortel or Company directly or indirectly owns and controls, and continues
to own or control, at least fifty percent (50%) of the shares or other ownership
rights entitled to elect the Board of Directors or equivalent of such entity.
Each party agrees that the other party may add to Exhibit A any entity which the
party directly or indirectly owns and controls, and continues to own or control,
at least fifty percent (50%) of the shares or other ownership rights entitled to
elect the Board of Directors or equivalent of such entity. Any other entity
shall only be added upon mutual consent of the parties in writing.
1.3 "Applications" shall mean any program, product, service,
development or invention developed by a party using the Building Blocks,
including any modified or created Building Blocks, created by Company.
1.4 "Building Block(s)" shall mean those Software files provided by
Nortel with Modifiable Software that are manipulatable or which may be created
by Company with such Modifiable Software and which can be used, created or
manipulated by Company to create Applications.
1.5 "Confidential Information" shall mean all information, including,
without limitation, specifications, drawings, documentation, know-how and
pricing information, of every kind or description which may be disclosed by
either party to the other party in connection with this Agreement, provided the
disclosing party shall clearly mark all such information disclosed in writing or
other tangible media as the confidential property of the disclosing party and,
in the case of oral disclosure, the disclosing party shall identify the
confidential nature of any such information which it discloses at the time of
such disclosure and shall provide a written summary of the orally disclosed
information to the recipient within fifteen (15) days of such disclosure.
1
<PAGE>
1.6 "Contract" shall mean an agreement for the supply of Products
and/or Services between Company or a Company Affiliate and Nortel or a Nortel
Affiliate, which comes into effect by the acceptance of an Order pursuant to the
provisions hereof, and which Contract shall be governed solely by the terms and
conditions of this Agreement.
1.7 "Customer Information" or "CI" shall mean the information provided
by Company to Nortel in order for Nortel to engineer and/or provide the
components of Systems.
1.8 "Documentation" shall mean the documents which Nortel generally
makes available to its customers containing descriptive, operating,
installation, engineering and maintenance information for Products, including
Specifications, as such documents may be amended from time to time.
1.9 "Effective Date" shall mean the date this Agreement becomes
effective which shall be the date identified on the first page of this
Agreement.
1.10 "Extension" shall mean Hardware and/or Software which is
engineered by Nortel and which is added to an Initial System after the Turnover
Date of the Initial System.
1.11 "Free Carrier" / "FCA" shall have the meaning ascribed to it in
Incoterms 1990.
1.12 "Hardware" shall mean, individually and collectively, the
equipment listed in Exhibit C, and shall be deemed to include any equipment in
the categories in Exhibit C which Nortel adds to its generally available price
lists or identifies to Company in a Quotation.
1.13 "Hazardous Material" shall mean any pollutants or dangerous, toxic
or hazardous substances (including without limitation, asbestos) as defined in,
or pursuant to the OSHA Hazard Communication Standard (29 CFR Part 1910, Subpart
Z), the Resource Conservation and Recovery Act (15 USC Section 6901, et seq.),
the Toxic Substances Control Act (15 USC Section 2601, et seq.), the
Comprehensive Environmental Response Compensation and Liability Act (42 USC
Section 9601, et seq.), and any other federal, state or local environmental law,
ordinance, rule or regulation or equivalent law or regulation in the country to
which the Product is shipped.
1.14 "Initial System" shall mean Hardware and Software, inclusive of a
central processor unit, included in a configuration which Nortel identifies as a
System and which is initially engineered by Nortel and installed at a specific
Installation Site.
1.15 "Installation Site" shall mean the location or facility identified
in an Order at which the applicable Products will be installed.
1.16 "Licensed Software" shall mean the Software which Company has
licensed pursuant to this Agreement.
1.17 "Merchandise" shall mean any Hardware or other parts or components
which are not ordered as part of a System and with respect to which no
engineering, installation or other Services are provided by Nortel.
1.18 "Modifiable Software" shall mean Software, or a portion of
Software that is identified as such by Nortel in its applicable Documentation,
which Company may have certain rights to modify and potentially create
Applications or Building Blocks in accordance with the applicable Documentation.
1.19 "Non-Licensed Software" shall mean Software for which Company has
not yet obtained a license nor paid applicable right-to-use fees, but which
Software may be included with Software loads delivered to Company hereunder.
1.20 "Order" shall mean a written, numerically controlled purchase
authorization document issued by Company or a Company Affiliate to Nortel or a
Nortel Affiliate, specifying the types and quantities of Products and Services
to be furnished by Nortel.
2
<PAGE>
1.21 "Products" shall mean, individually and collectively, the
Hardware, Software, and Documentation.
1.22 "Product Annex" shall mean, with respect to a specific Product
category, additional terms and conditions as set forth in Exhibit B, inclusive
of but not limited to those that may apply to any Third Party Hardware or Third
Party Software, unique to such Product.
1.23 "Quotation" shall mean a written budgetary or firm price quotation
issued by Nortel to Company for the supply of any Products or Services pursuant
to this Agreement.
1.24 "Services" shall mean, individually and collectively, any of the
services set forth in this Agreement that Company may acquire from Nortel, such
as but not limited to, maintenance, engineering, installation, training, data
management, program management, project management, commissioning, testing,
technical assistance Services with respect to Products and installation, and
consulting.
1.25 "Services Software" shall mean that Software and related
documentation made available by Nortel which may be used by Company for
estimation, planning or information purposes.
1.26 "Ship Date" shall mean the date on which a Product ordered by
Company is scheduled to be shipped as agreed to by the parties, or in the case
of Software which is downloaded, the date upon which such Software is to be
downloaded to the System.
1.27 "Software" shall mean (i) computer programs in object code form or
firmware which (a) are owned by, or licensed to, Nortel, (b) reside in Hardware
memories, tapes, disks or other media, and (c) provide basic logic operating
instructions and user-related application instructions, and (ii) documentation
associated with such computer programs which may be furnished by Nortel to
Company from time to time, including both Licensed Software and Non-Licensed
Software.
1.28 "Software Release" shall mean Software or revisions to Software
containing problem fixes, new features and/or enhancements.
1.29 "Specifications" shall mean with respect to any Product the
specifications and/or practices set forth in Northern Telecom Practices ("NTPs")
or similar documents published by Nortel which Nortel identifies as the standard
performance specifications and practices for such Product.
1.30 "Standard Interval" shall mean the standard lead time for shipment
of a Product following acceptance of an Order by Nortel as defined in Exhibit E.
1.31 "System" shall mean a configuration of Hardware and Software
providing a specified functionality and includes an Initial System and its
Extensions, if any.
1.32 "Third Party Hardware" shall mean any equipment not of Nortel`s
manufacture.
1.33 "Third Party Software" shall mean any Software not owned by Nortel
which is included within Licensed Software or Non-Licensed Software.
1.34 "Territory" shall mean a geographic area as specified in Exhibit B
hereto for each Product except to the extent that there is a limitation on the
ability of Company or its Affiliates to acquire Products in a country, such
limitations are set forth in Exhibit F.
1.35 "Turnover" shall mean, with respect to any System installed by
Nortel, that Nortel has completed its standard and/or agreed-upon test
procedures and that the System is ready for acceptance testing by Company.
1.36 "Turnover Date" shall mean, with respect to any Product installed
by Nortel hereunder, the date on which Nortel provides a notice of Turnover to
Company.
3
<PAGE>
ARTICLE 2. SCOPE OF AGREEMENT
2.1 This Agreement sets forth the terms and conditions under which
Company and its Affiliates may order Products and/or Services from Nortel and
its Affiliates. Any Order placed by a Company Affiliate and accepted by Nortel
or a Nortel Affiliate, as applicable, under this Agreement, shall be subject to
the terms and conditions of this Agreement, as if each such Affiliate was the
party that executed this Agreement with respect to each such Order, and
references in this Agreement to "Company" shall mean the ordering Company
Affiliate, and references to "Nortel" shall mean Nortel or the accepting Nortel
Affiliate, as applicable.
2.2 To the extent any terms and conditions set forth in this Agreement
are inapplicable to a Product, the applicable terms and conditions and any
additional terms and conditions for such Product shall be set forth in a Product
Annex.
2.3 Fifteen (15) days prior to the first day of each calendar quarter,
Company shall submit to Nortel a consolidated non-binding forecast of Products,
by geographic region, that Company anticipates purchasing or licensing over the
next four (4) calendar quarters. In addition to the type, quantity and
cumulative dollar amount of Products, the parties may agree upon additional
information to be included in the forecast.
2.4 All references to prices, charges, fees or other monetary amounts
herein shall be in United States ("U.S.") Dollars, and all documentation,
correspondence and communication shall be in the English language.
ARTICLE 3. PLACEMENT OF ORDERS
3.1 When Company desires to order Products and/or Services, Company
shall submit to Nortel's Director, Commercial Marketing or such other person as
Nortel shall designate, an Order which shall at a minimum specify the following:
(i) the name of Company or the Company Affiliate which shall be
placing the Order;
(ii) the types and quantities of Products and Services to be
furnished by Nortel;
(iii) the name and address, as set forth in Exhibit A, of Nortel's
Affiliate that will be providing the Products and/or Services
being ordered in the country in which the Products and/or Services
are to be placed and/or performed, as appropriate;
(ii) the applicable prices, charges and fees with respect to such
Products and Services;
(iii) the location or facility to which the Products are to be
delivered;
(iv) the incorporation by reference of this Agreement;
(vii) the location at which the Product is to be installed, if
known;
(viii) the requested Ship Date and Turnover Date of the System;
(ix) any other information required under this Agreement to be
included in an Order.
3.2 All purchases pursuant to this Agreement shall be made by means of
Orders issued from time to time by Company or an applicable Company Affiliate
and accepted by Nortel or an applicable Nortel Affiliate in writing within
fifteen (15) days after receipt of Order. An Order issued pursuant to the terms
and conditions of this Agreement, and which Nortel or an applicable Nortel
Affiliate has accepted, shall constitute a Contract between Company or the
applicable Company Affiliate issuing the Order and Nortel or the applicable
Nortel Affiliate accepting the Order. In the absence of acceptance of an Order,
the Order shall be deemed to be void.
4
<PAGE>
3.3 Each Order for Products or Services by Company or a Company
Affiliate for delivery, installation or performance in the U.S. shall be issued
to Nortel. Each Order for Products and Services by Company or a Company
Affiliate for delivery, installation or performance outside the U.S. shall be
issued to the Nortel Affiliate responsible for the applicable non-U.S.
jurisdiction as indicated in Exhibit A or as specified by Nortel's Director,
Commercial Marketing, or such other person as designated by Nortel, who shall
forward non-U.S. Orders to the applicable Nortel Affiliate for acceptance and
fulfillment.
3.4 The parties agree that all Orders issued by Company or a Company
Affiliate for Products and Services shall be deemed to incorporate the terms of
this Agreement, and the terms and conditions herein shall govern the Contract
resulting from such Order provided that such Order is accepted by Nortel or the
applicable Nortel Affiliate, whether or not such Orders expressly refer to this
Agreement. Preprinted terms and conditions set forth in Orders issued by
Company, or in any prior Quotations, acknowledgments or other related
documentation issued by any party, shall be considered void and shall have no
force or effect; provided, however, that any special terms and conditions
written on the face of an Order or otherwise incorporated into such Order shall,
upon acceptance in writing by Nortel, and for such Order only, supersede the
specific terms and conditions contained herein which may be in conflict
3.5 Company may at any time request additions, alterations, deductions
or deviations to an Order subject to the condition that such changes and any
adjustments resulting from such changes including, but not limited to, schedules
and prices, shall be mutually agreed upon and, if so agreed, subsequently
detailed in a written revision to the applicable Order ("Change Order"). Company
acknowledges that a premium charge may be applied by Nortel should Nortel agree
to process a Change Order outside of its standard Order processing cycle for a
Product or in the event that a Change Order requires an additional amount of
work (such as engineering) to be undertaken to comply with such changes.
3.6 If Company desires to receive a budgetary or firm Quotation from
Nortel for a Product or Service, Company shall submit such request in writing to
Nortel's Director, Commercial Marketing, or such other person as designated by
Nortel. The request for information shall include the information listed in
Section 3.1, as applicable.
3.7 Nortel shall respond in writing to requests for budgetary
Quotations and requests for firm Quotations. Unless otherwise specified in the
Quotation, such Quotation shall be valid for ninety (90) days. All prices will
be quoted in U.S. dollars, unless otherwise agreed. Quotations shall include the
following information:
(i) Budgetary Quotations
(a) preliminary Hardware and Software lists;
(b) the estimated charges for the Products;
(c) the estimated charges for Services requested; and
(d) any other information required by Company's request
(ii) Firm Quotations
(a) the price to be paid by Company for the Products, after
applying the applicable discounts, if any;
(b) fixed charges for Services requested;
(c) complete Hardware and Software lists and project schedules;
and
(d) any other information required by Company's request.
3.8 The Ship Date for an Order shall be based on Nortel's Standard
Intervals for the applicable Product; however, the parties shall always mutually
agree on the Ship Date and take into consideration any unique aspect of the
applicable project Exhibit E provides Nortel's Standard Intervals for Products,
but is intended for reference purposes only and is not binding on Nortel.
3.9 Orders may be issued either electronically, such as through
electronic data interchange, or via traditional manual methods, as mutually
agreed to by the parties. However, Company shall only use such electronic
methods as are utilized by Nortel or the applicable Nortel Affiliate.
5
<PAGE>
3.10 Unless otherwise agreed to and accepted or otherwise approved by
Nortel or a Nortel Affiliate, as applicable, in writing on an Order-by-Order
basis in accordance with the terms set forth in Section 3.4 of this Agreement,
Company absolutely, irrevocably and unconditionally guarantees the performance
of every Company Affiliate issuing Orders and/or otherwise acting under this
Agreement and any Contract created thereby. Company hereby expressly waives any
other diligence, protest or notice as well as any requirement that Nortel
exhaust any remedy or right against the Company Affiliate.
ARTICLE 4. PRICE AND PAYMENT
4.1 Nortel shall invoice Company for each Product and/or Service
ordered by Company in accordance with the prices set forth in Exhibit C, in a
Firm Quotation or as specified elsewhere in this Agreement.
4.2 All Products shall be priced and delivered in accordance with Free
Carrier/FCA Nortel's applicable manufacturing facility.
4.3 Nortel's prices set forth in Exhibits C and D may be revised by
Nortel no more than once each calendar year, by providing sixty (60) days prior
written notice to Company. Such notice shall specify the effective date of the
price change and shall apply to all Orders received by Nortel on or after the
effective date of the price change. However, in the event there is a recognized
industry-wide shortage of a component that is incorporated in a Product, Nortel
may increase the price of such Product, following the provision of written
notice to Company fifteen (15) days prior to the effective date of such increase
or such shorter date as is mutually agreed in view of the shortage. The price
increase of such Product due to a component shortage shall be limited to the
increase in cost of such component for that Product, plus an appropriate markup
for the period of time during which such recognized shortage exists. Following
the implementation of a price increase due to a component shortage, the parties
shall jointly review every three (3) months or at such other time as is mutually
agreed, in good faith, whether such component shortage still exists. If the
component shortage has abated, the parties shall jointly determine whether there
still is a need for such price increase. In addition, in the event either (i)
worldwide hyperinflation occurs, or (ii) a change in the laws or regulations of
a country requires a change to be made to a Product in order to be compliant
with such laws or regulations, the parties shall work together in good faith to
determine any applicable increase in prices of affected Products to cover
Nortel's additional costs.
4.4 Nortel shall promptly extend to Company any price reduction made by
Nortel in its generally available, then current list prices for Products and/or
Services. Such price reduction shall apply to all Orders received on or after
the effective date of such price reduction.
4.5 Nortel shall invoice Company for Products and Services ordered as
follows, unless otherwise agreed to in writing:
(i) for Systems, whether or not installation has been ordered from
Nortel, one hundred percent (100%) of the price of the Products on
the Ship Date, one hundred percent (100%) of the price of any
Services upon the date of completion of such Services, except with
respect to installation services, if any, which shall be invoiced
one hundred percent (100%) upon Turnover.
(ii) for Merchandise or Documentation provided on a furnish-only
basis, one hundred percent (100%) of the total price on the Ship
Date; and
(iii) for Orders covering Services only, one hundred percent (100%)
of the price for such Services following completion of performance,
except for recurring support Services which shall be invoiced
quarterly in advance unless otherwise agreed. Some network
management Services may be sold under a separate Service agreement
and may be subject to monthly invoicing and such Service
agreement's provisions shall take precedence.
4.6 Each invoice shall be paid within thirty (30) days after the date
of such invoice.
6
<PAGE>
4.7 In the event that Company does not pay an invoice within such
thirty (30) day period, then Nortel may charge Company interest on such
outstanding invoice, from day thirty one (31) forward, at the rate of one
percent (1%) simple compound interest per month, or such lesser amount as may be
the maximum permissible rate under applicable law, until such time as the
outstanding invoice is paid. Should any such outstanding invoice be in dispute
in whole or in part, Nortel may charge Company interest on the portion of such
invoice which is not in dispute, based upon the preceding terms; provided,
however, that if such dispute is not resolved and the affected invoice is not
paid within sixty (60) days of the original invoice date, then Nortel may charge
Company interest on the portion of such invoice which is in dispute if Nortel
prevails in such dispute.
ARTICLE 5. SHIPMENT, TITLE AND RISK OF LOSS
5.1 Company shall have the right to reschedule a Ship Date of an Order
on a one time basis provided a minimum period of notice prior to the original
Ship Date is given to Nortel by Company in accordance with the applicable
Product Annex prior to the original Ship Date and provided further that the new
Ship Date is within ninety (90) days of the original Ship Date.
5.2 In the event Company reschedules the Ship Date for a single Order
more than once or reschedules more than ten (10) Orders in any calendar year,
Company shall reimburse Nortel for any storage fees, insurance, and demurrage it
incurs with respect to such Order(s).
5.3 All Products shall be delivered to Company in accordance with Free
Carrier/FCA Nortel's applicable manufacturing facility and risk of loss and
damage to the Products shall pass from Nortel to Company as defined therein.
5.4 Good title to Hardware furnished hereunder, free and clear of all
liens and encumbrances, shall vest in Company upon full payment to Nortel of the
total amount payable by Company for such Hardware and any related Licensed
Software or Services furnished by Nortel in connection with such Hardware. Prior
to payment for such Products, Company shall not lease the Hardware, or allow any
liens or encumbrances to attach to the Hardware or Licensed Software, or remove
the Hardware or Licensed Software from the Installation Site without the prior
written consent of Nortel, such consent not to be unreasonably withheld or
delayed.
5.5 Company grants to Nortel and/or its agents a purchase money
security interest in the Hardware and its proceeds or such other similar
protection as may be available in the applicable jurisdiction in which the
Hardware is delivered. Nortel may perfect such interest (and Company shall
assist Nortel, as reasonably necessary, to do so) and retain such interest until
title to the Hardware passes to Company.
ARTICLE 6. TESTING, TURNOVER AND ACCEPTANCE
6.1 When Nortel installs a Product furnished hereunder, upon completion
of such installation Nortel shall test the Product to verify that such Product
functions in accordance with the applicable Specifications. Nortel shall provide
a written notice of Turnover to Company upon the satisfactory completion of such
tests indicating that the Product is ready for Acceptance. Company shall be
permitted an opportunity to have an appropriately qualified individual in
attendance to observe the performance of such tests. However, the absence of
such Company individual for any reason shall not invalidate the tests nor be a
reason for Company to withhold Acceptance.
6.2 Within ten (10) business days after the Turnover Date, Company
shall either accept the Product in writing, or notify Nortel in writing,
specifying in reasonable detail those particulars in which, in Company's
opinion, the Product is not in material conformance with the Specifications.
6.3 When Nortel does not install a Product furnished hereunder, Nortel
shall, prior to delivery of the Product, perform such factory tests as Nortel
determines to be appropriate in order to confirm that such Product shall be in
accordance with the applicable Specifications. Company shall be deemed to have
accepted the Product based upon such tests and Acceptance shall be deemed to
have occurred upon the Ship Date. In the event Company or any other entity is
performing installation of a Product, (except for installation of a Product for
which permission shall not be allowed and has been so specified in the
applicable Product Annex) Company or such entity may be required to complete
prerequisite training or certification prior to Company or such entity being
allowed to install such Product.
7
<PAGE>
6.4 In the event Company is utilizing any Product in a
revenue-generating capacity, Acceptance shall be deemed to have occurred without
limitation or restriction, upon the date of placement of such Product into
revenue-generating service.
6.5 For Products, such as Merchandise, which are purchased separately
from a System, Acceptance shall be deemed to have occurred upon the Ship Date to
the location specified in the Order. Services which are purchased separately
from a Product shall be deemed to be accepted upon completion of such Services.
6.6 Company shall not unreasonably withhold Acceptance. Nortel shall
utilize commercial efforts to correct any items causing Company to decline to
accept a Product due to non-conformance with the Specifications. When Nortel has
satisfactorily corrected such deficiencies, Company shall accept the Product in
writing. Company's failure to either accept or provide notice of non-conformance
within the prescribed time from the Turnover Date shall constitute Acceptance of
the Product.
6.7 Following Acceptance of a Product, Company shall execute Nortel's
Acceptance notice, confirming Acceptance without any conditions, restrictions,
or limitations of any nature whatsoever.
6.8 Acceptance shall not be withheld or postponed due to:
(i) Deficiencies of such Products resulting from causes not
attributable to Nortel, such as, but not limited to (a) material
change or inaccuracy of Customer Information, (b) inadequacy or
deficiencies of any materials, facilities or services provided
directly or indirectly by Company and tested in conjunction with
the applicable Products, or spurious outputs from adjacent
material, (c) other conditions external to the Products which are
beyond the limits specified by Nortel in the Specifications for the
Products; or
(ii) Minor deficiencies or shortages with respect to such Products
which are attributable to Nortel, but of a nature that do not
prevent operation of the Products in revenue generating service.
6.9 With respect to any deficiencies of the type described in Section
6.8(i), Nortel shall at Company's request and expense assist Company in the
elimination or minimization of any such deficiencies. With respect to any
deficiencies or shortages as described in Section 6.8(u), Nortel shall, at
Nortel's expense, correct any such deficiencies or shortages within thirty (30)
days of the date of Acceptance or as otherwise agreed by the parties.
6.10 In the event Company notifies Nortel of non-acceptance of a
Product and Nortel personnel travels to the Installation Site to remedy such
non-acceptance and determines that non-acceptance is due to a deficiency of the
type described in Section 6.8(i), Nortel may invoice Company for investigation
of the matter and for the reasonable travel and living expenses incurred by such
personnel.
ARTICLE 7. ORDER CANCELLATION
7.1 In the event Company cancels all or any part of an Order, Company
shall pay to Nortel a cancellation charge for each Product that has been
canceled in accordance with the schedule set forth in the applicable Product
Annex. In addition, in the event that any Third Party Hardware or Third Party
Software has been specifically ordered by Nortel for the Order which has been
canceled, Company shall reimburse Nortel the cost incurred by Nortel for such
Third Party Hardware or Third Party Software.
7.2 Orders for Products that have been shipped may not be canceled.
Furthermore, Orders for Products which Nortel customizes in accordance with a
specific Company request may not be canceled.
8
<PAGE>
ARTICLE 8. WARRANTY
8.1 Nortel warrants that for a period of twelve (12) months from the
Ship Date of a System. the Hardware contained in such System under normal use
and service will be free from defective material and faulty workmanship and
shall comply with the applicable Specifications. The foregoing warranty shall
not apply to items normally consumed during operation of a System such as, but
not limited to, lamps and fuses. Any installation Service performed by Nortel
with respect to a System will be free from defects in workmanship for a period
of twelve (12) months from the completion date of such Service.
8.2 Nortel warrants that any Licensed Software shall function during
the warranty period of the Hardware with respect to which such Licensed Software
is furnished without any material, service-affecting, nonconformance to the
applicable Specifications. Licensed Software that is delivered separately from
Hardware is warranted for a period of twelve (12) months from the applicable
Ship Date. If the Licensed Software fails to so function, Company's sole remedy
and Nortel's sole obligation under this warranty is for Nortel to correct such
failure through, at Nortel's option, the replacement or modification of the
Licensed Software or such other actions as Nortel 'reasonably determines to be
appropriate, all within a reasonable time having regard to all of the
circumstances and failing which the parties agree to negotiate a commercially
reasonable solution. Any modification to the Licensed Software not performed by
Nortel or an authorized service provider shall void this warranty.
8.3 The warranty period for Merchandise shall be for a period of ninety
(90) days from the Ship Date of such Merchandise.
8.4 If Hardware is not free from defects in material or workmanship and
fails to comply with the applicable Specifications during the warranty period,
Nortel will repair, replace or modify the Hardware so that it does comply with
the applicable Specifications. The warranty period service shall be performed at
the Installation Site or Nortel's facility at the sole discretion of Nortel. If
Nortel is unable to repair or modify the Hardware within a reasonable period of
time so that the Hardware conforms to the applicable Specifications, Nortel
shall replace the Hardware with other Hardware or hardware that conforms to such
Specifications. Nortel's sole obligation and Company's exclusive remedy under
the warranty provisions of this Article with respect to Hardware and
installation Services shall be limited to repair, modification or replacement of
the defective Hardware or correction of the defective installation Services.
8.5 Replacement Hardware may be new or reconditioned at Nortel's
option. Notwithstanding the foregoing, the warranty period of Hardware which has
been subject to repair or replacement by Nortel shall commence upon the Ship
Date of the repaired or replacement Hardware to Company and shall expire on the
later of ninety (90) days or the last day of the original warranty period with
respect to the Hardware which was repaired or replaced. The warranty period of
Licensed Software which has been corrected, due to a material non-conformance
found in such Licensed Software, shall expire on the later of ninety (90) days
from the Ship Date of the corrected Licensed Software to Company or the last day
of the original warranty period with respect to such Licensed Software.
8.6 Nortel warrants that its Products shall comply in all material
aspects with all applicable laws and regulations in force in the country of
destination known to Nortel, which are in force on the date of a Contract, which
laws or regulations directly impose obligations upon any manufacturer, seller or
installer of such Products. Upon request therefor, Nortel may implement such
changes as are necessary to comply with any applicable law and/or regulation
which becomes effective after the date of the applicable Contract. The parties
shall have good faith discussions concerning the cost of such changes and which
party will bear them.
8.7 The warranties set forth in this Article shall not apply to any
Products where the defect or nonconformance is due to (i) accident, alteration,
abuse, misuse or repair not performed by Nortel; (ii) improper storage; (iii)
failure to comply with all applicable environmental requirements for the
Products as specified by Nortel, such as but not limited to temperature or
humidity ranges; (iv) improper performance of installation, maintenance,
operation or other service in connection with the Product, provided such service
was not performed by Nortel or on Nortel's behalf; (v) use in conjunction with
an incompatible product; (vi) any error, act or omission by anyone other than
Nortel; or (vii) where written notice of the defect has not been given to Nortel
within the applicable warranty period or within a reasonable time period
thereafter having regard to when the defect was discovered. The warranties set
forth in this Article shall not apply to Third Parry Software or Third Parry
Hardware, provided however that Nortel shall assign to Company (to the extent of
Nortel's right to do so) the warranty rights granted to Nortel by the
appropriate vendor.
9
<PAGE>
8.8 Unless Nortel elects to repair or replace defective Hardware at
Company's facility, all Hardware to be repaired or replaced, whether in or out
of warranty, shall be packed by Company in accordance with Nortel's
instructions. Nortel shall use reasonable commercial efforts to ship repaired or
replacement Hardware within thirty (30) days of receipt of the defective
Hardware. To facilitate the processing of the defective Hardware returned
hereunder, Nortel may ship replacement Hardware prior to Nortel receiving the
defective Hardware. If mutually agreed, Nortel will make repairs at the
Installation Site at charges set forth in the then-current agreement between the
parties for Installation Site repairs, or if no such agreement exists, at
Nortel's then-current charge for such repairs.
8.9 If the Hardware returned to Nortel pursuant to Section 8.8 above
is determined by Nortel to be beyond repair and is outside the warranty period,
Nortel shall notify Company and if requested Nortel shall sell Company
replacement Hardware at the then-current contract price between the parties for
such Hardware or if no such contract exists, at Nortel's then-current price for
such Hardware.
8.10 Company shall bear risk of loss and shall pay for all
transportation charges for Hardware returned to Nortel for repair and/or
replacement hereunder, and Nortel shall bear risk of loss and shall pay all
transportation charges for repaired and/or replacement Hardware returned to
Company.
8.11 The performance by Nortel of any of its obligations described
herein shall not extend the applicable warranty period.
8.12 THE WARRANTIES AND REMEDIES SET FORTH HEREIN CONSTITUTE THE ONLY
WARRANTIES OF NORTEL WITH RESPECT TO THE PRODUCTS AND SERVICES AND ARE COMPANY'S
SOLE AND EXCLUSIVE REMEDIES IN THE EVENT SUCH WARRANTIES ARE BREACHED. THEY ARE
IN LIEU OF ALL OTHER WARRANTIES; OR CONDITIONS, WRITTTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED. INCLUDING, BUT NOT LIMITED TO. ANY WARRANTY OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NORTEL SHALL NOT BE LIABLE
FOR ANY SPECIAL. INDIRECT. INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE
WHATSOEVER ARISING OUT OF NORTEL'S BREACH OF WARRANTY
ARTICLE 9. NORTEL'S ADDITIONAL OBLIGATIONS
9.1 Nortel shall train representatives of Company with respect to the
operation, configuration, installation, service, maintenance and support of the
Products at Nortel's then current prices and at Nortel's facilities, subject to
course and class availability. The training provided under this Section may be
provided within the U.S. or at an offshore location as mutually agreed. In
addition to the preceding, and as may be further specified in a Product Annex,
if applicable, Nortel shall provide Company with training credits ("Training
Credits") to be used by Company in any of Nortel's training courses related to
the Products Company has purchased. The Training Credits shall be granted based
upon prices paid by Company for each Product as set forth in the applicable
Product Annex. Furthermore, the Training Credits for each Product may only be
used in connection with such Product and must be used within one (1) year from
the date such Training Credits were earned, after which such Training Credits
will be forfeited by Company.
9.2 Nortel shall provide Company with copies of its then current
training catalogue and schedule of courses upon request.
9.3 To the extent of Nortel's right to do so, and subject to any
Product specific restrictions detailed in the applicable Product Annex, Nortel
grants to Company the right to copy for its own internal use, the materials
provided to it by Nortel during any training session, provided that Company
reproduces any copyright notice or other proprietary notice contained in the
original document in the copies it makes.
10
<PAGE>
9.4 Nortel shall include its standard Documentation package, if any,
with each shipment of an Order. Nortel shall make the Documentation available on
its choice of media, which may include CD-ROM. Nortel shall provide Company with
any other documentation that is ordered at its then-current prices therefor.
Documentation provided via CD-ROM media may be printed and copied to the extent
necessary for the operation and maintenance of the Products to which the
Documentation pertains, however, Company may not press any copies of CD-ROM
discs.
9.5 During the term of this Agreement Company may acquire various
support Services from Nortel in connection with the Products Company acquires
from Nortel. These Services include, but are not limited to, the following:
technical assistance Services, installation Services, Hardware maintenance
Services, Software maintenance Services and parts repair and replacement
Services. The various support Services that Company may acquire, associated
prices and the manner in which they will be provided are set forth in Exhibit D,
which is attached hereto and incorporated herein. Fees for all other Services
not specified in Exhibit D shall be provided on an as-quoted basis.
9.6 Each party shall designate a global management team to coordinate
issues arising under this Agreement. The teams shall include technical
representatives in locations as mutually agreed to complement Company's
purchasing and operations plans associated with the Products.
ARTICLE 10. LICENSED SOFTWARE
10.1 Company acknowledges that the Software may contain programs
which have been supplied by, and are proprietary to, Third Party Software
vendors. In addition to the terms and conditions herein, Company shall abide by
any additional terms and conditions specified in a Product Annex with respect to
any Software provided by any Third Parry Software vendor.
10.2 Upon Company's payment to Nortel of the applicable fees with
respect to any Software furnished to Company pursuant to this Agreement, Company
shall be granted a personal, non-exclusive, license to use the Object Code
version of the Software furnished to Company only in conjunction with Company's
use of the Hardware with respect to which such Software was furnished for the
life of that Hardware as it may be repaired or modified. Company shall be
granted no title or ownership rights to the Software, which rights shall remain
in Nortel or its suppliers.
10.3 As a condition precedent to this license and to the supply of
Software by Nortel pursuant to this Agreement, Nortel requires Company to give
proper assurances to Nortel for the protection of the Software. Accordingly, all
Software supplied by Nortel under or in implementation of this Agreement shall
be treated by Company as the exclusive property, and as proprietary and a trade
secret, of Nortel and/or its suppliers, as appropriate, and Company shall: a)
hold the Software, including, without limitation, any methods or concepts
utilized therein in confidence for the benefit of Nortel and/or its suppliers,
as appropriate; b) not provide or make the Software available to any person
except to its employees on a 'need to know' basis; c) not reproduce, copy, or
modify the Software in whole or in part except as authorized by Nortel; d) not
attempt to decompile, reverse engineer, disassemble, reverse translate, or in
any other manner decode the Software; e) issue adequate instructions to all
persons, and take all actions reasonably necessary to satisfy Company's
obligations under this license; and f) forthwith return to Nortel, or with
Nortel's consent destroy i) upon termination of the license for any reason or
ii) upon receipt of replacement, modified, or updated Software, any magnetic
tape, disc, semiconductor device or other memory device or system and/or
Documentation or other material, including, but not limited to all printed
material furnished by Nortel to Company.
10.4 If Nortel modifies and/or changes the Software to permit
additional features and/or services, such Software shall be made available to
Company at Nortel's then current fees for those features and/or services.
10.5 The obligations of Company hereunder shall not extend to any
information or data relating to the Software which is now available to the
general public or becomes available by reason of acts or failures to act not
attributable to Company.
11
<PAGE>
10.6 Neither Company nor any successor to Company's title in the
applicable Hardware shall have the right to (i) assign this license as to the
applicable Software to any other party or person who acquires legal title to
such Hardware, or (ii) sublicense the rights herein granted as to such Software
to any other party or person who subsequently acquires the right to use such
Hardware, unless agreed to in writing by both Nortel and Company. Such consent
shall not be unreasonably withheld.
10.7 Company shall indemnify and hold Nortel and its suppliers, as
appropriate, harmless from any loss or damage resulting from a breach of this
Article. The obligations of Company under this Article shall survive the
termination of the Agreement and shall continue if the Software is removed from
service.
10.8 Certain Software delivered by Nortel may include Non-Licensed
Software. Non-Licensed Software includes (i) any Software for which the
applicable right-to-use ("RTU") fees have not been paid, and (ii) Software for
which the periodic RTU fees have expired and the applicable additional RTU fees
have not been paid. Company shall submit to Nortel an Order for any Non-Licensed
Software that Company desires to license.
10.9 When Non-Licensed Software is placed into service, the
applicable RTU fees shall be payable. Company shall also have the option to pay
the applicable RTU fees for any Non-Licensed Software upon installation of a
Software load containing such Non-Licensed Software.
10.10 To ensure proper activation and/or usage of only the
appropriate Software for which applicable license fees have been paid, Company
shall accurately complete the appropriate form designated by Nortel, prior to
the activation and/or usage by Company of any Non-Licensed Software. Company
shall identify all Software desired to be activated and/or used (including the
number of lines or other units activated, if applicable) in each System and
shall transmit such form to Nortel.
10.11 Nortel shall promptly review any form submitted pursuant to
Section 10.10 and respond in writing, identifying whether (i) any applicable
prerequisite Hardware or Software is required to be purchased by Company prior
to activation and/or usage of the applicable Software, or (ii) whether the use
of such Software requires Nortel to determine whether the current System
configuration will require additional elements, such as Hardware, other hardware
and/or System memory, prior to activation and/or usage; or (iii) whether Company
can use such Software without the addition of any additional Hardware or
Software.
10.12 Nortel reserves the right to access by remote polling any
System in which Software was installed to determine which Software has been
activated. Such polling shall be done so as not to interfere with Company's use
of the Product.
10.13 Nortel shall issue invoices to Company in accordance with the
prices set forth in Exhibit C, in addition to those amounts previously invoiced,
for amounts found to be payable as a result of Company's activation and/or usage
of any Software which is identified as a result of the remote polling of a
System and for which Company has not previously paid the appropriate RTU fee.
10.14 The warranty period for Software activated later than the
original Ship Date of the Software load, shall be for the same period as such
original Software load and shall not be extended to provide for an additional
period of warranty based upon the date individual features or units are
activated and/or utilized by Company or the date Company pays any applicable
right-to-use fees.
10.15 Nortel shall provide the Software support Services specified in
Article 9 or in a separate Services agreement between the parties provided that
Company sustains the Software at Nortel's current Software release level or
within at least two previous Software release levels or as otherwise specified
in the separate Services agreement.
10.16 Modifiable Software
10.16.1 Notwithstanding anything to the contrary above, upon payment
to Nortel of the applicable RTU fees, Nortel hereby grants to Company, subject
to the applicable terms and conditions of this Article 10, a personal,
non-transferable, non-assignable and non-exclusive right to modify Licensed
Software which Nortel identifies as modifiable in its Documentation solely for
the purpose of modifying and creating Building Blocks and Applications. Upon the
modification or creation of any Applications by Company, or the modification or
creation of any Building Blocks by Company, Nortel shall have no obligation with
regard to warranty under Article 8 or indemnity under Article 12 for such
Applications or Building Blocks.
12
<PAGE>
10.16.2 Nothing contained in this Article shall transfer, or be
deemed to transfer, or contemplate the transfer of, any rights in or to the
Software other than those rights specifically granted herein, and in particular
but without restricting the generality of the foregoing, Nortel does not in any
way transfer any right, title or interest in or to the Software or any element
constituting a portion thereof to Company, other than the right of Company to
modify Licensed Software identified as modifiable in Nortel's Documentation
solely for the purpose of modifying or creating Building Blocks and
Applications.
10.16.3 For any Building Blocks and Applications created solely by
Company, and for all Company-modified portions of the Nortel-provided Building
Blocks with respect to such modified portion only, Company shall own all forms
of intellectual property rights (including but not limited to patent, trade
secret, copyright and mask rights) pertaining to such Applications, Building
Blocks or Company-modified portions of Building Blocks and shall have the right
to file for or otherwise secure and protect such rights. For all such Company
created Applications or Building Blocks or modified portions of Building Blocks,
the parties shall, on a case by case basis, negotiate in good faith to determine
whether Company may desire to license any such Applications or Building Blocks
to Nortel.
10.16.4 For any Applications created solely by Nortel, and for the
Nortel-provided Building Blocks, Nortel shall own all forms of intellectual
property rights (including but not limited to patent, trade secret, copyright
and mask rights) pertaining to such Applications or Building Blocks arid shall
have the right to file for or otherwise secure and protect such rights. Company
may license under this Agreement any such Nortel created Applications or
building Blocks as Nortel Products upon Nortel making such Software generally
available to its customers.
10.16.5 In the event Company and Nortel intend to jointly create
Applications or Building Blocks, the parties shall mutually agree as to
applicable terms and conditions governing such undertaking, including ownership
rights in the deliverables.
10.17 Services Software
10.17.1 With respect to Services Software, Company shall: i) utilize
Services Software and the results thereof solely for the purposes described
Section 1.25; and ii) comply with additional terms, if any, applicable to
Services Software as specified in a Product Annex. Nortel may, at any time and
without liability or obligation to Company, modify Services Software, any
computer equipment of Nortel or its suppliers used in connection with Services
Software, and identification codes, manuals or other information or
Documentation used in connection 'with Services Software.
10.17.2 SERVICES SOFTWARE IS PROVIDED AS IS, WITHOUT WARRANTY OF ANY
KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NORTEL DOES
NOT AND CANNOT WARRANT THE PERFORMANCE OR RESULTS THAT MAY BE OBTAINED BY USING
SERVICES SOFTWARE. COMPANY ASSUMES SOLE RESPONSIBILITY FOR THE SELECTION OF THE
SERVICES SOFTWARE TO ACHIEVE COMPANY'S INTENDED RESULTS, AND FOR THE
INSTALLATION, USE, AND RESULTS OBTAINED FROM THE SERVICES SOFTWARE. IN NO EVENT
SHALL NORTEL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOST REVENUES OR PROFITS OR
OTHER ECONOMIC LOSS, OF ANY NATURE WHATSOEVER ARISING OUT OF COMPANY'S USE OF
SERVICES SOFTWARE.
13
<PAGE>
ARTICLE 11. HOMOLOGATION AND CERTIFICATION
11.1 Nortel will comply with the homologation requirements for
Products, unless otherwise specified in a Product Annex, in each of the
countries set forth in Exhibit G, attached hereto and incorporated herein.
11.2 In the event Nortel or a Nortel Affiliate has complied or
complies in the future with the homologation requirements for a Product in any
country not set forth in Exhibit G, Nortel shall, to the extent of its legal
right to do so, grant Company the right to use the results of such homologation.
Any costs arising from such grant shall be subject to agreement by the parties
prior to such grant being made.
11.3 In the event that Company desires to purchase a Product in a
country not set forth in Exhibit G and the homologation requirements for such
Product have not yet been complied with, Company shall notify Nortel in writing.
Nortel shall within a reasonable amount of time respond in writing to Company,
indicating its intended action plan with regard to such Product being
homologated in such country and whether or not Company shall be required to pay
Nortel any applicable charges.
ARTICLE 12. LIABILITY FOR BODILY INJURY, PROPERTY DAMAGE AND PATENT INFRINGEMENT
12.1 A party hereto shall defend the other party against any suit,
claim, or proceeding brought against the other party for direct damages due to
bodily injuries (including death) or damage to tangible property which allegedly
result from the negligence or willful misconduct of the defending party in the
performance of this Agreement The defending party shall pay all litigation
costs, reasonable attorney's fees, settlement payments and such direct damages
awarded or resulting from any such suit, claim or proceeding.
12.2 Nortel shall defend Company against any suit, claim or
proceeding brought against Company alleging that any Products, excluding Third
Party Hardware or Third Party Software, furnished hereunder infringe any patent
and shall pay all litigation costs, reasonable attorney's fees, settlement
payments and damages awarded or resulting from any such suit, claim or
proceeding. With respect to Third Party Hardware or Third Party Software, Nortel
shall assign any rights with respect to infringement of patents granted to
Nortel by the supplier of such items to the extent of Nortel's right to do so.
12.3 Nortel shall have no liability, in respect of any infringement
claim based on the use of a Product in the event such Product: (i) is
manufactured, designed or supplied by Nortel in accordance with any design or
any special instruction furnished by Company, (ii) is used by Company in a
manner or for a purpose not contemplated by this Agreement and such use gives
rise to such infringement, (iii) is used by Company in combination with other
products, including, without limitation, any software developed solely by
Company through the permitted use of Products furnished hereunder, provided the
infringement arises from such combination or the use thereof; (iv) is modified
by Company where such modification is not authorized by Nortel and such
modification gives rise to such infringement, or (v) is used or located by
Company in a country other than the country in which and for which it was
supplied by Nortel. In the excepted cases stated above, Company shall indemnify
and hold Nortel harmless against any loss, cost, expense, damage, settlement or
other liability, including, but not limited to, attorneys' fees, which may be
incurred by Nortel with respect to any suit, claim, or proceeding described in
this Section 12.3.
12.4 Nortel shall not be liable for, and Company shall indemnify and
hold Nortel harmless in respect of; any damages awarded based on Company's
willful, knowing or deliberate infringement of a patent, copyright, trade
secret, trade mark or other proprietary right where such infringement results in
a pecuniary damage award.
12.5 Nortel may provide Company with notice of an actual or potential
infringement claim. Nortel shall consult with Company regarding the infringement
claim and the course of action to be pursued as a result thereof. In the event
the parties fail to agree on a satisfactory course of action for dealing with
the matter, Company may either:
(i) return to Nortel the affected portion of the Product(s) in
return for a refund to Company of the purchase price or fee
paid less a reasonable amount for use, damage, obsolescence
and depreciation; or
(ii) continue to use the affected portion of the Product(s) at
Company's own risk.
14
<PAGE>
12.6 Nortel shall not be liable for, and Company shall indemnify
Nortel in respect of any infringement claim(s) where Nortel has provided notice
to Company of the infringement claim(s) and Company elects, in accordance with
Section 12.5(ii) above, to continue its use of the Product(s) covered by the
infringement claim.
12.7 If as a result of an infringement claim, other than those
contemplated in Sections 12.3 and 12.4 above, an injunction is obtained against
Company's use of any Product(s), Nortel shall, at Nortel's option:
(i) procure for Company the right to continue using the alleged
infringing Product(s);
(ii) replace or modify the same with equivalent or better Product(s)
so that Company's use is non-infringing; or
(iii) accept return of the affected portion of the Product(s) and
refund to Company the purchase price or fee paid less a
reasonable amount for use, damage, obsolescence and
depreciation.
12.8 The defense of any claim which is predominantly covered by the
provisions of this Article 12, shall be controlled by the party upon whom the
majority of the ultimate liability is likely to be imposed. Such controlling
party shall give the other party a reasonable opportunity to participate in
negotiation or defense of the claim so that such other party may reasonably
protect its own interests. Neither party shall be liable for any settlement
obligation incurred without its written consent.
12.9 THE REMEDIES SET FORTH IN THIS AGREEMENT ESTABLISH THE ENTIRE
OBLIGATION OF THE PARTIES IN REGARD TO CLAIMS RELATING TO INTELLECTUAL PROPERTY
RIGHTS INCLUDING CLAIMS DIRECTED TO THE INFRINGEMENT OF PATENTS, COPYRIGHT,
TRADE SECRETS AND OTHER PROPRIETARY RIGHTS. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION, LOST REVENUES, PROFITS OR OTHER ECONOMIC LOSSES
ARISING FROM SUCH INFRINGEMENTS AND OTHER MATTERS OTHER THAN AS SPECIFICALLY SET
FORTH HEREIN.
ARTICLE 13. REMEDIES AND LIMITATION OF LIABILITY
13.1 Nortel shall have the right to suspend its performance, upon
written notice to Company, and forthwith remove and take possession of all
Products that shall have been delivered to Company, if; prior to payment to
Nortel of any amounts due pursuant to this Agreement with respect to such
Products, Company shall (i) become insolvent or bankrupt or cease, be unable, or
admit in writing its inability, to pay all debts as they mature, or make a
general assignment for the benefit of; or enter into any arrangement with,
creditors, (ii) authorize, apply for, or consent to the appointment of; a
receiver, trustee, or liquidator of all or a substantial part of its assets or
have proceedings seeking such appointment commenced against it which are not
terminated within sixty (60) days of such commencement, or (iii) file a
voluntary petition under any bankruptcy or insolvency law or under the
reorganization or arrangement provisions of the United States Bankruptcy Code or
any similar law of any jurisdiction or have proceedings under any such law
instituted against it which are not terminated within sixty (60) days of such
commencement.
13.2 Notwithstanding the dispute escalation procedures set forth in
Section 17.12, in the event of any material breach of this Agreement which shall
continue for thirty (30) or more days after written notice of such breach
(including a reasonably detailed statement of the nature of such breach) shall
have been given to the breaching party by the aggrieved party, the aggrieved
party shall be entitled at its option to either submit its case to the American
Arbitration Association for resolution, and the breaching party shall cooperate
in good faith with such arbitration process, or avail itself of any and all
remedies available at law or equity, except as otherwise limited in this
Agreement If the aggrieved party elects to arbitrate a breach, such arbitration
shall be conducted before a three (3) member panel with one (1) arbitrator
selected by either party and the third arbitrator selected by the two (2)
arbitrators selected by the parties. Any such arbitration shall be conducted in
either New York, New York, U.S. or Dallas, Texas, U.S., as selected by the
aggrieved party and the decision of the arbitrators shall be final and binding
unless found to be arbitrary or capricious or contrary to law. Material breach
of a specific Contract shall relate only to that Contract, and shall not affect
other Contracts or this Agreement generally.
15
<PAGE>
13.3 NOTHING CONTAINED IN SECTION 13.2 OR ELSEWHERE IN THIS AGREEMENT
SHALL MAKE NORTEL LIABLE FOR ANY INCIDENTAL, INDIRECT, CONSEOUENTIAL OR SPECIAL
DAMAGES OF ANY NATURE WHATSOEVER FOR ANY BREACH OF THIS AGREEMENT WHETHER THE
CLAIMS FOR SUCH DAMAGES ARISE IN TORT, CONTRACT, OR OTHERWISE, OR SHALL INCREASE
THE LIABILITY OF NORTEL UNDER ARTICLE 8 OR 12 BEYOND THAT PRESCRIBED THEREIN.
13.4 Nortel shall not be liable for any additional costs, expenses,
losses or damages resulting from errors, acts or omissions of Company,
including, but not limited to, inaccuracy, incompleteness or untimeliness in the
provision of information by Company to Nortel or fulfillment by Company of any
of its obligations under this Agreement. Company shall pay Nortel the amount of
any such costs, expenses, losses or damage incurred by Nortel.
13.5 Any action for breach of this Agreement or to enforce any right
hereunder shall be commenced within two (2) years after the cause of action
accrues or it shall be deemed waived and barred, except any action for
nonpayment by Company of any prices, charges, fees or other amounts payable
hereunder may be brought by Nortel at any time permitted by applicable law.
ARTICLE 14. CONTINUING AVAILABILITY
14.1 In the event Nortel becomes aware of any problem with Hardware
that is of a serious performance, safety or regulatory compliance nature, and in
the event that Nortel determines it is necessary to change the design or
Documentation related to such Hardware, Nortel shall implement such change in
accordance with its standard Engineering Change Notice ("ECN") policies.
14.2 If generally available to Nortel's customers, Nortel shall
provide Company with real time read only access to Nortel's performance
database, if any, for the Products. Company acknowledges that the information
contained in such database is confidential and undertakes that the information
shall be treated in accordance with Article 16.
14.3 For a period of five (5) years following the Ship Date of a
Product, Nortel shall make spare parts, or their functional equivalent, and
repair/replacement and support Services, available for purchase by Company. In
the event Nortel intends to (i) manufacture discontinue and/or (ii) discontinue
the repair/replacement and support Service for, a major module of a Product
(notice may not be provided for component and individual circuit pack
discontinuance), Nortel shall provide Company one hundred eighty (180) days
prior written notice (certified mail return receipt requested, or other
receipted delivery) of such event and the applicable Product and/or support
Service shall be considered manufacture discontinued or discontinued,
respectively, after such six (6) month period. Such notices will also identify
the replacement Product(s) for the manufacture-discontinued items. Nortel shall
have no obligation to provide notice of manufacture discontinuance if only
components and/or individual circuit packs of a Product are being replaced and
such replacement does not affect form, fit or function of the Product.
ARTICLE 15. TERM AND TERMINATION
15.1 This Agreement will be in effect from the Effective Date for an
initial term of three (3) years. Thereafter, this Agreement shall automatically
renew for one (1) year terms, unless either party provides the other party with
written notice of its intent not to renew at least sixty (60) days prior to the
end of the original term or any renewal term.
15.2 Either party may terminate this Agreement as to future Orders,
in the event of a default by the other party, provided that the non-defaulting
party so advises the defaulting party in writing of the event of alleged default
and the defaulting party does not remedy the alleged default within thirty (30)
days after written notice thereof. If the alleged default is not susceptible of
being remedied within thirty (30) days, the defaulting party must commence to
remedy the alleged default within such thirty (30) day period and provide to the
non-defaulting parry a plan for timely remedying the alleged default in order to
avoid termination. Default is defined to include:
(i) either party's insolvency or initiation of bankruptcy or
receivership proceedings by or against a party;
16
<PAGE>
(ii) either party's material breach of any of the other terms
or conditions hereof including the failure to make any
payment when due, if the amount of the payment due is not in
dispute; or
(iii) the execution by either party of an assignment for the
benefit of creditors or any other transfer or assignment of a
similar nature.
15.3 The expiration or termination of this Agreement shall not
release either party from (i) any obligations and duties under any Order or
Contract entered into prior to such expiration or termination, (ii) any
liability which at the time of expiration or termination has already accrued to
the other party or (iii) any liability which thereafter may accrue in respect to
any breach prior to expiration or termination or from any obligations or duties
under any Order or Contract entered into prior to such expiration or termination
or under the provisions specified in Section 17.16, to survive termination.
ARTICLE 16. CONFIDENTIALITY
16.1 A party which receives the other party's Confidential
Information shall use reasonable care to hold such Confidential Information in
confidence and not disclose such Confidential Information to anyone other than
to its employees and employees of its Affiliates with a need to know. A party
that receives the other party's Confidential Information shall not reproduce
such Confidential Information, except to the extent reasonably required for the
performance of its obligations pursuant to this Agreement and in connection with
any permitted use of such Confidential Information.
16.2 Company shall take reasonable care to use Nortel's Confidential
Information only for study, operating, or maintenance purposes in connection
with Company's use of Products furnished by Nortel pursuant to this Agreement.
16.3 The obligations of either party pursuant to this Article shall
not extend to any Confidential Information which (i) recipient can demonstrate
through written documentation was already known to the recipient prior to its
disclosure to the recipient and without similar restrictions, (ii) was known or
generally available to the public at the time of disclosure to the recipient,
(iii) becomes known or generally available to the public (other than by act of
the recipient) subsequent to its disclosure to the recipient, (iv) is disclosed
or made available in writing to the recipient by a third party having a bona
fide right to do so and without similar restrictions, or (v) is required to be
disclosed by process of law, provided that the recipient shall notify the
disclosing party promptly upon any request or demand for such disclosure.
ARTICLE 17. MISCELLANEOUS
17.1 Publicity Advertising and Announcements - A party shall not
release, without the prior written approval of the other party, any advertising
or other publicity relating to this Agreement wherein such other party may
reasonably be identified. In addition, each party shall take reasonable
precautions to keep the existence and the contents of this Agreement
confidential so long as this Agreement remains in effect and for a period of
three (3) years thereafter, except as may be otherwise expressly provided in
this Agreement or as may be reasonably required to enforce this Agreement by
law.
17.2 Applicable Law - The validity, construction and performance of
this Agreement shall be governed by and interpreted in accordance with the laws
of the State of Texas, without giving effect to the principles of conflict of
laws thereof except to the extent that any mandatory provisions of local laws
relating to the delivery and installation of Products or the providing of
Services in any country in which Products or Services are to be delivered and
provided shall apply to the applicable Contracts for such Products or Services.
The United Nations convention on Contracts for the International Sale of Goods
shall not apply to this Agreement.
17.3 Effects of Headings - All headings used herein are for index and
reference purposes only, and shall not be given any substantive effect. This
Agreement has been created jointly by the parties and no rule of construction
requiring interpretation against the drafter of this Agreement shall apply in
its interpretation.
17
<PAGE>
17.4 Assignment - Other than as explicitly stated in this Section
17.4, neither party may assign or transfer this Agreement or any of its rights
hereunder without the prior written consent of the other party, such consent not
to be unreasonably withheld or delayed. Company's consent shall not be required
for any assignment or transfer by Nortel (i) to any Nortel Affiliate of all or
any part of this Agreement or of any of Nortel's rights, duties and obligations
hereunder, or (ii) to any third party of Nortel's right to receive any monies
("Receivables") which may become due to Nortel pursuant to this Agreement.
Company consents hereby to the sale of Receivables by Nortel without the
necessity for any further notice and without any qualification on such consent.
Company grants permission for Nortel to disclose the provisions of this
Agreement to purchasers and prospective purchasers of Receivables, or their
affiliates and others with a present or prospective financial interest in such
Receivables, and their respective agents, attorneys, auditors, rating agencies
and other advisors.
17.5 Subcontracting - Nortel may subcontract any of its duties and
obligations under this Agreement, but no such subcontract shall relieve Nortel
of primary responsibility for performance of its duties and obligations.
17.6 Non-Waiver - The failure by either party hereto at any time to
require performance by the other party or to claim a breach of any provision of
this Agreement shall not be construed as affecting any subsequent breach or the
right to require the performance with respect thereto or to claim a breach with
respect thereto.
17.7 Relationship of the Parties - The provisions of this Agreement
shall not be construed to establish any form of partnership or other joint
venture of any kind between Nortel and Company, nor to constitute either party
as the agent, employee or legal representative of the other. All persons
furnished by either party to accomplish the intent of this Agreement shall be
considered solely as the furnishing party's employees or agents and the
furnishing party shall be solely responsible for compliance with respect to its
employees with all laws, rules and regulations involving, but not limited to,
employment of labor, hours of labor, working conditions, workers' compensation,
payment of wages, and withholding and payment of applicable taxes, including,
but not limited to income taxes, unemployment taxes, and social security taxes.
17.8 Force Majeure - If the performance by a party of any of its
obligations under this Agreement shall be interfered with by reason of any
circumstances beyond the reasonable control of that party, including without
limitation, fire, explosion, acts of God, war, revolution, civil commotion,
unavailability of supplies or sources of energy, power failure, breakdown of
machinery, or labor difficulties, including without limitation, strikes,
slowdowns, picketing or boycotts, then that party shall be excused from such
performance for a period equal to the delay resulting from the applicable
circumstances and such additional period as may be reasonably necessary to allow
that party to resume its performance. With respect to labor difficulties as
described above, a party shall not be obligated to accede to any demands being
made by employees or other personnel.
17.9 Taxes - Company shall at Nortel's direction promptly reimburse
Nortel or pay directly to the applicable government or taxing authority all
taxes and charges arising hereunder, including, without limitation, penalties
and interest, except for taxes computed upon the net income of Nortel.
17.10. Hazardous Materials - Prior to issuing any Order for Services
to be performed at Company's facilities or an Installation Site, Company shall
identify and notify Nortel in writing of the existence of all Hazardous
Materials which Nortel may encounter during the performance of such Services,
including without limitation, any Hazardous Materials contained within any
equipment to be removed by Nortel. If Company breaches its obligations pursuant
to the immediately preceding sentence, (i) Nortel may discontinue the
performance of the applicable Services until all the Hazardous Materials have
been removed or abated to Nortel's satisfaction by Company at Company's sole
expense, and (ii) Company shall defend, indemnify and hold Nortel harmless from
any and all damages, claims, losses, liabilities and expenses, including without
limitation, attorney's fees, which arise out of Company's breach of such
obligations.
18
<PAGE>
17.11 Notice - All notices required or permitted to be given
hereunder shall be in writing and shall be deemed given when delivered (i) by
hand, or (ii) by facsimile, transmission (confirming the same by mail), or (iii)
by receipted electronic mail, or receipted express delivery service, or (iv)
U.S. mail. Notices shall be addressed as follows:
If to Nortel: If to Company:
Northern Telecom Inc. PICKNET, Inc.
2221 Lakeside Blvd., M/S: 991/12/B60 155 Route 46 West
Richardson, TX 75082 Wayne, NJ 07470
Attn: Director, Contracts and Licensing Attn: Mr. Diego Leiva
W/copy to: (applicable line of business)
Such notices, if delivered by (i) hand, facsimile, electronic mail or express
delivery service shall be deemed to have arrived on the next business day, or
(ii) U.S. mail, shall be deemed to have arrived five (5) calendar days after the
date of mailing. Either party hereto may change its address by a notice given to
the other party hereto in the manner set forth above.
17.12 Dispute Escalation Procedures - In the event a dispute arises
between the parties concerning this Agreement, the respective project primes who
are designated in accordance with Section 9.7 of this Agreement shall endeavor
to resolve the dispute promptly in good faith. In the event the project primes
are unable to resolve a dispute, the parties will initiate the following
escalation timetable. "Cumulative Business Days" is defined as the consecutive
business days from the point at which the dispute is first escalated by notice
from one party to the other.
<TABLE>
<CAPTION>
Management Position Cumulative Business Days to Resolve a Dispute
(or similar responsibility level) Before Escalation to the Next Management Level
--------------------------------- ----------------------------------------------
<S> <C>
0 days
Project Prime 5 days
Sr. Account Executive 8 days
Director, Operations 12 days
VP, Sales and Marketing 15 days
Line of Business President
</TABLE>
Should there be no final resolution to a dispute within five (5) days after
escalation to the highest management level, then either party may pursue its
remedies as provided in Section 13.2 or elsewhere in this Agreement.
17.13 Severability - If any of the provisions of this Agreement shall
be invalid or unenforceable under applicable law and a party deems such
provisions to be material, that party may terminate this Agreement upon written
notice to the other party. Otherwise such invalidity or unenforceability shall
not invalidate or render this Agreement unenforceable, but this Agreement shall
be construed as if not containing the particular invalid or unenforceable
provision and the rights and obligations of the parties shall be construed and
enforced accordingly.
17.14 Export - Company shall not export any Products or technical
data received from Nortel pursuant to this Agreement, or release any such
Products or technical data with the knowledge or intent that such Products or
technical data will be exported or transmitted to any country or to foreign
nationals of any country, except m accordance with applicable U.S. or Canadian
laws or regulations, as the case may be, concerning the exporting of such items.
Company shall obtain all authorizations from the U.S. and/or Canadian
government, as the case may be, in accordance with applicable law prior to
exporting or transmitting any such Products or technical data as described
above. Nortel will provide such assistance as Company reasonably requests to
obtain such authorizations. Company further acknowledges that the transfer of
Systems or components thereof; and associated Documentation outside of the U.S.
or Canada may be subject to the specific approval of the applicable Software
suppliers and other suppliers. All such approvals, if applicable, shall be
conditions precedent to any of the obligations of Nortel hereunder respecting
such Products or components thereof and associated Documentation.
19
<PAGE>
17.15 Modification of Agreement - No addition to or modification of
this Agreement shall be effective or binding on either of the parties hereto
unless reduced to writing and executed by the respective duly authorized
representatives of each of the parties hereto.
17.16 Exhibits - The following Exhibits attached hereto form an
integral part of this Agreement and are incorporated by reference herein:
Exhibit A - Affiliates
Exhibit B - Product Annexes
Exhibit C- List of Products and Prices
Exhibit D - Master Support Services
Exhibit E - Standard Intervals
Exhibit F - Territorial Limitations
Exhibit G - Homologation
Exhibit H - Network Partners
17.17 Survivorship - Articles 8, 10, 12, 13, 16, 17 and Sections,
4.5, 4.6, 4.7, 9.3, 14.3, and 15.3 shall survive the termination or expiration
of this Agreement.
17.18 Entire Agreement - This Agreement, including the Exhibits,
Schedules and Annexes which are attached hereto and incorporated herein,
comprises all the terms, conditions and agreements of the parties hereto with
respect to the subject matter hereof and supersedes all previous negotiations,
proposals, commitments, writings, publications and understandings of any nature
whatsoever.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day last
written below
- --------------------------------------------------------------------------------
NORTHERN TELECOM, INC. PICKNET, INC.
BY: By:
Name: Name:
Title Title:
Date: Date:
- --------------------------------------------------------------------------------
20
<PAGE>
Portal Proprietary & Confidential
PORTAL
Agreement Number: ___________
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This Software License and Support Agreement dated July 28, 1998, ("Effective
Date") is entered into by and between Portal Software, Inc, a California
corporation with principle offices at 20863 Stevens Creek Boulevard, Suite 200,
Cupertino, California 95014 ("Portal") and Pick Communications Corporation, a
Delaware corporation with principle offices at 8401 Northwest 53rd Terrace,
Suite 119, Miami, FL 33166 ("Licensee") and describes the terms and conditions
pursuant to which Portal shall license to Licensee and support certain Portal
Software (as defined below).
1. Definitions
1.1 "Affiliate" means an entity directly or indirectly controlled by Licensee,
where control means the ownership or control of more than fifty percent (50%) of
all of the voting power of the shares (or other securities or rights) entitled
to vote for the election of directors or other governing authority, as of the
date of this Agreement or hereafter during the term of this Agreement; provided
that such entity shall be considered an Affiliate only for the time during which
such control exists.
1.2 "Agreement" means this Software License and Support Agreement, including any
and all attached Schedules.
1.3 Application" means the specific Application set forth in Schedule A hereto
of the Portal Software running on one or more related computers at a single
location, that share the same Portal Software Database.
1.4 "Confidential Information" means this Agreement and all its Schedules, any
addenda hereto signed by both parties, all software listings, Documentation,
information, data, drawings, benchmark tests, specifications, trade secrets,
object code and machine-readable copies of the Portal Software, and any other
proprietary information supplied to Licensee by Portal or by Licensee to Portal
which is clearly marked as "confidential" if in tangible form, or identified as
"confidential" if orally disclosed
1.5 Designated Equipment" means the hardware make and model of the server
computer on which the Portal Software will be installed as set forth on
Schedule A.
1.6 Portal Software" means (i) the software products designated on Schedule A
hereto provided to Licensee by Portal in executable form (but not the Source
Code), (ii) thc associated program documentation ("Documentation"), (iii) any
source code or object code which Portal in its sole discretion may provide to
Licensee from time to time and (iv) any Updates, modifications, maintenance
releases, bug fixes or work-arounds which Portal may provide to Licensee from
time to time.
1.7 "Portal Software Database" means the customer database associated with the
Portal Software which contains the Customer Records.
1.8 "Production Site" means the address and location of the server computer on
which the Portal Software will be installed as set forth on Schedule A.
1.9 "Subscriber" means an individual customer record account object ("Customer
Record") in the Portal Software Database. The total number of Subscribers is
exactly equal to the number of Customer Records in the Portal Software Database.
In the event the Portal Software is used to manage, authenticate or otherwise
track the activities of any individual user(s) within corporate or group
Subscribers, each such individual user will be deemed a Subscriber for the
purposes of this Agreement, whether or not a separate Customer Record is created
in the Portal Software Database for that user.
1.10 "Updates" means any updates to the Portal Software licensed hereunder which
Portal, in its discretion, makes generally available to its Portal Software
licensees.
2 Grant of License
2.1 Partner may extend the licenses granted herein to its Affiliates (for so
long as they remain Affiliates), provided that all such Affiliates become bound
in writing (for Portal's benefit) to Licensee's obligations under this
Agreement, that Licensee assumes full responsibility for compliance by such
Affiliates with such obligations and that all payments and reports from
Affiliates will be made through Licensee together with any and payments and
reports required of Licensee.
Page 1
<PAGE>
Portal Proprietary & Confidential
2.2 For so long as this Agreement remains in force Portal grants to Licensee a
perpetual, non-exclusive and non-transferable right to use the Portal Software
on the Designated Equipment and on designated Portal Software Databases located
at designated Production Sites only for the specified Application. Licensee will
pay Portal the Additional Production Site Fee set forth on Schedule A for each
additional installation of the Portal Software. Licensee will provide Portal
with thirty (30) days prior written notice of any Additional Production Site
installations and will pay the associated Additional Production Site Fee prior
to installing the Portal Software at each such Additional Production Site.
Licensee may possess only the number of copies of any Portal Software necessary
for the type of use specified above and may use such copies only in accordance
with this Agreement and the Documentation, Portal shall at all times retain
ownership of all Portal Software including any Documentation and any copies
thereof.
2.3 Portal will deliver to Licensee, as soon as is practicable, the necessary
password to enable Licensee to download from Portal's website one
machine-readable copy of the Software, along with one machine-readable copy of
the Documentation. Licensee may not reproduce the Documentation.
2.4 Licensee may copy the Portal Software for backup or archival purposes
provided that all titles, trademark symbols, copyright symbols and legends, and
other proprietary markings are reproduced.
2.5 Licensee shall be permitted to create applications using the Policy
Facilities Modules source code and Application Programming Interfaces ("Portal
Software Customization Tools") which Portal may, in its sole discretion,
provides to Licensee from time to time.
2.6 Portal grants and Licensee receives no other rights or licenses to the
Portal Software, derivative works (as defined in the United States copyright Act
of 1976, Title 17 USC Section 101 et. Seq.) or any intellectual property rights
related thereto, whether by implication, estoppel or otherwise, except those
rights expressly granted in this Section 2.
3 License Restrictions
3.1 Licensee agrees that it will not itself, or through any parent, subsidiary,
Affiliate, agent or other third party:
3.1.1 sell, lease, license, sublicense, encumber or otherwise deal with any
portion of the Portal Software or Documentation;
3.1.2 except to the minimum extent necessary to comply with EC Directive, if
applicable, or other applicable legislation, decompile, disassemble, or reverse
engineer any portion of the Portal Software or attempt to discover any source
code or underlying ideas or algorithms of any Portal Software;
3.1.3 other than to the extent permitted by Section 2.5 above, create any
Derivative Work based on the Portal Software or any Portal Confidential
Information;
3.1.4 use the Portal Software to provide processing services to third parties,
commercial timesharing, rental or sharing arrangements, or on a "service bureau"
basis or otherwise use or allow others to use the Portal Software for the
benefit of any third party;
3.1.5 provide, disclose, divulge or make available to, or permit use of the
Portal Software by persons other than Licensee's employees or consultants who
have signed a confidentiality agreement substantially consistent with the terms
and provisions herein, without Portal's prior written consent;
3.1.6 use any Portal Software, or allow the transfer, transmission, export or
re-export of any Portal Software or portion thereof in violation of any export
control laws or regulations administered by the U.S. Commerce Department, OFAC,
or any other government agency. All the limitations and restrictions on the
Portal Software in this Agreement also apply to the Documentation.
4 Manner of Payment
All payments due hereunder shall he made inside the U.S., in U.S dollars and are
exclusive of any sales, use or other taxes, fees or duties arising out of this
Agreement. In addition to any remedies Portal may have hereunder or at law, any
payments more than thirty (30) days overdue will bear a late payment fee of 1.5%
per month, or, if lower, the maximum rate allowed by law. Delays in payment will
result in a day-for-day delay of the Portal Software implementation timetable.
Page 2
<PAGE>
Portal Proprietary & Confidential
5. License Fee
5.1 In consideration of the rights granted herein, Licensee shall pay Portal the
license fee specified in Schedule A on the Effective Date.
6 Maintenance and Technical Support
6.1 Upon payment or the annual maintenance and support fee set forth on Schedule
A, Licensee shall be entitled to receive Updates and technical support in
accordance with Portal's Gold Level Support Policy. Portal's current Gold Level
Support Policy appears at Schedule 8.
6.2 Support Services shall consist of (i) error correction and telephone support
provided during Portal's normal business hours to Licensee's technical support
contact concerning the installation and use of the then current release of the
Portal Software and (ii) product Updates that Portal in its discretion makes
generally available and are not designated by Portal as products for which it
charges a separate fee. Portal shall have no obligation to support (a) altered,
damaged or modified Portal Software (except as authorized by Portal) or any
portion of the Portal Software incorporated into other software, (b) Portal
Software that is not the then current or immediately previous sequential release
(c) problems caused by Licensee's negligence, abuse. or misapplication. or use
of the Portal Software other than as specified in Portal 5 user documentation or
other causes beyond the control of Portal, or (d) Portal Software installed on a
system that is not supported by Portal. Portal shall have no liability for any
changes in Licensee's hardware which may he necessary to use the Portal
Software.
6.3 Portal may elect on sixty (60) days notice (i) effective on any Annual
Maintenance fee payment date with respect to any particular Portal Software, to
change the support services terms for that Portal Software to its then current
terms and/or (ii) effective on the third or any later Annual Maintenance Fee
payment date with respect to any particular Portal Software, not to provide
Support Services to Licensee for that Portal Software, in which cases Licensee
may elect to forego further Support Services and Annual Maintenance Fees for
such Portal Software.
7 Termination
7.1 This Agreement commences on the Effective Date and will remain in force
until it is terminated.
7.2 Licensee may, upon thirty (30) days prior written notice to Portal,
terminate this Agreement. However, no such termination will entitle Licensee to
a refund of any portion of any monies which have been paid to Portal.
7.3 Either party may, by written notice to the other party, terminate this
Agreement if any of the following events ("Termination Events") occur, provided
that no such termination will entitle Licensee to a refund of any portion which
have been paid to Portal;
7.3.1 The other party is in breach of any material provision of this Agreement,
which breach, if capable of being cured, is not cured within thirty (30) days
after written notice of such breach is provided by the non breaching party; or
Portal may terminate this Agreement immediately upon notice if Licensee breaches
any of its obligations under Section 3 above;
7.4 Termination will become effective immediately or on the date set forth in
the written notice of termination. Termination of this Agreement will not affect
the provisions regarding Licensee's or Portal's treatment of Confidential
Information, Portal's indemnification obligations under Section 8 below,
provisions relating to the payments of amounts due, provisions limiting or
disclaiming Portal's liability, and/or provisions regarding applicable law,
which provisions will survive termination of this Agreement.
7.5 Upon termination, all licenses granted hereunder shall cease to be effective
and licensee shall immediately cease all use of any affected Portal Software,
Documentation and Portal Confidential Information.
7.6 Within thirty (30) days of the date of termination or discontinuance of this
Agreement for any reason whatsoever, Licensee shall return the Portal Software,
derivative works and all copies thereof, in whole or in part, all related
Documentation and all copies thereof, and any other Confidential Information in
its possession, Licensee shall furnish Portal with a certificate signed by an
executive officer of Licensee verifying that the same has been done.
7.7 Termination is not an exclusive remedy and all other remedies will be
available whether or not termination occurs.
Page 3
<PAGE>
Portal Proprietary & Confidential
8 Indemnification for Infringement
8.1 Portal shall, at its expense, defend or settle any claim, action or
allegation brought against Licensee that the Portal Software infringes any
patent, copyright, trade secret or other proprietary right of any third party
and shall pay any final judgment awarded or settlements entered into; provided
that Licensee gives prompt written notice to Portal of any such claim. action or
allegation of infringement and gives Portal the authority to proceed as
contemplated herein. Portal will have the exclusive right to defend any such
claim. action. or allegation and make settlements thereof at its own discretion,
and Licensee may not settle or compromise such claim, action or allegation,
except with prior written consent of Portal, Licensee shall give such assistance
and information as Portal may reasonably require to settle or oppose such
claims.
8.2 In the event any such infringement. claim, action. or allegation is brought
or threatened, Portal may. at its sole option and expense:
8.2.1 Procure for Licensee the right to continue use of the Portal Software or
the infringing portion thereof;
8.2.2 Modify, amend or replace the Portal Software or infringing part thereof
with other software have substantially the same or better capabilities;
8.2.3 If neither of the foregoing can he accomplished by Portal within a
reasonable period of time, Portal shall refund the portion of the licensee fee
specified on Schedule A related to the infringing part thereof less
one-forty-eighth (1/48) thereof for each month or portion thereof that this
Agreement has been in effect. In the event that such refund is made, Licensee
shall immediately cease using the infringing portion of the Portal Software and
will remove the same from its system and so certify to Portal. By paying a
refund in the manner herein contemplated Portal will be released from any
further obligation whatsoever to Licensee in connection with the infringing part
of the Portal Software.
8.3 The foregoing obligations shall not apply to the extent the infringement
arises as a result of modifications to the Portal Software made by any party
other than Portal or Portal's authorized representative. This Section 8 states
the entire liability of Portal with respect to infringement of any patent,
copyright, trade secret or other proprietary right
9 Warranty and Limitation of Liability
9.1 Portal warrants to Licensee that the Portal Software will perform in
substantial accordance with the Documentation for a period of one hundred eighty
(180) days from the Effective Date. If the Portal Software does not perform as
warranted, Portal shall undertake to correct the nonconforming part of the
Portal Software, or if correction is reasonably not possible, replace such
non-conforming part of the Portal Software free of charge. If neither of the
foregoing can be accomplished by Portal within a period of time, Portal shall
refund the monies paid by Licensee for that non-conforming part of the Portal
Software. In the event that such refund is made, Portal may amend Schedule A
with respect to the nonconforming part of the software program. THE FOREGOING
ARE LICENSEE'S SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF WARRANTY. The warranty
set forth above is made to and for the benefit of Licensee only and will be
enforceable against Portal only if:
9.1.1 The Portal Software has been properly installed and has been used at all
times in accordance with the Documentation and this Agreement;
9.1.2 All modifications, alterations or additions to the Portal Software, if
any, have been made using Portal Software Customization Tools provided by Portal
to Licensee; and
9.1.3 Licensee has not made or caused to be made modifications, alterations or
additions to the Portal Software that cause it to deviate from the
Documentation.
9.2 Except as set forth above, Portal makes no warranties, whether express or
implied, or statutory regarding or relating to the Portal Software or the
Documentation, or any materials or services furnished or provided to Licensee
under this Agreement. Specifically, Portal does not warrant that the Portal
Software will be error free or will perform in an uninterrupted manner. To the
maximum extent allowed by law, Portal specifically disclaims all implied
warranties of merchantability and fitness for a particular purpose (even if
Portal had been informed of such purpose) with respect to the Portal Software,
Documentation and support and with respect to the use of any of the foregoing.
Page 4
<PAGE>
Portal Proprietary & Confidential
9.3 In no event will Portal or its subcontractors be liable for any loss of
profits, loss of use, business interruption, loss of data, cost of cover or
indirect, special, incidental or consequential damages of any kind in connection
with or arising out of the furnishing, performance or use of the Portal Software
or services performed hereunder or any delay in delivery or furnishing the
Portal Software or said services whether alleged as a breach of contract or
tortious conduct, including negligence, even if Portal had been advised of the
possibility of such damage.
9.4 Portal's maximum aggregate liability (whether in contract, tort or any other
form of liability) for damages or loss, howsoever arising or caused, whether or
not arising from Portal's negligence, shall in no event be greater than (a) in
the event such damage is not related to support, the license fee specified in
Schedule A related to the particular Portal Software program which caused the
damage or loss, or (b) in the event such damage or loss is related to support,
the support fees paid by licensee for the then current support term.
9.5 No employee, agent, representative or affiliate of Portal has authority to
bind Portal to any oral representations or warranty concerning the Portal
Software. Any written representation or warranty not expressly contained in this
Agreement is unenforceable.
10 Embedded Reporting/Compliance Routine; Audit Rights
10.1 The Portal Software contains or may contain in future versions an automated
reporting routine that will automatically identify and analyze certain aspects
of Portal Software use and performance, as well as the operator and operating
environment, and among other things, transmit electronic reports to Portal.
Portal will provide Licensee, on request, with a description of these routines
and Licensee agrees not to disrupt or interfere with them without the prior
written agreement of Portal. Portal will be entitled to inspect the installation
and configuration of the Portal Software from time to time on reasonable notice.
10.2 Licensee shall keep and maintain full, accurate and detailed records
regarding the License and the number of End Users of the Portal Software. Portal
or its representatives shall be entitled to review and audit such books and
records and/or Licensee's compliance with the provisions of this Agreement once
per year during normal business hours upon reasonable notice to Licensee, and
shall either be personally delivered by rapid courier service or mailed by
certified or registered mail to a party at its address as set forth herein or as
amended pursuant to this Section 10.2.
11 Assignment/Binding Agreement
Neither this Agreement nor any rights under this Agreement may be assigned or
otherwise transferred by Licensee, in whole or in part, whether voluntary or by
operation of law, including by way of sale of assets merger or consolidation,
without the prior written consent of Portal which shall not be unreasonably
withheld or delayed. Subject to the foregoing, this Agreement will be binding
upon and will inure to the benefit of the parties and their respective
successors and assigns. Notwithstanding the foregoing, no transfer or assignment
of Licensee's rights hereunder shall be effective unless and until (1) Licensee
has paid and remains current on all amounts due hereunder, and (2) the purported
assignee agrees in writing to be bound by all of the obligations of Licensee
hereunder.
12 Confidentiality
12.1 Each Party acknowledges that the Confidential Information constitutes
valuable trade secrets and each party agrees that it shall use the Confidential
Information of the other party solely in accordance with the provisions of this
Agreement and it will not disclose, or permit to he disclosed, the same directly
or indirectly, to any third party without the other party's prior written
consent. Each party agrees to exercise due care in protecting the Confidential
Information from unauthorized use and disclosure. However, neither party bears
any responsibility for safeguarding any information that it can document in
writing (i) is in the public domain through no fault of its own, (ii) was
properly known to it, without restriction, prior to disclosure by Disclosing
Party, (iii) was properly disclosed to it., without restriction, by another
person with the legal authority to do so, (iv) is independently developed by
Receiving Party without use or reference to Disclosing Party's Proprietary
Information or (v) is required to be disclosed pursuant to a judicial or
legislative order or proceeding; provided that, to the extent permitted by and
practical under the circumstances, Receiving Party provides to Disclosing Party
prior notice of the intended disclosure and an opportunity to respond or object
to the disclosure or if prior notice is not permitted or practical under the
circumstances, prompt notice of such disclosure.
12.2 In the event of actual or threatened breach of the provisions of Section 3
or Section 12.1, the non-breaching party will be entitled to immediate
injunctive and other equitable relief as may be deemed appropriate by a court or
tribunal of competent jurisdiction, without bond and without the necessity of
showing actual damage
Page 5
<PAGE>
Portal Proprietary & Confidential
13 Notice
Any notice required or permitted under the terms of this Agreement or required
by law must be in writing and must be (a) delivered in person, (b) sent by
registered mail, return receipt requested, (c) sent by overnight air courier, or
(d) by facsimile, in each case forwarded to the appropriate address set forth
above. Either party may change its address for notice by written notice to the
other party. Notices will be considered to have been given at the time of actual
delivery in person, three (3) business days after posting, or one days after
(vi) delivery to an overnight air courier service or (vii) the moment of
transmission by facsimile.
14 Miscellaneous
14.1 Force Majeure. Neither party will incur any liability to the other on
account of any loss or damage resulting from any delay or failure to perform all
or any part of this Agreement if such delay or failure is caused, in whole or in
part, by event, occurrences, or causes beyond its control and without negligence
of the parties. Such events, occurrences or causes will include, without
limitation, acts of God, strikes, lockouts, riots, acts of war, earthquakes,
fire and explosions, but the ability to meet financial obligations is expressly
excluded.
14.2 Waiver. Any waiver of the provisions of this Agreement or of a party's
rights or remedies under this Agreement must be in writing to be effective.
Failure, neglect or delay by a party to enforce the provisions of this Agreement
or its rights or remedies at any time will not be construed to be deemed a
waiver of such party's rights under this Agreement and will not in any way
affect the validity of the whole or any part of this Agreement or prejudice such
party's right to Lake subsequent action.
14.3 Severability. If any term, condition or provision in this Agreement is
found to be invalid, unlawful or unenforceable to any extent, the parties shall
endeavor in good faith to agree to such amendments that will preserve, as far as
possible, the intentions expressed in this Agreement. If the parties fail to
agree on such an amendment. such invalid term, condition or provision will be
severed from the remaining terms, conditions and provisions, which will continue
to be valid and enforceable to the fullest extent permitted by law.
14.4 Entire Agreement. This Agreement (including the Schedules and any addenda
hereto signed by both parties) contains the entire agreement of the parties with
respect to the subject matter of this Agreement and supercedes all previous
communications, representations, understandings and agreements, either oral or
written, between the parties with respect to said subject matter.
14.5 Standard Terms of Licensee. No terms, provisions or conditions of any
purchase order, acknowledgement or other business form that Licensee may use in
connection with the acquisition or licensing of the Portal Software will have
any effect on the rights, duties or obligations of the parties under, or other
otherwise modify, this Agreement. regardless of any failure of Portal to object
to such terms, provisions. or conditions.
14.6 Public Announcements/Publicity. Licensee and Portal agree to cooperate
regarding public relations activities, including public announcements, joint
press releases, and other activities to be mutually agreed. Neither party will
perform such activities without the prior written consent of the other party,
which consent shall not be unreasonably withheld.
14.7 Counterparts. This Agreement may be executed in counterparts, each of which
so executed will be deemed to be an original and such counterparts together will
constitute one arid the same Agreement.
14.8 Applicable Law. This Agreement will be interpreted and construed in
pursuant to the laws of the State of California and the United States without
regard to conflicts of laws provisions thereof and without regard to the United
Nations Convention on the International Sale of Goods. However, any controversy
or claim arising out of or in connection with this agreement that has not been
cured shall be settled by binding arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association and judgement thereon
shall be entered in any court of competent jurisdiction. The sole and exclusive
jurisdiction for all such arbitrations shall be San Jose, California.
Notwithstanding the foregoing or anything else in this agreement, nothing in
this Agreement shall preclude any party from seeking injunctive or other
equitable relief as contemplated by Section 12.2 above. Any waivers or
amendments shall be effective only if made in writing. This Agreement is the
complete and exclusive statement of the mutual understanding of the parties and
supersedes and cancels all previous written and oral agreements and
communications relating to the subject matter of this Agreement. The prevailing
party in any action to enforce this Agreement will be entitled to recover its
reasonable attorney's fees and costs in connection with such action. Licensee
represents that it is not a government agency and it is not acquiring the
license pursuant to a government contract or with government funds.
Page 6
<PAGE>
Portal Proprietary & Confidential
IN WITNESS WHEREOF, the authorized representatives of the parties hereby bind
the parties by signing below:
Pick Communications Corp.
Page 7
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006282
<NAME> PICK COMMUNICATIONS CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,259,095
<SECURITIES> 0
<RECEIVABLES> 810,704
<ALLOWANCES> 228,170
<INVENTORY> 92,235
<CURRENT-ASSETS> 4,743,935
<PP&E> 3,384,773
<DEPRECIATION> 297,468
<TOTAL-ASSETS> 8,137,636
<CURRENT-LIABILITIES> 18,721,702
<BONDS> 0
0
0
<COMMON> 37,945
<OTHER-SE> (11,834,799)
<TOTAL-LIABILITY-AND-EQUITY> 8,137,636
<SALES> 3,962,556
<TOTAL-REVENUES> 3,962,556
<CGS> 5,735,566
<TOTAL-COSTS> 6,864,977
<OTHER-EXPENSES> 1,407,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 981,606
<INCOME-PRETAX> (5,289,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,289,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,289,928)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0
</TABLE>
